B) Source: FINANCIAL TIMES

Olympus management ‘rotten at the core’

December 7, 2011 1:24 am/ By Lindsay Whipp and Jonathan Soble in Tokyo

Reuters

Olympus management has been accused of being “rotten at the core” in a damning report on the accounting scandal at the Japanese camera and medical equipment maker.

The report, issued on Tuesday by a company-commissioned panel led by a former supreme court judge, said executives broke Japanese laws in a two-decade scheme to hide investment losses and urged that legal action be taken against those responsible.

The conclusions could hasten the exit of Olympus’ board, who have promised to quit, but not before overseeing the transition to a new leadership team.

“The management was rotten at the core and some around were contaminated as well,” the 185-page report said. “Olympus should remove its malignant tumour and literally renew itself.”

Shares in the company were down nearly 7 per cent mid-morning in Tokyo on Wednesday, ahead of a meeting by the board and its formal response later in the day.

Michael Woodford, the British former chief executive whose revelations touched off the scandal, said he was pleased with the findings. “It makes it clear the current board is unfit to lead the company,” he told the Financial Times.

Mr Woodford, who was fired in October after confronting other executives about the cover-up, is seeking investor support to return at the head of a new board. Three of the executives, including Olympus’ chairman, have already lost their jobs.

Stung by losses on investments it had made during Japan’s late-1980s asset bubble, Olympus shifted the depressed assets off its books by selling them to “outside” funds that it secretly controlled. The report described how some $1.7bn flowed through shell companies and other financial entities in Singapore, the Cayman Islands, Europe and Japan.

According to the report, the funds bought the assets using loans arranged by Olympus from banks including Commerzbank and LGT of Lichtenstein. Years later, Olympus used a series of acquisitions as cover to funnel money back to the funds to repay the loans.

Commerzbank said: “At all times, Commerzbank was in full compliance with all relevant laws and obligations and will assist with any possible enquiries by the regulator.”

LGT refused to comment except to say that it had been “fully co-operating with the panel which it had contacted on its own initiative”.

The report was vague about the size and origin of the bubble-era losses, but said Olympus had made its problems worse by engaging in new “high-risk” investments in an attempt to dig itself out of its hole. By 1999 or 2000, it was hiding Y96bn in losses; as of 2003, the latest year for which it gave a figure, the deficit had grown to Y118bn.

The report said Y135bn had been “appropriated to maintain the scheme”, though the panel’s chairman, Tatsuo Kainaka, said it was unclear how much of that stemmed from the initial losses and how much from the cover-up itself – such as fees and other payments to intermediaries.

The panel gave a qualified “no” to the question of whether organised crime syndicates had a hand in the scheme, saying it did not “recognise” any involvement by “antisocial forces”, a euphemism for Japanese yakuza gangs.

Olympus said on Tuesday it would amend prior securities filings in light of the report, prompting the Tokyo Stock Exchange to place the company on a “supervisory post” – a formal warning that it could lose its listing if its deceptions are found to have had a material impact on shareholders. Olympus must file its second-quarter earnings by December 14 to avoid an automatic delisting.

Additional reporting by James Wilson

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