INVESTIGATORS PUBLISH REPORT ON TOSHIBA ACCOUNTING IRREGULARITIES
In last month's update, we reported on Toshiba Corporation ("Toshiba")'s independent investigation into its accounting practices, following the discovery of accounting irregularities in its infrastructure, television, personal computer and semi-conductor operations. The investigating committee's report was published on 20 July 2015. The report concluded that the company has overstated its operating profit by JPY 151.8 billion (US$1.22 billion), roughly triple Toshiba's initial estimate.
The report found that the company's President and Chief Executive Hisao Tanaka and his predecessor, Vice Chairman Norio Sasaki, were aware of the overstatement of profits and delay in reporting losses. The company is said to have fostered a "corporate culture in which one could not go against the wishes of superiors", and as such, employees "continually carried out inappropriate accounting practices to meet targets in line with the wishes of their superiors". On 21 July, Toshiba announced the resignation of Tanaka; it is widely reported that Sasaki will also resign in the coming months, and most of the board will be replaced to demonstrate accountability for the failings.
The findings are also expected to lead to a restatement of earnings and the company's shares are likely to be placed under special monitoring. Additionally, Toshiba could be subject to fines from a number of bodies, including the Tokyo Stock Exchange and the Securities and Exchange Surveillance Commission ("SESC"). The Tokyo Stock Exchange is expected to fine Toshiba for breach of contract, in the amount of around JPY 91 million (US$ 732,000) based on the company's market capitalization. The SESC began investigating the accounting practices from February 2015 and it has ordered the company to submit a report in accordance with Japan's Financial Instruments and Exchange Act, following receipt of which it is expected to decide whether to take disciplinary steps against Toshiba.
An extraordinary shareholders meeting will be held and the company will finalise its earnings for the financial year to 31 March 2015 over the coming weeks.
These events have arisen despite a current initiative in Japan, led by Prime Minister Shinzo Abe, to improve the country's corporate governance culture in order to attract more foreign investment.
SIX VIETNAMESE RAILWAY OFFICIALS FACE CHARGES FOR TAKING BRIBES FROM JAPAN TRANSPORT CONSULTANTS INC
In 2014 Japan Transport Consultants Inc ("JTC") admitted that it had paid JPY 94 million (approximately US$767,000) in bribes to executives at Vietnam's state-owned railway operator, in order to secure a contract to provide consultancy services for a railway project in Hanoi which was funded by Japan's Official Development Assistance Programme ("ODA"). In response, Japan suspended new ODA funding to Vietnam in June 2014. This has now been restored (in late July) on the condition that Vietnam commits to investigating in respect of this and similar projects.
On 4 June 2015, Vietnamese police recommended that charges be brought against six officials working for Vietnam Railways. The Vietnamese police have informed the prosecutor's office that the six officers, including the deputy general director, should be charged with abuse of power, an offence that carries a jail term of up to 15 years.
FORMER SECURITIES BROKERS RECEIVE PRISON SENTENCES FOR AIDING AND ABETTING OLYMPUS ACCOUNTING SCANDAL
Since 2011, Olympus Corporation ("Olympus") has been the subject of ongoing investigations for its part in a decade-long accounting fraud. On 1 July 2015, the Tokyo District Court imposed custodial sentences and fines upon three former securities brokers for their role in advising the company’s management on hiding investment losses.
The Court sentenced Nobumasa Yokoo to four years' imprisonment and required him to pay JPY 10 million (US$82,000) in fines. Two of Yokoo’s subordinates, Taku Hata and Hiroshi Ono, were sentenced to three years in prison with a JPY 6 million (US$48,000) fine and two years in prison suspended for four years with a fine of JPY 4 million (US$32,000), respectively.
Each was found guilty of aiding and abetting Olympus’ management in making false filings to regulators for the fiscal years 2006 and 2007 to cover up the firm’s investment losses.
CRIMINAL CHARGES FILED AGAINST ISHIYAMA GATEWAY HOLDINGS AND ITS DIRECTORS FOR FALSE DISCLOSURES TO THE TOKYO STOCK EXCHANGE
The Securities and Exchange Surveillance Commission ("SESC") has filed criminal charges against the JASDAQ-listed Ishiyama Gateway Holdings Inc ("Ishiyama Gateway"), and two of its former directors, for making false disclosures in an attempt to fraudulently increase the trading value of its shares.
The charges have been brought under Japan's Financial Instruments and Exchange Act. SESC alleges that the directors conspired to make a false disclosure to the Tokyo Stock Exchange on 1 November 2013 that Ishiyama Gateway had revised its consolidated financial forecast upwards for the financial year to 30 June 2014. This disclosure was allegedly made on the false basis that the company expected increased revenue of JPY 2.45 billion (approximately US$20 million) to come from additional sales and installations of biodiesel generators.