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Ex-Nova President Sahashi arrested on embezzlement charges

Asahi is reporting that former Nova President Nozomu Sahashi has been arrested on charges of embezzlement, after having initially been brought in for voluntary questioning on Tuesday morning.

Since this arrest was so predictable, so obviously in the making for such a long time (and possibly only the tip of the iceberg), it can’t be good PR for the firm that decided to buy the rights to Nova’s name - and it doesn’t look like the negative PR is going to stop anytime soon. The decision to keep the firm’s muck-dragged name and not go through some sort of re-branding strategy baffles the mind.

As letsjapan.org is following these events in more detail, we recommend anyone following the case to head over there to read up.

HT to Shawn at letsjapan.org and JEN reader trev.

The Emperor’s Old Clothes: Former Nova President Saruhashi’s office/digs on the evening news

Former Nova President Nozomu Saruhashi apparently spent somewhere between 60 and 70 million yen on his private office, which doubled as a living suite, complete with a sauna.

Here’s the Emperor’s old clothes on NHK News from Tuesday night:

It looks as if the bankruptcy administrators are trying hard to separate Saruhashi from the company he ran. This is probably in the hopes that someone will step in and buy what’s left of Nova. The administrators claim that there are interested parties, but no names were given - giving out names didn’t seem to work so well last time. This time we might not even get to hear the denials of interest at press conferences.

There will be those who say, “So what? CEOs spend tons of money on offices.” True. But it seems that’s not what the people administering this bankruptcy want heard on the evening news.

Mainichi: Saruhashi dumped his Nova shares by September 30; Nishida: I arranged the Nova equity warrant sale; Saruhashi: I’ve never heard of Nishida

There has been some speculation going on as to how former Nova President Nozomu Saruhashi was reported to hold somewhere in the neighborhood of 20% of the firm’s shares by last Friday. As anyone following the Nova case knows, Saruhashi, along with holding company Nova Kikaku, was always assumed to be the majority holder of Nova’s shares.

He was. The Bloomberg box told us that Nova’s top shareholders were as follows:

1. Nova Kikaku 35.94%
2. Saruhashi, Nozomu 35.47%
3. Roots 11.82%
4. Saruhashi, Hikaru 3.83%
5. Saruhashi, Izumi 1.93%

We’re forced to wonder how and when Saruhashi cashed out, and whether or not it was legal. First of all, according to a notification from the Financial Services Agency in March, any transaction involving a purchase or sale of 5% of a listed firm must be reported on EdiNET (Electronic Disclosure for Investors’ NETwork).

Nova’s code at EditNET is 941240. As of this morning, no sale from Saruhashi has been reported.

So…when were the shares sold? According to today’s Mainichi:

It has emerged that the stake held by NOVA Kikaku and Sahashi had declined to 3.69 percent and 16.02 percent, respectively, by Sept. 30, totaling 19.71 percent. Neither Sahashi nor NOVA Kikaku has submitted a report on the sale of the shares.

Emphasis added. There’s not much of a point in even checking EditNET or Bloomberg. The sale was not reported within five days. According to the FSA’s document from March, failure to properly disclose any transaction involving greater than 5% of a listed firm is a violation of the Securities and Exchange Law.

Also according to the Mainichi: Arrested stock price manipulator Haruo Nishida told the paper on October 11 that he was involved with setting up the sale of Nova’s equity warrants, saying, “I helped set them up. I was just about to do it (get involved with NOVA shares) and was heading off to Britain (in connection with that), but the Osaka district prosecutors stopped me, so I couldn’t go.”

So, the Mainichi sat on this info for 18 days?

Perhaps they couldn’t verify it. After all, last Thursday, Saruhashi told the Mainichi, “I’ve never heard of Nishida, nor have I met him. A lawyer was dealing with the funds and I’ve heard the lawyer has had nothing to do with him, either.”

Note: EdiNET of course has a frustratingly stupid user interface and does not properly process GET variables from an HTML form.

