Former Bank Executive Arrested for Assisting Olympus Corporation in Several-Hundred-Million-Dollar Accounting Fraud
Defendant was Allegedly Paid More Than $10,000,000 by Olympus for His Role in Structuring Accounting Fraud
|U.S. Attorney’s Office December 20, 2012|
Preet Bharara, the United States Attorney for the Southern District of New York, and George Venizelos, the Assistant Director in Charge of the New York Field Division of the Federal Bureau of Investigation (FBI), announced that Chan Ming Fon, a former bank vice president, was arrested today for his participation in a scheme to defraud investors and auditors by misrepresenting the financial condition of Olympus Corporation (Olympus). Chan was arrested in Los Angeles, California, this morning and will be presented in federal court in the Central District of California this afternoon.
Manhattan U.S. Attorney Preet Bharara said, “As alleged, Chan Ming Fon was handsomely paid to play an international shell game with hundreds of millions of dollars of assets in order to allow Olympus to keep a massive accounting fraud going for years, duping its auditors and its shareholders. By allegedly deceiving Olympus’ auditors over and over again, the defendant undermined the system of auditor oversight that exists to detect exactly this kind of fraud, a fraud that victimizes investors and undermines confidence in the markets.”
FBI Assistant Director in Charge Venizelos said, “As alleged, the defendant had a direct role in the secret liquidation of hundreds of millions of dollars of Olympus investments. He then waged a six-year campaign to conceal that misdeed by lying, certifying to auditors that the investments still existed years after liquidation. The result was to deceive Olympus investors about the financial health of the company.”
The following allegations are based on the complaint unsealed today in Manhattan federal court, court documents filed in Japan, and related press reports:
Olympus is a major manufacturer of medical devices and cameras. Olympus owns—both fully and in part—numerous subsidiaries and related companies located in many countries, including the United States. From 1995 through 2004, Chan was employed as an executive at two different international financial institutions. One of Chan’s primary responsibilities while at one of these institutions was to service accounts maintained by Olympus and entities that Olympus controlled.
From at least 2004 through 2010, Chan participated in a scheme to disguise hundreds of millions of dollars that Olympus purportedly invested in government bonds and other secure investment vehicles (the “investment portfolio”). At the direction of Olympus’s executives, Chan, who managed the fund that held the investment portfolio—SG Bond Plus Fund (SG Bond)—transferred the investment portfolio to an Olympus-controlled entity—Easterside Investments Limited (“Easterside”)—which then liquidated the bonds. Easterside then used hundreds of millions of dollars of these proceeds to repay an undisclosed, outstanding loan that it owed to a financial institution. These improper transfers and the concealed repayment of the loan allowed Olympus to present a significantly stronger financial condition of itself to its auditor, and ultimately, its investors.
As the manager of SG Bond and Olympus’s purported investment, Chan submitted false and misleading documents misrepresenting the investment portfolio’s value to Olympus’ outside auditor (auditor). Chan did not disclose in these confirmations that the investment portfolio had been transferred, nor did he disclose that the investment portfolio had been liquidated.
One example of Chan’s preparation and submission of false and misleading documents regarding the investment portfolio occurred in 2009 when he faxed a false confirmation of the investment portfolio’s value, and a list of assets that were purportedly part of the investment portfolio, to the auditor. At the direction of an Olympus executive, Chan forged a signature on the confirmation to make it appear that it had been signed by a bank representative. He submitted these false documents, with the forged signature to deceive the auditor into believing that Olympus’ purported investment was safe and secure when it was no longer held by Olympus and had been liquidated.
When interviewed by special agents of the FBI earlier this week, Chan admitted that he had provided, and had caused to be provided, false and misleading information about the investment portfolio to Olympus’s auditor. He additionally admitted that, by providing the auditor with false and misleading information about the nature of Olympus’ investment, investors were misled into believing that the investment portfolio remained in safe and secure bonds. Chan confessed that he received more than $10,000,000 in compensation for purportedly investing money on behalf of Olympus.
On September 25, 2012, Olympus and former Olympus executives, including the executives identified as CC-1 and CC-2 in the complaint, pled guilty in Tokyo, Japan, to criminal charges related to a long-running $1.7 billion accounting fraud scheme involving Olympus.
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Chan, 50, resides in Singapore and is a citizen of Taiwan. He is charged with one count of conspiracy to commit wire fraud, which carries a maximum potential penalty of 20 years in prison.
Mr. Bharara praised the FBI for its outstanding work in the investigation. He also thanked the U.S. Securities and Exchange Commission.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Bonnie Jonas and Zachary Feingold are in charge of the prosecution.
The charges contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.