Stories & Grievances
Whistleblower Michael Woodford Exposes Olympus' Hiding Years of Investment Losses
Olympus said Tuesday that more than $1 billion in merger payouts were used to hide years of losses on investments, an acknowledgment that is an abrupt about-face for the company, which had denied any wrongdoing in the wake of a widening scandal. That revelation alone could make this one of the biggest accounting fraud cases in corporate history. It is also a spectacular turn of events amid a boardroom battle that has pitted Olympus’s former British chief executive turned whistle-blower, Michael C. Woodford, against an otherwise all-Japanese company board.
November 7, 2011
Olympus Hid Investing Losses in Big Merger Payouts
By HIROKO TABUCHI, NY TIMES
TOKYO — Olympus said Tuesday that more than $1 billion in merger payouts were used to hide years of losses on investments, an acknowledgment that is an abrupt about-face for the company, which had denied any wrongdoing in the wake of a widening scandal.
That revelation alone could make this one of the biggest accounting fraud cases in corporate history. It is also a spectacular turn of events amid a boardroom battle that has pitted Olympus’s former British chief executive turned whistle-blower, Michael C. Woodford, against an otherwise all-Japanese company board.
Mr. Woodford was fired in mid-October after trying to force an investigation into a series of acquisitions, made before his appointment as president in February. He has since released internal documents to the news media and called for the entire company board to resign. Since the accusations, Olympus has lost half its stock market value as many questioned the company’s governance.
Olympus, which is based here in Tokyo, had categorically denied any wrongdoing over the deals, made from 2006 to 2008. Just last week, the company appointed a panel of outside experts to investigate, a measure Olympus said was aimed at assuaging investor fears.
But in an extraordinary statement issued Tuesday, the company said the panel found that the money for mergers had in fact been used to mask heavy losses on investments racked up since about 1990.
The panel found that Olympus channeled money through several investment funds to “eliminate latent losses,” the company said in the statement, without elaborating. The revelations came as a surprise because the panel had not been expected to reach any conclusions for at least several more weeks.
The payouts in question involve $687 million in fees Olympus paid to an obscure financial adviser over its acquisition of the British medical equipment maker Gyrus in 2008. That fee amounted to roughly a third of the $2 billion acquisition price, a fee amount more than 30 times the norm.
The Federal Bureau of Investigation and the Securities and Exchange Commission in the United States are also investigating the Gyrus deal, according to people familiar with the matter.
Olympus also acquired three small companies in Japan for a total of $773 million, only to write down most of their value within the same fiscal year. Those companies — Altis, a medical waste recycling company, Humalabo, a facial cream maker, and News Chef, which makes plastic containers — had little in common with Olympus’s main line of business of producing cameras and other electronics. Those businesses had not made money before being acquired, according to the credit ratings agency Tokyo Shoko Research.
At a news conference, the company’s new president, Shuichi Takayama, bowed deeply in apology. “It is true that there were inappropriate dealings,” he said. “Our previous statements were in error.” But he stopped short of acknowledging fraud at the company, and said that no money had flowed out of the company. He said Olympus was still investigating the case and was still unprepared to reveal the scale of past losses.
Mr. Takayama also said that Hisashi Mori, an executive vice president, had been fired over his involvement in the cover-up. Hideo Yamada, who is also implicated, has offered his resignation, he said. He reiterated the company’s position that Mr. Woodford’s departure had to do with his aggressive Western-style management style rather than his inquiries into the acquisitions. Mr. Takayama said that despite the disclosure, he hoped to keep Olympus’s shares listed on the Tokyo Stock Exchange. Its shares were down nearly 30 percent Tuesday afternoon.
Mr. Woodford, who worked at Olympus for 30 years, had begun to look into those payouts after a Japanese financial magazine, Facta, published an exposé on the deals. In September, Mr. Woodford commissioned a report by PricewaterhouseCoopers into the Gyrus deal that raised concern over actions taken by Olympus management, including a lack of due diligence.
Based on the report, Mr. Woodford called for a full investigation in a letter dated Oct. 11. He urged the company’s chairman at the time, Tsuyoshi Kikukawa, and other members of the board to resign, accusing them of “calamitous errors and exceptionally poor judgment” and comparing them to rogue traders.
But on Oct. 14, the Olympus board unanimously voted to oust Mr. Woodford. He said he was not permitted to speak at the board meeting, and was advised to leave the country immediately.
Mr. Kikukawa resigned in late October. In a statement at the time, he denied wrongdoing.
Questions remain over Olympus’s links to the obscure investment and advisory companies that facilitated those acquisitions, including an investment fund incorporated in the Cayman Islands, as well as Axes, a company that oversaw those funds from the United States and Japan.
The Global Company, an investment advisory firm based in Tokyo, was closely involved in setting up the three companies as well as facilitating their sale to Olympus, according to a New York Times investigation. Executives at those companies have not been available for comment.
This article has been revised to reflect the following correction:
Correction: November 8, 2011
An earlier version of this article incorrectly said that Michael C. Woodford was fired from Olympus in mid-September. He was fired Oct. 14.
Former Olympus chief Michael Woodford 'not safe in Japan'
Former Olympus chief executive-turned-whistleblower Michael Woodford has said it may not be safe for him to return to Japan to meet investigators.
The man who revealed how Olympus had paid more than $1bn (£627m) in "improper payments" on four acquisitions volunteered to meet authorities investigating the payments in London, Singapore or New York. The investigators he was referring to include the independent panel set up by Olympus to examine the payments.
The offer came as an independent shareholder in Olympus threatened to sue the company over the payments. Japanese lawyer Takeshi Fujiwara, who is representing an unnamed shareholder, said his client was writing to the company threatening action against senior managers. The shareholder is understood to want Olympus's auditors to take action against the managers, threatening independent shareholder action if they do not act.
"There are some elements that have not been made clear where information has been concealed," Mr Fujiwara told Japanese media. "There is a responsibility to explain this."
Concerns about payments made by Olympus on the four transactions were first raised after Mr Woodford blew the whistle on what had happened, leading to him being sacked.
The payments include the world's largest advisory fee made on Olympus's 2008 acquisition of British medical devices firm Gyrus.
Former Olympus chief Michael Woodford asks for police protection after handing data to SFO
Michael Woodford, the Olympus chief executive-turned-whistleblower, has requested police protection after handing over more information to the Serious Fraud Office on $1.5bn (£953m) in "irregular payments" made by the Japanese electronics giant.