Olympus 2 Revised

8/13/2019 Olympus 2 Revised

1/35

{OLYMPUS SCANDALWHYHAVENTWELEARNEDFROMIT? }

JoseOchoa

Bruna

Dallagnese

Luis

Rosado

SECU 324Security FraudProfessor Maria Ramos Pough


2/35

COMPANYSTANDINGSASOFMARCH31, 2012

Company name: Olympus Corporation

Established:October 12, 1919

Representative Director/President:Hiroyuki Sasa

Business Lines: Manufacture and sales of precision machineries

and instrumentsCapital:48,332 million ($506,359.86 USD)

Consolidated net sales:848,548 million ($8,889,982.83 USD)

Consolidated headcount: 39,121

Non-consolidated headcount: 3,292

1


3/35


4/35

Apr. 2011Sept./Oct.

2011Aug. 2011Jul. 2011 Jan. 2012 Feb. 2012

Apr. 2011

3


5/35

Apr. 2011Sept./Oct.

2011Jul. 2011 Aug. 2011 Jan. 2012 Feb. 2012

4


6/35

Apr. 2011 Aug. 2011Jul. 2011 Sept./Oct. 2011 Jan. 2012 Feb. 2012

5


7/35

Apr. 2011 Aug. 2011Jul. 2011Sept./Oct.

2012 Jan. 2011Feb. 2012

6


8/35

Apr. 2011 Aug. 2011Jul. 2011Sept./Oct.

2012Jan. 2012 Feb. 2011

7


9/35

Opportunity

Pressure

Rationalization

8

FRAUDTRIANGLE


10/35

1) Colluding Management2) KPMG AZSA LLC3) Span of Control

9


11/35

1) Hide losses for transactional purchasesmade on behalf of Olympus

2) Fear of Mob element (Yakuza)

10


12/35

1) Greed2) Extortion3) Wont get caught because top players are

in the game + possibility of being backedby Yakuza

11


13/35

12

REDFLAGS


14/35


15/35

4

August 1st, 2 executives at Olympus UKbranch meet with Woodford and discussFACTA article

5

Business lunch in JapanWoodford receivestuna sandwich while Kikukawa and Mori as

Kikukawa and Mori have a sumptuous plate ofSushi

6

Kikukawa response to Woodford about FACTA:its a domestic issue

14


16/35

15

OLYMPUSFLOWCHART


17/35

TsuyoshiKikukawa

Hisashi

Mori

Executive VicePresident

GeneralManager,FinanceDivision

GeneralCorporatePlanning

Main BoardDirector

Hideo

Yamada

ExecutiveManaging

Officer

ExecutiveOfficer

StandingCorporateAuditor

Shuichi

Takayama

Director of HR

ManagingExecutive

Officer

SeniorManagingExecutive

Officer

CEO &President

Hajime

Sagawa

AkioNakagawa

Worked in

tandem w/Sagawa

ManagedOlympus

balance sheet

ManagedOlympus

balance sheet

Cofounderof Axes

America

Nobumasa

Yokoo

FoundedGlobal

Company

Akinobu

Yokoo

ExecutiveOfficer ofOlympus

Main boarddirector

AppointedPresident &Representative

Director

Chairman &

CEO

MichaelWoodford

President& CEO

BoardMember

ManagingDirector

ExecutiveManagingDirector

16


18/35

Olympus is the worlds largest maker of endoscopes, instruments thatdoctors use to look inside the bodys cavities to help detect disease. It

holds a 70 percent share of the global market for diagnosticendoscopes.

Questions were first raised about Olympuss acquisitions in August2011 in the Japanese magazine Facta. The scandal deepened inOctober after Olympus fired its chief executive, Michael C. Woodford,who said he was dismissed after questioning the companys chairman

and board about some of the payments. Olympus is suspected of

having deliberately acquired the Japanese firms at inflated prices, andin the year following the purchases, it booked impairment lossesbecause of decreases in the companies' value. In this way, investmentlosses were transferred to losses because of corporate valuemiscalculation. An impairment loss is a special nonrecurring charge

taken to write down an asset with an overstated book value.

17BACKGROUND


19/35

In October 2011, Olympus became engulfed in a huge scandal whenChief Executive Michael Woodford went public with allegations that thecompany had not properly accounted for about $1.5 billion in payments

related to mergers and acquisitions. The crisis escalated when thecompany dropped weeks of denials and stunned investors by admittingto hiding substantial investment losses for decades and using theunusual payments to assist in the cover-up.

Mr. Woodford had officially raised his concerns in a series of letters to

the Olympus vice chairman, Hisashi Mori, beginning in mid-September.The letters paint a picture of an increasingly frustrated Mr. Woodward,as he demands more disclosure over the acquisitions. In his fifth letter,dated Sept. 27, he set the first of his ultimatums: Mr. Mori must, heinsisted, produce documents before his return to Tokyo from London thenext day, and agree to a three-way summit with the chairman, Mr.

Kikukawa.

18

BACKGROUND CONTINUED


20/35

In an internal e-mail, circulated to Olympus employees on Monday, Mr.Kikukawa complained of what he called Mr. Woodfords aggressivemanagement style. Mr. Woodford did not obey the rules of the group, the e-mail said; he did not understand the Japanese art of nemawashi , orinformal consensus building. In perhaps a deliberate jab at Mr. Woodfordsallegations, the e-mail complained of the Englishmans penny-countingways. In Europe, he had to sign off even on every piece of stationery, thee-mail said. He frets over every yen spent that he is not aware of.

