Olympus executives signed off misleading accounts, restated earnings and delayed regulatory filings, creating US$687 million in fake costs to hide the company's losses.
Documents filed at Companies House in Wales revealed gaps in disclosure rules which enabled Olympus to hide the cost of its 2008 takeover of London-based Gyrus Group for more than three years, according to a report by Bloomberg.
Similar to Enron's use of off-balance sheet entities to mask losses, a simple idea underpinned Olympus' complex deception, Bruce Aronson, former partner at New York-based Hughes Hubbard & Reed, said in the report. "The structures may seem sophisticated, but one feature of every scheme is that they pretend a security is still worth full book value," Aronson said. He added that the schemes were not "a way of hidding losses in the long term", but Olympus was merely "putting off the day of reckoning".
The Japanese camera maker admitted inflated advisory fees paid in the US$2.1 billion acquisition of Gyrus on Nov. 8 were used to conceal soured investments dating back decades. In a practice known as "tobashi"--loosely translated to mean "to make fly away"--Olympus used offshore entities to park assets in the hope that a market recovery would erase losses before they could be accounted for.
A week later, the company paid US$620 million in March 2010 to buy back preference shares given to its advisors as fees. Former chairman Tsuyoshi Kikukawa and two senior aides, who were all Gyrus directors, filed financial statements saying it was not "meaningful to estimate a fair value" for the securities. Gyrus instead booked them at US$177 million, the documents indicated.
On Oct. 17, Olympus' ousted CEO Michael Woodford commissioned a PriceWaterhouseCoopers (PwC) report which uncovered payment irregularities made by the camera maker to two advisory companies in connection with the Gyrus Group acquisition. A week earlier, Woodford reportedly had been fired over differences with management and the lack of understanding of the company's corporate culture.