… The Japanese authorities arrested seven central figures in the huge accounting scandal at Olympus — including the camera maker’s former chairman and executive vice president — on Thursday as part of investigations into a decade-long cover-up that has prompted concern over what critics say is lax corporate governance at Japanese companies.
Tsuyoshi Kikukawa, a former chairman and president of Olympus, was arrested in Tokyo along with two other former executives on suspicion of having falsified financial statements, Tokyo prosecutors said. Two former investment bankers suspected of helping to set up the cover-up, and two of their associates, were also arrested.
Olympus said that it was aware of the gravity of the situation and was cooperating fully with the authorities.
A panel of experts hired by Olympus to investigate the cover-up has accused the former executives of masking investment losses racked up in Japan’s bubble economy over a period of at least 13 years. Those losses were eventually accounted for in transactions disguised as merger fees paid to overseas investment funds.
The irregular accounting came to light in October when Olympus fired Michael C. Woodford, who was its president and chief executive. At the time, Mr. Kikukawa attributed the dismissal to Mr. Woodford’s aggressive Western management style. But Mr. Woodford, a Briton, said he had been fired for questioning a series of payouts made by the company between 2006 and 2008, and he provided what he said was evidence to the news media. Mr. Kikukawa subsequently resigned from the company.
Mr. Woodford then began a bid to return to Olympus, whose share price has collapsed since the scandal broke, to lead a turnaround. But he abandoned that bid in December after the company’s biggest domestic shareholders sided against him in a move that some foreign investors have said confirms their worst fears of corporate Japan’s resistance to outsiders and to change.
Mr. Woodford said Thursday in an e-mail that he felt vindicated. “After going to hell and back, this is a day to remember,” he said.
Arrested Thursday on suspicion of violating Japanese securities laws were Mr. Kikukawa; Hisashi Mori, the former executive vice president; and Hideo Yamada, a former auditor, according to a statement issued by the Tokyo prosecutor’s office.
The Japanese authorities also arrested two former Nomura bankers, Akio Nakagawa and Nobumasa Yokoo, along with two of their associates, the statement said. Olympus is also being investigated in the United States and Britain.
Investors are now focusing on how Olympus will shore up its finances, as well as who will lead the company as it battles to regain credibility. In December, it restated five years’ worth of earnings, exposing a $1.1 billion hole in its balance sheet, leading to speculation that it would need to merge with or sell itself to a competitor to stay afloat.
On Monday, Olympus forecast a $410 million loss for its financial year, which ends in March. Still, the current president, Shuichi Takayama, said the company’s mainstay medical equipment business remained robust and that the company might not need to raise outside capital.
Also clouding Olympus’s outlook is the possibility of a delisting from the Tokyo Stock Exchange, which could devastate its share price. The exchange decided last month to keep Olympus listed for the time being, saying a cover-up orchestrated by a few executives did not merit a delisting. But the exchange indicated Thursday that it could revisit that decision based on fresh evidence.
Mr. Takayama has indicated that he will step down at a shareholders’ meeting scheduled for April. He has been sued by Olympus over the scandal, along with 18 other former and current executives, though he is slated to stay on as president until the April handover.
The payouts first questioned by Mr. Woodford involved $687 million in fees Olympus paid to an obscure financial adviser over Olympus’s acquisition of Gyrus, a British medical equipment maker, in 2008. That fee amounted to roughly a third of the $2 billion acquisition price, a fee amount more than 30 times the norm.
He also questioned why Olympus acquired three small companies in Japan for a total of $773 million, only to write down most of their value within the same fiscal year. Those companies — Altis, a medical waste recycling company; Humalabo, a facial cream maker; and News Chef, which makes plastic containers — were unprofitable and had little in common with Olympus’s main lines of business.
The investigative panel hired by Olympus has said these payments in fact masked transactions used by the company to account for the losses it had transferred from its books. (…read more: http://nyti.ms/wEHDM3)
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