Livedoor Investigation Knocks Japanese Investors

Livedoor Co., a Japanese internet company, had its offices raided late Monday, and investigators confiscated computers and records. The company is suspected of misleading the market about its finances, and the Tokyo Stock Exchange had to close early on Wednesday because of the volume of sell orders. Young Turk CEO Takafumi Horie (who wears T-shirts rather than suits and who tried to takeover Fuji TV a while ago) is still reassuring the market that all is well. The apparent suicide of a financier involved with a Livedoor transaction after being questioned by prosecutors adds to the nasty brew.

The case is the usual complex web of subsidiaries and new names for old operations. In a nutshell, the initial accusation centered on misleading statements Livedoor and its subsidiary, Livedoor Marketing, made about the purchase of publishing company MoneyLife, which Livedoor Marketing’s predecessor firm (ValueClick Japan) closed a while ago. Now, the worries have grown, and some are saying that two of Livedoor’s acquisitions in addition to MoneyLife happened specifically so revenues and earnings could be distorted to keep stock prices up.

Reuters explained in greater detail, “Livedoor and Livedoor Marketing said in a statement they believed that they did not have to disclose the acquisition of MoneyLife when it was bought by an investment fund associated with Livedoor because the fund was not directly controlled by Livedoor's investment unit, Livedoor Finance. Even if MoneyLife was treated as a group company, they said, they were unlikely to have been required to disclose the initial acquisition by the fund under Tokyo Stock Exchange rules. Livedoor Marketing later bought MoneyLife from the fund and disclosed the acquisition then.”

HS Securities is a Japanese company that helped put the deals together. Its offices had been searched and one of its employees, Hideaki Noguchi, 38, had been questioned on the island of Okinawa Monday night and until about 3 am Tuesday morning. Reports say he slit his wrists and died at the hospital to which medics had rushed him early Tuesday.

Mr. Horie of Livedoor has annoyed the Japanese establishment for a long time, now, and if he really has defrauded people, he will go down hard. However, even if he is exonerated, the case will give the government the pretext to hit the brakes on Japan’s M&A liberalization efforts. That would be bad for Japan’s recovering economy and stock market, but good for those who still own Japan.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent.
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