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OLYMPUS: Bringing It Into Focus–A Special Breach Of Trust? UPDATE


Oct 24, 2011

In the last week, the New York Times, the Financial Times(article in Japanese)  and Reuters have reported heavily on suspicious transactions at Olympus Corporation, one of Japan’s oldest and most distinguished camera and optical equipment makers. The board forced out acting CEO,  Michael Woodford, after he became too diligent in doing his due diligence on questionable financial transactions at the company. Olympus claimed he was forced out for cultural differences. In one sense, they were correct. If Mr. Woodford was Japanese, he would have understood his promotion involved an implicit exchange of power for shutting up about things no one wants to talk about it. He just doesn’t get it.

Yes, the world is always made complicated by honest men with a sense of justice and duty–to themselves and to their shareholders or to some greater good. The whole scandal emerged first in the Japanese media. Yes, despite what you have been told good investigative journalism does exist in Japan. The magazine FACTA, has been following the story for months and ZAITEN, also ran a long feature on how Olympus’s money bleeding investment arm, ITX,  had been amputated quietly–but not so perfectly that  the huge pools of financial blood were not noticed. The mainstream Japanese media has chosen to ignore the story, probably because HUMALABO, the cosmetics and supplements maker, which Olympus now owns—is also a huge advertiser, especially in newspapers.

In year 2008, something happened at Olympus that turned the company from an entity focussed on seven major business areas, into a company completely out of focus, blurred by a total of seventeen business areas, to include real estate, investments, consulting, waste disposal, labor dispatch, and running travel agencies. Igari Toshiro, former prosecutor turned anti-yakuza crusader, who was Japan’s greatest expert on white-collar organized crime aka the keizai yakuza (経済ヤクザ)and many veteran organized crime detectives have stated that one of the first signs that a company has been infiltrated by anti-social forces is a sudden and totally new change in company direction–especially into areas like waste disposal, labor dispatch (temporary staffing), and real estate—all areas where anti-social forces have carved out a large niche for themselves.

Olympus seems to have lost their focus in June of 2008. Anti-social forces may have set their sights on the company at this time.

Olympus invested at current exchanges, what would be over 700 million dollars into three companies, in 2008 circa the time of their transformation into Super Olympus–and later wrote down the value of those investments by three quarters in the same year.  The three companies shared addresses and office space with several other companies with different names but sometimes the same employees, creating a web of real and paper companies that make tracking the money very difficult. One of the auditors involved is considered a corporate blood brother (企業舎弟・kigyoshatei) to the Yamaguchi-gumi, Japan’s largest crime group, by law enforcement and regulatory agency sources. In short, what happened at Olympus has all the earmarks of anti-social forces gaining entry into a company and draining it of cash. The Yubitoma case in 2007, the taking of Lehman Brothers Japan for 350 million by a yakuza connected firm Asclepius in 2008, and other cases bear a striking resemblance to what seems to have happened at Olympus.

When the board of a company continues to make decisions that negatively impacts the financial situation of the company, it is the duty of the CEO under the The Companies Act (会社法)to address these acts of corporate malfeasance and if need be, make the shareholders aware of the problem and possibly file criminal charges. It would appear, based on all that has surfaced, that Mr. Kikukawa, who ran Olympus during the periods where the suspicious transactions took place, and possibly other directors as well, may be guilty of the crime of an aggravated breach of trust . (会社法第960条・取締役などの特別背任罪)The law essentially says the following, “when a director (executive officer etc), for the purpose of promoting such person’s own interests or the interests of a third party or inflicting damage on a Stock company, commits an act in breach of such persons duties and causes financial damages to such Stock Company, such person shall be punished by imprisonment with hard labor for not more than ten years or a fine of not more than ten million yen or both.  If this is what Mr. Kikukawa and other board members have done, then under the The Companies Act (会社法), Mr. Woodford would be an accomplice to a crime by remaining silent.

I’m certainly not the judge and jury in this matter. However, as a reporter who has been covering organized crime since 1994, I feel confident in saying that if there hasn’t been a takeover or collusion of the company by anti-social forces, there is certainly a level of corporate malfeasance here that has already drawn the attention of the Japanese law enforcement agencies and regulatory agencies. It is drawing world attention as well. Investigations will come. No one can be sure what will be found until the digging is done.

