Fraud is not only a problem in the United States, it happens all over the world. Recently there was a case in Tokyo that could turn out to be one of the biggest if not the biggest fraud in corporate history. A Tokyo company named Olympus was suspected of using over $1 billion of merger payouts to hide massive losses that had been piling up over several years. Olympus had been repeatedly denying that they had done anything wrong.
This was not the case according to Michael C. Woodford. After being appointed as the president of Olympus in February, he started seeing things that he did not like in the company’s internal records. When he discovered these wrong doings he did what any good, honest person would do, he reported it. This act of exposing a fraud like that is known as whistle-blowing. It is not an easy thing to do because it usually ends up with the whistle-blower losing his/her job. This is exactly what happened to Mr. Woodford, he was fired in mid-October. Since getting fired Mr. Woodford has released those internal documents to the news media in an attempt to force an investigation. He has also called for the resignations of all Olympus’ board members.
The affects of these documents being released to the media have been staggering to Olympus. Their stock market value has dropped to under half of what it was before Mr. Woodford blow the whistle on them. This is because many people no longer trust in the quality of the company’s governance. Olympus is trying to combat this drop in stock value by launching a full investigation that will be carried out by an outside, independent panel of experts. They are hoping that this investigation will restore confidents of the investors in the company.
This panel did find fraud. The panel’s report showed that Olympus had been using money from mergers to hide massive losses from investments. It showed that this had been going on since at least 1990. It was an easy find for the panel. The biggest fraud was a $687 million dollar pay out to an adviser that help Olympus acquire the British medical equipment maker Gyrus. This kind of heavy pay out for an adviser is just way too much. It was about a third of what it cost Olympus to make the acquisition, this is somewhere around 30 times what is normal for this kind of transaction.
Now that these miss dealings have come to light, Olympus is trying to save face by admitting to them and saying that it is all in the past. The company’s new president, Shuichi Takayama said, “It is true that there were inappropriate dealings. Our previous statements were in error.” It seems to me that this is just their way of saying, we got caught and we will not do it again.
Olympus problems are not over yet though. The Securities and Exchange Commission and the Federal Bureau of Investigation are now looking into the Gyrus deal along with three other deals that Olympus made. Things could get a lot worse for them before it gets better.
Hiroko, Tabuchi. “Olympus Hid Investing Losses in Big Merger Payouts.” New York Times 07 11 2011. n. pag. Web. www.nytimes.com
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