Olympus Former Chairman and Six Others Arrested Over Fraud

February 21st, 2012

Bloomberg Business Week
By Mariko Yasu
Feb. 21, 2012

Feb. 16 (Bloomberg) — Three former executives at Olympus Corp., including ex-chairman Tsuyoshi Kikukawa, and four others were arrested for suspected violation of Japan’s Financial Instruments and Exchange Act.

The camera maker is facing shareholder lawsuits and may be subject to further criminal investigation after admitting to a 13-year cover-up. The company restated past securities reports and took a $1.3 billion reduction in net assets in December.

Olympus’s Tokyo headquarters and its affiliated offices were raided in December by prosecutors after the company said Kikukawa and two others colluded to hide investment losses from the 1990s. The stock has plunged 49 percent since the Oct. 14 dismissal of its first non-Japanese president, Michael Woodford, who later publicly questioned inflated takeover costs.

Kikukawa, 70, who headed Olympus for 10 years until last year, Hideo Yamada, 67, who led the investment unit since the 1980s and later became an auditing officer, and former Executive Vice President Hisashi Mori concealed losses, booked overstated goodwill and falsified financial statements, the prosecutors said in a statement.

The prosecutors also arrested Akio Nakagawa, cited in a December panel report as having aided Olympus in structuring its loss-hiding schemes. Nobumasa Yokoo, who was also named in the report, Taku Hada and Hiroshi Ono, were arrested by the Tokyo Metropolitan Police, according to the statement.

“We take the situation seriously,” Yoshiaki Yamada, a spokesman for Olympus, said by phone today. “We will cooperate fully with investigators.”

Investment Losses

“It may take time for Olympus to regain its reputation,” said Yoshihiro Ito, chief strategist at Okasan Online Securities Co. in Tokyo. “The company is trying to show it’s making an effort to rebuild its management and balance sheet.”

Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and a predecessor to the modern-day endoscope in 1950, according to its website. Olympus now controls 75 percent of the global market for endoscopes, instruments doctors use to look inside the body cavity to help detect disease.

In 1987, President Toshiro Shimoyama announced a strategy to strengthen the company’s investments after operating profit fell by half due to the yen’s gain, according to a panel report disclosed in December. Investment losses began to swell after the Japanese stock market crashed in 1989 and reached about 100 billion yen ($1.3 billion) in 1998, when Yamada and Mori resorted to financial trickery to hide them, the report said.

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