Huffpost Business

Olympus To Take Legal Action Against Fraudster Executives

Posted: Updated:
OLYMPUS FRAUD
AP

(Reiji Murai) - Japan's disgraced Olympus Corp is preparing to take legal action, including possible criminal complaints, against any executives found responsible for the accounting scandal engulfing the firm, according to an internal staff email.

The memo, obtained by Reuters on Wednesday, was sent to Olympus employees the previous day by the firm's new president, Shuichi Takayama, who also vowed to restore public trust in the once-proud maker of cameras and endoscopes.

At a meeting with more than three dozen creditors on Wednesday, Olympus apologized and outlined its financial position, adding it aimed to keep its stock market listing and meet a December 14 deadline to announce its earnings.

Its two biggest lenders expressed their readiness at that meeting to support the firm, sources with knowledge of the matter said.

Japan's securities watchdog, police and prosecutors are probing the 92-year-old company, which admitted last week it hid investment losses for decades using funds from M&A deals.

The U.S. Federal Bureau of Investigation is also looking into the case, while Britain's Serious Fraud Office has launched a formal probe, said a source, who declined to be named as he was not authorized to discuss the matter publicly. A third-party panel appointed by Olympus to investigate the scandal is expected to report its findings early next month.

"We will wait for the third-party panel to report, and we are preparing to take firm legal action, including criminal complaints, against any manager it finds responsible," Takayama wrote in the November 15 email. The email did not name specific executives.

Investors are speculating that several Olympus officials will bear the brunt of any punishment for the scandal, hoping the company itself will avoid the ultimate market sanction of having its shares delisted from the Tokyo Stock Exchange.

"As long as market participants think Olympus will not be delisted, the stock will continue to rise. The market is buying back what they sold last week," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Olympus' shares, which lost as much as 80 percent of their value after the scandal broke last month, closed up more than 15 percent on Wednesday at 740 yen in heavy turnover.

In a sign that regulators are getting serious after a slow start, Japan's Securities Exchange and Surveillance Commission (SESC) is considering recommending criminal charges against those involved in wrongdoing at Olympus, a source familiar with the matter has told Reuters.

The source said the SESC might also urge that Olympus be fined for false financial reports, a move that could allow the company to stay listed, although that outcome is not assured.

The Bank of Japan also is trying to gather information from related financial firms about Olympus' past transactions, central bank Governor Masaaki Shirakawa said.

"It is regrettable that doubts have arisen about the transparency and fairness of corporate management. It is vital that accurate information be disclosed promptly," he said.

TRIO AT THE HEART OF SCANDAL

Olympus executives are likely to face questioning on a voluntary basis by Tokyo prosecutors as early as this week, the Nikkei business daily reported on Wednesday.

Takayama has blamed his predecessor, Tsuyoshi Kikukawa, who quit on October 26, along with former vice-president Hisashi Mori and internal auditor Hideo Yamada for the cover-up. Mori had been fired and Yamada has offered to resign.

Kikukawa, Mori and Yamada had chosen a financial advisory firm -- a decision normally taken by the entire board -- for the controversial 2008 acquisition of UK medical devices maker Gyrus, internal documents show.

The trio also made the decision to increase payments to the advisory firm -- payments that were used to conceal huge losses on securities investments by Olympus, the documents show.

Takayama, who took over last month, called on employees in the internal email to unite to overcome the corporate crisis and not be "deluded" by an online petition led by an ex-Olympus director to reinstate ousted CEO Michael Woodford.

The Briton was fired on October 14 and then publicly pressed the firm to come clean on mysterious M&A deals which include record acquisition advisory fees.

"I am confident that the actions of all of you, who are working for the sake of Olympus with a sense of mission, will revive trust in Olympus so that the brand will shine," Takayama wrote. "Now is not the time to be wracked with fear and doubt."

After weeks of denial, Olympus admitted last week it had found that funds related to its $2.2 billion purchase of Gyrus, which involved an advisory fee of $687 million, as well as payments totaling $773 million for three tiny domestic firms, were used to hide losses on securities investments stretching back to the 1990's.

Analysts say the future of Olympus' big and profitable medical equipment business may rest in an eventual buyout by a rival or a private equity fund. Fujifilm and Hoya, the second- and third-largest players in the endoscope business, are seen as potential bidders.

But Fujifilm President Shigetaka Komori told reporters on Wednesday it was premature to comment given that there were so many uncertainties surrounding the affair.

In a separate memo, Olympus management told staff on Wednesday that it believed it had the understanding of its creditors and still had healthy cash flow and sufficient funds to keep investing in the business.

The memo was distributed to staff after the meeting with about 100 bankers, where Sumitomo Mitsui Banking Corp and Bank of Tokyo-Mitsubishi UFJ said they would continue to support the firm, multiple sources said.

Sumitomo Mitsui Banking Corp is the core banking unit of Sumitomo Mitsui Financial Group, and BTMU is the main unit of Mitsubishi UFJ Financial Group.

Olympus' interest-bearing debts stood at about 650 billion yen ($8.45 billion) on a consolidated basis as of end-March. SMFG and BTMU have total loans of over 400 billion yen to the firm, which also borrowed about 100 billion yen in syndicated loans, according to banking sources.

(Additional reporting by Ashutosh Pandey in Bangalore, Taiga Uranaka, Edmund Klamann, Ritsuko Shimizu and Tim Kelly in Tokyo; Writing by Linda Sieg and Nathan Layne; Editing by Mark Bendeich and Ian Geoghegan)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Around the Web

Olympus May Face Class-Action Lawsuit in U.S. Over Alleged Fraud ...

This Olympus Fraud Is Bigger And More Shocking Than You Realize

Ex-Olympus Officials Face Prison If Fraud Claims Are Proved ...

British anti-fraud watchdog launches Olympus probe

Anti-fraud watchdog probes Olympus

Hope springs eternal: Olympus ADR holders file fraud suit