The Tokyo District Court sentenced Livedoor Co. founder Takafumi Horie to 2 1/2 years in prison Friday for falsifying financial statements and violating the Securities and Exchange Law in a harsh ruling sure to raise questions about double standards in the justice system.

Horie, 34, once hailed as an IT prodigy for turning a small Internet startup into an influential conglomerate, was found guilty of conspiring with four senior Livedoor executives to report a pretax profit of 5 billion yen for the business year through September 2004 instead of an actual loss of 300 million yen.

The executives, who are still on trial, allegedly camouflaged the loss by reporting sales of Livedoor shares conducted through dummy companies as the profit.

The court also convicted Horie of manipulating the market by spreading false information on the takeover of a publisher by an affiliate, Livedoor Marketing, to raise Livedoor’s stock price.

Horie had blamed his subordinates for misdeeds involving Livedoor and pleaded not guilty throughout the trial, but the court rejected his claims and convicted the defiant entrepreneur of conspiring with his right-hand men to hatch illegal schemes.

Presiding Judge Toshiyuki Kosaka said the Livedoor misdeeds “would not have taken place without approval by Horie,” who reigned over the firm.

“The defendant has shown no signs of remorse and no apologies have been made. The defendant bears a heavy criminal liability,” Kosaka said, handing him an unsuspended term rarely seen by executives convicted of white-collar crimes.

Securities law violation cases have easily taken years before courts ruled, but Horie’s trial took six months.

The acceleration of proceedings is due in part to pretrial meetings, a new procedure that started in October 2005 in which prosecutors and defense lawyers huddle and submit their arguments and disclose evidence to back up their claims.

“The verdict was unfair,” Yasuyuki Takai, chief lawyer for Horie, argued, adding the pretrial meetings have shortcomings because not enough information is provided and there is not enough time to investigate.

“Even if the allegations against the defendant were true, I see no legitimate reason to hand him an actual prison sentence,” he said.

Takai filed an immediate appeal and Horie was released Friday afternoon on bail of 500 million yen.

White-collar criminals convicted of financial fraud in most cases plead guilty and in return get suspended terms, including two Kanebo Ltd. executives last March arrested for window-dressing and real estate tycoon Yoshiaki Tsutsumi, who was handed a suspended term in 2005 for charges including insider trading.

But the maverick Horie argued he was never told it was illegal to report stock sales as profit and that former Livedoor Chief Financial Officer Ryoji Miyauchi was in charge over accounting at the company. He was jailed for three months following his arrest in January 2006 but did not sign a confession, as had Miyauchi and his other alleged accomplices.

Horie had also claimed prosecutors lacked impartiality in their drive to convict him.

Dressed in dark suit and tie, Horie smiled bitterly and appeared downcast as the judge announced the verdict. He did not speak during or after the trial except for when he interrupted the judge and asked permission to use the bathroom.

The key to the case was how much Horie knew about the window-dressing and whether he conspired with others in the scheme.

Prosecutors had demanded a four-year prison sentence for the entrepreneur, claiming that he masterminded the crimes, and that there is a “significant possibility that he will commit similar crimes, next time more ingeniously.”

They also implied that Horie’s personal fortune, which exceeds 10 billion yen, means he may commit similar crimes in the future.

Judge Kosaka said that although Horie conspired in the crimes, there was no proof that he was in fact responsible for organizing them and thus reduced the sentence to 2 1/2 years.

Speaking of the impact of the ruling, lawyer Takai expressed concern over its effect on young business hopefuls, noting many will be “daunted by the verdict” and lose their sense of aggression to challenge the status quo.

Judge Kosaka acknowledged Horie’s influence and said he “inspired many young people” and urged him to utilize his abilities again after a fresh start.

Horie, a dropout from the University of Tokyo, began attracting major media attention in 2004, when Livedoor tried to buy the Kintetsu Buffaloes baseball team. He then launched a takeover bid for AM radio broadcaster Nippon Broadcasting System Inc. a year later in a high-profile drama that drew national attention to mergers and acquisitions activity and threatened the Fuji Sankei media group.

The T-shirt-wearing maverick disregarded traditional Japanese business practices and expanded his firms through mergers, acquisitions, after-hours trading and stock splits.

In a recent interview with The Japan Times, the mogul claimed he is no longer founding firms and has been investing in overseas projects, including space exploration and travel.

Livedoor was a darling of individual investors until prosecutors abruptly raided the firm in January 2006, causing one of the worst single-day plunges on the Tokyo bourse. Unlike raids on other firms that usually come with plenty of forewarning, the Livedoor raid was unannounced and the price of its shares, around 700 yen before the raids, fell into the 90 yen range before the firm was delisted.

See related stories:
A CEO in prison? About time, some say
Good and bad seen from Livedoor fallout

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