Can’t afford to do background checks on your clients? Fuhgettaboutit

The top headline on the Yomiuri’s English site today was Brokerages aim to cut ties with gangs, which may or may not sound more sensationalist than it really is. At any rate, it is a tad misleading. The brokers themselves are not behind this effort, as the article’s first sentence points out: The “Japan Securities Dealers Association (JSDA) will prohibit securities firms from letting gang members open brokerage accounts and punish violators of the rule.”

We then learn that a mechanism for identifying accounts that should not be allowed is hoped to be in place “as early as fiscal 2008.”

The JSDA has no formal rule banning its members from dealing with known criminal groups.

“Keep moving, nothing to see here…”

Goodwill Group showing anything but

With the recent news that Morgan Stanley has upped its stake in Goodwill Group to 13.62 percent and with UBS pushing its holdings in the company to 9.51 percent, it seemed as though the scandals surrounding Goodwill and its subsidiary, disgraced nursing care provider Comsn, might be about to become a thing of the past.

After all, elder care and temporary worker dispatch services are both huge growth industries in Japan. With over 30% of Japan’s workforce now working as contract employees, there’s bound to be more and more money in that game. And who ever made money without at least getting a few fingernails dirty?

But with a President like Masahiro Origuchi at the helm, you know another scandal is always just around the corner. This guy just can’t get enough of ripping off his own clients and cheating the system by exploiting the weak. First it was the elderly. Now it’s temporary workers.

It will be hitting the newspapers tomorrow that Goodwill group has been illegally deducting ‘data processing fees’ and ‘administration’ fees from the already low salaries of the temp workers that it dispatches to companies all over Japan.

Taking 200 to 250 yen a pop off of each paycheck may not seem like much, but it adds up when one sends thousands of unsuspecting employees off to work. These are people often just trying to get by, and the rise in the number of non-regular workers as a percentage of Japan’s workforce has been one of the strongest contributing factors to the continued erosion of Japan’s middle class and the financial inability of Japan’s families to afford more than one child.

Remember Noriko Hama on corporate social responsibility in Japan?

I will hold off on passing judgment on firms that have invested in the Goodwill Group until they have had a chance to divest and distance themselves from such business practices.

Mr Origuchi, was that money worth it? Was it worth it to take away some otoshidama here and there so you could have a new Ferrari, or whatever? I really hope so. I really hope you surround yourself with obsequious yes-men who at least pretend to respect you, because in reality, they don’t.

No one does.

Trouble at Comsn; Who’s to buy their operations?

Although the topic of embattled nursing care operator Comsn has come up during the Bizcast Japan podcast, I haven’t blogged it here yet. In part, the story is so profoundly complicated and fascinating that it goes far beyond what a blog post, or even a series of them, could get into. So, for those who are interested in the ongoing scandal, I recommend checking out what Shin Fukushige has written about Comsn on his blog.

With tomorrow being Monday, we’re bound to see some new news on Comsn and who might actually acquire part (or all) of their operations. Yesterday, the Nikkei had this to report:

Drugstore chain operator Welcia Kanto Co. and nursing care facility operator Wisnet Co. will jointly throw their hat into the ring to buy all the nursing care operations owned by the embattled Goodwill Group Inc.

Early next week, the two firms will make an offer to Goodwill via a financial institution. The only other suitor willing to take over all the nursing care operations so far is leading care provider Nichii Gakkan Co.

Surely it would be easier to sell all of Comsn’s operations to a single firm. We’ll have to wait just a bit longer to find out if that will be what actually happens…

Livedoor, Nikko Cordial and Japan’s Accounting Troubles

Now that former Livedoor CEO Takafumi Horie and four other former directors of the firm have been handed prison sentences, the company has been slapped with the largest fine by a court in Japanese corporate history. On Friday, the Tokyo District Court ordered that Livedoor pay 280 million yen ($2.9 million) and that its subsidiary, Livedoor Marketing, pay 40 million yen in fines. This penalty exceeds the former largest fine handed out to a corporation by a court in Japan, which was a 200 million yen fine imposed on Seibu Railway in 2005 for falsifying financial statements.

