Chopped

By Benjamin Fulford | 2004/08/16 | 594 words, 0 images

A Morgan Stanley partner in Japan was worth $30 million. Why are he and his wife living on $4,000 a month?

It is just another case, like thousands of others arising out of Japan's bubble era, where individuals claim to have been defrauded by Japanese banks as the authorities turned a blind eye. What makes this one unusual is that the man whose $30 million in assets allegedly disappeared was a Morgan Stanley partner.

David S. Phillips, who was adopted by Americans, founded Morgan Stanley's office in Japan in 1970, building it over the next 17 years into a 600-person outfit. He was later made a full partner and earned a multimillion-dollar windfall when Morgan Stanley went public in 1986.

But a year later, in March 1987, he suffered a stroke that left him in close to a vegetative state. "He was unable to speak coherently, he could not recognize things on his left side, he had trouble recognizing me, his own wife, and he was constantly crying and drooling," says Aki Sugiyama, his wife. Phillips, now 71, remains homebound.

That condition didn't stop Sanwa Bank, now a part of UFJ Bank, from milking her incapacitated husband out of much of his fortune, Sugiyama has charged in a lawsuit filed in Japan. The complex scheme, she alleges, started while Phillips was hospitalized. Sanwa officials managed to get his official chop, or seal, an archaic substitute for signatures that is still used in Japan. With seal in hand, the suit charges, the bank initiated a series of unauthorized mortgages and loans to Phillips over a period of seven years.

At one point the bank created an official seal in the name of "Akiko" Sugiyama that was used to cosign the mortgages, the suit says. But Sugiyama says she did not authorize the seal and indeed had no knowledge of it. The seal didn't even get her first name right.

By 1995, when Aki Sugiyama became aware of the transactions in her husband's name, Sanwa had lent him $24 million and was trying to evict her and her husband from their house. Sanwa repaid itself the loans by withdrawing money from Phillips' account, the suit contends. The suit goes on to complain that untold millions vanished from their accounts.

Japanese courts have sided with the bank. A judge dismissed the case in December, saying he believed testimony from a doctor who never saw Phillips but said he found him mentally sound based on Sanwa's description. Four other doctors who did treat Phillips testified he was incapacitated then. One former Sanwa employee said that while he didn't initiate the transactions, "There was a lot of pressure in the bank in those days to lend money, even if it meant doing unethical things."

An appeals judge declined to review the case, but it remains on appeal. Sanwa's court defense was that Phillips okayed the transactions a month before his stroke. UFJ Bank wouldn't comment. Morgan Stanley had no detailed comment.

"This kind of poor court case shows the very low level of the Japanese government and legal systems," says Tetsundo Iwakuni, a Japanese Diet member who once worked for Morgan Stanley and Merrill Lynch in New York.

UFJ Bank is now in merger talks with Mitsubishi Tokyo Financial Group, which would create the world's largest bank in assets, at $1.7 trillion. This would mean little to Phillips and Sugiyama, who are now living on $4,000 a month from pensions.

Copyright © 2004 Forbes.com