Despite its best efforts to turn the corner after its forced disclosure earlier this year of one of the largest accounting scandals ever to jolt the Japanese financial community, Toshiba Corp. just keeps getting hit with more and more bad news. This bad news includes Japan’s financial regulators assessing the largest fine ever in the history of the country for financial mismanagement – ¥7.37 billion or about $60 million.
And now, the very first wave of shareholder lawsuits against former Toshiba executives are filed…and they are big.
See more on Toshiba’s continuing waves of woes…
Although the company has been anticipating some kind of action from financial regulators in the wake of the scandal over its misstated profits, even preemptively charging earnings to pull funds together to pay a fine, it did not anticipate a penalty of this scale. Just yesterday, the Securities and Exchange Surveillance Commission – Japan’s version of the U.S. Securities and Exchange Commission – recommended that Japan’s Financial Services Agency (the enforcement wing of Japan’s regulatory system) assess Toshiba a ¥7.37 billion fine.
Even though Toshiba is large enough to be able to pay such a fine, it did not escape the attention of Toshiba executives that this fine was the largest corporate fine ever assessed by the Japanese government – clearly a warning shot to the business community by the Abe administration. As contrite as the company has tried to appear, to be assessed the largest fine in Japan’s regulatory history – more than four times larger than the next biggest penalty – is without question an added and deeper level of shame in the Japanese culture.
Largest Penalty Ever Levied
In response to the news of this fine, Toshiba’s current President Masashi Muromachi again apologized on behalf of the company.
“We take it seriously that a record fine has been recommended,” Muromachi told the Japan Times, adding Toshiba intends to pay the amount after receiving an order from the FSA.
Toshiba has pledged to mend their ways, agreeing to improve their governance, beef up internal controls…and even change the corporate culture. The company is also considering a major business structure overhaul.
Shareholders File Claims
Yet even before Toshiba had a chance to digest the news of this fine, further word came yesterday that investors have filed the first wave of what will likely become many investor lawsuits against former Toshiba executives. The lawsuit, from a group of 50 investors arrayed across 15 prefectures in Japan are collectively seeking ¥300 million or about $2.5 million in damages. This lawsuit names three former Toshiba presidents and two chief financial officers.
Experts say as many as 1,000 more such lawsuits can be expected to be filed.
Confidence Lost
Resorting to lawsuits is a bit unusual for the typical Japanese investor – and far less prevalent than occurs here in the United States. According to the Japan Times, individual claims in this first wave of lawsuits are said to range from ¥170,000 ($1,380) to more than ¥10 million ($81,250), with most claiming they would not have purchased their shares in Toshiba if they had known about company managers illicitly inflating profits in falsified financial reports.
“If the damage to shareholders is not repaired in a case like this, confidence in the Japanese securities market will be lost,” Takahisa Sano, an attorney representing investors told the Japan Times.
Toshiba declined to comment on this shareholder litigation as it has not yet seen the lawsuits.
Toshiba Slammed Former Executives As Well
However, in November, Toshiba itself filed lawsuits against several of its former executives – past Presidents Hisao Tanaka, Norio Sasaki and Atsutoshi Nishida; and, former Chief Financial Officers Fumio Muraoka and Makoto Kubo. In the wake of the news on this new record fine, the company now says it will increase the size of its demand for damages from these former executives to something higher than the originally filed claim of ¥300 million,
The media in Japan is also aware of other shareholder lawsuits in the works. Specifically, lawyers are planning to file actions on behalf of shareholders in Osaka and Fukuoka courts before the end of this year. And then a second wave of lawsuits are expected to be filed by the end of the first quarter of 2016.
More Actions in the Works
Officials at the SESC and the FSA have also said their organizations are considering sanctions against the former Toshiba executives as well. And the Nikkei is reporting that the FSA is meeting with prosecutors to discuss the possibility of bringing criminal charges against these and possibly even other Toshiba executives.
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