Hedge Fund Fraud Case Study — AIJ


In February 2012, Japan’s Financial Service Agency suspended the investment advisor license of AIJ, a little known Japanese hedge fund manager founded in 2000 by a former Nomura salesman. The public later learned that nearly 90% of $2.4 billion managed by AIJ was gone due to trading losses. AIJ’s investors, mostly small and medium corporate pension funds, were blind sighted. How was it possible to hide such massive losses for over 10 years?

Case Profile


Mr. Kazuhiko Asakawa (“Asakawa”), a legendary salesman at Nomura, established AIJ Investment Advisors Co. (“AIJ”) in 2000 and launched the AIM Global Fund (“Global Fund”), a Cayman-based hedge fund, in 2002. However, AIM Asset Management did not have a license to provide discretionary investment advice and Asakawa feared it might be a violation of a securities law to manage the newly launched fund. Asakawa learned that Cigna International Investment Advisors, a discretionary investment adviser and subsidiary of a large US-based insurance company, was considering closing the business in Japan. AIJ negotiated for Cigna to become the investment manager of Global Fund. Cigna agreed with the arrangement and eventually merged with AIJ in July 2004.


AIJ’s investment strategy could have generated the promised returns if Japan’s stock markets had either risen or stayed flat. Unfortunately, Mr. Markets weren’t kind to AIJ: TOPIX fell more than 30% for the first 9 months and over 60% from March 2006 to March 2009. As the strategy kept struggling, Asakawa, who feared massive redemptions, resolved to hide the losses from investors, hoping he can recoup in the future.


Confirm how an investment manager can execute trades without a prime brokerage relationship.

  • The fact that AIJ didn’t have any prime brokerage relationships is a concern. The firm disclosed the total trading volume of $713 billion (Exhibit 5.6). It is nearly impossible to execute this amount of transactions without legitimate and well-known prime brokerage services.
  • This fact by itself is a problem, but investors should also know that there is conflict of interest between the placement agent and the investors.
  • AIA was established in the British Virgin Islands, but it is not recognized by the BVI Financial Services Commission as a “Sub Cat. B — Admin of Investments Mutual Funds”. See online search screen shot below (Exhibit 5.7).



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