A key prosecution witness testified yesterday that a fallen Japanese Internet kingpin, facing trial on charges of securities law violations, knew about dubious dealings from meeting discussions and e-mail reports.
Ryoji Miyauchi, former chief financial officer of Internet startup Livedoor Co, said the defendant, Takafumi Horie, the founder of Livedoor, took part in meetings in 2003, where other Livedoor officials explained a scheme to gain cash for a stock swap and bolster earnings.
Horie, 33, who riveted Japan with his brash entrepreneurship before his arrest in January, has pleaded not guilty, contesting any scheme existed at all.
Miyauchi is the critical link between Horie and a complex scheme outlined by prosecutors, who accuse Horie of using "dummy" companies to buy and sell shares to inflate profits. But Miyauchi's testimony in Tokyo District Court failed to point to Horie as concocting the alleged scam.
Like previous witnesses, Miyauchi told the court that Hideaki Noguchi, another Livedoor executive, had engineered and proposed the scheme. Noguchi died in what police say is a suicide, after the Livedoor investigation surfaced earlier this year.
Taking the stand in Japan's biggest trial in years, Miyauchi said he believed Horie knew about the scheme, which included "borrowing" Horie's Livedoor stock to sell it to a dubious fund and raise cash. But at prodding from the judge, Miyauchi acknowledged there was no way to be sure that Horie had seen the information.
"I think he saw it," Miyauchi said. "He is a good manager and pays attention to details, so I think he probably looked at it."
Miyauchi has pleaded guilty to charges of securities laws violations. Most defendants in Japan, especially in cases about earnings misstatements, plead guilty to try to win a lighter sentence because they can usually hope to avoid prison terms.
He has testified in his own trial that he was under orders from Horie. But it's unclear whether Horie really gave orders to carry out illegalities, or whether Miyauchi saw the dealings as coming from Horie as the boss giving approval.
During yesterday's testimony, Miyauchi even quoted Horie as asking in a meeting, "Is everything going to be OK?" when the scheme was explained to him.
"He acted worried, but I think he understood," Miyauchi said.
Horie's trial opened on Sept. 4, and previous witnesses did not link Horie directly to the scheme that prosecutors say included setting up dummy companies and manipulating investment funds to inflate earnings.
The trial has drawn widespread media attention because of Horie's fame as a one-time TV celebrity who challenged the nation's staid corporate culture with his bold takeover attempts.
Defense lawyers say Horie didn't know about the dealings. Horie lacked accounting acumen to concoct the plot alleged by prosecutors and was too busy with publicity campaigns for Livedoor, they say.
Horie, a college dropout who offended many in old-guard business circles with his T-shirts and cocky attitude, was a symbol of a more modern, freewheeling market economy. Horie, released on bail in April, has worn a suit and tie for his trial.
The Japanese public has largely turned against Horie, assailing him as a disgraced youngster caught up in a dubious "money game." Prosecutors' raid on Livedoor set off a plunge on the Tokyo stock market, and individual investors lost millions on Livedoor shares.
If convicted, Horie faces a maximum penalty of five years in prison or ?5 million (US$42,000) in fines, or both.
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