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20-year tangled web at Olympus

The Olympus financial reporting scandal took a turn for the worse this week, with admissions that the company has been cooking the books for two decades to hide losses on security investments.

Michael Woodford and former CEO, Tsuyoshi Kikukawa.

The initial story was sparked by the sacking of newly-appointed CEO Michael Woodford (pictured right with his now-resigned sacker and former CEO, Tsuyoshi Kikukawa – see our original story) after he questioned extraordinarily high consultancy fees associated with acquisition of a British medial instrument making company, Gyrus. These fees were the largest in the history of mergers and acquisitions, according to Reuters.

The US$687 million in fees were actually used to hide losses on the securities investments, along with another US$773 million used to purchase three small Japanese firms. This investment was largely written off  a few months later.

Tsuyoshi Kikukawa the president and chairman who sacked Woodford, has quit, and the two other executives identified as culprits in the cover-up  – a vice president (sacked) and the internal auditor (resigned) have also left the company.

Olympus shares are at their lowest level in 16 years, with the company having lost a staggering 70 percent  its value (US$6 billion) in under four weeks.

Shares in Olympus’ banker Nomura Holdings, have also fallen on speculation it was involved.

The largest international shareholder in Olympus, Southeastern Asset Management, has called for the sacking of the entire board.

‘If you were not aware of it, then you were incompetent. If you were there, and were aware f it without asking tough questions, then you were negligent. Either way you need to leave,’  Southeastern Management’s principal, Josh Shores is quoted as telling Reuters.

Olympus was founded in 1916 to manufacture microscopes. It began camera manufacture in the 1930s and in the 1950s, began to manufacture gastrocameras. It now enjoys a 70 percent market share in endoscopes, and has been one of the most venerable names in cameras and lens-making for over a generation.

Reuters says the ‘Olympus affair’ is the biggest corporate scandal in Japan since the demise of Yamaichi Securities in the 1990s.

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