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Three former executives of the now-defunct Nippon Credit Bank pleaded not guilty Friday to falsifying the bank’s fiscal 1997 earnings report to conceal bad loans. The defendants are the bank’s former chairman, Hiroshi Kubota, 68; a former president, Shigeoki Togo, 56; and a former vice president, Tadao Iwaki, 62, The three stand accused of underreporting the bank’s loan losses by about 159 billion yen by applying accounting standards that were less strict than those the Finance Ministry uses, thereby violating the Securities and Exchange Law, which prohibits falsified account reports. The size of the coverup is one of the biggest in the history of corporate crime in Japan, ranking close to the cases of the Long-Term Credit Bank of Japan, which allegedly concealed some 313 billion yen, and the now-defunct Yamaichi Securities Co., which hid 275 billion yen. In the opening hearing before the Tokyo District Court, Kubota, who retired from the Finance Ministry and took up an executive position at the NCB, admitted that the bank submitted the financial report that stated the firm had 61.2 billion yen worth of loan-loss reserves. “But I did not mean to window-dress the report,” he claimed. Meanwhile, Togo, who was a Bank of Japan official before joining the NCB, pointed out that neither the BOJ nor the Finance Ministry found any fault in the bank’s financial standing when they inspected the NCB’s assets in 1997 and 1998, proving that the bank had legally disposed of the loans. However, the three defendants offered an apology to taxpayers for the huge burden imposed on them when the government injected public money into the bank to shore up its capital base. Defense counsel argued that it is difficult to evaluate whether loans are nonperforming because there is no standard method to evaluate the total amount. The figures the defendants reported were within the limit of their discretion, the lawyers said, claiming the three men’s actions did not constitute a crime. Prosecutors said Kubota and other senior NCB officials deliberately made lax assessments of their problem loans to affiliates and other businesses for fiscal 1997. Fearing that disclosing such huge losses would seriously damage the bank’s credibility, the defendants decided to report 61.2 billion yen as sour loans when they should have reported about 220 billion yen as irrecoverable. Kubota and Togo received a report from NCB officials about the situation and allowed them to produce a false report for the Finance Ministry, while Iwaki actually issued the instructions, prosecutors said. Relying on public funds — which at the time were expected to be infused — to increase the bank’s capital, the defendants allegedly falsified the account report to avoid posting losses for the third consecutive fiscal year. This would have instilled even further distrust of the bank among investors and clients, prosecutors added. Three other NCB executives were also arrested but prosecutors decided not to indict them. In a similar case, senior executives of the LTCB pleaded not guilty in November to failing to report more than 300 billion yen in bad loans, claiming they did not believe they were nonperforming loans. The NCB, one of Japan’s three long-term credit banks, went bankrupt and was placed under state control as part of a newly enacted banking reform law in December 1998. No taker has yet been found for the bank, although several corporations have expressed interest.

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