The Neojaponisme Blog has a very interesting catalog of the players involved in the transactions. It begins like this:

A Guide to the Olympus Mysteries

Updated October 25

On October 14, 2011, Japanese camera maker Olympus (オリンパス) fired its CEO Michael Woodford after a mere eight-months on the job. Woodford, through a serious of interviews with the foreign press, revealed that the dispute arose over his investigations into the company’s use of $1.3 billion USD on two mysterious sets of corporate deals. (Full back story here.) These controversies set off a 50% decline in Olympus stock price as well as calls for independent investigation from the company’s top institutional shareholders.

Ignoring the boardroom drama for a moment, there are two major mysteries of this Olympus story. First is the $687 million in fees paid to financial advisors AXAM Investments Inc. and Axes America LLC. Second is the over-payment in acquiring three minor companies — Altis, Humalabo, and News Chef — that have little to do with Olympus’ core business. While the Western media is working hard to investigate the ultimate recipients of the $1.3 billion, we thought it would be helpful to keep tabs here on what we know about the mystery companies in question.

As new details emerge, we will update this page. Please feel free to offer any further details or corrections.


The Financial Advisors: AXAM Investments and Axes America

Olympus has confirmed its paid $687 million USD in “financial advisory fees” to two companies AXAM Investments Inc. and Axes America LLC for assistance with its $2 billion acquisition of British medical company Gyrus Group Plc (Business Week). With standard M&A fees at 1-2%, AXAM and Axes’ haul ended up being the largest financial advisory fee paid in history (Reuters). According to Reuters, Olympus paid AXAM and Axes $177 million in preferred shares, but the companies asked Olympus to buy them back in March 2010 — at the price of $620 million.

Who is AXAM Investments, Ltd.?
There is almost no public information about AXAM Investments Ltd. other than its registration in the Cayman Islands. The company, however, was stricken from the Cayman Islands’ local registry in June 2010, and there are no materials on the Internet revealing further information about its existence.

The PricewaterhouseCoopers (PwC) report on the deal suggests that Hajime Sagawa of Axes America LLC represented AXAM in the negotiations with Olympus (Reuters). TheNew York Times reported on October 24 that Axes “assigned” its Gyrus shares to AXAM after it closed in March 2008. Sagawa’s wife, however, denies Sagawa’s involvement with AXAM (Reuters). While not proof of a connection, there are, however, records available on the Internet showing Hajime Sagawa shipping personal affects from/to aSeven Mile Beach location on the Cayman Islands to/from his Boca Raton home in 2006 (waybill).

Who is Axes America, LLC?
Axes America LLC is nearly as obscure as AXAM, but there are traces of the “dormant” company on the Internet. The firm was first established on February 13, 1997, and according to FINRA records, dropped its “broker-dealer registrations” in 2008, three months after the Olympus deal closed (Axes websiteFortune). The company originally had $160,000 USD in paid-in capital (ref).

Axes America was once based in office suites at 420 Lexington Ave Rm 2009, New York (Biz Find), but Reuters found a security guard who said the office had been closed for a few years (Reuters). Earlier, the company had two addresses in Connecticut. One at 220 Fox Ridge Rd, Stamford, which is a normal house rather than an office complex (reference). The 2001 website for Axes (Japan) Securities meanwhile lists the address 70 Seaview Avenue, Stamford, CT 06902 (office building images).

Axes America’s President and CEO for many years was the aforementioned 64 year-old Hajime “Jim” Sagawa (in kanji, 佐川肇). In the 1980s, he was employed at Nomura Securities and now bankrupt investment firm Drexel Burnham Lambert (the one time home to “junk bond king” Michael Milken). He then later headed up M&A at Sanyo Securities America and was a managing partner at stock brockerage PaineWebber(now part of UBS AG) (ReutersFortune). Reuters traced Sagawa to a “resort home” in Boca Raton, Florida (Reuters). Sagawa in recent years has been associated with companies Sagawa Capital (registered to his Boca Raton home, closed in December 2010), Sagawa & Company (registered in NY, home jurisdiction in Delaware), andSagawa International Services (Pompano Beach, Florida),

In 2001, Axes’ Japanese website identified the shareholders of Axes America LLC as three employees Akio Nakagawa, Masayuki Hamada, and Hajime Sagawa. Other key personnel of Axes America include Takahashi Yoshinori (高橋芳徳) (originally hired as a “Technical Translator” in his H1B visa application) who has been CEO (c. 2002-2006) and Executive VP (ref).

