Olympus Faces Investigation, Lawsuit Over Investment Scandal

The legal woes continue for scandal-rocked Olympus Corp.

Japan’s financial watchdog vowed to investigate the Tokyo-based camera and medical equipment manufacturer along with authorities in the United States and Britian after the company revealed it hid massive losses on securities investments dating from the 1990s. Financial Services Minister Shozaburo Jimi said the scandal has sparked significant mistrust among international investors.

“Trust in Japanese firms may be questioned as attempts by Olympus to hid losses stretch back to the bubble era, which brings up the question of whether other companies were involved in similar practices as well,” Natsuo Yamaguchi, head of the New Komeito, the nation’s No. 2 opposition party, told Reuters in a recent interview.

Olympus President Shuichi Takayama acknowledged earlier this month that the losses were hidden in part through the $2 billion purchase of British medical equipment maker Gyrus Group plc in 2008. The purchase price included a $687 million advisory fee, which was significantly more than the usual fee paid for such a deal.

The admission prompted Olympus’ stock to plummet. Analysts claim the revelation could cause the 92-year-old firm to be de-listed from the Tokyo Stock Exchange.

Besides the $687 million advisory fee, Olympus bigwigs allegedly concealed an additional $773 million in losses through the purchases of three small Japanese companies between 2006 and 2008. The firms had little or no relation to Olympus’ core business.

The deals were first questioned by Michael Woodford, who was fired as Olympus chief executive on Oct. 14. Managers also dismissed executive vice-president Hisashi Mori, claiming he was involved in the cover-up along with Tsuyoshi Kikukawa, who abruptly resigned as chairman in October in an attempt to placate angry shareholders. A company auditor also tendered his resignation.

“We needed a higher level of corporate governance,” Takayama said. “From now on we’ll do our utmost not to make the same mistake again.”

Such efforts may be too late for U.S. investor Lloyd Graham, who has filed a securities lawsuit against the company on Nov. 14, seeking to recover investment losses. Graham owns 55 American Depository Receipts of Olympus, and his lawsuit seeks class-action status to represent all investors who purchased Olympus ADRs in the five years leading up to Nov. 7.

Lloyd’s lawsuit accuses Olympus of making false statements about its finances and intentionally hiding losses from investors. It names as defendants Takayama, the company’s current president, as well as Woodford, the fired chief executive who then became a whistleblower after his termination. Court documents also name Kikukawa (the former chairman) as a defendant.

Lloyd filed the suit in federal court for Pennsylvania’s Eastern District, which covers Center Valley near Allentown, where the U.S. headquarters for Olympus is based.

Olympus has not commented on the lawsuit.