Olympus Deals Reveal More Firms of Obscure Origin (WSJ)

TOKYO—On April 25, 2008, Olympus Corp. paid the equivalent of $177 million to Dynamic Dragons II SPC and another investment fund for stakes in three money-losing, obscure Japanese companies that Olympus was acquiring, according to Olympus documents. But who was behind Dynamic Dragons isn't clear—a sticky question for Olympus.

Dynamic Dragons II and other funds and firms received payments from Olympus between 2007 and 2010 for transactions that were portrayed as conventional corporate takeovers at the time, but which the Japanese maker of cameras and medical-imaging equipment now says were part of a plan to hide investment losses dating to the 1990s.

Japanese investigators are looking into who ultimately received what Olympus paid for its various acquisitions and whether any of it flowed to criminals, according to a person familiar with the matter.

Olympus executives said that the deals weren't connected with money laundering or "antisocial groups," a euphemism here for organized crime. The company has declined to discuss the details of its deals before it gets the results of an independent review it commissioned.

Dynamic Dragons II represented just part of the nearly $1 billion that Olympus said it spent on the three Japanese companies to hide investment losses. Like other funds with whom Olympus did business, it was based in the Cayman Islands, with no public records besides an address and the date it was set up. The scant information makes it difficult to find the owners of the fund.

The slim paper trail on Dynamic Dragons II shows that it was part of a network of elusive Japanese firms and financiers that often invested together, and whose ties and identities were constantly shifting.

The Tokyo-based firm that created Dynamic Dragons II, for example, soon changed names and was absorbed into another company, which itself changed its name three times and its ownership structure at least once in the past eight years, according to filings.

Unraveling the complicated investments and ties leading from Dynamic Dragons II and other funds will be key to figuring out with whom Olympus was working when it hid its investment losses.

"You wouldn't have a scheme like this for no reason," said Kenji Takasago, an associate professor at Kobe University who has written about money laundering but isn't familiar with the specifics of the Olympus controversy. "This is to obscure the money trail."

Dynamic Dragons II was set up in October 2004 in the Cayman Islands as the second of three Dynamic Dragons funds created by a Tokyo-based merger-and-acquisitions consulting firm called New Dynamic Consultants, according to Cayman Islands records, an archived version of the firm's Web site and a person familiar with the matter.

Within a month New Dynamic Consultants had changed its name to J Capital Management Co. and become a subsidiary of J Bridge Corp. The chairman of J Bridge in 2009 was convicted of running a cross-border insider-trading scheme. The president of a company in which Dynamic Dragons II invested was convicted for hiding assets.

New Dynamic and J Bridge may have had invested in each other. A predecessor of J Bridge in 2003 received an injection of funds from a firm named New Dynamic Consultants Ltd. that was based in the British Virgin Islands, according to investor filings.

Attempts to reach principals that were listed for Dynamic Dragons, New Dynamic and J Bridge were unsuccessful.

The ties between J Bridge and New Dynamic soon changed. Within six months of making New Dynamic its subsidiary, J Bridge had lowered its stake to below 25%, according to Hiroyuki Ueno, planning-department manager for Asia Alliance Holdings Co., the current name for J Bridge.

The firms invested largely in struggling companies, which often went on to invest in still other companies. Often J Bridge would sell its holdings and move on in a year or two. Many of the companies in which it invested failed, according to corporate records and Mr. Ueno.

Mr. Ueno said he believed J Bridge's intention was to rehabilitate the companies in which it invested, although he was hired after the period in question and said he didn't know what executives at the time were thinking. He acknowledged that J Bridge often invested through other companies and quickly changed its stakes but said he couldn't explain why.

In November 2004, for example, J Bridge and other investors, including the first Dynamic Dragons fund, took a controlling stake in Phi Co., a midsize information-technology consulting firm in Japan. Phi by then had been unprofitable for at least four years.

By early 2005, those stakes changed hands, with the first Dynamic Dragons fund and other investors selling, and Dynamic Dragons II buying, according to filings. Another fund that bought Phi shares was Global Targets SPC, which had been set up in the Cayman Islands a few days before Dynamic Dragons II, at the same address. Phi subsequently collapsed.

Dynamic Dragons II and Global Targets eventually acquired stakes in three of the companies at the center of the Olympus controversy: medical-waste disposal firm Altis, plastic-container maker News Chef and cosmetics firm Humalabo. All three companies were losing money when Olympus bought them, documents from credit-research firms show. Olympus paid ¥73.49 billion ($956 million at current exchange rates) in total for the three companies and has said the purchases were part of an effort to hide losses from decades earlier.

Dynamic Dragons II and Global Targets sold stakes in the three companies to Olympus in 2008 for ¥13.6 billion, according to Olympus documents. But ultimately the recipients of that sum couldn't be determined.

Mr. Ueno, of Asia Alliance, said its current executives don't know about past transactions.