It took a month for shareholders of Olympus Corp. (TYO:7733) to file a lawsuit over a bookkeeping scandal that’s put the endoscope maker’s share price in the cellar.
Olympus has admitted to a decades-long scheme to conceal losses using fictitious payments to dummy merger & acquisition consultants. The scandal has cost a series of high-level executives their jobs and pared 6 3.5 percent from Olympus shares since the scandal broke Oct. 14, after the firing of then-CEO ( and current whistleblower) Michael Woodford.
Olympus head Shuichi Takayama, its third president in less than a month, last week pointed the blame at three former executives: chairman Tsuyoshi Kikukawa, who took over the corner office for a couple of weeks in between Woodford’s termination and the appointment of Takayama; executive vice president Hisashi Mori, who was fired; and internal auditor Hideo Yamada, who has tendered his resignation.
Now shareholders represented by investor Lloyd Graham are seeking class status for a lawsuit accusing the company and its top management at the time – including Woodford – of complicity in the loss-hiding scheme.
"[D]efendants knew that the public documents and statements, issued or disseminated by or in the name of the company, were materially false and misleading," according to court documents. "The ongoing fraudulent scheme described in this complaint could not have been perpetrated over a substantial period of time, as has occurred, without the knowledge and complicity of the personnel at the highest level of the company, including the individual defendants."
The suit, filed in the U.S. District Court for Eastern Pennsylvania, names Olympus, Woodford, Kikukawa and Takayama as defendants. The lawsuit seeks class action status, a jury trial, damages "sustained as a result of defendants’ wrongdoing," interest, costs and legal fees.
Woodford, the company’s first non-Japanese CEO, was sacked after questioning a $687 million acquisition consulting fee. Olympus, which has a corner on 70 percent of the endoscopic camera market, launched in internal probe into the fee scandal after Woodford took his concerns to the media, the U.K.’s Serious Fraud Office and the U.S. Federal Bureau of Investigation. Now the Tokyo Metropolitan Police are investigating the firm for possible violation of financial laws, according to Reuters, working alongside Japan’s Securities & Exchange Surveillance Commission and Tokyo prosecutors – and U.S. authorities including the Securities & Exchange Commission and the FBI.
They’ll look into a spate of dubious M&A activity, including its $2.2 billion buyout of Gyrus Group in 2008 (and the $687 million consulting fee that piqued Woodford’s concern in the first place), as well as the 2009 sale of its profitable diagnostics unit to Beckman Coulter for about $1 billion. At the time Kikukawa claimed the divestiture was necessary because Olympus couldn’t compete in the diagnostics market, according to Bloomberg BusinessWeek.
Olympus could have built up the diagnostics business “if we hadn’t wasted all our money on silly things,” Woodford told the magazine. “We had to strengthen our balance sheet and didn’t have the money to invest.”