“The nail that sticks up, gets hammered down”, runs the old Japanese saying. And there will certainly be many among Tokyo’s “smirking corporate old-guard” savouring the truth of the maxim following the downfall of Takafumi Horie, says The Economist.
The police investigation into his Livedoor internet empire wiped 6% off the Tokyo Stock Exchange in two days last week and has so far precipitated at least one suicide as well as Horie’s own arrest.
But for his detractors, this is no surprise: it marks the long-overdue come-uppance of a brash young entrepreneur who deliberately set out to flout the rules. Seeing the man behind bars will surely come as sweet revenge – he once famously declared that “all the evils” besetting Japan “come from aged business managers”.
Like his hero Bill Gates, Horie’s ambition made itself plain early, says The Guardian. The son of an “ordinary salaryman”, he demonstrated his rebellious streak by dropping out of the prestigious Tokyo University in 1996 to set up a web design firm, prophetically named Livin’ On The Edge, with three employees and six million yen ($50,000) in start-up capital.
Based in Shibuya, Tokyo’s hotspot for the young, the firm thrived during the dotcom boom – and survived the bust, listing on Tokyo’s junior Mother exchange in 2000. Horie used the proceeds to acquire Livedoor in 2002 and launched into the explosive portal business. The spiky-haired 33-year-old, renowned for his silver-blue Ferrari and bikini-model girlfriend, fast became a poster child for Japan’s youth. It was certainly difficult to avoid Horie’s “Cheshire cat” smile, says The South China Morning Post.
A regular on TV chat shows, he was nick-named “Horiemon” by Japanese school children for his resemblance to Doraemon – a cartoon cat with magical powers. The author of several books, Horie even recorded a pop CD (featuring the title track Hero) and laid plans to launch a space-ship.
But these media-grabbing exercises were just the froth on top of his ambition to broker real power, typified by the brazen 2005 bid for control of Fuji, Japan’s biggest commercial TV station. That failed, but nonetheless caused a furore – as much for the controversial methods deployed (see below) as for its audacity.
Within months, Horie was flexing more muscle, campaigning (in a black T-shirt sporting the word ‘Revolution’) for prime minister Junichiro Koizumi’s reformist party in the general election, and badly blooded the nose of his opponent, the formidable traditionalist Shizuka Kamei.
By last year, Livedoor had been turned into a conglomerate of 50 firms (including a software house, an online travel agency, a securities firm and a mail-order retailer) with a market value of some $8bn at its peak, says The Economist. The question now is just whether that was done by clever financial engineering or fraudulent financial engineering – share-price ramping and false profit reporting (there are suspicions that a strong profit reported in 2004 may really have been a loss).
“Is the Japanese establishment out to destroy an upstart who had the gall [to innovate]. Or is Takafumi Horie simply a 33-year-old crook who fooled investors with phony numbers?” asks the International Herald Tribune. The future of financial reform in Japan may well depend on the answer.
Horie’s “equation” for getting rich quick
Takafumi Horie has always aimed to “push himself and his company as far as they could go”, says The Daily Yomiuri. “There’s an equation for being successful,” he said in 2000. “It’s possible to achieve fast development simply by making the best use of this equation… It’s really simple to make money.”
It soon transpired that the formula he had in mind was based on stock swaps and stock splits: “two potent corporate buy-out tools”. From 2002 to 2004, Livedoor embarked on four major stock splits: by the end, a single Livedoor share had multiplied into 30,000. Stock-splitting isn’t illegal theoretically and should make no difference to the value of anyone’s holdings.
But in practice, Livedoor made hay from delays in the process: during the two months it takes to print and distribute new share certificates, “shareholders are effectively unable to sell”. Meanwhile, buy orders push the price up. To many, this represents not good practice, but “treacherous alchemy”.
That was not the only regulatory loop-hole Horie exploited, says The Economist. During its bid for Fuji Television, Livedoor cunningly skirted the rules: buying shares during after-hours trading enabled it to “avoid disclosure” before the authorities “somewhat belatedly” closed the loop-hole.
By his own admission, Horie has often “sailed close to the wind”, concludes the FT, but you don’t need to approve of his tactics to applaud his impact. As well as providing a “breath of fresh air in a country where … new ideas are too often stifled at birth”, his deals provided “a much-needed impetus … to improve transparency and fairness in Japan’s clubbish capital markets”.