Japan's Securities and Exchange Surveillance Commission (SESC) believes confidential information on a planned share offering by Tokyo Electric Power Co. in 2010 was leaked to American investors, according to the sources, who asked not to be named because the investigation remains ongoing.

The identity of the U.S. investors was not immediately clear. The move to involve the SEC in the probe marks an escalation of a crackdown on a practice that Japanese securities regulators believe has become widespread in the Tokyo market in recent years.

In the deals under investigation, investors were tipped off about planned share offerings by the brokerages involved, then short-sold the shares. They were then allowed to buy back into the offering to close the position at a profit, people involved in the investigation have said.

Japanese officials who have been investigating the role of Nomura Securities Co. in insider trading cases believe information regarding the Tokyo Electric offer leaked from Nomura to the U.S. investors through a third party, the sources said.

The SESC plans to ask foreign securities regulators to cooperate with the ongoing investigation if there is evidence to suggest investors in other countries profited from the same leak of insider information.

The SESC has declined to comment on the details of its ongoing investigation.

On Friday, Nomura replaced the head of institutional sales at its core securities unit.

A source with knowledge of the matter said Kenichi Ishitomi had been asked to relinquish his post to focus on cooperating with the SESC probe.

SUSPICIONS

The SESC intensified its inquiry into Nomura in late April, sending officials to the bank's offices in Tokyo to investigate regulator's suspicions that it had tipped off clients about a number of deals.

Regulators made the move after failing to obtain information they were seeking in an earlier phase of the investigation, sources have said.

In late May, Nomura was linked to a second insider trading case in two months. In both cases, sources say employees tipped off a fund management client about share offerings it was underwriting before they were made public.

After the second case became public, Nomura said it had appointed a panel of outside lawyers to conduct an investigation of its own.

Nomura said it would use the review to decide how to improve operations, and whether any of its staff would be disciplined. The brokerage also said it was also cooperating with the SESC.

The SESC has sought a fine against the fund management arm of Sumitomo Mitsui Trust Holdings and Tokyo-based asset manager Asuka Asset Management for suspicion of insider trading.

(Writing by Kaori Kaneko; Editing by Kevin Krolicki and Daniel Magnowski)

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