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The Tokyo District Court has sentenced three former top executives of the failed Long-Term Credit Bank of Japan, the predecessor of Shinsei Bank, to suspended prison terms for falsifying financial statements to conceal massive bad loans.

Former LTCB President Katsunobu Onogi, 66, was sentenced to a three-year term, suspended for four years. Yoshiharu Suzuki, 65, and Masami Suda, 62, both former vice presidents of the LTCB, were sentenced to two years, suspended for three years.

This is the first case in which former executives have faced criminal charges under the Financial Reconstruction Law, enacted in 1998. The law obliges a failed financial institution to file criminal charges against former top officials.

According to the indictment, the three execs failed to write off and set aside allowances for 313 billion yen in bad loans for the 1997 business year, and submitted a false financial statement to the Finance Ministry that concealed the loans.

They were also accused of illegally paying about 7.1 billion yen in dividends to shareholders in June 1998 after falsely declaring the bank had made a profit of 46 billion yen.

Although the executives had initially owned up to their wrongdoing, they pleaded not guilty during the trial, claiming the bank’s management as a whole was responsible for deciding the amount of bad loans that could be written off or how much money should be set aside as allowances for those loans.

They also said the Finance Ministry had endorsed their accounting methods.

Prosecutors said the three opted to put the disposal of nonperforming loans on the back burner out of fear the bank’s capital adequacy ratio would fall and the responsibility of management would be questioned.

LTCB, one of Japan’s three long-term credit banks, was placed under state control in October 1998, when it collapsed under the weight of bad-loan losses.

It was taken over by a consortium of U.S. and European financial institutions in March 2000 after all the bank’s shares were sold to the group. The bank renamed itself Shinsei Bank in June that year.

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