The New York Times reported that Nakagawa and Sagawa first worked together in 1988 at Drexel Burnham Lambert. Nakagawa had worked at Merrill Lynch. Both left Drexel in 1990 and moved to Paine Webber, from which Sagawa was laid off in 1996. (The Times article provides the best biographical detail on Sagawa.)

According to the New York Times, an unnamed official at Olympus approached Axes about assisting with M&A deals.

Axes America LLC eventually shut down on March 5, 2008 — one month after the Gyrus deal closed (New York Times).

Who is Axes (Japan) Investments?

For the complete article continue on to The Neojaponisme blog

36 thoughts on “OLYMPUS: Bringing It Into Focus–A Special Breach Of Trust? UPDATE”
  1. Jake,

    Thanks for your insight into this scandal… Please follow along and keep giving us your take on what’s going on…. I wonder how many companies of the same stature and longevity as Olympus have been or are currently infiltrated by the anti-social forces?

    All the best,


  2. I read with interest your article as well as the AFP article and the only thing I disagree with in your article is the part about Woodford being an accomplice to criminal behavior. As the CEo Woodford acted responsibly.,he investigate the situation, crossed all his t s and dotted all his I s. He confronted the chairman for answers and then went to the authorities. Without conclusive evidence, if he came out with these accusations and if he was wrong, he would have been guilty of acting recklessly and could have faced lawsuits from not only Olympus but from shareholders if it artificially drove down the price of Olympus stock. That’s why all Officers and directors must walk a fine line between legal responsibility and responsibility to the corporation.

    1. Thank you for writing int. What I was attempting to say–after speaking to several lawyers and reading a book on director responsibility and the 会社法 is that-Mr. Woodford did his legal duties by coming forward. Japanese law is different from Western law. At this point in time, he should probably file charges of special breach of trust against CEO Kikukawa with the Tokyo Prosecutor’s Office. He has a very good case.
      Basically Japanese law seems to incorporate the spirit of this Omaha Indian saying:

      He who is present at a wrongdoing and does not lift a hand to prevent it, is as guilty as the wrongdoers”

  3. Interesting. I happen to have an Olympus camera myself that I bought couple years ago.

    It’s interesting to hear more about how Yakuza operates within the corporate world. It might not sound as exiting as all the traditional stories about tattoos, brothels and gambling dens, but its actual impact on society could be much greater.

  4. Mr. Woodford was not just the CEO but also a member of Olympus’ Board of Directors (and apparently still is!); so he had dual sets of responsibilities as such.

    In addition, it’s no longer just an issue of Japanese law. The payments were received by a US company and a US controlled Cayman Islands company (a tip off right there), both of which seem to have disappeared of the face of the earth, together with their Japanese-American owner; that is, until the FBI (now reported to be involved) catches up with them.

    This should be a lot of fun to monitor…

    1. Excellent point. I think Mr. Woodford is a solid guy and with a good heart. I’m sure that there are people at Olympus looking for anything to smear his reputation and good name that they can find. As always, when the malicious people of the world fail to defuse the message, they choose to attack the messenger instead.

  5. Perhaps Kikukawa hired Woodford to do what he himself could not do, expose and seek to free Olympus from extortion.

  6. Jake, this is a fascinating story. That Olympus went from 7 to 17 business units in one year is extraordinary. Big, established companies don’t do that! My question: How do yakuza move into an established corporation like this?

  7. I guess the next question is “what did Mr. Kikukawa do that the Yakuza were able to extort almost seven hundred million dollars?”. And if what they did was legal where can I get a job as an adviser for Olympus?

  8. Did you have a chance to read the story and comment on Neojaponisme blog. It is quite interesting and gives a very interesting back story about all the companies involved.

  9. Jake, fantastic inside into the story especially for me as I used to work for Olympus in Europe.

    I’d like you to give us more insight into anti-social elements in the corporate world. What about the Pachinko industry? There we have companies like Heiwa, Sammy or Sankyo from Gunma/Saitama and companies like Kyoraku, Fuji or Sanyo from Nagoya. Some of them have Korean ties as well.

    So are the anti-social elements expected to be from Kobe, Nagoya or Tokyo etc.?

    1. I’m glad you enjoyed it. I was discrete in writing. I had more to say. I’m familiar with the companies you mention but in a public forum will refrain from commentary. Anti-social elements can penetrate any company. Citibank Japan has been punished twice by the FSA for involvement with the yakuza: 2004 and 2009.

