A pair of shadowy Japanese advisers with ties to notorious junk-bond firm Drexel Burnham Lambert are at the center of a scandal that has rocked Olympus Corp. and slashed its stock price by half since Oct. 14, according to a report in the New York Times Dealbook blog. Investors have been shaken by the cloak-and-dagger narrative and the accusations of ousted CEO Michael Woodford, who claims he was booted from the Japanese company after questioning the payment.
When Olympus bought British firm Gyrus Group in 2008, it paid $687 million — or one-third of the value of the $2.2 billion deal — to a pair of advisers, identified by the Times as Hajime Sagawa and Akio Nakagawa of brokerage Axes America, former colleagues at Drexel Burnham Lambert during the 1980s. Subsequently, Axes closed down and transferred the funds — mostly in Gyrus stock — to a mysterious Cayman Islands operation that has also been dissolved, according to the Times.
Companies normally pay advisers about 1 percent of a deal's value. The enormous payment Axes received included $177 million in preferred Gyrus stock that Olympus bought back for $620 million. For a company to pay advisers in stock rather than cash is highly unusual, a PricewaterhouseCoopers report noted, adding, “[G]iven the sums of money involved and some of the unusual decisions that have been made, [improper conduct] cannot be ruled out at this stage.”
Olympus has defended payment as "appropriate," but the FBI is investigating the deal, according to the Times.
Woodford, the ousted CEO, is lobbying Japanese and British agencies to launch investigations of their own.
"I was drawing my own conclusions that this was inherently wrong," he told The Associated Press. "You can't justify that figure."