Japanese giant Olympus admits cover-up

The company’s president says the matter will be handled by an independent panel [Reuters]

Olympus, the Tokyo-based camera and medical supplies giant, has admitted to using a series of corporate acquisitions to hide huge losses, after earlier denying any allegations of wrongdoing.

In what has become one of the largest accounting frauds in Japanese history, the company has been hit by the scandal over a $687m payment for financial advice and expensive acquisitions that were not obviously related to its core businesses.

Tsuyoshi Kikukawa, the company’s chairman, resigned abruptly last month in an effort to placate angry shareholders.

In a statement on Tuesday, Olympus did an about-turn from its previous position, saying that after appointing an independent panel it had ascertained that the payment and acquisitions had indeed been used to cover up losses on investments dating back to the 1990s.

Shares in Olympus plunged 29 per cent to a 16-year low on the basis of the news.

Resignations and dismissals

Hisashi Mori, an executive vice-president, has been dismissed for his alleged role in the cover-up, and an auditor has tendered his resignation, the statement said.

“We will continue to co-operate fully with the panel and do our best to get to the bottom of this,” the statement said.

Analysts have said that the scandal is reflective of weaknesses in Japanese corporate governance.

Shuichi Takayama, who took over as president late last month, blamed the company’s previous leadership for the failure to book the losses. The company is considering legal action against them.

“We needed a higher level of corporate governance. From now on we’ll do our utmost not to make the same mistake again,” Takayama said.

Olympus says it cannot disclose the size of the losses or other details because the data has been handed over to the independent panel.

“I have no intention of stepping down at this moment because my responsibility is to fix this company,” Takayama said.

He did acknowledge the possibility that Olympus may have to face delisting from the Tokyo Stock Exchange over the scandal.

Earnings report postponed

The $687m payment in question was made to a Wall Street financial advisory service as part of the $2bn purchase of the UK-based Gyrus Group Plc.

The payment represented more than a third of the acquisition price, while advisors’ fees are normally between one and two per cent of the deal value.

The company was to announce its latest earnings report on Tuesday, but has now postponed that statement to later this month.

The UK’s Serious Fraud Office (SFO) and the FBI of the US are both investigating the deal.

Michael Woodford, a British national who is a former CEO at Olympus, had earlier made revelations that had triggered the scandal, and has now handed over documents to the SFO as part of its investigation.

Woodford has said that he was dismissed because he had questioned the payment of the fee to the financial advisory, as well as the prices that Olympus paid for three small money-losing Japanese companies between 2006 and 2008.

The company wrote down more than three quarters of its value in the fiscal year that ended in March 2009.