Olympus Sues Ex-Execs; Did Yakuza Have a Hand in Billion-Dollar Fraud?

Olympus
Olympus

Olympus Corp., the Japanese optics manufacturer now embroiled in a massive accounting scandal, is suing several executives, seeking millions of dollars in damages.

The targeted officials are current Olympus President Shuichi Takayama and three ex-directors who were identified by investigators as having been involved in a $1.7 billion fraud. Over a period of more than a decade, former Chairman Tsuyoshi Kikukawa, former Executive Vice President Hisashi Mori and former auditor Hideo Yamada were key figures in a scheme to hide securities losses from Olympus investors by overpaying for small, obscure companies, an outside panel recently reported.

The situation for Takayama et al. could have been much worse: A company panel has suggested that Olympus sue the men for 90 billion yen ($1.17 billion) in damages. Instead, having considered its former executives' ability to pay, the firm decided to seek only several billion yen.

Scandal
Scandal

The scandal, which has wiped out almost 60% of Olympus's market value, came to light in October, after newly-appointed CEO Michael Woodford began asking questions about suspicious mergers and acquisitions transactions, as well as payments to entities based in places like the Cayman Islands. Woodford ordered an investigation by PricewaterhouseCoopers, which found grave problems with the company's internal controls. When he presented this report to the board of directors, Woodford was fired. That same evening, he flew to London and requested an investigation by the British Serious Fraud Office.

Woodford, who has said he will sue Olympus for unfair termination, recently gave up on a fruitless three-month campaign to convince shareholders to return him to the top spot at the firm, and to dump its board.

"The board has to go," Woodford told Bloomberg Television in October, "they're all toxic, they are all contaminated." The current directors have said they will resign and hold an extraordinary shareholders meeting to choose their successors in March or April.

No Clear Links Found to Organized Crime ... Yet


The investigation into Olympus is ongoing, and could lead to criminal charges. There have even been rumors, reported in the Japanese press, of a connection to the yakuza, Japan's organized crime syndicates. Brokers who were involved in the fraudulent acquisitions might have had ties to organized crime, meaning that payments from Olympus could have wound up in the pockets of "antisocial forces" (as Japanese media outlets call the yakuza).

According to The Economist, "The Tokyo stock exchange delists a firm if it sees ties to the yakuza," but no evidence of this has yet emerged in the case of Olympus, which is fortunate for investors: As Reuters explains, "Delisting would cut the firm off from equity markets and jeopardize its funding at a time when fresh capital is needed to repair its balance sheet."

The stock exchange is also supposed to delist a company if wrongful financial reporting has a "material impact," which certainly seems to be the case with Olympus' enormous fraud. But, as The Economist notes, "Japanese regulators sometimes interpret such rules in creative ways." Currently, the Nikkei is finalizing plans to keep Olympus listed, although designated as a "security on alert" -- essentially, a form of probation requiring the company to demonstrate improvement in corporate governance. The exchange will also fine Olympus 10 million yen -- about $129,700.


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