"The $687 million fee Japan’s Olympus Corp paid its financial advisers for the $2.2 billion purchase of a British medical equipment maker is one for the record books, literally." - 365 Project, Day 236

I don't really mean to turn this into a news blog, but keeping up with the trend this week, I figure I can talk about this.  It's also pretty interesting, and intriguing.

Olympus bought out Gyrus, a UK medical equipment production company back in 2008, for $2.2 billion.  This, apart from industry insiders saying it was a pretty high valuation for the company, is nothing strange.  However, things get very movie-like.  In 2010, Olympus paid a company $687 million dollars for advisory fees to this company based in the Cayman Islands.  This is unusual, as a 35% commission is massive by any standard, considering 1 to 2% is the standard fee usually reserved for the type of advice Olympus received.

Michael Woodford, who'd spend 30 years working for Olympus, and who had been promoted to chief executive two weeks prior, hired PriceWaterhouseCoopers to investigate this interesting payment.  He also asked heads of Olympus where this money went, showing them the final report from PwC.  On October 14th, 2011, he was promptly fired as chief executive from Olympus.

It seems the firm that accepted the ridiculous payments from Olympus lost its licence two weeks after the last payment and disappeared off the face of the earth, along with any trace of the money it had been paid.  Mr. Woodford is going around every financial news institution and the UK police, telling people everything he knows (which, admittedly, doesn't seem much), trying to get as much attention as he can on Olympus to pressure them to divulge the payments information.  He's is practically begging Olympus to bring him to court on breach of confidentiality charges.

Olympus say the firing is not over this particular incident, but rather a diverging set of ideas in how to steer the company and management between Mr. Woodford and the rest of the chief executives.  They also say the PwC report is all based on rumour and supposition, having no real proof.  From the snippets I've been able to find, it does seem very vague and non-conclusive, but I assume that was Olympus's intention when all of this going on.  There's talk of a Japanese banker, and two companies, AXES and AXAM and a few other vague things.  There have also been rumours of organised crime being somehow involved.  As a result of this hoopla, Olympus stock fell 50% in the past week (from 2482 yen on October 13th to 1231 yen on October 21st, to be specific), along with a lot of bad press (if you follow that sort of thing).

I'm very, very curious to know where this $687 ended up and if Olympus is actually going to tell anyone where this money went.  It's a lot of money, as it turns out to be 2 years worth of profit for Olympus!

EDIT: 18/11/11 - Olympus may be delisted on the Tokyo Stock Exchange if they don't cough up an explanation.  One possible explanation, thanks to a leaked internal memo, is that Olympus is connected to the Yakuza and has been funneling some of their $4.9 billion in unaccounted funds to such an organisation.

EDIT: 16/2/12 - I should have updated this earlier, but here the story goes: in the past, Japanese companies used to be able to sell ailing wings of their company to other companies for financial help, and buy back these wings a few years later when money was better.  This was a semi-acceptable way of hiding losses.  It appears that this practice has been strongly discouraged by the government for about a decade or so, though some companies still do it, and go to the mob, because, well, the mob doesn't much care about government crackdowns.  As far as I know, this is more or less what Olympus did to hide their losses.  An independent investigative panel found, though, that there were no mob connections in this case.

In December, Olympus revealed their books, re-adjusted to take into account the fraud, and found that it had a $1.1 billion dollar hole to fill up.  They're either going to issue new stock, or partner with another company to help with the debt they have.  Sony, Panasonic and Fujifilm are the three major companies interested in this partnership.  Nothing's been decided yet.

Also, Olympus is suing 19 executives (past and present, I believe) over this scandal.  The Japanese authorities have actually arrested 7 people in connection to this scandal, 3 of these people being former executives at Olympus, and 2 bankers (one of which being a founding member of AXES and one of them being head of a consulting firm hired by Olympus back in 2000).  There will be a big shareholder meeting in April 2012 where 6 of the 11 members of the board will resign (including the current president).  Michael Woodford is apparently writing a book detailing how he discovered the whole thing.

In any case, here are our non-troublesome pictures.

Frank

His note: Sunset through a very dirty spotted window.

Shannon

Her note: Broken scoreboard at the Ottawa Senators game.

Pat

I only realised while editing that, especially with the tree branch in the foreground, this picture looks very horror-movie-like/stalking picture.  I assure you the family was conscious of my shooting them and they didn't seem to be bothered by it.  I probably looked really awkward, as I was carrying three or four things, trying to take the picture at the same time.  I wanted to capture the simple joy of having fun in a park with your family, especially as a child.  It's a simply joy, but a very rewarding one.

For those interested, here is the article from which today's quote was taken.