Daily Management Review

Record Fine Proposed by Japanese Regulators Against Toshiba for Accounting Fraud


Record Fine Proposed by Japanese Regulators Against Toshiba for Accounting Fraud
A fine of record proportions amounting to ¥7.37 billion ($60 million) was proposed to be levied on Toshiba Corp., on Monday by the Japanese regulators after a $1.9 billion accounting scandal at the electronics and industrial company.
The Japanese regulators are trying to shore up confidence in the country’s securities markets following the scandal.
While the penalty is small in comparison to what other companies in other countries like the US for similar crimes, the fine would be the biggest ever in Japan for accounting-related violations.
The scandal unfolded as Prime Minister Shinzo Abe is trying to increase companies’ accountability to shareholders and boost transparency and attracting more foreign investment and this spurred the regulators to pursue their investigation into Toshiba with special rigor.
 “Because of the significance of the name Toshiba and interest from the public, we took this case seriously, looking into fundamental problems deeply,” said Kiyotaka Sasaki, secretary-general of the Securities and Exchange Surveillance Commission, at a news briefing.
“This is important because Toshiba is one of Japan’s top companies and is also a global company and yet this happened at the time when Japan is ramping up corporate governance." Sasaki, added.
In response to the proposed fine, the company would accelerate restructuring efforts, Toshiba President Masashi Muromachi said Monday.
After people familiar with the situation said last week the company was talking to other PC makers about a possible combination, Toshiba was considering options for its personal-computer operation, said Muromachi .
Muromachi had previously said that he was weighing a sale of a stake in the rest of the chip operation, Toshiba’s biggest moneymaker, after the company has sold part of its semiconductor arm to Sony Corp.
“I am determined to carry out reform without restrictions,” Muromachi said.
Toshiba has previously announced that it had set aside ¥8.4 billion to pay for potential penalties which prompted analysts to expect the fine as inevitable. The Financial Services Agency has been asked to impose the fine as the commission doesn’t have the authority to impose the fine itself.
Three former chief executives stepped down from their roles with the company as an effort by Toshiba to reorganize its management this summer. An outside panel found that overly aggressive management targets contributed to $1.9 billion in profit overstatements over seven years and following this revelation, Toshiba has sued the three and two other officials, seeking ¥300 million ($2.4 million) in damages in connection with the scandal.
The company planned to increase the amount of damages it is seeking from the former officials, said Ryoji Sato, chairman of Toshiba’s audit committee on Monday. However no amount was specified by him. 
Stemming from a drip feed of disclosures about its accounting, Toshiba continues to be plagued by investor doubts. About $1.3 billion was booked in impairment charges against Toshiba’s U.S. nuclear business, the company said in November, but the disclosed the write-down only after it was reported by Japanese news organizations.
The company and several former executives in Tokyo were sued by fifty individual shareholders on Monday who demanded ¥302 million in damages stemming from the decline in the company’s share price.