Japanese drama shows must get their inspiration from somewhere. Domestic economic scandals, for example.
1. Window dressing
A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high-flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings. (Investopedia)
Drama case: Hanzawa Naoki
Hanzawa works at the Tokyo Chuo Bank as the head of the Loans Devisions, when he is forced by his manager to give an unsecured loan of 500 million yen to Nishi Osaka Steel. Because he is pressured to hand in the loan documents as soon as the following morning, there is no time to check the company’s accountancy carefully. Three months later, Nishi Osaka Steel goes bankrupt, and the lent money is gone. The company had been hiding their debts with window dressing. The branch manager, who had promised to take responsibility before, puts now all the blame on Hanzawa.
Actual case: Olympus
On 8 November 2011, camera and copier maker Olympus corp. (オリンパス株式会社 Orinpasu Kabushikigaisha) admitted having resorted to window dressing in the past. During the 1990s, at least $1.4 billion of losses were covered up using various types of window dressing. Surprising is that it took more than 20 years before it was discovered. In fact, it was brought into the light by a foreigner, the Briton Michael Woodford, who was sacked few days after becoming CEO of the company. Woodford had questioned the chairman about more than a billion dollars used as “advisory fees” to acquire some small-scale companies and firms. Advisory fees should be added up between 1% – and 2% of the total deal. In the purchase of Gyrus, a British medical equipment firm, Olympus paid $687 million as advisory fees to unknown, firms Axes and Axam, situated on the Cayman Islands, what makes up for a third of the acquisition price. Apparently they used the fees to hide the long-standing losses of the past two centuries.
Olympus’ scandal, though good for “the largest accounting fraud in Japan’s corporate history”, reminds us of the common accounting practice (tobashi 跳ばし) at the end of the bubble economy in 1990. Companies in debt transferred their bad assets or loans to dummy companies, so losses didn’t show up in the bookkeeping.
Interesting as well is the suggestion of newspaper Sankei that Olympus gave the yakuza, the Japanese mafia, some pocket-money, a tidy amount of $1.5 billion. Not much is written about that on the Internet, but I suspect it revolves around sōkaiya 総会屋, what means hiring yakuza to a) disrupt the shareholder meeting or b) prevent disruption of the shareholder meeting. Companies invite the yakuza to their own meetings for option b. For example, if a shareholder questions a certain policy of the company, he is threatened by the yakuza. Or they start making trouble in order to close the meeting and avoid further questions.
2. Insider Trading and Pump and Dump
Insider trading occurs when a trade has been influenced by the privileged possession of corporate information that has not yet been made public. Because the information is not available to other investors, a person using such knowledge is trying to gain an unfair advantage over the rest of the market. (Investopedia)
Pump and dump is a form of stock manipulation that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. Once the operators of the scheme “dump” their overvalued shares, the price falls and investors lose their money. Stocks that are the subject of pump and dump schemes are sometimes called “chop stocks”. (Wikipedia)
Drama case: Kurosagi
The swindler-who-swindles-other-swindlers Kurosaki poses as Yamashita, and tells Shiraishi, the swindler, that he wants to buy out Skybio Industry, a small company with a lot of potential. He asks Shiraishi to sell stocks in their new company. Shiraishi hears that a lot of great companies want to buy Skybio as well, so he sees an opportunity to con Yamashita. He suggests stock manipulation by insider trading. First, when Skybio enters the market, you have to buy as much stock as possible. Next, you spread the news about the purchase. Reputation of both companies will grow, and the stock value will increase. Then, you sell the stock you bought at a high profit range. If you have made a large sum of money, you spread the rumor that the company is not to be sold. Stock prices will immediately drop, and you can buy shares again at a cheap price.
Actual case: Recruit
The Recruit scandal is connected with insider trading and corruption. It is quite famous because it forced a cabinet to resign. Hiromasa Ezoe, chairman of Recruit, offered stocks of the subsidiary Cosmos to many politicians before the company entered the public market. When it did in 1986, share prices skyrocketed and a lot of money disappeared in the pocket of Diet members. Two years later, about 47 politicians were found guilty of insider trading or receiving special favors, among them prime minister Takeshita Noboru and former PM Nakasone Yasuhiro. Not only did the cabinet resign, it was also the end of the LDP’s continuous reign since 1955, as Hosokawa Morihiro won the elections in 1993.
Facts for Fun
– If you are more fond of Korean drama, I can recommend Midas, a drama about money and how to earn it in a most effective (and most illegal) way.
– Wikipedia and Investopedia
– Skinner, Douglas J. “Japan’s ‘Window Dressing’ Hid Olympus Fraud: Douglas J. Skinner.” Bloomberg, n.d. http://www.bloomberg.com/news/2011-12-01/japan-s-window-dressing-hid-olympus-fraud-commentary-by-douglas-skinner.html.
– “Camera-maker Olympus admits to window-dressing books.” Domain-b, n.d. http://www.domain-b.com/management/m_a/20111108_olympus_corp.html.
– Facts and details
– Inagaki, Kana, and Phred Dvorak. “Olympus Admits to Hiding Losses.” Wall Street Journal, November 8, 2011, sec. Business. http://online.wsj.com/article/SB10001424052970204190704577024680506345936.html.
– Miyazaki Manabu