Ex-Olympus executives held in fraud probe

Three former senior executives of Japan’s Olympus Corp, including its former president, have been arrested in connection with one of the biggest accounting frauds in decades.

Tsuyoshi Kikukawa, the camera and medical equipment manufacturer’s former president, was arrested on Thursday on suspicion of violating laws banning falsification of financial statements. He was named as a key player in a scheme to shift $1.7bn in losses from the company’s balance sheet.

The Tokyo district public prosecutors office said in a statement that it had also arrested former vice-president Hisashi Mori, 54, and former auditor Hideo Yamada, 67, on suspicion of violating a financial instruments and exchange law.

Authorities also arrested four employees of a major brokerage house, including former executive Akio Nakagawam 61, suspected of advising Olympus on covering up its losses

All seven allegedly conspired to falsify Olympus’s balance sheet, reporting that its consolidated net assets stood at $4.4bn (344.871 billion yen) in fiscal 2006 instead of $2.98bn (233.737 billion yen), the prosecutors’ statement said.

They also allegedly made a false statement in the 2007 fiscal year, the statement said.

Last year, an Olympus-commissioned investigative panel found the trio had played leading roles in a 13-year scheme to hide the losses, and they are among 19 executives the company is suing over the scandal.

Kikukawa’s home was among 20 sites raided in December by prosecutors. The Nikkei newspaper said Kikukawa, who took over as president in 2001, was reportedly aware of the details of the cover-up.

The Olympus executives have admitted to prosecutors their involvement in the falsification of financial statements, TV Asahi said.

‘Full co-operation’

An Olympus spokesman said the company would co-operate fully with investigators.

“We will continue to co-operate fully with the authorities to uncover the facts,” an Olympus spokesman said, according to Dow Jones Newswires, adding that the company took the situation “seriously”.

Olympus’ admission that a small group of top executives used overpriced deals to cover up bad investments dating back to the 1990s has shaken confidence in Japanese corporate governance.

The scandal was exposed last October by then-chief executive Michael Woodford, a rare foreign CEO in Japan, who was sacked by the Olympus board after questioning dubious merger and acquisition (M&A) deals that were later found to have been used to conceal the losses.

Olympus is banking on the April shareholder meeting to mark a turning point in the scandal, with at least six of its 11-member board, including President Shuichi Takayama, set to resign.

In December it filed five years’ worth of corrected financial statements plus overdue first-half results, revealing a $1.1bn dent in its balance sheet, triggering talk it would need to merge or forge a business tie-up to raise capital.

On Monday, the firm forecast a $410m full-year loss due largely to its ailing camera operations, but its core endoscope business appeared unscathed by the scandal, and its president said the firm might not need outside capital.

Olympus is also under investigation by law enforcement agencies in Japan, Britain and the United States.

Olympus shares were down 1.3 per cent at 1,287 yen on Thursday, while the broader Tokyo market was down 0.3 per cent.