Raid of Livedoor Sends Tokyo Market Down

By CARL FREIRE

TOKYO – A raid by prosecutors on Internet company Livedoor Co. on suspected securities violations rattled Japan’s stock market Tuesday, sending the benchmark index down nearly 3 percent.

The overnight search on the Tokyo startup company spooked investors who rushed to dump Livedoor shares and other Internet-related issues, including Softbank Corp., Rakuten Inc. and Yahoo Japan.

But traders also said investors had been waiting for an excuse to sell stocks and lock in profits after the Tokyo Stock Exchange’s extended rally.

"The Livedoor incident triggered this correction," said Masayoshi Yano, senior market analyst at Tokai Tokyo Research Center.

The Nikkei 225 index plunged 462.08 points, or 2.8 percent, to close at 15,805.95 points, marking the biggest single-day drop since May 10, 2004, when the index lost 554.12 points, or 4.8 percent.

Within an hour after trading began, Livedoor shares fell 14.4 percent to their lowest allowed price for the day of 596 yen ($5.18). The price was frozen there all day as sell orders of 255 million shares overwhelmed buy orders of just 2.9 million.

The Tokyo prosecutors’ office, which raided Livedoor’s offices Monday evening, said the company is suspected of violating securities laws in spreading false information, but refused to elaborate.

Livedoor offers various Internet services, including consulting, telecommunications, mobile sites and software development. It also has also bought up chunks of other companies and managed to raise money by offering more of its own stock.

The company’s 33-year-old chief executive, Takafumi Horie – a celebrity in Japan for his iconoclastic style, bold buy-out attempts and frequent television appearances – denied wrongdoing.

"We are cooperating with prosecutors in their investigation," Horie said at a nationally televised news conference early Tuesday. "We are continuing our efforts to expand our operations and conduct business as normal."

Horie has become a star in Japan for challenging the stodgy business culture with his attempts to buy media conglomerates. Favoring T-shirts over business suits, he often appears on TV shows and runs a widely read blog.

A dropout of the prestigious University of Tokyo, Horie shot to fame with the Japanese public in 2004 when he tried unsuccessfully to buy an ailing professional baseball team.

He also made an unsuccessful hostile takeover bid for Fuji Television Network Inc. and ran in parliamentary elections last year as an independent supported by the ruling Liberal Democratic Party but did not get elected.

Kyodo News agency reported that Value Click Japan Inc., the predecessor of a Livedoor subsidiary, carried out illegal stock swaps with Japanese publisher Money Life in 2004. Value Click, now Livedoor Marketing Co., also inflated profit figures in its financial statement released the next month to improperly raise its stock prices, Kyodo said.

News of the raid made banner headlines in all of Japan’s major newspapers Tuesday, and TV talk shows also were abuzz about the news.

The immediate public perception seemed to be that authorities were attempting to clamp down on wayward entrepreneurs testing new territory in stock trading and acquisitions – but also that Horie might have crossed a line.

"Rules were ignored," the Sankei Shimbun’s headlines said. "A money game was played out."

"Investors and politicians alike had been in awe of (Horie’s) money-making wizardry, but it seems a hidden pitfall has now appeared," the Asahi newspaper said in a commentary, adding that behind the probe lies stock trading that resembled "gambling."

The case also highlights the need for clearer regulations in such areas as Japan struggles to shift to a Western-style free market economy after decades of government protection.

Finance Minister Sadakazu Tanigaki said if the reported allegations are true, the case shows a need for greater transparency in the Japanese market.

"They seem be a far cry from the transparency and fairness that Japan has been working hard to achieve," he told reporters.