  10. Hi Jake, thanks so much for the talk at the Harvard Club last week. As for Olympus, perhaps you’ve already read yesterday’s article by Hiroko Tabuchi at the NYT… interesting because it confirms in a little more detail some of your thoughts on how anti-social forces infiltrate a corp and carve out niches… The Yokoo Brothers are heavily implicated by Woodford; one of these Yokoos formerly headed Shinjuku Nomura Building (where Olympus was a client of his) and resigned when a scandal involving payoffs to organized crime broke out. He subsequently left there, took Olympus along with him, and that’s where the trail of nefarious-sounding company names begins (Global Company, ITX, News Chef). There is also Altis, a medical waste disposal company… and you know how ‘anti-social’ forces love waste disposal!


  11. […] million last year wouldn't be hurting from losing more than $5 billion over the past few years. According to Japan Subculture Research Center, "One of the auditors involved is considered a corporate blood brother (kigyoshatei) to the […]

  12. Jake thanks so much for your work. What I find amazing is that the Tokyo Stock Exhange and Tokyo District Prosecutors Office seems so unable to act after nearly 2 weeks. These same directors that were all with Kikukawa are still on the Board and the new CEO Takayama is parrotting the same denials on the illegality of these transactions. Shouldn’t this company be delisted under the TSE rules for co-operating with anti-social forces?


    The rules are pretty clear and even without this it seems the company will have to write down the value of these assets and the auditors will have to qualigy the accounts which are also causes for delisting.

    1. 2 weeks? It’ll take two years probably before any criminal investigation comes to a conclusion. With the DPJ running the show, the TSE and the FSA are severely handicapped.

  13. You better start asking questions on the other side of the transactions too. Why would Perella Weinberg advise Olympus to pay way too much for Gyrus in the first place? Why would they sign off on such a deal? Why is no one talking to the now-billionaire ex-head of Gyrus (the Gyrus takeover enriched him since he owned most of the Gyrus stock)?

  14. There was a famous assets draining case in Sweden, the so-called Trustor affair. Ultimately, those accused were acquitted by the Supreme Court.

    How many mergers and acquisitions shaft some group of shareholders who are unaware of what is going on?

  15. […] Woodford has showed tremendous courage and common sense in going public with what his concerns about Olympus. When the board of a company continues to make decisions that negatively impacts the financial situation of said company it is, under Japan’s Companies Act, the duty of the CEO to address these acts of corporate malfeasance and if need be to make the shareholders aware of the problem – and possibly file criminal charges. Not to do so makes the CEO legally responsible. […]

  16. […] Woodford has showed tremendous courage and common sense in going public with what his concerns about Olympus. When the board of a company continues to make decisions that negatively impacts the financial situation of said company it is, under Japan’s Companies Act, the duty of the CEO to address these acts of corporate malfeasance and if need be to make the shareholders aware of the problem – and possibly file criminal charges. Not to do so makes the CEO legally responsible. […]

  17. Fantastic read, Jack. How does Yakuza infiltrate these companies btw? Or do we have to wait for another book? 😉

    1. You can put a person inside the company or turn someone already in place. Blackmail, collusion, subversion–there are many ways to do it. And why, yes, that is the subject of another book.

  18. Yakuza involvement in the Olympus deal. Once again the hype of your reporting is far greater than the factual substance. But then again that’s maybe why you no longer live in Japan .

    1. Dear Steve, who obviously knows everything about Japan and this story. NEWSCHEF, one of the companies bought at an inflated price by Olympus was listed as an organized crime front company. The former President of NEWS CHEF was jailed for a 90 million dollar investment fraud scheme. J-BRIDGE, one of the firms used in the SPC which bought the three companies in 2006–2008 is a Yamaguchi-gumi front company with one executive prosecuted for insider trading. The companies used “hide losses” were run by criminals. “Yakuza” in the broader sense refers to anti-social forces which include yakuza front companies and groups of criminals that are not traditional yakuza. Clearly there were anti-social forces profiting in these transactions. ITX, Olympus’s investment company, poured money directly into yakuza front companies.
      When organized crime front companies receive a commission or fees for helping to hide bad investments or receive investments from a company, I guess that doesn’t mean they’re involved.
      I’m assuming that you don’t read Japanese or haven’t bothered to read any. If you’d like a list of books on yakuza in the business world, I’d be happy to post them.
      BTW, I do live in Japan.

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