UK’s Serious Fraud Office to prosecute Olympus Corp over accounting fraud

UK's Serious Fraud Office (SFO) on Wednesday said it will prosecute Japanese camera and endoscopy maker Olympus Corp and its British subsidiary Gyrus for falsifying accounts.

The SFO said Gyrus and Olympus have been ''charged with offences of making a statement to an auditor, which was misleading, false or deceptive, contrary to section 501 of the Companies Act 2006. Gyrus Group faces four charges and Olympus faces one charge.''

''The alleged offences are said to have taken place between April 2010 and March 2011 and arose from a global fraud case for which Olympus was prosecuted in Japan.''

The first hearing in this case will take place at Westminster Magistrates' Court on 10 September 2013.

SFO started an investigation into Gyrus and Olympus in November 2011 after the company's then CEO Michael Woodford informed it of the fraud.

The fraud first came to light in October 2011, when Woodford was sacked after he questioned the chairman about the payment of more than a billion dollars in fees to some little-known firms for the acquisition of some small companies.

Olympus paid $687 million in inflated fees for the 2008 acquisition of UK-based Gyrus Group for $2 billion. Adviser fees in such deals add up to less than one per cent. The Japanese company inflated the fees to hide the losses the company had made in the past.

Olympus paid a whopping $687 million in advisory fees to its financial advisers for the $2.2 billion acquisition of British medical equipment maker Gyrus in 2008. The amount equalled a third of the acquisition price. Olympus later wrote down the value of the deal along with a handful of other acquisitions.

In most M&A deals, the financial advisers get less than a per cent of the transaction value if it is around $500 million; for larger transactions, the percentage is even less. A $3-billion deal would get the adviser just 50 basis points – about $15 million.

According to Olympus, it paid a basic fee of $5 million in 2006 to the advisers to unearth targets. It also agreed for a completion fee of five per cent of the target value, with 15 per cent to be paid in cash and the remaining through share options and warrants.

As a result of the fraud, three former Olympus executives, including former chairman Tsuyoshi Kikukawa, were found guilty by a Japanese court in July 2013 and were given suspended jail sentences while the company was fined $7 million for violating securities laws.