Olympus accounting scandal

Twenty years of steady books at a camera giant. The losses had been flying away the whole time.

The fifth quadrant, where the thing was never real. The tell is that the story is too clean.

Room: Q-F Fraud
Year: 2011
Impact: $1.7B
Sector: Optics manufacturer
Region: Asia-Pacific
Category: Economic

Why this room

Olympus reported two decades of stable results while unrealised losses from 1990s financial-asset speculation were parked in unconsolidated offshore funds (tobashi) and never marked. The losses were later extinguished by routing inflated M&A consideration back into the loss-holding vehicles, so the audited earnings and the acquisition programme were both artefacts of the concealment rather than records of the business. The event belongs in qf because the accounting was not a mismeasurement of a real position but a fabricated continuity, and the tell is exactly the too-clean profile: steady books plus an implausible $687m advisory fee on a $2bn acquisition.

The record

By 2003 the losses separated from Olympus's balance sheet under the loss separation scheme totalled 117.7 billion yen, up from about 96 billion yen when the scheme was consolidated around 1999-2000.certain
A total of 134.8 billion yen (about $1.7bn at 2011 exchange rates) was applied to settling and maintaining the scheme: 63.2 billion yen paid for the warrants and preferred shares tied to the Gyrus acquisition, plus 71.6 billion yen routed to the funds holding the separated losses.certain
Olympus paid $687 million in compensation to the financial advisers Axes and Axam in connection with the Gyrus acquisition, part of which was used to cover the tobashi losses.certain
In March 2010 Olympus's UK subsidiary repurchased dividend preferred shares from Axam for $620 million (57.9 billion yen) against a book value of 16.5 billion yen.certain
Olympus's unrealised losses on financial assets had reached roughly 95-100 billion yen by around September 1998, before the separation scheme was formalised.high

Sources

The book

This entry is one of 111 in the register. The full story, and what it cost the people who lived it, is in Risky Business by Claudia Zeisberger, David Munro and Joanna Reijgersberg-Siew.

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