Japan's Olympus admitted today it hid losses on securities investments dating back to the 1980s, bowing to weeks of pressure to explain a series of baffling transactions that have put the future of the firm in doubt.
The revelations by the 92-year-old maker of endoscopes and cameras appear to vindicate ex-CEO Michael Woodford, who has staged a campaign since being sacked on October 14 to force the firm to come clean on nearly $1.5 billion in questionable payments.
Olympus President Shuichi Takayama blamed Tsuyoshi Kikukawa, who quit as president and chairman on October 26, Vice-President Hisashi Mori and internal auditor Hideo Yamada for the cover-up, saying he would consider criminal complaints against them.
"I was absolutely unaware of the facts I am now explaining to you," a subdued Takayama, who had staunchly defended the deals when he took over from Kikukawa last month, told a news conference. "The previous presentations were mistaken."
Olympus said it had found that funds related to its $2.2 billion purchase of British medical equipment maker Gyrus in 2008, which involved a huge advisory fee of $687m, as well as payment of $773m for three tiny domestic firms, were used to hide losses on the securities investments. The investment in the three domestic firms was largely written off a few months after the deals closed.
The disclosure leaves Olympus, its directors and its accountants open to possible criminal charges for suspected accounting fraud and shareholder suits, lawyers and analysts said, raising questions about the future of the firm, founded in 1919 as a microscope maker.
"This is very serious. Olympus admitted it has made false entries to cover its losses for 20 years. All people involved in this over 20 years would be responsible," analysts said. "There is a serious danger that Olympus shares will be delisted. The future of the company is extremely dark," they added.
Olympus' announcement sent its shares tumbling 29% to a 16-year low today. The company has lost 70% of its value, or $6 billion, since it fired Woodford, who had questioned the deals. The Briton had been one of the few foreign CEOs of a Japanese blue chip.
Olympus said it discovered the cover-up while working with an independent panel set up last week to investigate the deals. Kikukawa and Mori confessed to their roles on Monday night, Takayama said. Mori was sacked earlier in the day while the internal auditor offered to resign.
Olympus said it would decide whether others were responsible after further investigation.
The Olympus affair is the biggest corporate scandal to hit Japan since a series of scandals at brokerages in the 1990s including one that led to the demise in 1997 of Yamaichi Securities, then the country's fourth largest brokerage.
Takayama said he believed the loss-postponement scheme had started before the 1990s. The firm said it had funnelled money related to the acquisitions through various funds and other measures to defer posting the unspecified losses, similar to practices seen after Japan's bubble economy of soaring asset prices burst in 1990.
While Olympus did not offer concrete details, Takayama said he believed the company may have initiated the loss-postponing scheme when its earnings had taken a drastic turn for the worse, possibly during a period of yen strength.
Such a scheme may have involved creating a fund or special purpose vehicle to buy battered securities at book value, getting them off Olympus' balance sheet. The cost to fund that scheme would have ballooned over time.
