In 1985 Japan’s economy bloom to a high peak where Yen appreciated sharply against the US dollar. Determined to gain more profits, many Japanese firms including Olympus Corporation started employing Zaitech, a speculative investment strategy. The president of Olympus, Toshiro Shimoyama, employed aggressive financial strategies together with Hideo Yamada, Assistant manager of the finance group in the accounting department and Hisashi Mori, decided to pursue Zaitech, the company invested in domestic and foreign bonds, specified money trust and other financial instrument.
Sadly, the bubble economy burst in the early 90’s and Olympus investment turned into a loss. The estimated unrealized losses were in tens of billions of yens. Olympus hid them and reported false profit. Everything got worst in 1999 since Japan moved towards the fair value of accounting where companies value financial instrument on a market-market basis. Olympus would have to take 95 Billion Yen under the new accounting rules giving Olympus the option to continue with its fraudulent accounting practices in order to hide the losses.
Olympus manipulated its balance sheet figure through Tobashi scheme where they fly away with losses. Olympus bought small companies and paid humongously more than their worth. The investment in consolidated subsidiaries show huge amount of goodwill. Which could then either written off over time or written down completely to hide the losses. The fraud was hidden very well; three banks were also involved by hiding information from the auditors. all three of them agreed not to tell auditors the information that would normally be provided on an audit confirmation.
In 2011 Woodford became the CEO of Olympus, he was appointed by Kikukawa which he thought that Woodford would be easy to control since he cannot speak Japanese, Woodford was kept in the dark about major decisions in the company. Woodford grown suspicious after his German colleagues emailed him an article of a magazine called FACTA where it highlighted the extraordinary high payments and acquisition fees for Gyrus and three small domestic companies. As Woodford questioned the Board about the questionable account and filed a resignation of the officers responsible for the improper acts, namely Kikukawa and Mori.
The directors held a meeting which was supposedly about the questionable account but turned the tide against Woodford. 14th of October Woodford was removed via unanimous decision by the board and restraining Woodford to vote, Olympus official reason was the cultural difference between Woodford and the management over the direction and conduct of Olympus business, but Woodford argued he was removed because he blew the whistle over the accounting irregularities and the suspicious acquisition of small companies.
Woodford went under police protection after he blew the whistle since he had no idea who are the beneficiary of the scheme the FBI since speculations that the Yakuza an organized crime is the beneficiary. On November 8 2011, Olympus admitted inappropriate accounting practices whereby funds were used to cover investment losses as far back as the 1990’s. Olympus got nearly delisted in the Tokyo Stock Exchange because of the scandal. This incident raised concerned on the usage of Tobashi Scheme and the weakness of corporate governance in Japan and exposing the “yes” culture.