Former Kanebo Ltd. Vice President Takashi Miyahara, under arrest on suspicion of violating the Securities and Exchange Law, allegedly threatened the company’s accounting executives into creating falsified financial statements, it was learned Monday.

On Friday, prosecutors arrested Miyahara, 63, along with former President Takashi Hoashi and former executive Kenzaburo Shimada, for allegedly submitting false financial statements to authorities.

According to sources close to Kanebo, Miyahara instructed the firm’s accounting section to window dress the financial statements for fiscal 2001. When the section balked, he severely criticized its executives, the sources said.

In addition, he told each section of the company to inflate its profits in the financial statements and report the increased amounts to him section by section, they alleged. He also reportedly told workers in the administrative section to monitor how the window-dressing was proceeding in each of the other sections.

Miyahara allegedly threatened to remove the accounting chief by saying, “The company cannot have you in this (accounting) position.

“Each section is willing to compile (falsified) financial statements, but I have been receiving reports that the accounting section is disturbing their work,” he told other executives in the section, the sources said.

Miyahara was once on the board at Sakura Bank, which has become Sumitomo Mitsui Banking Corp. Sakura Bank was Kanebo’s main bank.

He came to Kanebo in 1995 and served as vice president from May 1998 to June 2003.

A former Kanebo executive said the company has treated Miyahara well because he had strong backing from the main bank and was good at window-dressing the financial statements.

The three arrested executives allegedly covered up a capital deficit of more than 70 billion yen in fiscal 2001 and 2002, and a 5.7 billion yen consolidated net loss in fiscal 2001, according to prosecutors.

The falsified reports for those years claimed Kanebo had a capital surplus of 900 million yen in 2001 and 500 million yen in 2002, and a net profit of 70 million yen.

The three have owned up to the charges, according to investigative sources.

Kanebo is currently undergoing rehabilitation under the Industrial Revitalization Corp. of Japan. More than 10 firms — Japanese and foreign — have expressed interest in sponsoring Kanebo’s rehabilitation.

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