Olympus offices, homes raided in accounting probe

2:46 PM accounting, homes, offices, Olympus, probe, raided No Comments

TOKYO — Dozens of black-suited investigators, marching double-file, raided the office building of three small Olympus Corp subsidiaries on Wednesday, one of 20 sites searched in a probe of a $1.7 billion accounting scandal that threatens the once-proud Japanese medical device maker's survival.

Other teams were seen waiting patiently to be buzzed inside a luxury condominium - the home of a former company president - and piling from a van in an underground car park at Olympus' high-rise headquarters.

The raids, telegraphed in advance to the media, are part of a rare joint probe by Tokyo prosecutors, police and financial regulators targeting the 92-year-old company, which has admitted to concealing investment losses via questionable M&A deals and other accounting tricks stretching back over two decades.

Investigators moved into high gear after a panel of experts appointed by Olympus to probe the scandal said early this month that two senior former executives masterminded the scheme with the help of investment bankers.

It also found that three ex-presidents, including Tsuyoshi Kikukawa who resigned in October over the scandal and whose condo home was raided on Wednesday, knew about the cover-up.

Olympus acknowledged the raids in a statement.

"We will continue to cooperate fully with investigative authorities in order to bring the facts to light," it said.

"We would again like to apologise deeply for causing great trouble and worry for our shareholders, investors and those we do business with."

Moving on
Olympus last week filed five years of corrected accounts, plus overdue first-half results, meeting a Tokyo Stock Exchange deadline to avoid a humiliating delisting, but revealing a much-depleted balance sheet as it tries to put the scandal behind it.

The company could still face delisting if the exchange deems that the company's accounting deceit was sufficiently grave.

Ex-CEO Michael Woodford, who blew the whistle on the scandal after being fired in October, is campaigning to get his job back, but faces long odds in his battle with current management, which is expected to get backing from its bankers for a plan to bring in outside investors to bolster the company's finances.

"I'm tremendously sad that it's come to this, especially when it could have been avoided depending on the actions of upper management," Olympus employee Masaharu Hamada said outside the company's headquarters as it was being raided.

Hamada has taken legal action against the company in a case unrelated to the accounting scandal, charging that he was subjected to harassment by management after reporting a compliance breach by his supervisor. A Tokyo court has ruled in his favour and the case is now going to the high court.

Several dozen reporters and TV crews waited near the entrance to Olympus' headquarters after word leaked that raids were likely during the day, although the investigators chose to make their entrance via the underground garage. Local media said prosecutors also visited the homes of other former executives.

Media are often tipped off ahead of prosecutors' raids so that TV cameras can film them.

Future prospects
Olympus' shares closed 1.4 percent lower at 1,050 yen, giving up early gains that extended Tuesday's 16 percent jump.

The shares had been under pressure as expectations of a capital raising by the company to shore up its finances stoked fears that existing shareholdings would be diluted, but the market's attention has shifted to the company's finances and future prospects.

"It's becoming likely that Olympus will stay listed and there's already talk of a capital injection," said Tetsuro Ii, the president of Commons Asset Management, adding he didn't think the prosecutors' raids or any subsequent arrests would have a major impact on the stock.

The market took a favourable view of a media report on Tuesday that Olympus plans to issue about 100 billion yen ($1.3 billion) in new shares.

Olympus has selected SMBC Nikko Securities, Citigroup Global Markets Japan and Mitsubishi UFJ Morgan Stanley Securities as financial advisers in its capital raising plans, sources familiar with the matter said on Wednesday.

Japanese high-tech blue-chips such as Sony and Fujifilm are seen among possible buyers of new Olympus shares, the sources said.

Copyright 2011 Thomson Reuters.

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Probe finds dense cover-up at ‘rotten’ Olympus

2:36 AM coverup, dense, finds, Olympus, probe, rotten No Comments

TOKYO — A panel probing an accounting scandal at Japan's Olympus Corp. said Tuesday an elaborate scheme to cover up $1.5 billion of investment losses was orchestrated by a group of top executives who were "rotten to the core."

The panel also credited the company's ex-CEO, Michael Woodford, for bringing the deception at the camera and medical equipment maker to light. Woodford, a Briton, was fired in October after questioning the dubious transactions that have become one of Japan's biggest corporate fiascos.

