Olympus

Olympus Corporation, a major Japanese manufacturer of optical equipment listed on the Tokyo Stock Exchange, was reported to have a 10-year loss-hiding scandal in Oct 14, 2011. The scandal came to light when the then Olympus chief executive Michael Woodford went public with concerns over huge payments the company had made. Olympus invested in financial derivatives and other risky investments to boost profits during 1980s. But its investment portfolio had a loss in value of $2.1 billion in 1991. In addition, the sizable trading losses thereafter led to the plunge of the company’s shares by 11% in 1998. The top management, including Chairman Tsuyoshi Kikukawa, hid investment losses by inflating acquisition costs of Gyrus Group, a British medical equipment maker, and three other Japanese companies in 2008. The overall effect of the scheme was to boost the value of goodwill and then write it down over years to cancel out losses that were kept off Olympus’s balance sheet. The intangible asset, goodwill, exceeds net assets by $17 billion on Olympus’s 2011 financial statements.
The scandal is related to ethical areas such as fraudulent financial statements, related-party transactions, and inappropriate corporate governance involving top management corruption. In 1999, companies in Japan were obliged to disclose losses on their securities investments in a timely manner. However, the top management of Olympus decided to hide the losses from both decreasing investment value and unprofitable operations by manipulating the acquisition cost of Gyrus Group. They also invested in three small companies suffering losses and then wrote down the loss year after year. Olympus was also reported to have contradictory disclosure in notes in terms of description of the companies.

Olympus were also suspected to be involved in related-party transaction as it paid advisory fee of $687 million to Axes America LLC and Cayman Islands-based Axam Investments Ltd. The advisory fees were paid