The special investigative squad of the Tokyo District Public Prosecutors Office is investigating the alleged coverup of massive investment losses by Olympus Corp. following the arrests in mid-February of three of its former executives and four former securities firms employees.
It is hoped that investigators will put together a total picture of the scandal by going beyond what the third-party investigatory committee commissioned by Olympus uncovered.
In its report made public in early December, the third-party committee said Olympus began making speculative investments with financial assets in 1985 and that unrealized losses reached nearly ¥100 billion in the last part of the 1990s.
As of 2003, it had hidden ¥117.7 billion in losses by employing an elaborate loss separation scheme. The panel said that if the costs paid by Olympus to manage the schemes are taken into account, losses would amount to ¥134.8 billion.
The former Olympus executives taken into custody are former Chairman and President Tsuyoshi Kikukawa, former auditor Hideo Yamada and former Executive Vice President Hisashi Mori. The four former securities firms employees are suspected of having advised the Olympus management on the loss coverup scheme.
Olympus enjoys a 70 percent share of the global market for endoscopes and can be proud of its technological prowess. Despite the scandal, it managed to maintain its listing on the Tokyo Stock Exchange. But because it is a famous Japanese manufacturer, its responsibility is all the more greater. It should realize that the scandal has not only tarnished its image but also caused suspicion over Japan’s corporate governance.
The public prosecutors office decided to place criminal responsibility not only on the former executives but also on the company itself. Olympus is facing a potential fine of up to ¥700 million. It is also facing shareholder lawsuits.
The company’s wrongdoing came to light on Oct. 14 after it abruptly fired then President and CEO Michael C. Woodford, who is reported to have pointed out highly unusual advisory fees the company paid in acquiring a British medical equipment maker. It is suspected that Olympus inflated costs for the acquisition of the British firm and three other Japanese companies to mask its investment losses.
It is hoped that investigators will trace in detail the methods Olympus employed to hide its losses and falsify its financial reports.