Page 1 of 3 The fall of a
Japanese business iconoclast By
Hisane Masaki
TOKYO - In one of the
biggest scandals in Japan's corporate history, a
Tokyo court has found Takafumi Horie, the
flamboyant founder and former president of
Internet startup Livedoor Co, guilty of accounting
fraud and other securities-law violations.
In its ruling on Friday, the Tokyo
District Court sentenced Horie to two and a half
years in prison without suspension, a decision
unusually heavy for the crime. Horie, who was once
seen as an iconic leader of a more freewheeling
style of capitalism in Japan, immediately appealed
the ruling, according to his lawyer. The
Livedoor scandal has brought
deep - and still reverberating - repercussions to
the Japanese business world as well as the stock
market.
The court verdict came about 14
months after Horie, who in his heyday was seen by
many as a courageous challenger - and even serious
threat - to old-guard Japan Inc in many ways, was
arrested and the Internet empire he had built came
crashing down. Prosecutors had demanded a
four-year prison term for Horie, alleging that he
illegally ran a complex scheme of dummy companies
and stock splits to inflate Livedoor earnings and
share prices artificially.
Among other
specific charges, prosecutors have alleged that
the 34-year-old former Livedoor president
window-dressed the Internet and financial-services
company's consolidated figures by including a
total of 5.34 billion yen - 3.76 billion yen in
profits from the sale of some of the company's own
stock and another 1.58 billion yen in fictitious
profits - in company sales figures. As a result,
Livedoor falsely reported a pre-tax profit of
about 5 billion yen (US$42.6 million at the
current exchange rate), although it actually
suffered a pre-tax loss of 310 million yen ($2.64
million).
In a separate action,
prosecutors have also alleged that Horie spread
false information during an attempted takeover of
a publishing company by a Livedoor-affiliated firm
in October 2004. The affiliated company was
described as recording profits when in fact it
suffered losses. Horie has pleaded not guilty to
those charges. They carry a maximum penalty of
five years in prison or a fine of 5 million yen,
or both.
The focus of the high-profile
case has been whether a conspiracy existed among
Horie and four other former Livedoor executives,
also on trial on charges of violating the
Securities and Exchange Law, and whether Horie was
aware of any wrongdoing.
Prosecutors have
argued that Livedoor set up dummy funds and
illegally posted own-stock sales profits of 3.76
billion yen on the group's financial books. They
have said Livedoor should have recorded the
profits as capital transactions.
Horie's
defense lawyers have claimed, however, that the
dummy funds described in the prosecutors' charges
had not been set up at Horie's bidding, but were
instead used by the former chief financial officer
of Livedoor, Ryoji Miyauchi, and a colleague to
divert money from Livedoor for their personal
gain. Miyauchi, who pleaded guilty in a separate
trial, testified as a prosecution witness that his
onetime friend and boss orchestrated the schemes.
The defense lawyers said the testimony of
Miyauchi and former Livedoor executives, excluding
Horie, is unreliable as it conflicts with material
evidence such as e-mail messages. Prosecutors have
dismissed the defense lawyers' claim, charging
that Horie's "malicious acts deceived many
investors", his arguments were "consistently
contrived and irrational" and he "attempted to
pass off criminal responsibility to his former
subordinates".
In handing down its ruling
on Friday, the Tokyo District Court accepted the
prosecution's arguments. Presiding Judge Toshiyuki
Kosaka said Horie masterminded the setting-up of
dummy investment partnerships that were
''established for the purpose of evading the
law''. Kosaka also called the testimonies by
Horie's former colleagues ''reliable''. The court
will hand down its rulings on Miyauchi and others
next Thursday and Livedoor as a company the
following day.
Horie founded Livedoor as
Livin' on the Edge Inc in 1996. Until his arrest
in January 2006, he was touted by some as
prototype of new kind of business leader who could
change Japan's clubby corporate culture.
Horie was incarcerated for three months
before being released on bail of 300 million yen.
He was stripped of his status as chief executive
officer at Livedoor. His trial, which opened in
September, grabbed national headlines, partly
because of the millionaire's flamboyant, outspoken
and sometimes tearful testimony and also partly
because of his diehard fight against the charges
leveled against him.
In a rare move in a
country where conviction rates are extremely high
in criminal trials and most defendants tend to
plead guilty in hopes of receiving lighter
sentences, Horie continued steadfastly to maintain
his innocence.
Meanwhile, at Japan's
request, Switzerland has reportedly given Japanese
authorities bank documents linked to the trial of
former top Livedoor executives. Japan's legal
authorities are said to suspect that Horie and his
partners used Swiss bank accounts to transfer
abroad the money made from their fraudulent
activity.
After making his closing
argument in the trial in late January, Horie
started actively responding to media interview
requests at his lawyer's office in Tokyo's Ginza
district. In the interviews published recently,
Horie said a verdict "means an answer will be
given. It will be like having a tiny fish bone
stuck in my throat being removed. Of course, I
believe the bone will be removed cleanly."
Asked how he felt about Livedoor
shareholders who are suing over their investment
losses, Horie said, "Frankly speaking, I wish they
would drop the case, but I don't feel anything
beyond that."
Horie also said, "I don't
see any meaning in corporations, so I don't really
understand why people keep asking me whether I
want to establish one again.
"From now
I'll just do what I want," he said. "I want to
only focus on things I really love, such as space
exploration or the life sciences."
The
Livedoor scandal shook the nation's stock market
and shocked many individual investors. The
"Livedoor shock" prompted many individual
investors to shift from high-risk, high-return
investments in startup firms to safer investments
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