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2011年11月25日

Japan Retail Investors Mull Olympus Suit Options (WSJ)

TOKYO—As the accounting scandal dogging Olympus Corp. unfolds, lawyers say they are being contacted by individual investors in Japan quietly mulling suing the company to seek compensation for the erosion of billions of dollars of shareholdings.

Large-scale suits by individual shareholders have been rare in Japan up to this point, but lawyers say the apparently open-and-shut nature of the Olympus case could help re-shape investors' willingness to enforce their rights.

While a class action against the camera and endoscope maker has already been filed in the U.S., the absence of a system in Japan where a single individual can represent a group in a court claim has made it more costly for investors in Japan to take legal action.

But lawyers say the case for the roughly 16,000 retail Olympus shareholders—nearly 10% of the company's total shares outstanding—appears relatively straightforward, with the company having already admitted to "inappropriate accounting" involving a cover-up of investment losses dating back two decades.

"It seems pretty safe to say that there were misstatements in financial reports. In that case, companies will be held legally responsible regardless of fault, so it will be quite easy even for individual shareholders to sue," said Yo Ota, a partner at the Tokyo-based law firm Nishimura & Asahi.

Exactly how much compensation might be rewarded to investors remains uncertain: Olympus shares plummeted as much as 82% after the spectacular Oct. 14 ouster of former chief executive Michael Woodford, stripped of his job after demanding that the company's board investigate a series of questionable acquisitions and huge fees paid out to little-known advisers.

At the low point on Nov. 11, $7.1 billion was wiped off Olympus market value. The shares have since rallied on hopes that any regulatory sanctions applied to the company will stop short of the extreme of delisting its shares.

"This case will likely have a pioneering role in showing that Japanese investors, long considered as submissive, will speak out when necessary," said Toshihiro Miki, a lawyer who specializes in securities litigations for individual shareholders.

While the eventual findings of Japanese securities regulators and police investigating Olympus will be crucial, three lawyers say they have already been consulted by at least a dozen shareholders on the possibility of filing a lawsuit to receive compensation for the losses incurred in the stock's downward spiral.

On Nov. 8, Olympus admitted that officials had hidden losses from the 1990s through acquisitions totaling nearly $3 billion. The company is now preparing to correct its financial statements and its stock will be delisted from the Tokyo Stock Exchange if it fails to submit an auditor-approved earnings report by Dec. 14.

Already in the U.S., law firms including Bernstein Liebhard LLP and Sarraf Gentile LLP have filed a class action against Olympus on behalf of U.S. investors in its American depositary receipts.

Olympus said it has confirmed the complaint by a U.S. individual seeking class-action status through a court filing, but added that the number of ADRs is comparatively small. Olympus said it doesn't anticipate any significant impact on earnings, regardless of the complaint's outcome.

"We intend to respond appropriately to the plaintiff's claim," the company said in a statement. "There is a possibility that there will be multiple plaintiffs filing similar lawsuits in the future," it said.

In Japan, the public response from domestic individual investors has so far been muted.

But lawyer Keitaro Shirai said a client, an investor based in western Japan, sent a letter on Nov. 2, requesting the company's statutory auditors file a suit against Olympus board members who served at the time of acquisitions made between 2006 and 2008.

Mr. Shirai declined to identify his client, but said that the individual may launch a shareholder representative lawsuit seeking payment of nearly ¥140 billion ($1.82 billion) in damages to the company management responsible for the deals, if the auditors fail to act within 60 days.

The shareholder later sent additional requests requiring the auditors to file a suit against board members who served from 1999 and the president to sue auditors and accounting firms who served in the same period, demanding they pay nearly ¥150 billion to the company, according to Olympus.

Olympus said the company's auditors and president are currently examining the details and evaluating what measures to take.

As well as the burden of individual costs, retail investor lawsuits are rarer in Japan than in the U.S. for a number of reasons such as a lack of recognition about what legislation permits.

A 2004 law revision actually made it easier for Japanese retail investors to file claims for damages caused by fabrication of financial statements, by removing the need to provide evidence of the company's intent or negligence where problems arise.

Lawyers say precedents of decisions in favor of plaintiffs in high-profile cases since 2004 involving Internet company Livedoor Co. and Seibu Railway Co.—both of which were found to be engaged in accounting fraud—will make it easier for Olympus shareholders to seek damages.

One challenge for Olympus investors will be a clause in the 2004 law under which the amount of damages incurred is calculated by determining the difference in the average share price for the month before the fraud became "public knowledge" and the month after.

In the case of Olympus, the law could be interpreted to imply the falsification was "officially announced" when the company admitted to hiding losses on Nov. 8, several significant weeks after shares began their slide on Oct. 14.
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Posted at 2011/11/26 09:54:53

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