Led by former Supreme Court judge Tatsuo Kainaka, the panel found that as of 2003, Olympus had racked up 117.7 billion yen ($1.5 billion) in investment losses dating back to the 1990s.

"The management was rotten to the core and contaminated what was around it, creating in the worst sense a group mentality of the typical salarymen," the report said in a reference to Japan's culture of corporate loyalty.

It said it found no involvement of "anti-social groups," a euphemism for Japanese criminal gangs, as some news reports have speculated. The panel said it traced the money and the various funds used to cover up investment losses, and no underworld groups were involved.

Olympus initially denied any wrongdoing, but later admitted it had used a $687 million fee for financial advice when it bought British medical instruments maker Gyrus Group, as well as overpayments for acquisitions, to hide losses from past investments gone bad.

The panel identified at least six Olympus employees as part of the scheme, including President Tsuyoshi Kikukawa, Executive Vice President Hisashi Mori and auditor Hideo Yamada, all of whom have resigned.

It said other board members were familiar with the cover-up that started from about 2006 and lasted through last year, and recommended they resign too.

It urged Olympus to beef up its corporate governance to prevent future problems, pointing to a small group of people who engineered the deception but were protected from scrutiny so that the dubious accounting could be kept secret for so long.

The panel pointed to one board meeting in which a part of the scheme was approved in just 15 minutes.

Woodford praised the panel for calling for a new board, as he had earlier, and said he wanted to work with shareholders and employees to revitalize Olympus.

"Today's report must be the beginning, and not the end, of our efforts to discover what has happened at Olympus," he said in a statement. "Elucidating the full extent of the wrondgoing cited in the panel's report will require a wide-ranging investigation."

The Tokyo Stock Exchange said it is looking at the panel's report for possible reasons to remove Olympus from the stock market. The company was already at risk of delisting after failing to report its earnings. It was given a new deadline of Dec. 14.

The panel stressed its findings, summarized in a 24-page document released at a press conference at a Tokyo hall Tuesday, were based on voluntary hearings and analysis of company computers, but that it was not authorized to pursue a criminal investigation.

Japanese financial and criminal authorities are investigating the Olympus scandal.

Kainaka, the former judge, said that some Olympus people may face criminal charges, while declining to give names. He said none had pocketed the money for personal gain.

Olympus risks being delisted from the Tokyo Stock Exchange if it doesn't rectify past filings with regulators by reporting revised earnings by Dec. 14.

The company's bookkeeping is now under investigation in Japan, the U.S. and Great Britain. Woodford has met with authorities in all three countries.

The scandal has cast a harsh light on Japanese corporate governance, which has been criticized as lagging global standards.

Last week, Economy Minister Yukio Edano defended Japan, saying its corporate governance standards were on par with the U.S. or even better. He didn't specify any cases, but there have been a string of accounting scandals at major U.S. companies, including Enron and AIG.

Kainaka denied the Olympus scandal exemplified Japan Inc.

"This is not just a Japan problem. It could have happened anywhere in the world," he said.

But others say Japan needs more transparent, accountable and knowledgeable boards at companies.

Nicholas Benes, head of The Board Director Training Institute of Japan, a nonprofit group that specializes in corporate governance training, said the panel was a start but it lacks legal authority under Japanese law.

"I applaud, but obviously its work hasn't been finished," he said.

Tuesday's panel report raps the Olympus board as insular, calling for better outside members.

"Most board members were mere yes-men," it said.

Olympus stock, which at one point lost 80 percent of its value after Woodford's whistleblowing, has recovered over the last three weeks, and surged 9 percent Tuesday amid optimism the company may avoid delisting. The panel released its findings after trading ended in Tokyo.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Olympus used acquisitions, deal fee to hide losses

6:51 PM acquisitions, losses, Olympus No Comments

TOKYO — Japan's Olympus Corp. said Tuesday that top executives used acquisitions to hide massive losses, reversing denials of any wrongdoing as one of the largest accounting frauds in Japanese history tarnishes the nation's corporate image.

Tokyo-based Olympus, which makes cameras and medical equipment, has been battered by a scandal over a $687 million payment for financial advice and expensive acquisitions of companies unrelated to its mainstay businesses.

