By Jonathan Soble and Michiyo Nakamoto in Tokyo
Japanese authorities arrested seven people on Thursday in connection with a $1.7bn accounting fraud at Olympus, including the camera company?s former chairman and outside financial advisers suspected of helping executives hide loss-making investments.
Prosecutors said they believed the ex-chairman, Tsuyoshi Kikukawa, and the other men had broken Japan?s Financial Instruments and Exchange Act by filing false reports to tax officials. The arrests were the first in a four-month-old case that has shaken corporate Japan.
Two other disgraced Olympus executives, Hisashi Mori and Hideo Yamada, were arrested along with Mr Kikukawa. All three men left the company after the scandal broke in October, and had been named by Olympus as the central organisers of a loss-hiding scheme whose origins date to the 1990s.
None has spoken publicly since leaving, and lawyers or other representatives could not be reached for comment on Thursday.
The other four arrested men worked for financial firms that advised Olympus on acquisitions connected to the alleged fraud. Olympus has admitted that it secretly moved more than Y100bn ($1.3bn) of securities-related investment losses off its books over the years, then used acquisitions as cover to square the hidden accounts.
The company is suing 19 former and current executives, including its current president, Shuichi Takayama, for Y3.61bn in damages, in a lawsuit initiated by its statutory audit committee.
Including money that the advisors kept in return for their services, roughly Y135bn was ?appropriated to maintain the scheme?, a civil investigation commissioned by the company concluded in December.
Two of the arrested financiers, Akio Nakagawa and Nobumasa Yokoo, previously worked at Nomura, the Japanese investment bank, before leaving to found boutique financial advisory firms. Mr Nakagawa ran Axes, which was involved in Olympus? purchase of the UK medical device group Gyrus in 2006, while Mr Yokoo was head of Global Company, a firm that arranged Olympus deals in Japan.
The arrests follow a global investigation involving agencies in the US and the UK and spanning jurisdictions from Florida and the Cayman Islands to London and Hong Kong. One other financier who has come under scrutiny in the case, Hajime Sagawa, is a US resident, but it was unclear whether authorities outside Japan also planned legal action.
?After going to hell and back this is a day to remember,? Michael Woodford, Olympus? British former president, said in an e-mail. Mr Woodford first exposed the accounting problems after he was fired by the company in October, and has not been accused of involvement in the fraud.
Mr Woodford is suing the company over his dismissal, which took place just six and a half months after he took up his position. In the weeks before the sacking, he had been pressing Mr Kikukawa and the other arrested executives for information about the suspect acquisitions.
If convicted, the seven men could face to up to 10 years in prison. Although it is common for white-collar criminals in Japan to escape jail with suspended sentences or fines, Hideaki Kubori, a lawyer and corporate governance specialist, said the scale and severity of the Olympus fraud made it appear ?much more egregious? than past cases.
? The Financial Times Limited 2012