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Livedoor Suspected of Book-Cooking, May Face Delisting

Posted on: Wednesday, 18 January 2006, 18:01 CST

By Kyodo News International, Tokyo

Jan. 18--TOKYO -- Trouble at the Internet services firm Livedoor Co. deepened Wednesday amid fresh allegations that it falsified financial records for the 2004 business year, a stock exchange violation that could lead to its delisting from the Tokyo Stock Exchange.

Livedoor stock, traded on the TSE's Mothers market for start-ups, ended the day at an ask-only 496 yen, down by the maximum daily 100 yen for the second straight day since Tokyo prosecutors raided the fast-growing company over alleged securities law violations on Monday.

Livedoor is suspected of falsifying its financial report for the year through September 2004 to make it appear that it had a profit of 1.4 billion yen when it was in fact in the red with a 1 billion yen loss, sources familiar with the matter said Wednesday.

The suspected manipulation is believed to have been carried out by transferring part of Livedoor affiliated companies' profits to the parent company, the sources said, adding that instructions on what to do to realize this were coming from executives of the fast-growing Net services firm via e-mails.

Tokyo prosecutors are also aware of the allegations and are now investigating what they have confiscated from Livedoor offices since Monday, including accounting documents, personal computers and electronic data, according to investigative sources.

The prosecutors believe that investigations into e-mails exchanged between Livedoor executives will hold the key to proving whether President Takafumi Horie, 33, and Chief Financial Officer Ryoji Miyauchi, 38, had any role in the alleged manipulation, the sources said.

The prosecutors plan to question Horie and other Livedoor executives, they said.

Following media reports on the allegations, TSE Chairman and President Taizo Nishimuro called on Livedoor, listed on its Mothers market for start-ups, to make its position clear on whether the allegations are true.

"If it becomes clear that (TSE) regulations were violated, it is inevitable that we will have to decide on delisting," Nishimuro said at a news conference.

In the afternoon, Livedoor said the company will do its utmost to examine the matter and will make public the results of its investigations as soon as possible.

The investigative sources said Livedoor added a total of 2.4 billion yen in profits to its financial statement to cover the loss, such as through creating false sales figures and taking in profits of several companies effectively under its control.

Royal Shinpan Co., a consumer credit firm now called Livedoor Credit Co., and Cueznet Co., an online matchmaking services provider, are among such companies used in the scheme, the sources said.

During the 2004 business year, the companies were not yet under the umbrella of Livedoor, and their accounting books were therefore not part of the company.

On Aug. 30, 2004, Livedoor announced it would turn Royal Shinpan into a wholly owned subsidiary, and made a similar announcement with regard to Cueznet on Sept. 3.

Although their buyouts were completed through stock swaps in October and November, respectively, the companies' profits were added to Livedoor's earnings for the business year.

The period during which Livedoor is suspected of being involved in such manipulation overlaps with the time when its financial strength was often compared with its larger rival Rakuten Inc. in connection with their efforts to enter the Japanese professional baseball business.

The buyouts of Royal Shinpan and Cueznet were carried out by using an investment unit, the same strategy taken by Livedoor's subsidiary ValueClick Japan Inc., now called Livedoor Marketing Co., when it took over a publisher in 2004, the sources said.

The investment arm used for Royal Shinpan's buyout was Japan M&A Management Co., the sources said, adding the prosecutors have searched the investment arm and its parent H.S. Securities Co.

On Monday, prosecutors raided Livedoor's headquarters on suspicion that a group firm released inflated earnings results and engaged in other illegal business conduct in a bid to boost its stock prices.

ValueClick Japan is suspected of having padded its sales and profits for its earnings report released in November 2004.

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Copyright (c) 2006, Kyodo News International, Tokyo

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Source: Kyodo News International, Tokyo

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