• X
  • facebook
  • youtube

Market News

Jan. 29, 2025 TSE Designation of Security on Special Alert and Imposition of Listing Agreement Violation Penalty: Aqualine Ltd.

 

TSE has designated a stock as a Security on Special Alert and imposed a listing agreement violation penalty as follows.

*This decision is based on the results of the examination by Japan Exchange Regulation.

1.Issue Name Aqualine Ltd. stock
(Code: 6173, Market Segment: Growth Market)
2.Date of Designation of Security
  on Special Alert
Jan. 29, 2025 (Wed.)
  Reason
  (Related Clause)
Due to falling under a case where TSE deems that the listed company has violated the provisions of timely disclosure and that the improvement of the internal management system of such listed company is highly necessary
(Securities Listing Regulations, Rule 503, Paragraph 1, Item (3))
3.Listing Agreement Violation
  Penalty Total
JPY 9.6 million
  Reason
  (Related Clause)
Due to falling under a case where TSE deems that the listed company has violated the provisions of timely disclosure and has undermined the confidence of shareholders and investors in the TSE market
(Securities Listing Regulations, Rule 509, Paragraph 1, Item (1))
4.Details of Reason Aqualine Ltd. (hereinafter "the Company") disclosed on Sep. 18, 2024 that it had received an investigation report of the special investigation committee concerning inappropriate accounting processing at the Company. It subsequently disclosed corrections to its financial results for past fiscal years on Jan. 10, 2025.
These disclosures revealed that, under the initiative of the Company's representative director and president (hereinafter referred to as "the President"), the Company (i) disclosed false financial results such as the false recording of (a) fund transfers through the bank accounts of specific franchisees in the Company’s plumbing service support business and (b) sales to the specific franchisees and allowances for their doubtful accounts, (ii) did not disclose its borrowings from the President in a timely manner, (iii) did not properly record the extraordinary losses (such as failing to record sufficient valuation losses and failing to record allowances that should have been recognized) related to the investment securities (bonds convertible to crypto assets) and crypto assets held by the Company.
As a result, the Company was found to have made disclosures that were deemed false and in violation of the listing rules in its earnings reports from the second quarter of the fiscal year ended Feb. 2022 to the first quarter of the fiscal year ending Feb. 2025. Subsequent corrections to the Company’s financial results revealed, for example, that the Company's net loss attributable to owners of parent company for the fiscal year ended Feb. 2023 had increased by at least 80% and that the Company had liabilities in excess of assets in the fiscal year ended Feb. 2023.

TSE primarily recognized the following points as providing the context to these disclosures:
- There was a severe lack of compliance awareness among the Company’s management and some of its executives and employees. For instance, under the direction of the President, the director and managers responsible for the Company’s administration department engaged in such misconduct as (i) faking debt collection through fund transfers that were disguised as transactions with franchisees, (ii) concealing and avoiding the disclosure of the borrowings from the President, which constituted transactions that were in conflict of interest and with a related party, and (iii) forging material documents.
- With regard to the transactions with franchisees and the acquisition of crypto assets and bonds convertible to crypto assets (hereinafter referred to collectively as "the Crypto Assets") that were carried out under the direction of the President, the board of directors and the board of company auditors had not been provided with the relevant information and were boards in name only, and the Company's internal control system had been rendered ineffective by the Company’s management.
- The Company did not establish a retention/management system for transaction-related information. For example, it did not retain written records of agreements regarding the transactions with franchisees and agreements regarding the acquisition of the Crypto Assets. The Company also did not have a system in place for providing the relevant information to the accounting and compliance/legal departments.
- The Company received an administrative disposition including an order to suspend its main business activities from the Consumer Affairs Agency on Aug. 30, 2021. On Dec. 15 of the same year, it formulated measures to prevent such a recurrence, decided to strengthen its administration department and establish a company-wide compliance system, and disclosed the implementation status of these systems. However, the Company did not resolve the failure of the monitoring and checking functions that should have been performed by each director and company auditor. For instance, the board of directors and the board of company auditors did not sufficiently confirm/verify the status of the strengthening efforts, resulting in an extension of the situation where the Company’s administration department and compliance system were not sufficiently strengthened, which included a staff shortage in the internal audit and compliance/legal departments.

As shown above, this is a case where the Company’s executives and employees demonstrated a severe lack of compliance awareness and committed multiple improprieties under the direction of the President and where the supervisory function of the board of directors, the auditing function of the board of company auditors, and the checking/monitoring functions among the directors did not function sufficiently. As a result, the Company made disclosures that were deemed false and had a significant impact on investment decisions. Although the Company disclosed the measures to prevent such a recurrence on Oct. 10, 2024, TSE has deemed that improvements to the Company's internal management system and other improvements are highly necessary. Therefore, TSE has decided to designate the Company’s stock as a Security on Special Alert.
Moreover, since this case involved the Company’s continued publication of incorrect financial information over such a long period, and this information was highly important for investment decisions, TSE has deemed that the Company has undermined the confidence of shareholders and investors in TSE’s markets. Therefore, it shall impose a listing agreement violation penalty on the Company.

DISCLAIMER: This translation may be used for reference purposes only. This English version is not an official translation of the original Japanese document. In cases where any differences occur between the English version and the original Japanese version, the Japanese version shall prevail. This translation is subject to change without notice. Tokyo Stock Exchange, Inc. and/or Japan Exchange Regulation shall individually or jointly accept no responsibility or liability for damage or loss caused by any error, inaccuracy, misunderstanding, or changes with regard to this translation.

Enquiry

Tokyo Stock Exchange, Inc. Listing Department, Corporate Disclosure Office, Planning & Coordination, Listed Company Services
TEL:+81-3-3666-0141(Switchboard)


S