The board of Japan's scandal-ridden Olympus Corp <7733.T> is expected on Wednesday to consider legal action against former executives who cooked its books, a day after an investigative panel issued a damning report on senior management.

The board, already battling to maintain credibility after one of Japan's biggest accounting scandals erupted on its watch two months ago, faces a delicate task in pursuing wrongdoers.

Made up almost entirely of directors who served during Olympus's 13-year cover-up of investment losses, the board was publicly trashed in Tuesday's report but it remains in charge until shareholders can agree on a new team.

It is due to hold a news conference at 0600 GMT.

Olympus, a maker of cameras and medical equipment, has seen its existence threatened by the scandal, in which the panel found that several senior executives cooked the books for 13 years in a $1.7 billion scheme to hide investment losses.

The panel, set up by Olympus last month and made up of six legal and accounting experts, described Olympus management as rotten to the core, citing a desire to flatter financial performance and a culture of absolute corporate loyalty.

The board, which has been thinned out by resignations since the scandal broke in mid-October, is expected to consider panel recommendations to take legal action against former executives involved in the cover-up and also consider criminal complaints.

The company takes very seriously the results of the (panel's) investigation and its recommendations, and it is considering further fundamental measures to restore confidence as soon as possible, Olympus said after the panel's report.

Olympus President Shuichi Takayama has already said the firm will consider legal steps, including criminal complaints, against those found responsible and he has already blamed two former top executives for masterminding the cover-up.

The pair, former executive vice president Hisashi Mori and ex-internal auditor Hideo Yamada, was also found by the panel to have engineered the concealment, starting in 1998. Two former presidents were also made aware of it, the panel found.

The Nikkei daily also said on Wednesday that the firm was preparing to sue both current and former executives implicated in the scandal, but it did not name any of them.

ORGANISED CRIME

One of the very few glimmers of hope from the panel's report was its conclusion that there was no evidence of a much-rumored link between the scandal and organized crime.

If a link were to be found -- and police are still investigating this aspect in a separate inquiry -- Olympus would be likely to be delisted from the Tokyo stock market, a humiliation that could force it to sell its core businesses.

Olympus shares have lost about half their value since its sacked chief executive, Michael Woodford, blew the whistle on the accounting problems, and the stock sank further on Wednesday on fresh doubts over the firm's struggle to remain listed.

The stock fell as much as 9 percent in early trade, with investors now focused on whether Olympus can meet a December 14 deadline to report its second-quarter results and reveal the size of the restatement required to iron out its accounts.

Even in the absence of any link to organized crime, Olympus would be delisted if it failed to meet the reporting deadline. And even if it met the deadline, it could still be dumped from the exchange of its accounting misstatements were large enough.

The third-party panel report was as expected. The real issue is now with the Tokyo Stock Exchange (TSE), said Hajime Nakajima, wholesaler trader at Cosmo Securities in Osaka.

To regain confidence, the TSE has to make a decision. Otherwise it will be seen as a problem for the entire market.

Adding to the uncertainty is the question of Olympus's leadership, with CEO-turned-whistleblower Woodford campaigning to unseat the current board and to install his own team of candidates, with himself at the helm as nominated CEO.

Current President Takayama has said current management is willing to step down at the appropriate time, but only after getting company back on track.

(Reporting by Mari Saito; Writing by Mark Bendeich; Editing by Linda Sieg)

Japan