Ousted CEO reveals Olympus accounting irregularities

PricewaterhouseCoopers report, commissioned by deposed CEO Michael Woodford, shows payment irregularities made to advisors in connection with an acquisition just days before his departure.

A PricewaterhouseCoopers (PwC) report commissioned by ex-CEO Michael Woodford has uncovered payment irregularities made by Olympus to two advisory companies in connection with the acquisition of Gyrus Group in 2008. The report comes just days before the executive was deposed from his position over reported differences with management and lack of understanding of the company's corporate culture.

According to a Bloomberg report Sunday, an Oct. 11 report by PwC showed that the Japanese maker of cameras and medical equipment paid US$687 million to two advisory companies related to its purchase of Gyrus Group which was  completed in 2008. The fees were more than a third of the US$2 billion purchase price, the report noted.

It added that one of the advisers, Cayman Islands-based AXAM Investments, was removed from the local registry last year for non-payment of license fees.

These findings might lead to the company facing scrutiny by regulatory and prosecuting authorities because of the potential offences, including false accounting, financial assistance and breaches of directors' duties by the board, the external auditor pointed out.

"The eventual cost of the transaction to Olympus is extremely significant and is as a result of a number of actions taken by management, which are questionable and give cause for concern. We were unable to confirm that there has been improper conduct; however, given the sums of money involved and some of the unusual decisions that have been made, it cannot be ruled out," the audit report stated.

The PWC report, which was disclosed to Bloomberg by Woodford, showed also that the two advisory firms had negotiated an increase in completion fees to approximately US$682 million from US$189 million. The former CEO also showed six letters he wrote to Chairman Tsuyoshi Kikukawa and the board questioning the payments in the weeks before he was fired.

There was no external legal advice on the increase and no formal board approval for the second agreement, according to Woodford.

When asked about the report, Olympus' executive vice president Hisashi Mori told Bloomberg that "it is based on speculation. Kikukawa, who was Woodford's predecessor, did not respond to queries.

Last Friday, the Japanese company fired Woodford over differences with management and his lack of understanding of the company's corporate culture. The executive was said to have largely diverted from the rest of the management team in regard to management direction and method and "causing problems" for the team.