Photo/IllutrationSuruga Bank President Akihiro Yoneyama, right, responds to questions at a news conference held in Numazu, Shizuoka Prefecture, on May 15. (Tomoya Fujita)

Suruga Bank Ltd. on May 15 finally admitted to falsifying documents and other improprieties in a “share house” project that has led to a company bankruptcy and threats of legal action from angry investors.

Suruga Bank President Akihiro Yoneyama apologized at a news conference to the many people affected by the problem loans extended by his bank.

The bank, based in Numazu, Shizuoka Prefecture, extended 203.5 billion yen ($1.85 billion) in loans for share house investments by the end of March to 1,258 individuals.

Under the system, the investors became owners of houses that are rented out to multiple tenants, who share common fixtures such as bathrooms and kitchens.

Monthly returns in the form of rent were promised, but many real estate agents that managed the houses were unable to fill all units, and the pool for returns quickly dried up.

A preliminary investigation by Suruga Bank showed that balances in the bank books of potential investors were inflated to make them appear richer, enabling them to more easily clear bank loan standards.

Bank employees also worked closely with real estate agents to compile fake contracts that magnified the value of potential share houses to obtain larger loans.

Bank officials also admitted the loan approval system was lax. Employees handling such inspections were often berated by executives in charge of generating loans who wanted quick approval.

Suruga Bank had been reluctant to provide an explanation after investors complained about the lack of returns.

Although Yoneyama admitted that a large number of bank employees were aware of the improprieties, he did not provide details, such as who gave the orders to falsify the bank statements.

He said a committee consisting of outside lawyers and others would conduct their own investigation.

The Financial Services Agency has already started an inspection, and Suruga Bank could face stiff disciplinary measures.

Lawyers representing a group of individual investors said at a news conference on May 15 that a criminal complaint would be filed against Suruga Bank next week to seek charges of falsifying personal documents and using those documents illegally.

Some of the investors said they were deceived into taking out loans--some up to 100 million yen--that were beyond their means.

“Victims were created as a result of the failure of the bank to say ‘no’ to individuals who were in no position to repay loans,” Hiroyuki Kawai, the lead lawyer for the group, said.

For the fiscal year that ended in March, Suruga Bank reported a net profit of 21 billion yen, down 50.5 percent from the previous fiscal year.

One reason for the decrease was the large increase in reserves set aside for nonperforming loans in the share house projects.

Also on May 15, the Tokyo District Court issued a decision to begin bankruptcy proceedings for Tokyo-based Smart Days Inc., which was involved in sales and management of a large number of share house projects.

Lawyers for investors said they hoped the bankruptcy administrator would uncover what the specific role Suruga Bank played in the loan program.

(This article was compiled from reports by Tomoya Fujita, Aki Fukuyama, Hirotaka Yamaguchi and Takuya Kitazawa.)