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Jun. 19, 2025 TSE Grace Period pertaining to Reexamination due to Violation against a Written Oath, and Imposition of Listing Agreement Violation Penalty: DAIWA TSUSHIN Co.,Ltd
As set out below, a listed company’s shares will enter into a grace period pertaining to reexamination due to violation against a written oath, and TSE has imposed a listing agreement violation penalty.
*This decision is based on the results of the examination by Japan Exchange Regulation.
1.Issue Name | DAIWA TSUSHIN Co.,Ltd stock (Code: 7116, Market Segment: Standard Market) |
2.Grace Period Pertaining to Reexamination |
Jun. 19, 2025 (Thu.) to Jun. 19, 2026 (Fri.) |
Reason (Related Clause) |
Due to falling under a case where TSE deems a company has violated the matters under the written oath for application for initial listing, and had not met the initial listing criteria (Securities Listing Regulations, Rule 601, Paragraph 1, Item (10), b.) |
3.Listing Agreement Violation Penalty Total |
JPY 14.4 million |
Reason (Related Clause) |
Due to falling under a case where TSE deems that the listed company has violated the matters in the written oath pertaining to an initial listing application and has undermined the confidence of shareholders and investors in the TSE market (Securities Listing Regulations, Rule 509, Paragraph 1, Item (3)) |
4.Details of Reason | DAIWA TSUSHIN Co.,Ltd (hereinafter "the Company") disclosed on Apr. 21, 2025 an investigation report prepared by a third-party committee regarding inappropriate accounting practices at its consolidated subsidiary responsible for the Company's security business (hereinafter referred to as "the Subsidiary"). These disclosures revealed that, under pressure from the Company's management to meet budget targets, the Subsidiary's directors led the Subsidiary's sales department to engage in premature and inflated recording of revenue that did not meet the criteria for recognition (hereinafter referred to as "the Misconduct"). It also became clear that the Company's managing director (also the representative director of the Subsidiary) and the director and administrative department manager of the Company were aware of the ongoing Misconduct since before the Company went public but failed to take sufficient corrective measures to resolve the issue. In addition, it was found that the Company's administrative staff and internal auditors were aware of the Misconduct but failed to exercise their oversight functions over the Subsidiary's sales department. They were also involved in actions to evade detection by the auditing firm, such as moving inventory to other warehouses during end-of-period physical inventory checks. Additionally, inquiries from Japan Exchange Regulation (JPX-R) uncovered that, at the time when the Company listed on the Tokyo Stock Exchange (TSE) Standard Market in Dec. 2022, despite having submitted written oaths stating that all documents submitted to TSE were true, some members of the management were already aware of the Misconduct but failed to report any legal violations or other issues at the time of the listing examination, consequently obtaining listing approval. Furthermore, it was found that the Company would not have satisfied certain examination criteria for listing on the TSE Standard Market (namely, the “effectiveness of corporate governance and internal management system” item) unless adequate corrective actions had been taken to address the Misconduct. For the most part, the following points were identified as the context for these events. - In connection with the Company's initial listing application, there was heightened pressure throughout the organization to achieve budget targets for the security business, which was considered a growth area. Furthermore, a widespread lack of ethical awareness within the Company contributed to the Misconduct by the Subsidiary's sales department. - The Subsidiary's directors failed to effectively exercise mutual oversight and checks. This was because there were only two directors, one of whom was the Company's managing director who also served as the representative director of the Subsidiary. Their superior-subordinate relationship in executing the Subsidiary's operations hindered effective mutual oversight and checks. The Company's directors also failed to effectively exercise mutual oversight and checks due to insufficient discussion and examination of significant risk indicators inherent in budget figures and other data during the Company's board meetings. - The Company's administrative department failed to exercise oversight functions over the Subsidiary's sales department. Despite being aware of the ongoing Misconduct, the director and manager of the administrative department did not implement sufficient corrective measures to resolve the issue. Additionally, after recognizing the Misconduct, the Company's administrative staff were involved in actions to evade detection by the auditing firm. - The Company's internal audit function was not operating properly. The auditors deliberately chose not to report the Misconduct to the Company’s representative director and president even after their becoming aware of it. Furthermore, they were also involved in actions to evade detection by the auditing firm. The Company will be subject to an examination to determine whether it meets the criteria equivalent to the initial listing criteria of the Standard Market, and its shares will enter a grace period for the reexamination. This is because, as already described above, TSE deems that the Company violated matters under the written oath for the initial listing application and did not meet the initial listing criteria, and also because some members of the management were already aware of the Misconduct but continued with the listing examination under the above circumstances, which led to the violation of the written oath. Moreover, since TSE considers that this case has undermined the confidence of the Company’s shareholders and investors in its markets, it will impose a listing agreement violation penalty on the Company. This is because the Company obtained listing approval despite breaching the written oath at the time of the initial listing application. |
- Note 1: If the Company applies for an examination to determine whether it meets the criteria equivalent to the initial listing criteria for the Standard Market within the grace period, its shares will continue to be listed if it meets the criteria. If it does not meet the criteria, its shares will be delisted.
- Note 2: Notwithstanding the description in Note 1 above, if the Company applies for a segment transfer to the Prime Market or Growth Market during the grace period and receives approval for the segment transfer, the listing of the Company's shares will continue in the new market segment (in which case, it will not be necessary to carry out the examination in Note 1).
Designation History - Grace Periods pertaining to Delisting based on Re-examination due to Violation of the Written Oath
Listing Agreement Violation Penalty
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