Japanese prosecutors yesterday arrested three former Olympus Corp executives — including the company’s ex-chairman — over their alleged roles in orchestrating a cover-up of massive losses at the camera and medical equipment manufacturer.
The former chairman, Tsuyoshi Kikukawa, along with executives Hideo Yamada and Hisashi Mori, were arrested on charges of violating securities and financial laws, prosecutors said in a statement. Four consultants at other companies linked to Olympus were also arrested. Olympus as a corporation could face charges too.
Also arrested were former bankers Akio Nakagawa and Nobumasa Yokoo and two others suspected of helping hide huge investment losses through complex merger and acquisition deals.
The Tokyo-based company said in a statement that it took the arrests seriously and promised to cooperate fully with the ongoing investigation.
The maximum penalty for the securities and financial charges is 10 years in prison or a ￥10 million (US$128,000) fine.
The scandal surfaced late last year when then Olympus president Michael Woodford raised questions about huge payments for financial advice and acquisitions of companies unrelated to the company’s mainstay businesses.
Olympus at first denied any wrongdoing, but later acknowledged it hid ￥117.7 billion in investment losses dating back to the 1990s.
Kyodo yesterday reported, citing unidentified sources, that Kikukawa, Yamada and Mori have told prosecutors that they were involved in the cover-up.
Kikukawa resigned from all posts at Olympus last year. The company is suing him and 18 other former and current executives for damages in the cover-up.
Nakagawa, who began his banking career at Nomura Securities, was a founding member of the Axes group, which was awarded a huge US$687 million advisory fee for Olympus’ acquisition in 2008 of UK medical equipment firm Gyrus that was at the heart of the scandal.
Yokoo, another former Nomura banker, ran a consulting firm, Global Company, which was hired by Olympus in 2000 to scout for new businesses and steered investment into three small money-losing Japanese firms.
The scheme — which came to light only because Woodford blew the whistle — has raised serious questions about corporate governance in Japan and whether major companies are complying adequately with global standards.
Olympus has carried out an internal probe, setting up an independent panel, and found that some executives were involved in the deception.
Woodford was fired in October after raising his concerns. He tried to make a comeback, but gave up the fight after failing to win backing from major investors, including Japanese megabanks.
Woodford, a British national and one of the few foreigners to head a major Japanese company, had demanded the resignation of the entire board.
Prosecutors have been carrying out an investigation and raided Olympus headquarters and the home of Kikukawa last year.
Olympus barely met its mid-December deadline to avoid being removed from the Tokyo Stock Exchange by filing corrected earnings for the April-September first half and for the past five fiscal years.