Losses on securities investments at the core of a scandal rocking Japan's Olympus Corp may have once exceeded $1 billion, the Nikkei newspaper said on Wednesday, as the 92-year-old firm's share price plunged due to doubts about its future.
Olympus admitted on Tuesday it used M&A deals to hide losses dating back two decades, a revelation that followed a public campaign by ex-CEO Michael Woodford to get the maker of endoscopes and cameras to explain a series of mysterious deals, including one involving a record advisory fee.
The scandal has raised questions about Japan's corporate governance and revived memories of the dark days after Japan's bubble of soaring share and land prices burst in 1990, leaving many top firms with losses on fancy financial deals and looking for ways to hide them.
Trust in Japanese firms may be questioned as attempts by Olympus to hide 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 No.2 opposition party, the New Komeito, told Reuters in an interview.
The Nikkei said Japan's financial watchdogs and prosecutors should stay on top of the case and cooperate with overseas authorities who are also investigating.
Olympus declined to comment on the Nikkei report, which quoted sources close to the matter.
Company President Shuichi Takayama on Tuesday blamed Tsuyoshi Kikukawa, who quit as president and chairman on October 26, Vice-President Hisashi Mori and internal auditor Hideo Yamada for the cover-up that used funds related to M&A deals, saying he would consider criminal complaints against them.
But he declined to detail how the losses had occurred or the amounts involved before an external panel completes an investigation.
Former Olympus President Toshiro Shimoyama, who served from 1984 to 1993, told the Nikkei in an interview he had no memory of any loss-hiding scheme and was not closely involved in finance at the time.
Olympus' share price plunged 20.4 percent to 584 yen on Wednesday, falling by its daily trading limit of 150 yen. It was also limit down on Tuesday when Olympus admitted to the cover up.
Meiji Yasuda Asset Management said it had sold all Olympus shares from its eight mutual funds on Tuesday because the outlook for the firm's profits was uncertain.
Olympus shares have lost more than three-quarters of their value, of $6 billion , since October 14, the day the company fired Woodford. Olympus said Woodford, a 30-year veteran at the firm, failed to understand its management style and Japanese culture.
Woodford says he was sacked for questioning the $687 million paid as an advisory fee on its $2.2 billion acquisition of British medical equipment maker Gyrus in 2008, the biggest in M&A history, as well as its buyout of three tiny domestic firms.
The advisory fee represented some 31 percent of the acquisition price, significantly higher than the industry practice of around 1 percent and a record.
The Olympus affair -- initially given little attention by most domestic media -- is the biggest corporate revelation in Japan since a series of scandals at brokerages in the 1990s, including one that led to the demise in 1997 of Yamaichi Securities, then the country's fourth-largest brokerage.
As a case of false financial reporting originating with deferring losses through 'tobashi', this resembles Yamaichi Securities, said lawyer Shin Ushijima, referring to an accounting trick of moving around loss-making portfolios to hide them.
Yamaichi hid losses by shifting the unrealized securities losses to domestic and overseas paper companies and falsely reported its earnings.
Many Japanese firms, including top-name manufacturers, plunged into financial markets after 1985 when a soaring yen hit their exports and sliced profits in their core businesses.
When markets crashed in 1990, many turned to tobashi and other accounting tricks to avoid booking the losses. Such practices were largely stamped out in 2000, leaving many shocked to find Olympus had kept its secret so long.
I think Olympus is an outlier in terms of the extent and degree of what they did, said Darrel Whitten, managing director at Investor Networks Inc, an investor relations consultancy.
Lawyers said if Olympus had knowingly falsified its consolidated financial statements that were deemed material in nature, its representatives could face up to 10 years in prison or a fine of up to 10 million yen. Legal experts also said outside auditors might be criminally liable, while the company could face shareholder suits.
The incident could strengthen the role of auditors if it is discovered that Olympus had turned a blind eye to their suggestions that there was a problem, New Komeito chief Yamaguchi said. But we may need to reassess the accounting system as a whole if auditors were unable to fully point out problems their clients were involved in.
The Olympus affair has also buffeted shares of Nomura Holdings, and the firm's main bank, Sumitomo Mitsui Financial Group (SMFG).
SMFG shares, which rose more than 2 percent in early trade, dropped 5 percent in the afternoon to a record low. It ended the session up 0.5 percent at 2,130 yen.
Nomura's shares, which dropped nearly 15 percent on Tuesday, ended up 4.1 percent at 255 yen.
The brokerage has denied media speculation that it was involved in Olympus' past loss-hiding scheme. Olympus is a client of Nomura, but the brokerage was not a financial adviser on any of the deals at the center of the scandal.
(Additional reporting by Isabel Reynolds, Nathan Layne, Emi Emoto, Chikafumi Hodo and Yuko Yoshikawa; Editing by Neil Fullick)