The Tokyo District Public Prosecutor's Office on Tuesday again indicted former Yakult Honsha Co. Vice President Naoki Kumagai, this time for allegedly violating the Commercial Code through aggravated breach of trust and by putting company assets in danger. The 69-year-old Kumagai has already been indicted for income tax evasion and embezzlement. The latest indictment also lists a Securities and Exchange Law violation for falsifying midterm earnings reports, sources close to the case said. In addition, on the same day prosecutors indicted the lactic drink maker for falsifying earnings reports as well as Akira Setogawa, the former head of the Tokyo branch of securities firm Cresvale International Ltd., for conspiring with Kumagai. Yakult President Sumiya Hori apologized for the scandal during a news conference in Tokyo later in the day. "It is deeply regrettable that in the end, there were parts of our earnings reports that were different from the facts. I deeply apologize to investors," Hori said. According to the indictment, Kumagai, a former official of the National Tax Administration Agency, hurt the financial standing of Yakult by getting the firm to purchase so-called Princeton bonds -- privately placed bonds issued by U.S.-based Princeton Economics Inter national Ltd., Cresvale's parent firm -- on seven occasions for two years from 1997. Yakult bought the bonds at a total 530 million yen, which included money which was channeled to Kumagai by Setogawa as a rebate from Cresvale. In addition, the indictment says Kumagai -- who was in charge of financial investments at the firm -- opted to conduct highly speculative option transactions between January and September of 1997 using Yakult's shareholdings as collateral. Yakult had decided during a meeting of senior executives in October 1996 to reduce its transactions of derivative financial products. The company falsified its interim earnings report for the six months ending September 1997 by 9.5 billion yen to hide its losses stemming from the Princeton bonds, prosecutors said. During Tuesday's press conference, Hori stressed that the firm was not aware of Kumagai's dealings, saying that the earnings reports were drawn up based on investment reports from brokerages, and that auditors had also given their stamp of approval. He added that no one else in Yakult had knowledge of derivatives products. As to Kumagai's use of jargon to explain his actions, "It is human nature" to believe it, Hori noted.
