TOKYO Japanese police and prosecutors have arrested seven men, including the former president of Olympus Corp and ex-bankers over a $1.7 billion accounting fraud -- one of the country's biggest corporate scandals.
Tokyo prosecutors arrested ex-president Tsuyoshi Kikukawa, former executive vice president Hisashi Mori and former auditor Hideo Yamada on suspicion of violating the Financial Instruments and Exchange Law, officials said Thursday.
Also apprehended were former bankers Akio Nakagawa and Nobumasa Yokoo and two others suspected of helping hide huge investment losses through complex takeover deals at the endoscope and camera maker.
The three former executives had been identified by an investigative panel, commissioned by Olympus, as the main suspects in the fraud, seeking to delay the reckoning from risky investments made in the late-1980s bubble economy.
The scandal was exposed in October by chief executive Michael Woodford, who was sacked by the Olympus board after querying dubious deals later found to have been used to conceal the losses. Woodford campaigned to win his job back, but gave up that bid last month, blaming cozy ties between management and big Japanese shareholders and citing the strain on his family.
"After going to hell and back, this is a day to remember," Woodford said in an email Thursday.
But he told a hastily-called London news conference that many questions remained unanswered. "These were huge amounts of money and we need to understand to what extent the banks were involved," he noted. "We've come a long way, but I don't think we are at a point at which we have closure."
The Briton, who was a rarity as a foreign CEO in Japan, plans to write a book about how he uncovered the scandal.
The arrests come as investors focus on who will run the once-proud company when its management steps down at an April 20 shareholders meeting, and whether Olympus will seek a capital tie-up to fix its balance sheet.
TAKING THE HELM
Olympus is banking on that April meeting marking a turning point in the scandal, with at least six of its 11-member board, including current president Shuichi Takayama, set to resign.
His successor is likely to be one of three board members the panel said were not responsible for the cover-up -- Masataka Suzuki, Kazuhiro Watanabe and Shinichi Nishigaki -- said a source familiar with the matter, who did not want to be identified due to the sensitivity of the issue.
"The arrests of former executives won't impact possible tie-ups with Terumo, Sony, Fujifilm and others," said a sell-side equity manager at a Japanese firm, who did not want to be named as he is not authorized to talk to the media.
"Olympus continues to be very attractive to other companies because of its endoscope business."
Last year the investigative panel alleged that Kikukawa, Mori and Yamada had played leading roles in a 13-year scheme to hide the losses, and they are among 19 executives Olympus is suing over the scandal.
The panel said it found no evidence of involvement by organized crime, despite speculation that "yakuza" gangsters were somehow involved in the cover-up scheme.
An Olympus spokesman said the company would cooperate fully with the investigative authorities. It is also under investigation by law enforcement agencies in Japan, Britain and the United States.
Kikukawa's condominium house was among 20 sites raided in December by prosecutors.
Nakagawa, who began his banking career at Nomura Securities, was a founding member of the Axes group, which was awarded a huge $687 million advisory fee for Olympus's acquisition in 2008 of UK medical equipment firm Gyrus that was at the heart of the scandal.
Yokoo, another ex-Nomura banker, ran a consulting firm, Global Company, which was hired by Olympus in 2000 to scout for new businesses and steered investment into three small money-losing Japanese firms.
Olympus in December filed five years' worth of corrected financial statements plus overdue first-half results, revealing a $1.1 billion dent in its balance sheet, triggering talk it would need to merge or forge a business tie-up to raise capital.
Monday it forecast a $410 million full-year loss due largely to its ailing camera operations, but its core endoscope business appeared unscathed by the scandal, and its president said the firm might not need outside capital.
Olympus's shares closed down 2.4 percent at 1,273 yen on Thursday, while the overall Tokyo market index slipped 0.3 percent. Shares in Olympus, currently worth around $4.5 billion, have halved in value since the scandal unfolded.
($1=78.3350 Japanese yen)
(Additional reporting by Mari Saito and Tim Kelly, Writing by Linda Sieg and Chris Gallagher; Editing by Ian Geoghegan)