Ex-Olympus executives arrested in $1.7B scandal

February 16th, 2012

CNN
By Kevin Voigt
Feb. 16, 2012

Japanese prosecutors arrested seven men, including former Olympus Corp. Chairman Tsuyoshi Kikukawa, for their alleged involvement in a massive $1.7 billion accounting fraud at the Japanese camera and medical equipment maker.

Other former executives arrested Thursday include ex-Executive Vice President Hisashi Mori and former Auditor Hideo Yamada, according to the Tokyo District Public Prosecutors Office. Four others arrested were financial advisers who allegedly assisted Olympus executives in the coverup.

“We are deeply concerned about the seriousness of this situation,” the Olympus Corp said in a statement. “In order to find the full facts, we will continue to fully cooperate with law enforcement authorities in the investigation.”

Allegations at Olympus came to light after the October dismissal of former President Michael Woodford who was fired when he questioned Kikukawa, Mori and Yamada about dubious transactions at the center of the case.

A special audit of Olympus in December, led by a former Japanese Supreme Court judge, detailed $1.7 billion of hidden losses from failed investments in the 1990s by the company. The report blasted the culture of the company that allowed the losses to be disguised in dubious fees and overvalued payments for companies, as well as the tight control of Kikukawa. “The management was rotten to the core, and infected those around it,” the panel’s report said.

The scandal has been an embarrassment to Japan Inc. and came at the end of a difficult year punctuated by a strong yen, which has eroded profits of Japanese multinational companies, and the March 11 earthquake, tsunami and nuclear disaster.

“I actually see this as a turning point for corporate Japan. Up until now, this would have been glossed over or swept under the rug. People would have ignored this,” said William Saito, a member of the Japan Prime Minister’s special commission on National Strategy and Policy.

“That this is such a commotion now, I think a lot of businesses understand that in order to get global respect, one needs to address this issue,” Saito said. “They’re on notice and will have to change because of that.”

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