Bloomberg
Trader Trapped as WallStreetBets Phenomenon Finds Echo in Japan
(Bloomberg) – A retail investor buys shares in a small company, touts his position on social media and inspires a horde of followers to do the same. The stock price goes to the moon – before it falls back to earth. It’s a very familiar story for anyone watching the market in 2021, but it wasn’t GameStop Corp. Not even in America. And that happened in 2018. It was in the Japanese city of Osaka, where a day trader who goes by the nickname Tonpin was betting on a small manufacturer of dies and precision molds called Nichidai Corp. more than 55,000 followers. The stock rose more than six times in the first three months of 2018, before losing most of the gains. The person behind the nickname was Toru Yamada, a former money manager, and he and another man have just been arrested for market manipulation, according to Japanese media reports. He was not arrested for publicizing the shares on Twitter, but on suspicion of trying to keep the stock price low – albeit so that the margin trading restrictions would be removed, which, when it happened, caused the shares to skyrocket to new highs. The incident shows how regulators analyze unusual trade patterns and come to conclusions often years later. This could pique the interest of protagonists and observers of the recent rise in the stock of memes in the United States, as users of the Reddit WallStreetBets forum.Yamada has not yet been accused, and it is unclear whether it will be. And while no one is suggesting that American traders employed tactics similar to those he allegedly used, the case illustrates the risks that can be associated with becoming a high profile investor on social media. As long as you are in the public spotlight, you can also be in the sights of regulators. “Everyone is going to be in uncertainty,” said Taketsugu Agari, the investor known as Takezo on Twitter, where he has almost 100,000 followers. “People don’t know what is right and wrong,” he said. “People don’t know the rules.” Calls and direct messages from Twitter to Yamada were not answered. The Osaka District Prosecutor’s Office declined to comment. The Securities and Exchange Surveillance Commission, the regulator for the Japanese market, was not immediately available for comment. Prosecutors made it unclear whether the men admitted or denied the charges, according to local media reports. A regulatory process shows that Yamada’s first publicly announced purchase of Nichidai shares was on December 8, 2017, and it gradually increased its stake. When he first tweeted about it, on February 1 of the following year, the shares almost tripled. That March, Yamada and another man placed a large number of sales orders below the market price just before closing, according to media reports. Their intention was to keep the stock price below a certain level to ensure that restrictions on new margin trading on the shares were lifted, the reports said. The stock was released from the measures and rose up to 18% on March 12, when it was traded next time. In a tweet on March 10, Yamada appeared to discuss this process, showing screenshots of Nichidai’s negotiations just before the closing, although it is unclear if it was his business. Separated from his prison, Yamada has had many clashes on Twitter over the years about his discussions about his investments. “The authorities need to put some regulations in place,” Soichiro Iwamoto, a longtime trader whose company advises new investors, said in an interview, talking about the practice of talking about stocks on social media. “Investors here don’t have enough financial education.” Others wondered what exactly Yamada had done wrong. “It is incredible that selling to release margin restrictions is treated as market manipulation,” Akira Katayama, a day trader known as Gogatsu, wrote after his arrest. Japanese retail investors have been defending the country’s thousands of low-traded stocks online for more than a decade, starting on popular notice boards in the mid-2000s before moving on to Twitter, the dominant platform in recent years. be known as “locusts” for attracting a swarm of day traders. Yamada became the last of the lords to be quiet in June, when he said he was taking a break from Twitter after his account was briefly blocked. Okansanman, an anonymous account with over 175,000 followers, famous for its fast information delivery Mysterious Twitter User Drawing a Swarm of Japan TradersYamada worked on two funds related to the Chinese government before becoming a day trader in Japan in 2013, said him to Bloomberg News last year. He shared opinions on Twitter even before his arrest, with dedicated followers who imitated his business and others who accused him of being a manipulator, using his influence to increase actions before dismissing them. “When a lot of Japanese people lose, they want to blame it on someone else,” he said last year, ignoring his criticism. Followers may have to wait to find out about Yamada’s fate. Under Japanese law, he can be detained for up to 23 days before charges are pressed. Meanwhile, many of his colleagues in the country who like to discuss actions are moving from Twitter to other locations, including encrypted messaging apps like Line and newer platforms like Clubhouse, according to investor Agari. This makes it more difficult for regulators to monitor, he said. Read more: The GameStop frenzy is lost in translation for Japan’s day traders. No one knows about the consequences of the GameStop saga. If the Japanese experience serves as a reference, any regulatory action can take a long time, if at all. “This has been going on for over a decade, ever since people used to use bulletin boards,” said Agari, referring to retail investors talking about online stocks. “America is starting to look like Japan.” (Updates to include more details) For more articles like this, visit us at bloomberg.comSubscribe now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP