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Olympus admits it used mergers to cover losses

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Shares of camera and medical gear maker Olympus have plunged by more than 45 percent after the company finally came clean and admitted (PDF) to using dubious merger deals and complicated financial transactions to hide two decades’ worth of securities investment losses. The announcement is Olympus’s most significant disclosure since the company’s short-term CEO Michael Woodford claimed he was fired after raising questions regarding acquisition made before he took the reigns of the company, including over $680 million paid to company in the Cayman Islands following the acquisition of medical gear maker Gyrus.

The company has effectively admitted that it has been cooking its books for 20-odd years, dating back to the bursting of the Japanese economic bubble in the early 1990s. Olympus has been in business for 92 years.

“It has been discovered that [Olympus] had been engaging in deferring the posting of losses on investment securities, etc., since around the 1990s, and that both the fees paid to advisors and funds used to buy pack preferred stock [..] had been, by means such as going through multiple funds, used in part to resolve unrealized losses,” the company said in its statement.

Olympus specifically admitted the deals surrounding the acquisition of Britain’s Gyrus Group PLC, as well as three Japanese companies (Altis, New Chef, and Humalabo) were part of the coverup.

Olympus has dismissed executive vice president Hisashi Mori over the scandal, and current Olympus president Shuichi Takayama is laying the scandal at the feet of former president Tsuyoshi Kikukawa, as well as Mori and former auditor Hideo Yamada. Kikukawa had been with Olympus for more than three decades, and was key to getting the company into the digital camera business, as well as in pursuing a number of mergers and acquisitions. Yamada has been with Olympus for 48 years.

Takayama claims he was unaware of the nature of the transactions, and Olympus says it will consider pursuing criminal charges against those involved, if necessary.

The scandal has put the company at major risk: if the losses are large enough compared to Olympus’s assets, the company could face delisting from the Tokyo stock exchange. The Japanese newspaper Nikkei is putting the potential amount of losses over $1 billion.

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