Olympus admits to 20-year cover-up on losses

Japanese cameras and medical equipment giant, Olympus Corp, faces being delisted from the Tokyo Stock Exchange after being embroiled in a scandal already gathering steam as one of the largest accounting frauds in the country’s history.

Revelations that Olympus has been hiding losses for more than 20 years have resulted in its shares plunging 29% in Tokyo and possibilities of facing criminal complaints and shareholder lawsuits against the company and its former executives.

New Olympus president Shuichi Takayama, who replaced former CEO Michael Woodford in late October, alleged that top executives had used acquisitions to hide massive losses on bad investments: “I was absolutely unaware of the facts I am now explaining to you. The previous presentations were mistaken…. We have conducted extremely improper accounting.”

Olympus faced a serious blow to its reputation following an expose by Mr Woodford that blew the whistle on questionable fees paid as part of M&A transactions. The company denied wrongdoing over a staggering $687 million payment to a Wall Street financial advisor that was equivalent to a third of the $2 billion paid to acquire British medical equipment maker, Gyrus Group Plc. This shocking revelation triggered the Olympus scandal, resulting in the dismissal of the British whistle-blowing CEO on Oct 14; usual fees for advisors border on 1-2 percent of the deal value.

Olympus Corp. President Shuichi Takayama bows in apology during a press conference in Tokyo Tuesday, Nov. 8, 2011. Pic:AP

Olympus has accepted that this purchase was one of those used to hide long-standing investment losses, and Mr Takayama has today accused the company’s previous leadership for not being able to account for these losses.

While Mr Woodford maintains that the Olympus board should resign, stating: “The position of the board and non-execs is untenable now”, Mr Takayami defends: “I have no intention to step down at this moment because my responsibility is to fix this company.”

Ryosuke Okasaki, chief investment officer at ITC investment partners, told Reuters: “This is very serious. Olympus admitted it has made false entries to cover is losses for 20 years. All people involved in this over 20 years would be responsible. There is a serious danger that Olympus shares will be delisted. The future of the company is extremely dark.”

Those who have tendered their resignations as a consequence to the ongoing scandal include Tsuyoshi Kikukawa and company auditor, Hideo Yamada. Executive Vice-President Hisashi Mori has been dismissed on grounds of being involved in the cover-up. The company is considering legal action against these individuals.

Mr Takayama has confirmed that all data has been handed over to an independent panel of six who are currently examining the company’s former deals.

The Olympus scandal casts light on the weaknesses in Japanese corporate governance, which include employing too few independent directors on company boards.