CEO uncovers fraud at Olympus

Olympus Corp., the Japanese camera and endoscope manufacturer, delayed its fiscal second-quarter earnings release in November of 2011, after abruptly removing its British chief executive — two red flags in quick succession. The CEO had raised questions about past acquisitions that involved multimillion-dollar payouts for companies that seemed to have negligible value, and he made those questions public.

The deals, which had occurred over several years, were used to hide investment losses dating back two decades. The scheme and cover-up reportedly involved top company officials, including the chairman, president and the internal auditor.

Deeper probing into the companies that Olympus acquired might have raised suspicions much earlier. A sub¬sequent investigation by a panel appointed by the board found that fees to buy the companies in some cases amounted to more than a third of the value of the acquisitions themselves. These maneuvers went undiscovered for years, though.

After the board chairman resigned and the special panel was appointed to investigate the acquisitions, the Tokyo Stock Exchange (TSE) pressed Olympus for more disclosure and criticized its slow reaction to investor concerns that led to a sharp decline in share value. The TSE threatened to delist Olympus. Such actions, though, are not necessarily good for shareholders. The Asian Corporate Governance Association publicly asked the TSE not to delist Olympus, saying “delisting is generally not a favorable penalty for securities malfeasance since it punishes shareholders as much as the managers responsible.”

ACGA also noted that, on exchanges in most developed countries, a company such as Olympus would not be delisted, because “it remains a going concern with a reasonable business.”

Story Toolbox

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