Olympus’s Culture Was ‘Rotten,’ Outside Panel Finds

TOKYO — An outside panel appointed by Olympus to investigate its financial scandal issued a harsh report Tuesday, calling the company’s recently departed management “rotten to the core.”

The panel, led by a former Japanese Supreme Court judge, also details the roles it claims were played by three former Nomura bankers in arranging a cover-up, and it says Olympus paid the bankers for their efforts. It also criticizes Olympus’s auditors, KPMG AZSA and Ernst Young ShinNihon, for failing to expose fraud at the company.

The report says that Olympus had persuaded several banks, including Société Générale of France, to submit incomplete financial statements to auditors, apparently in an effort to conceal financial maneuvers that the report says involved at least $1.7 billion and were meant to hide failed investments during the 1990s. There is no indication the banks knew of Olympus’s cover-up, the report said.

According to the report, Olympus told the banks that they did not need to respond to KPMG queries about collateral, which was used to finance loans to investment funds involved in the loss cover-up.

“The management was rotten to the core, and infected those around it,” said the report, which ran more than 200 pages, with appendixes.

KPMG and Ernst Young denied wrongdoing Tuesday. The Tokyo branch of Société Générale said it could not comment on the contents of the Olympus report. Inquiries to the bank’s headquarters in Paris were not immediately answered.

Despite its harsh tone, the report by the Olympus-appointed panel seemed to sharply define the limits of blame and potential wrongdoing. Most significantly, the panel repeated a preliminary finding it had announced last month: that it had found no evidence of organized crime involvement in the Olympus scandal.

The possibility of organized crime involvement in the cover-up has become a crucial issue because evidence of mob links could prompt the Tokyo Stock Exchange to delist Olympus shares. Such a move could seriously damage shareholder value by making the stock difficult to sell.

Olympus’s stock rose 15 percent in Tokyo on Tuesday before the report’s release, on news reports that the panel would deny any mob involvement.

In a statement, however, the Tokyo Stock Exchange warned Tuesday that the company could still be delisted if it failed to  meet a Dec. 14 deadline to submit its latest financial statement. Olympus shares have already lost half their value since the scandal began in October.

Olympus issued a statement saying it “takes very seriously the results” of the report and that it was considering “further fundamental measures to restore confidence as soon as possible.” It also said that it was committed to filing its financial statements by the Dec. 14 deadline to avoid a delisting.

Olympus appointed the panel on Nov. 1, shortly after accepting the resignation of Tsuyoshi Kikukawa over the scandal and replacing him with Shuichi Takayama, who had been a managing director.

The report took pains to blame Mr. Kikukawa and a small circle of other executives who have already left the company, and stressed that possible legal action should not extend to others at Olympus. It said the company could be salvaged, seemingly heading off speculation that it might be carved up and sold.

The report left many open questions — as even the panel’s chairman at least partly acknowledged by saying that a forensic accounting by auditors would still be necessary, as well as the completion of investigations under way by Japanese and overseas legal and regulatory authorities.

In a news conference here, Tatsuo Kainaka, the panel’s chairman and a former judge of Japan’s Supreme  Court, said it was still unclear how much of Olympus’s money had been siphoned off and where it had ended up. The report said there was a “continuing outflow” of money from the company.

Hiroko Tabuchi reported from Tokyo and Keith Bradsher from Hong Kong.

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