Livedoor slapped with record fine

Fine of over $4m for breaching securities law highest in history of corporate Japan


TOKYO - INTERNET start-up Livedoor was hit with the largest fine ever in Japan's corporate history for violating securities laws yesterday, the latest blow in a scandal that has led to seven convictions for former executives and accountants.

The Tokyo District Court fined Livedoor 280 million yen (S$3.6 million) and its subsidiary Livedoor Marketing 40 million yen, a court official said on customary condition of anonymity.

Earlier in the day, two accountants were convicted in the same court for fabricating earnings in the latest verdicts in a series of criminal trials involving Livedoor, once one of Japan's flashiest dot.coms.

The tough fines and prison terms being doled out to those at the centre of the scandal are sending a strong message about the growing effort to crack down on companies, testing what are still grey areas in this nation for regulations on stock trading.

In the past, executives charged with tampering with earnings reports, even at companies far bigger than Livedoor, had generally avoided prison terms and received suspended sentences.

In announcing the fine, the court said that Livedoor was 'systematic' in its attempts to mislead individual investors, and that it had failed to live up to its responsibility as a listed company, according to Kyodo.

The fine against Livedoor was a record high, surpassing the 200 million yen fine imposed in 2005 on major railroad Seibu Railway for falsifying financial statements, according to Japanese media reports.

In a separate session earlier yesterday for the two accountants, Taishin Hisano was sentenced to 10 months in prison and his supervisor, Motoshi Kobayashi, received one year in prison suspended for four years, meaning that he avoided time, a court official said.

Kyodo News reported that it was the first time in Japan that a certified accountant had received a prison term in a court case involving securities laws violations. Hisano appealed later in the day, a court official said.

Their convictions bring the number of people judged guilty in the Livedoor case to seven, beginning with former chief executive Takafumi Horie, who was sentenced to 21/2 years jail last Friday.

The Livedoor scandal broke in January 2006, when prosecutors arrested Horie and other top executives, setting off a sell-off in the Tokyo stock market dubbed 'Livedoor shock'.

Horie had been a celebrity for his gutsy takeover attempts and flamboyant lifestyle and had drawn a large number of individual investors to buy shares in the Internet company.

The Livedoor case has prompted calls for clearer laws about stock trading as well as heavier penalties for falsifying earnings reports. Horie is widely perceived as having tested the legal loopholes and limits of Japanese securities laws.

Livedoor was delisted from a Tokyo exchange for start-ups but has been trying to rebuild its business under new management.

Like Horie, both accountants had pleaded not guilty - a rarity in Japan where many people charged with white-collar crime plead guilty, often to win lighter sentences.

On Thursday, four former Livedoor executives were found guilty of securities laws violations.

While three of the former officials received suspended sentences, Ryoji Miyauchi, Livedoor's former chief financial officer, was sentenced to 20 months in prison. Those four pleaded guilty to most of the charges.

The executives are accused of setting up a number of funds that prosecutors alleged were 'dummy' entities to do stock swops and other stock trading to pad their books. Prosecutors said the complex set of schemes fabricated five billion yen in profit.

Presiding judge Toshiyuki Kosaka said Miyauchi was the chief architect of some of the schemes as No. 2 at Livedoor, but said Horie shared much of the blame because he was the chief executive.

In contrast to the heavy penalties imposed on Livedoor and its executives, scandal-tainted brokerage Nikko Cordial was given only a slap on the wrist in another high-profile case of accounting regularities.

No one at Nikko Cordial, which has admitted to inflating profits the previous two fiscal years, has been charged.

Instead, Japan's third-biggest securities company - which Citigroup aims to take over - was fined 500 million yen, or US$4 million (S$6 million), by Japan's watchdog Financial Services Agency.

And while Livedoor's stock was delisted last year, the Tokyo Stock Exchange decided last week not to remove Nikko Cordial shares despite widespread speculation that they would be.