Olympus ex-chairman Tsuyoshi Kikukawa was one of the former executives arrested (Source: wikimedia.org)
Four others were arrested for their role as well
It was discovered last November that certain executives working for digital camera maker Olympus were hiding losses for over a decade with acquisition fees. After admitting to playing a key role in the cover-up, three former Olympus executives have been arrested along with four others.
Among those arrested were Tsuyoshi Kikukawa, Olympus ex-chairman; Hideo Yamada, who led the investment unit since the 1980s; Hisashi Mori, former executive vice president; Akio Nakagawa, who was mentioned in a December panel report and helped Olympus in hiding the losses by creating paper companies that purchased impaired assets from Olympus; Nobumasa Yokoo, who was also mentioned in the report and ran a Tokyo-based consulting firm called Global Company that helped Olympus set overseas bank accounts to offer funds to the paper companies; Taku Hada, who worked at Global Company, and Hiroshi Ono, who also worked for Global Company.
The three former executives and four others associated with the cover-up were arrested by the Tokyo Metropolitan Police for alleged violation of Japan's Financial Instruments and Exchange Act.
The entire Olympus fiasco started back in October 2011 when company CEO Michael Woodford was fired after only two weeks on the job. Olympus said he was fired because of his management style, but Woodford claimed it was because he made allegations of inappropriate payments related to acquisitions.
Woodford ended up involving authorities from Japan and Britain to investigate payments particularly associated with the 2008 Gyrus acquisition, where Olympus took over the medical equipment maker. The FBI jumped on the investigation as well, where authorities looked into a questionable $687 million fee to advisors. The fee looked suspicious because it amounted to about a third of the value of the acquisition, and these fees usually only amount to about 1 percent.
It was also discovered that Olympus replaced auditors KPMG AZSA & Co. in 2009 and went to a third-party external panel in May 2009. Woodford claimed that Olympus did this due to disagreements concerning the Gyrus acquisition.
In early November 2011, an independent panel was used to review the Gyrus acquisition as well as others associated with Olympus, and the whole situation unraveled. Olympus admitted to nearly $1.7 billion in questionable payments that were used to hide losses on securities investments that dated back over a decade.
One month later, a six-man independent panel prepared a 200-page damning report on Olympus, listing reasons why and how the scandal occurred. The report also mentioned that there was no link to organized crime, such as yakuza, and called for legal action against executives and all others involved in the cover-up.
As suggested, legal action was taken. In January 2012, Olympus sued 19 former and current directors for $47 million, including current President Shuichi Takayama. It was also noted that directors involved in the suit intended to resign. Now, the arrests have put the icing on the cake.
"We take the situation seriously," said Yoshiaki Yamada, an Olympus spokesman. "We will cooperate fully with investigators."
Not everyone is completely happy with Olympus' progress, though. While the arrests were a start, Woodford believes it shouldn't end there. He still wants three directors at the company to be replaced, including Masataka Suzuki, Kazuhiro Watanabe, and Shinichi Nishigaki. Woodford also wants banks and accounting firms involved in the cover-up to be investigated.
Olympus will hold an emergency shareholder meeting on April 20, 2012 where investors will vote on new management members.
Sources: CNN, BusinessWeek
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