Advertisement

Great frauds in history: Tsuyoshi Kikukawa and Olympus

Tsuyoshi Kikukawa who served as managing director, president and chairman of Japanese camera maker Olympus, hid $1.7bn of losses in the firm.

Tsuyoshi Kikukawa was born in 1941 and went on to join Olympus, a firm that mainly specialised in optical instruments, in 1964. Kikukawa championed digital photography and ran the team that released Olympus's first digital camera in 1996. This was a success and digital cameras became key to the business. Kikukawa was then promoted, serving successively as managing director, president and chairman.

What was the scam?

The rise in the Japanese yen in the 1980s created problems for many Japanese technology firms, including Olympus since its costs were in yen and its revenues in dollars. Kikukawa's predecessor, Toshiro Shimoyama, indulged in financial speculation to make up the difference, which resulted in large losses. After changes to Japanese accounting rules made it hard directly to conceal those losses, the company sold the worthless assets to shell companies, which were then bought in 2008 for large amounts of money. This allowed Olympus to write off the losses as "goodwill" (the difference between the cost of acquiring a company and its assets). Around $1.7bn in losses were hidden in this way.

What happened next?

In April 2011, Olympus hired Michael Woodford as its CEO, the firm's first non-Japanese leader. Although a long-time Olympus employee, he was unaware of what the company had been doing. When he heard rumours of irregularities he demanded an explanation. The Olympus board responded by firing him, prompting Woodford to go public with his concerns. The subsequent media firestorm and investigations caused mass resignations of directors and executives. Kikukawa, and two other executives, were convicted of abetting the cover up, but got suspended sentences because they didn't set up the scheme.

Lessons for investors

Between mid-October, when Woodford was fired, and early November, Olympus's shares fell by more than 80%. The news also led to job losses as the firm cut costs. However, despite a subsequent bribery scandal, the stock later made a full recovery. Indeed, even if you had bought in July 2011, when the first rumours were published in the financial press, you would by now have doubled your money, while those brave enough to buy in November would have made more than ten times their investment. This shows that the market can sometimes overreact to scandals.

Advertisement
Advertisement

Recommended

Visit/trading/spread-betting/601432/spread-betting-five-tips-for-would-be-traders
Spread betting

Spread betting: five tips for would-be traders

Spread betting stocks can be tempting – but for many, it’s ruinous. Michael Taylor of Shifting Shares looks at how to avoid the pitfalls.
5 Jun 2020
Visit/economy/uk-economy/601461/a-little-bit-of-good-news
UK Economy

Good news at last – household debt is falling fast

Thre's not much good news around at the moment., But the fact that UK households are paying off debt at a record rate must surely count, says Merryn S…
4 Jun 2020
Visit/investments/investment-strategy/601447/look-beyond-profits-to-find-firms-that-will-go-the-distance
Investment strategy

Look beyond profits to find firms that will go the distance

When times are tough, a strong balance sheet is crucial if companies are to keep ticking over and bounce back. Richard Beddard explains the basics and…
4 Jun 2020
Visit/investments/investment-strategy/601430/balancing-risk-and-reward
Sponsored

Balancing risk and reward as investors

SPONSORED CONTENT – Christopher Godfrey-Faussett, managing director at Close Brothers, on the different approaches to risk.
4 Jun 2020

Most Popular

Visit/investments/commodities/gold/601444/these-seven-charts-show-exactly-why-you-must-own-gold-today
Gold

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020
Visit/investments/stockmarkets/601460/disease-rioting-and-mass-unemployment-so-why-are-markets-soaring
Stockmarkets

Disease, rioting and mass unemployment – so why are markets soaring?

Despite some pretty strong headwinds in the last year, America’s S&P 500 stock index is close to all-time highs. John Stepek explains why markets seem…
4 Jun 2020
Visit/investments/commodities/601433/commodities-possibly-the-biggest-opportunity-in-todays-markets
Commodities

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020