Senior executives of Fujitsu Ltd <6702.T> have been sued by financial advisers who say the technology services company defamed them by implying they had a connection to organized crime.

The lawsuit brought by Tokyo-based Sandringham Private Value and two individual financial advisers and filed on Thursday marks a deepening of the legal dispute over the ouster of former Fujitsu President Kuniaki Nozoe.

The dispute is being watched because of the risk that it could prove a costly management distraction to Fujitsu at a crucial time in its turnaround efforts and for its broader implications for corporate governance in Japan.

Fujitsu, going through a major structural overhaul, slumped to a loss of 112 billion yen in the financial year ended in March 2009. For the year that ended last month, it has forecast a profit of 95 billion yen.

The lawsuit came a day after Fujitsu said it was ready to go to court to fight Nozoe's claims that he was improperly forced to resign.

Nozoe has threatened to sue Fujitsu, saying he was forced to step down in September because of his dealings with Sandringham at the time he was seeking a buyer for Fujitsu's Internet service subsidiary Nifty Corp <3828.T>.

Nozoe has said that his moves to shake up Fujitsu ran afoul of others at the company.

Fujitsu had originally cited illness as the reason for Nozoe's resignation.

The company's revised disclosure last month over the reason for Nozoe's departure triggered a two-day slide in Fujitsu's share price and a verbal warning from the Tokyo Stock Exchange.

Fujitsu did not name Sandringham at the news conference on Wednesday, its first since March 9 when the Tokyo Stock Exchange demanded a thorough public explanation about Nozoe's resignation.

Media have widely reported that Fujitsu executives named Sandringham as the firm that it considered to have ties to an anti-social force, a term used as a euphemism for organized crime in Japan.

The lawsuit by Sandringham filed in Tokyo District Court was filed by its president Yoichi Torii and his external business partner Koji Fusa.

Torii and Fusa formerly worked together as investment bankers at Credit Suisse First Boston. At Sandringham, they established a financial advisory firm and a fund.

They are seeking 330 million yen ($3.54 million) in damages as well as a published apology from Fujitsu chairman Michiyoshi Mazuka, senior executive adviser Naoyuki Akikusa and director Hiroshi Oura, Sandringham's lawyers said in a statement.

Torii and Fusa decided to file the suit on Thursday because Fujitsu continued to defame them despite their repeated requests for action by the company to help restore their credibility, their lawyers said.

We are aware of the filing through the media but cannot comment on it because we have not received the letter of the suit and have no way to confirm whether reported details are the same as the claim, said Fujitsu spokesman Makoto Koshi.

Broadband service firm FreeBit <3843.T>, which was reportedly a candidate to buy Nifty, has also issued a statement denying that it used Sandringham as a financial adviser, as some media have reported, citing the same Fujitsu executives.

($1=93.24 Yen)

(Reporting by Yumiko Nishitani)

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