The company’s woes don’t end there: Also on Friday, Fuji Television announced that it was filing a lawsuit seeking 38 billion yen in damages from Livedoor. And last year, 1,600 former shareholders filed suit against the company, seeking over $80 million in damages. Some in the media have already been wringing their hands over the future of entrepreneurialism in Japan, although Brooks Bulletin calls the Livedoor case “a cautionary tale,” saying:

After an initial blow, the entrepreneurial spirit in Japan is still thriving. Venture-capital spending has rebounded, and the Tokyo Stock Exchange’s Mother’s index - home to the country’s top high-tech startups - is showing a recent resurgence of listings…

Venture-capital spending, which dipped after the dot-com bust in 2001, is on the uptrend amid a resurgent economy. The amount of capital invested in emerging Japanese companies surged 46 per cent to US$2 billion in 2006, according to the Tokyo-based Venture Enterprise Center - though that figure is still minuscule still compared to the U.S. and Europe.

Meanwhile, new listings on the Mother’s market for emerging companies, which dipped 35 per cent in 2005, have rebounded to 41 companies in 2006. Especially active have been startups based on Japan’s advanced broadband infrastructure and mobile phones, like Mixi, the social networking site that launched a highly publicized IPO last year valued at over $51.3 million.

Analysts also say wider changes like the breakdown of lifetime employment practices, as well as troubles at some of Japan’s electronics giants like Sony, are causing some of the country’s best and brightest to set up their own ventures.

The Economist chimed in on the situation this week, demonstrating the differences between the Livedoor case and that of Nikko Cordial, a firm which has been fined 500 million yen by the Financial Services Agency for engaging in accounting fraud. As has been pointed out, Nikko Cordial’s accounting irregularities were eight times larger than those of Livedoor’s, yet the firm remains listed on the Toyko Stock Exchange. Not a single person working at Nikko Coridal has been charged with a crime.

What’s going on here? The extreme view has been taken by Koetsu Aizawa, an economics professor at Saitama University:

What’s happening is unfair. Slamming on the little guy who stands out while letting big names go is what’s so despicable about Japan…No matter what they say about how the Japanese stock market has modernized to be an entity for investors, it’s obvious that’s all lies.

Ouch. As the AP tells us, Financial Services Minister Yuji Yamamoto has defended the treatment of Nikko Cordial, saying that various factors must be taken into account when delisting a company. He also said the agency has fined the brokerage.

As the Economist put it:

The TSE was considering its delisting, at which point America’s Citigroup made advances. Perhaps thinking the prospect of foreign control was humiliation enough for the broker, the TSE on March 12th ruled that a delisting would be too harsh a punishment.

Now, this observer thinks they might be reading into things just a bit too much…or maybe not enough.

Livedoor’s Horie found guilty by Tokyo District Court

In handing down a two and a half year sentence to former Livedoor CEO Takafumi Horie, presiding judge Toshiyuki Kosaka of the Tokyo District Court said:

This is a crime that is extremely malicious in nature and has damaged the fairness of the securities market…He illegally boosted his company’s share price by announcing fake business performances. [The crimes] could not possibly have been conducted without his instructions and approval…This is a crime that deceived ordinary investors for the sole purpose of pursuing business profits.

Horie’s defense team immediately filed an appeal.

As Reuters put it:

The sentence handed down by the Tokyo District Court was a harsh contrast with punishments typically meted out to Japanese executives convicted of white-collar crimes, who often receive suspended sentences after pleading guilty and showing remorse.

Hoire, of course, refused to admit to any wrongdoing and did not plead guilty. Prosecutors had sought a four year jail term for the 34 year old entrepreneur.

Back in November, Horie told the court, “I never studied accounting. A management book I read said to leave that to specialists, so that’s what I did.”

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