The Securities and Exchange Surveillance Commission, after a three-year probe, asked prosecutors Friday to indict Livedoor Co., former President Takafumi Horie, three other executives, and advertising subsidiary Livedoor Marketing Co. for lying to investors in order to inflate the stock price of the subsidiary.
Investigators also believe foreign brokers helped Livedoor channel money from a possibly illegal 1 billion yen sale of an investment union to offshore special purpose companies. They are currently examining the case to see whether the foreign firms violated such laws as the Foreign Exchange and Foreign Trade Law.
“Investigations will continue. We believe there have been more violations” of the securities law, an SESC official said. The securities watchdog suspects Livedoor also falsified its earnings in 2004.
“It is a mistake to assume that just because gains from criminal funds are channeled offshore, we will not follow the money,” said the SESC official, who spoke to reporters on condition his name not be used. “We have partnerships with overseas authorities.”
Prosecutors are preparing to indict Horie on Monday. The SESC’s accusations will be included in the charges.
Friday’s move comes after three years of investigation by the understaffed SESC. The commission filed only two similar complaints, out of 11, in all of fiscal 2004, and has filed only 74 cases in its 13 years of existence.
The SESC has accused Livedoor Marketing of misleading investors in October 2004, when it was then known as ValueClick Japan Inc., in announcing that it planned to buy publisher MoneyLife Co. that December through a series of stock swaps.
ValueClick shares rose from around 2,300 yen to a peak of 81,500 yen that December. Livedoor in fact already owned the publisher through multiple tiers of Livedoor-controlled investment unions, which were used to hide its ownership, the commission alleged.
“It’s a box within a box within a box,” the SESC official said. “We suspect the structure was designed to hide other false corporate buyouts.”
The SESC also accused the Livedoor group of reporting that ValueClick made a profit of 53 million yen in the quarter ending in December 2004 when it actually made a net loss of 21 million yen.
Because of the complexity of the corporate structure Livedoor Marketing used to allegedly hide Livedoor’s ownership of MoneyLife Co., prosecutors believe former Chief Financial Officer Ryoji Miyauchi and former operating director Osanari Nakamura, who both have backgrounds in finance, are the most culpable.
But prosecutors also believe Horie, as president, should share blame for condoning the scheme.
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