[Flashback] Banks sue Olympus for $273m over accounting fraud

http://www.ft.com/intl/cms/s/0/bf18ab4a-bfce-11e3-b6e8-00144feabdc0.html#axzz3U9ofH6ce

Posted by LIM Hui Jie, Year 4 undergrad at the School of Economics, Singapore Management University

April 9, 2014

By Ben McLannahan in Tokyo

Olympus Corp has been hit with the biggest lawsuit stemming from its two-decade long accounting fraud, when banks joined forces to sue the company for a total of Y28bn ($273m) in damages. The civil lawsuit, filed on Monday by six trust banks, is a fresh setback for the Japanese group, which admitted in autumn 2011 that it had concealed losses dating back to the early 1990s by overpaying for acquisitions. Michael Woodford, the company’s British chief executive, turned whistleblower after being sacked for attempting to probe the cover-up.Shares in Olympus have staged a big rebound over the past 18 months, but the 83 per cent peak-to-trough drop in November 2011 caused pain for many investors who elected to sell, along with mark-to-market impairments for longer term shareholders. Only in April last year did the company’s stock price reclaim its pre-scandal level.

The latest suit is the 16th to be aimed at the 94 year-old company, which branched out from microscopes and thermometers to develop world-beating businesses in cameras and endoscopes by the 1980s.

In November last year Olympus said it had set aside reserves of Y11bn in connection with Y38bn of the claims. The new suit brings the total value of claims for which allowances have yet to be set to Y41bn, the company said on Wednesday.

Olympus said that it was examining the suit in detail to determine its response, and would “respond appropriately in light of the facts”.

Under Hiroyuki Sasa, installed as president since April 2012, the group has fought what analysts describe as an effective rearguard action, shoring up support for its core endoscope business – seeing off competition from domestic rivals Fujifilm and Hoya – while seeking extra funds to shore up its balance sheet.

In the end, Olympus secured three sets of capital infusions worth Y112bn in total, two of them led by Sony, while preserving its share of the global flexible endoscope market at about 70 per cent.

“You have to give a lot of credit to management – this is a company that was seen as a disaster at the time of the scandal,” said Claudio Aritomi, a Tokyo-based analyst at Macquarie. “They managed to get funds because they presented a plan to those people that they thought would work.”

The six banks involved in the latest suit are Mitsubishi UFJ Trust & Banking, Master Trust Bank of Japan, Japan Trustee Services Bank, Trust & Custody Services Bank, Nomura Trust & Banking and State Street Trust & Banking.

Joint suits mounted by trust banks – which manage assets belonging to private and public pension funds – are rare events in Japan, limited to the aftermath of big corporate scandals such as Seibu Railway and Livedoor, which were both delisted for accounting abuses in the mid-2000s.

Olympus’ shares dropped as much as 4 per cent on Wednesday afternoon, when the company confirmed that the suit had been filed, before closing down 2 per cent.

The shares had lost more than 7 per cent during the previous two days on unusually heavy volumes, suggesting that parts of the market had known about the suit in advance.

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