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Olympus Corp. should investigate payments made to advisers in connection with an acquisition, according to an external auditor’s report.

The company may face scrutiny by regulatory and prosecuting authorities because of potential offenses, including false accounting, financial assistance and breaches of directors’ duties by the board, according to an Oct. 11 report by PricewaterhouseCoopers.

The report was commissioned by Michael Woodford, whom Olympus fired as president on Friday. Chairman Tsuyoshi Kikukawa said the board fired Woodford, a 30-year veteran of the Japanese company, because he “wouldn’t listen.”

Olympus, a maker of cameras and medical equipment, paid $687 million to two advisory companies related to its purchase of Gyrus Group PLC in 2008, the report said. The fees accounted for more than a third of the $2 billion purchase price, according to the report.

One of the advisers, Cayman Islands-incorporated AXAM Investments Ltd., was removed from the local registry in June 2010 for nonpayment of license fees, according to the report.

“The eventual cost of the transaction to Olympus is extremely significant and is as a result of a number of actions taken by management which are questionable and which give cause for concern,” the report says. “We were unable to confirm that there has been improper conduct, however, given the sums of money involved and some of the unusual decisions that have been made it cannot be ruled out.”

When asked about the report, Olympus Executive Vice President Hisashi Mori said “it is based on speculation.” Mori spoke in a telephone interview.

Woodford, 51, became president of Olympus in April. He succeeded Kikukawa, who was president from October 2003 to March 2011. After Woodford was fired, Kikukawa, 70, resumed the presidency in addition to being chairman.

Olympus shares plunged 18 percent to close at ¥2,045 in Tokyo on Friday, the biggest drop since 1974, according to data compiled by Bloomberg. Almost 36 million shares changed hands, 16 times more than the six-month daily average of 2.2 million.

Woodford showed Bloomberg News six letters he says he wrote to Kikukawa and the board questioning the payments in the weeks before he was fired. The advisors negotiated an increase in completion fees to approximately $682 million from $189 million, according to the PWC report, which Woodford also disclosed to Bloomberg News.

There was no external legal advice on the increase and there was no formal board approval for the second agreement, according to Woodford.

“There are various communications between the president and those who are working for him,” Executive Vice President Mori said. “I don’t think I need to speak about any more details than the fact there are various communications.”

As part of the payment AXAM received preferred shares in Gyrus with a face value of $177 million on Sept. 30, 2008, according to the PWC report.

Less than two months later, on Nov. 28, Olympus agreed to pay $557 million to buy the preferred shares from the adviser, the report said. AXAM subsequently negotiated a further increase in the value of the shares and in March 2010, Olympus paid $620 million for the securities, according to the report. Gyrus stopped trading as of Jan. 30, 2008, according to Bloomberg data.

“We properly revealed all the information on the acquisition of Gyrus,” said Yasutoshi Fujiwara, a spokesman for Olympus.

“On the date the preference shares were issued by Gyrus, the Companies Act 1985 made it unlawful for a private limited company to give financial assistance for the purposes of discharging a liability incurred by a purchaser in relation to the acquisition of shares in that company,” the PWC report said.

Additionally, Olympus paid about $773 million for three closely held companies between 2006 and 2008, according to Woodford’s letter. Subsequently, Olympus wrote down the value of the acquisitions by $586 million, the letter said. The acquisitions had little in common with Olympus’ main businesses, according to Woodford.

“There were $800 million in payments to buy companies making face cream and Tupperware,” said Woodford. “What the hell were we doing paying $800 million for these companies?”

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