NEW YORK (CNNfn) - Republic New York Securities Corp. has suspended its chief executive officer pending the outcome of an investigation by regulators in Japan.
RNYSC, the wholly owned brokerage subsidiary of bank-holding company Republic New York Corp., issued a statement Wednesday saying that it had received a letter from the Financial Supervisory Agency of Japan ("FSA"), that nation's financial regulatory agency, concerning "an inspection that the FSA is conducting of the Tokyo branch of an affiliate of a client of RNYSC's Philadelphia office."
That letter, Republic said, led the company to conduct an internal investigation. Based on the findings of that investigation, Republic replaced the management of the futures division of RNYSC and suspended James E. Sweeney, the chief executive officer of RNYSC.
According to Republic, the investigation focused on the "accuracy of certain net asset valuations and confirmations provided to the client."
Republic (RNB) officials said they could not give further details on the probe because it was ongoing.
Republic also declined to identify the company being inspected by Japanese authorities.
U.S. securities regulators and law-enforcement officials have been notified about the investigation, Republic said.
The scandal comes as Republic is in the midst of a $10.3 billion merger with London-based banking and financial services company HSBC.
HSBC, which made its offer to buy Republic back in May, said in a statement that it intended to continue working toward the purchase "while reserving all its rights under the merger agreement."
Just days ago, HSBC pulled out of a deal to takeover troubled Seoulbank.
Republic's spokeswoman, Melissa Krantz, said Republic also intended to close the merger with HSBC. She said it had not been determined whether the results of the investigation could have an impact on the company significant enough to possibly lead to the termination of the merger agreement.
Krantz said the deal was still set to close in the fourth quarter.
Republic New York Corp., the parent of RNYSC, is a US bank-holding company with assets of $51.2 billion and stockholders' equity of $3.3 billion. RNYSC has assets of $205 million and stockholder's equity of $76 million.
HSBC operates more than 5,000 offices in 79 countries and territories and has assets of $497 billion.
Shares of Republic closed Wednesday at $69.37, off a 52-week high of $71.25 but up from a low of $36.19.
The news of the Japan investigation comes in the wake of another global banking scandal involving Republic. In mid-August, allegations arose that a Russian crime syndicate had laundered some $10 billion through accounts at the Bank of New York and Republic.
In the Russian case, Republic alerted authorities in 1998 about unusually large wire transfers coming through its coffers from Russia. From that point, British and U.S. law enforcement officials monitored the ebb and flow of cash through both banks.
-- from staff and wire reports