What happened?
In 2018, it emerged that TATERU had submitted inflated customer deposit balances for loan screening. The Special Investigation Committee focused mainly on the period from the December 2015 listing, while also tracing what had happened before it.
12 passages that stood out
They cut and pasted deposit-balance numbers using standard image-editing software on company PCs
Most of the misconduct identified by the committee involved altering evidence of customers’ deposit balances before submitting it to financial institutions.
Employees imported passbook pages, balance certificates and similar material into company-issued computers and converted the files to JPEG or TIFF.
They then used image-editing software that came standard on the computers to cut and paste digits and rewrite the deposit balances.
The altered JPEG or TIFF files were either printed and mailed to financial institutions or converted back to PDF and emailed. In principle, customers were not told that the material had been altered.
The committee identified 31 employees and falsification in 350 of 2,269 completed deals
The committee combined information from financial institutions and customers with digital-forensics work and interviews of sales employees when determining whether falsification had occurred.
It identified 31 employees, mainly sales department managers and deputy managers, as having carried out deposit-balance falsification, and found falsification in 350 of the 2,269 completed deals during the main investigation period.
The same money was moved between accounts, and both the pre-transfer and post-transfer balances were submitted
The report describes another method, called transfers between accounts.
For a customer with accounts at multiple banks, employees first had evidence made of the balance in one account. The customer was then asked to transfer that money to another account and create evidence showing the balance after the transfer.
The pre-transfer balance in one account and the post-transfer balance in the other were both submitted to the lender as evidence of the customer’s own funds.
Because the customer had to participate in moving the money, employees saw a risk that the customer might refuse or complain. The report says the method was therefore used only in limited cases.
A copy of someone else's bank passbook could be reused as if it belonged to the customer
The report records another technique in which a passbook copy did not belong to the customer at all.
A sales employee could reuse a copy of a balance page from someone else’s passbook as the customer’s evidence, making it appear that the customer held funds they did not have.
Because there was a limit to how often identical balance evidence could be reused, the committee says this substitution method appeared only in a limited number of cases.
Sales targets kept rising on the back of results that themselves included misconduct
Management did not regard the sales targets as unattainable quotas. Sales employees, especially department managers, saw them very differently: as mandatory targets that were extremely difficult to reach through ordinary sales activity.
That gap in perception was never corrected while the targets kept increasing.
The committee concluded that management raised sales targets year after year using results that included deals obtained through falsification and other misconduct, while sales employees felt unable to stop the misconduct because they still had to meet those targets.
The committee treated this mismatch over what the targets meant and how difficult they were to achieve as a major cause of the misconduct.
Before the listing, one management-division employee and subordinates handled falsification in a concentrated way for a period
The exact start date and origins of the deposit-balance falsification were unclear, but the report says it had been carried out at multiple offices from around 2010.
For one period before the stock-market listing, sales employees sent alteration requests to a particular employee in the management division.
That management-division employee and subordinates carried out the falsification in a concentrated way for a period.
The report also says some sales employees used coded language for the alteration of customer evidence.
A bank found that the submitted passbook did not match the real one and stopped doing business with TATERU. The company treated it as one employee's misconduct
Several years before the listing, a financial institution discovered that passbook evidence submitted for a customer differed from the customer’s genuine passbook.
The incident led the financial institution to stop doing business with TATERU, but the company recognized and handled it as misconduct by a single employee.
According to the report, the response went no further than instructing employees not to engage in such misconduct.
Managers were told repeatedly that misconduct had to stop for the company to list, but no necessary fact-finding investigation followed
By around 2014 at the latest, sales headquarters managers repeatedly told sales department managers in department meetings and elsewhere to stop altering customer evidence and to stop using double contracts.
One reason recorded in the report was that misconduct had to stop if the company was going to list its shares.
But the company issued the instructions without conducting the necessary investigation into the actual extent of the misconduct at the time.
Some sales managers took the anti-misconduct instruction as “merely formal, merely for appearances”
After the instruction, double contracts disappeared at least after the listing, helped by system controls that limited which contracts could be used. Deposit-balance falsification did not disappear.
Some sales department managers understood the instruction against falsification as different from the ban on double contracts — something “merely formal, merely for appearances.”
Others understood that although they could no longer ask the particular management-division employee to alter evidence, individual sales departments could still take the risk and do it themselves. Some continued the falsification secretly to meet sales targets.
Some managers stopped falsifying evidence, then restarted before the listing when targets became difficult to meet
Some sales department managers did stop altering deposit-balance evidence after the instruction.
But when meeting sales targets later became difficult, some of those managers had already restarted the falsification before the stock-market listing.
After the listing, the report says some people continued, resumed or newly began falsification to avoid reprimands or demotion, or to improve their own treatment by raising sales performance.
A customer letter alleging falsification reached the representative director, but the company did not investigate whether the same thing was happening elsewhere
In February 2018, a customer who had entered into a land-sale and apartment-construction contract with TATERU before the listing sent the company a letter alleging that a sales employee had falsified deposit-balance evidence during the loan application.
The representative director and responsible sales executives were informed, but the matter was handled as an individual instance of improper conduct and no investigation was made into whether similar misconduct had occurred elsewhere.
Later that June, another customer reported that the deposit balance submitted to a financial institution had been inflated. TATERU investigated that complaint and confirmed it was true.
A customer letter alleging falsification was not taken to the compliance committee or management meeting
The February 2018 customer letter meant that some executives became aware of past deposit-balance falsification.
Yet the matter was not brought by the representative director or responsible executives to the compliance committee or management meeting, and as a result it was not reported to the Audit and Supervisory Committee either.
The committee attributed this mainly to the lack of sufficiently clear rules on what had to be reported to those bodies. The responsible executive treated the complaint as misconduct by a single sales employee, considered it resolved, and did not view it as an issue that needed to be handled as a company-wide compliance problem.
What the report says about the background
The committee pointed to a large gap between management and sales staff over the meaning and attainability of sales targets, a culture in which sales targets were treated as mandatory, a strict hierarchy and power harassment, commission-based pay, and the concentration of the receipt and submission of loan-application documents in the hands of sales employees.
The report does not conclude that sales headquarters managers continued to know about the falsification after the listing. Some interviewees said they must have known, but the managers denied it and the committee found insufficient evidence to establish that awareness. It likewise found insufficient evidence that the representative director or other directors knew of the misconduct itself.
Source: the Japanese summary report published on December 27, 2018. This is From Reports’ translation and summary, not an official English version. Printed page numbers are two pages behind the physical pages of the JPX PDF.