Market News
May 24, 2024 TSE Continued Designation as Security on Special Alert: TOKYO KOKI CO.LTD.
The following issue will continue to be designated as Security on Special Alert.
*This decision is based on the results of the examination by Japan Exchange Regulation.
| １．Issue Name | TOKYO KOKI CO.LTD. stock (Code: 7719, Market Segment: Standard Market) |
| ２．Date of Decision | May 24, 2024 (Fri.) |
| Reason (Related Clause) |
Due to falling under cases where the Exchange deems that there is a problem in the internal management system, etc. of the listed company on the basis of the written confirmation of internal management system submitted by such listed company (Rule 503, Paragraph 4, Item 2 of the Securities Listing Regulations before the revisions pursuant to the provisions of the Securities Listing Regulations revised on Jan. 15, 2024*) |
| ３．Details of Reason | On Mar. 3, 2023, TOKYO KOKI CO.LTD. (hereinafter "the Company") disclosed a third-party committee's investigation report concerning the Company's inappropriate accounting processing. The Company then disclosed corrections to its past earnings reports on Mar. 8, 2023. These disclosures revealed that the Company, with the involvement of the former director in charge of the trading business, had been conducting inappropriate accounting processing, such as by including transactions that should have been posted as commission income (calculated by deducting the purchase price from the selling price) in the sales figures at the full selling prices of the traded products. By way of background information, TSE primarily recognized that 1) the Company lacked a knowledge of accounting and an awareness of compliance, as instanced by the fact that the former director in charge of the trading business had been more concerned with the numbers than with the actual transactions, and that the other officers and employees had not raised questions even though they may have been aware of the former director's attitude and the discrepancies between the information that had been recorded in the paperwork and reality, 2) the supervisory function among the directors was not functioning sufficiently, as instanced by the fact that the other directors had not adequately encouraged the former director in charge of the trading business to make improvements based on the findings of the audit firm, 3) the statutory auditors had not taken sufficient measures to correct the situation in response to the findings of the audit firm, 4) the internal audit department had not adequately fulfilled its role, as instanced by the fact that its orders to make improvements were perfunctory when it discovered that action had been taken before obtaining internal approval, and 5) although the Company had submitted an improvement report in Mar. 2018, some of the improvement measures had not been thoroughly implemented. Based on the above, TSE designated the Company's stock as a Security on Alert (currently known as a "Security on Special Alert") effective on Mar. 30, 2023, as it deemed that improvements to the Company's internal management system, etc. were highly necessary. Subsequently, the Company established an investigation committee on Feb. 27, 2024 in response to revelations of new suspicions of exaggerated cost of goods sold at a subsidiary where the Company's former director in charge of the trading business had been involved. The Company disclosed the investigation report on Mar. 29, 2024. The report primarily revealed that 1) the former director in charge of the trading business had been involved in the padding of costs and kickbacks through a subcontractor and 2) there had been deficiencies in the management of subcontractors at said subsidiary. Upon confirming the contents of the written confirmation of internal management system submitted to TSE by the Company after one (1) year had passed since said designation, TSE found that the Company had taken certain measures, such as the establishment of various internal organizations and rules, in relation to the improvement plan disclosed on Aug. 28, 2023. However, TSE has deemed that further measures need to be taken regarding the Company's internal management system in the following situations. As such, TSE concluded that it must continue to check on the Company's measures to make these improvements. - TSE found the application of the internal approval procedure to be inconsistent, as instanced by the fact that there were multiple cases where approvals were made by a person who did not have decision-making authority or by the same person who submitted the request for approval. - TSE found deficiencies in the measures based on the improvement plan, as instanced by the fact that one of the Company's subsidiaries failed to implement credit management based on its credit management rules. - Although the Company had fully revised its internal rules and regulations, it did not ensure a sufficient amount of time to check whether its actual operations were in line with the various revised rules and regulations because of the time it took to make the revisions. - The Company had not yet implemented measures to prevent recurrences (formulated and disclosed on May 2, 2024), including the development of a system to address the newly revealed deficiencies in the management of subcontractors at one of its subsidiaries. Taking into account the above points, TSE has decided to continue the designation of the Company's stock as a Security on Special Alert because TSE still deems that there is a problem with the Company's internal management system, etc. If, on or after Sep. 30, 2024 (which is one (1) year and six (6) months from the designation of the Company's stock as a Security on Special Alert), TSE deems that the Company's internal management system, etc. has not improved upon confirming the contents of the written confirmation of internal management system to be resubmitted by the Company, then its stock shall be delisted. |
* Since the Company's stock was designated as a Security on Alert before the implementation date of "Partial Revisions to the Securities Listing Regulations and Other Rules in Response to Revisions to the Rules for Securities on Alert in Order to Improve the Effectiveness of Listed Companies' Improvements to Their Internal Management Systems" (Jan. 15, 2024), Rule 503, Paragraph 4, Item 2 before the revisions has been applied pursuant to the provision of Paragraph 4 of the Supplementary Provisions of the Securities Listing Regulations revised on Jan. 15, 2024.
Designation History of Designation of Securities on Special Alert
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