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U.K. prosecutors started a formal probe into accounting irregularities at Olympus Corp. after the company said last week that three executives colluded to hide losses from investors, a source said.

Britain’s Serious Fraud Office, which prosecutes white-collar crime, will work with the U.S. Justice Department and Japanese authorities, said the source, who wasn’t authorized to speak about the case and declined to be identified.

The company reversed denials last week that there was any wrongdoing over $687 million in advisory fees paid on the $2 billion acquisition of Gyrus Group PLC in 2008 and said it paid inflated fees to advisers to hide losses. Olympus fired Executive Vice President Hisashi Mori over his role in the coverup, former Chairman Tsuyoshi Kikukawa resigned last month, and auditor Hideo Yamada will step down.

“I welcome any investigative process where they have the authority to start following the money,” said Michael C. Woodford, the former Olympus president who blew the whistle on the scandal. “What’s important is that the truth comes out in an explicit and total sense.”

Michael Knuefer, a European spokesman for Olympus, didn’t respond to emails and calls requesting comment Tuesday.

Woodford, who was fired last month after he asked the board to review payments made to advisers in the acquisition, met with SFO prosecutors on Oct. 17 and gave them a report by accounting firm PricewaterhouseCoopers that he commissioned. Potential offenses by Olympus include false accounting and breaches of duties by the board, according to the Oct. 11 PwC report.

The probe centers on the fees paid to Axam Investments Ltd., a now-defunct Cayman Islands fund connected to U.S.-based Japanese banker Hajime Sagawa, for advising on the Gyrus deal. Olympus said last week an independent committee it appointed to look into its acquisitions is still examining the method used to hide the losses.

Olympus also said it is continuing to pursue an internal investigation into the allegations by Woodford that $1.5 billion was siphoned out of the company through write-downs and fees related to a series of takeovers.

Olympus President Shuichi Takayama said the company was looking into the role played by special purpose funds in hiding the losses, which date back to the 1990s.

Kikukawa, who had Woodford removed, resigned Oct. 26 as investors increased pressure for a review of the deals. Kikukawa denied any wrongdoing when he stepped down and said he intended to stay on the board.

Tokyo prosecutors are also investigating whether the company broke securities laws.

Suit on hidden losses

A lawsuit was filed in a U.S. district court against Olympus Corp. on behalf of investors who purchased ADRs in the scandal-hit Japanese company.

The suit alleges Olympus falsely represented its finances for over five years and seeks to recover damages for purchases of Olympus American Depository Receipts between November 2006 and this month, according to a statement carried on Business Wire from Bernstein Liebhard LLP, who filed the lawsuit.

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