The company consistently denied any wrongdoing and sacked its chief executive last month after he raised concerns about the acquisitions and the payment to an obscure Wall Street firm.

Olympus did an about-face on Tuesday, issuing a statement saying that an independent panel investigating the allegations had found that the acquisitions were used to cover up losses on investments dating to the 1990s. During that time in Japan known as the "Lost Decade," many Japanese companies took to making speculative investments in securities to offset sluggish sales following the bursting of Japan's economic bubble.

"We have conducted extremely improper accounting," said Shuichi Takayama, who took over as president in late October.

Olympus shares plunged 29 percent in Tokyo and have lost about two thirds of their value since Michael Woodford was sacked as CEO on Oct. 14. Nomura Holdings Inc. slid 14.9 percent amid fears the scandal will engulf securities companies.

Business groups and analysts have said the scandal reflects weaknesses in Japan's corporate governance including too few independent directors on company boards.

Takayama blamed the company's previous leadership for the failure to ever account for the losses. The company is considering legal action against them.

Olympus dismissed Executive Vice President Hisashi Mori, saying he was involved in the cover-up along with Tsuyoshi Kikukawa, who abruptly resigned as chairman last month in an attempt to placate angry shareholders. A company auditor also tendered his resignation, it said.

"We needed a higher level of corporate governance. From now on we'll do our utmost not to make the same mistake again," Takayama said.

He said could not disclose the size of the losses or any other detail because all data had been handed over to the independent panel.

"I have no intention to step down at this moment because my responsibility is to fix this company," Takayama said. He acknowledged a possibility that Olympus may have to face delisting from the Tokyo Stock Exchange over the scandal.

The camera and medical equipment maker had denied wrongdoing over the $687 million payment to the Wall Street financial adviser as part of a $2 billion purchase of U.K.-based Gyrus Group Plc. The payment represented more than a third of the acquisition price. Fees for advisers are normally 1 to 2 percent of the deal value.

The company was to announce its latest earnings report Tuesday but has postponed it until later this month.

Woodford, the former Olympus CEO whose revelations triggered the scandal, has turned over documents to the U.K. Serious Fraud Office. The FBI is also reportedly investigating.

Woodford, a British national, has said he was dismissed because he questioned the $687 million fee as well as the prices Olympus paid for three small money-losing Japanese companies between 2006 and 2008.

Olympus wrote down more than three quarters of their value in fiscal year ended March 2009.

___

Associated Press writer Mari Yamaguchi contributed to this report.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Mystery deepens around huge Olympus payment

1:46 PM around, deepens, Mystery, Olympus, payment No Comments

A pair of shadowy Japanese advisers with ties to notorious junk-bond firm Drexel Burnham Lambert are at the center of a scandal that has rocked Olympus Corp. and slashed its stock price by half since Oct. 14, according to a report in the New York Times Dealbook blog. Investors have been shaken by the cloak-and-dagger narrative and the accusations of ousted CEO Michael Woodford, who claims he was booted from the Japanese company after questioning the payment.

When Olympus bought British firm Gyrus Group in 2008, it paid $687 million — or one-third of the value of the $2.2 billion deal — to a pair of advisers, identified by the Times as Hajime Sagawa and Akio Nakagawa of brokerage Axes America, former colleagues at Drexel Burnham Lambert during the 1980s. Subsequently, Axes closed down and transferred the funds — mostly in Gyrus stock — to a mysterious Cayman Islands operation that has also been dissolved, according to the Times.

Companies normally pay advisers about 1 percent of a deal's value. The enormous payment Axes received included $177 million in preferred Gyrus stock that Olympus bought back for $620 million. For a company to pay advisers in stock rather than cash is highly unusual, a PricewaterhouseCoopers report noted, adding, “[G]iven the sums of money involved and some of the unusual decisions that have been made, [improper conduct] cannot be ruled out at this stage.”

Olympus has defended payment as "appropriate," but the FBI is investigating the deal, according to the Times.

Woodford, the ousted CEO, is lobbying Japanese and British agencies to launch investigations of their own.

"I was drawing my own conclusions that this was inherently wrong," he told The Associated Press. "You can't justify that figure."

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