Woodford was terminated in mid October after questioning huge paymentsmade in conjunction with acquisitions. In the case of the purchase of Britishmedical equipment maker Gyrus, the advisory fee of $687MM (to arelatively unknown firm called Axes and its Cayman affiliate, Axam, wasequivalent to a third of the total consideration paid. The purchase was oneof those used to hide long-standing investment losses.

19

BACKGROUND CONTINUED


21/35


22/35

On the surface, Olympus seemed to have checks onits management. For example, it hired directors andauditors from outside the company, as well as a

British president who was not tied to corporateinsiders. In reality, however, the company'smanagement was ruled by former Chairman TsuyoshiKikukawa and a few other executives who came fromits financial sections.

21

Fraudulent Financiers


23/35


24/35

The company's management is believed to havebeen effectively controlled by several executives whohave a background in financial affairs, including

Kikukawa and former Vice President Hisashi Mori,both of whom were involved in the cover-up of pastlosses. Olympus' board of auditors, which issupposed to supervise the board of directors, includesfull-time auditor Hideo Yamada, who also has financial

expertise. All three of the executives have served ashead of the company's Corporate Center, whichsupervises the accounting and financial departments.

23


Continued


25/35

A person connected with a major Japanese securitiesfirm, who had close ties to Olympus, told the companyabout "loss-deferring practices." Deferring losses has

been used by banks and other companies in theaftermath of the collapse of the economic bubble. Thepractice is often used to make losses look smaller onthe books by selling bad assets to related companies.

24


Continued


26/35

At the heart of Olympuss action is a once-commontechnique called tobashi, which Japanese financialregulators tolerated before clamping down on the

practice in the late 1990s. Tobashi, translated looselyas to blow away, enables companies to hide losses

on bad assets by selling those assets to othercompanies, only to buy them back later throughpayments, often disguised as advisory fees or other

transactions, when market conditions or earningsimprove.

25


Continued


27/35


28/35

Olympus Corp.'s cover-up of massive losses hasshed light on murky methods employed to clean upthe mess left after the nation's economic bubble burst.

"Many companies turned to speculative investmentsas they suffered sluggish sales and stagnantoperating profits," Olympus President ShuichiTakayama said. He also said the cover-up wasattributed to investment failures that saw investments

turn into massive losses in the 1990s due to thebursting of the economic bubble.

27


Continued


29/35

At the end of 2008, the global financial crisis plungedcompanies into the red. Olympus booked a 115 billionyen loss in the fiscal year that ended in March 2009.

Its loss attracted little attention, however, alongsideequally dismal numbers from other strugglingmanufacturers. With that taken care of, Olympusappeared ready to start a new chapter, said Mr.Yamada of Kabu.com. The chief executive who

publicized the payments was promoted, he said, tofocus on growing the company. They did not expecthim to start digging into the past.

28


Continued


30/35

When purchasing Gyrus in 2008, Olympus paid about66 billion yen to U.S. adviser Axes and anotherCayman Islands-based adviser. The company also

spent 73.4 billion yen to acquire three unlistedJapanese companies, including a health fooddistributor, from 2006 to 2008. It reported animpairment loss of 55.7 billion yen during fiscal 2009.

29


Continued


31/35


32/35

To avert a rapid deterioration of its financial standing,Olympus continued corporate acquisitions and othermeasures for many years, booking impairment losses

to improve its balance sheet. Losses on thepurchases of the three Japanese companiesamounted to 55.7 billion yen. With money paid on theGyrus deal included, Olympus may have used morethan 100 billion yen in funds for past acquisitions to

conceal losses on securities investments.

31


Continued


33/35

Olympus allegedly made false statements in financialreports, prompting the Securities and ExchangeSurveillance Commission to launch a full investigation

on suspicion of window-dressing. Olympus dismissedVice President Hisashi Mori for his involvement in thecover-up, while auditor Hideo Yamada expressed hisintention to resign. The company is considering filingcriminal complaints against executives involved in the

cover-up, including Tsuyoshi Kikukawa who resignedfrom his post as chairman to take responsibility for thescandal

32


Continued


34/35

Shares for Olympus tumbled 30 percent in Tokyoafter the company admitted it had been hiding lossesgoing back more than 20 years. The company's

shares have lost 70 percent of their value in the lastmonth after ousted British chief executive MichaelWoodford blew the whistle on questionable fees paidduring acquisitions.

33


Continued


35/35

http://factsanddetails.com/japan.php?itemid=2305&catid=24&subcatid=157

34

references
http://factsanddetails.com/japan.php?itemid=2305&catid=24&subcatid=157http://factsanddetails.com/japan.php?itemid=2305&catid=24&subcatid=157http://factsanddetails.com/japan.php?itemid=2305&catid=24&subcatid=157http://factsanddetails.com/japan.php?itemid=2305&catid=24&subcatid=157http://factsanddetails.com/japan.php?itemid=2305&catid=24&subcatid=157

Olympus 2 Revised

Documents

Transcript of Olympus 2 Revised