WINDOW DRESSING
KEYWORD: WINDOW DRESSING, COMMERCIAL CODE, ACCOUNTING

The president and three other former executives of a failed construction company were arrested for false accounting, or window dressing. The company reported higher than true sales figures and profits that did not exist. At times, the company paid out dividends when it did not have true profits. That violates the Commercial Code. Of course fraudulent accounting documents, and financial statements violate securities laws. The company reportedly misreported earnings by 98 billion yen (that’s nearly a billion dollars). The company lied so that it could be big enough to participate in government construction bids as well as for obtaining bank loans.

In another case, the Tokyo District Court found former executives of the failed Sogo Department Stores not responsible for the payment of dividends when the company was in reality falling apart, due to the poor accounting standards applicable in those days.

Interestingly, a subsidiary of the Nihon Keizai “NIKKEI” Japan’s top business newspaper and supplier of corporate data, had some of its senior executives arrested and tried for window dressing. The executives reportedly wanted to prove themselves to the parent company.

Kanebo, the major apparel and cosmetics maker which had sought refuge from bankruptcy with the government backed Industrial Revitalization Corporation of Japan, was being probed in late 2004 by the Securities and Exchange Surveillance Commission on the company on suspicions of window dressing by padding transactions between the parent company and affiliates. The agency believed this was in violation of the Securities Exchange Law and even criminal cases may be filed against former executives. At its 2004 shareholders meeting it reduced its capital from 31 billion to 100 million yen.

In late May, 2004 the Tokyo District Court sentenced three former officers of Nippon Credit Bank, including a president, to suspended prison upon finding them guilty of window dressing, particularly for hiding 160 billion yen in bad loans. The court severely criticized the managers for using non-standard methods for evaluating bad loans.
 
After the president of Tohoku Bunka Gakuen University was arrested for defrauding the national government of 575 million yen in subsidies, the municipal government of the city of Sendai also filed charges for defrauding it of 94 million yen in subsidies as well. The company had filed false, window-dressed financial statements when it had filed for the assistance.

Copyright 2005. All rights reserved Attorney Roderick H. Seeman

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