With the Wednesday arrest of Livedoor Representative Director Fumito Kumagai and fresh warrants served on founder Takafumi Horie and three former executives for alleged accounting fraud, Livedoor’s delisting from the Tokyo Stock Exchange may be inevitable. Below are answers to some questions about what might happen to Livedoor and the consequences for its shareholders.
When might the Tokyo Stock Exchange make a decision about whether Livedoor will be delisted?
The TSE probably will decide by mid-March. After the 20-day detention of the former Livedoor executives — the second one for four of them — ends in mid-March, prosecutors are expected to charge the five with accounting fraud or the Securities or Exchange Surveillance Commission might file a criminal complaint against them on the same charges.
Under what conditions would the TSE delist Livedoor?
TSE would delist a firm found to have falsified its financial statements if it determines the incident has a large negative impact on the market.
In Livedoor’s case, financial records have been confiscated by prosecutors, therefore the TSE cannot investigate on its own. It plans to rely on assessments by the prosecutors or the SESC of whether Livedoor has committed accounting fraud.
According to a senior TSE official, the amount Livedoor falsified in its financial documents is a key point. Livedoor is suspected of inflating its earnings by more than 5 billion yen, which the TSE official described as a “huge” amount.
Another factor is whether the firm systematically plotted to commit fraud.
The TSE is waiting to see what information is revealed if Horie and the others are charged.
How many stakeholders are there in Livedoor?
Livedoor has issued more than 1 billion shares and there are about 220,000 shareholders. The company said it plans to hold a shareholders’ meeting by June but has not chosen a venue. A lot individual shareholders are angry at having lost their savings on Livedoor stock, and many are expected to attend. To put this into perspective, the Tokyo Dome holds 55,000 people.
What would happen if the TSE delists Livedoor?
Livedoor has been in the monitoring post category, where it is being watched, since Horie and the three executives were arrested Jan. 23. If the TSE delists the Internet startup, it will place the firm in a special category for firms to be delisted for one month and then the delisting will become official.
What would happen to Livedoor shareholders if their shares are delisted?
If shareholders do not sell their shares in a company on the market before it is delisted, they can still sell their stock off the market if they can find a buyer on their own.
Livedoor appears financially secure at the moment, so if the firm was delisted, shareholders would still have a say in its operations or be entitled to dividends. Some investment companies currently are buying up shares of the company, possibly for this reason.
If the firm goes bankrupt and is liquidated, the shareholders would be given portions of Livedoor’s capital. And anyone who might want to gamble that the firm would be listed again might think it is a good deal to buy when the stock price hits bottom.
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