Nikkei rebounds despite suicide of financier tied to Japanese Internet portal allegations.

January 19, 2006

The scandal that prompted a dramatic sell-off in Japanese stocks took a morbid turn Thursday when news broke that a senior executive at a brokerage firm tied to the embattled Internet company Livedoor apparently committed suicide.

Stock prices on the Tokyo Stock Exchange rebounded Thursday, with the Nikkei 225 index climbing 2.3 percent after plummeting 6 percent on Tuesday and Wednesday.

The fatality involved Hideaki Noguchi, who served as vice president of H.S. Securities and apparently slit his wrist with a kitchen knife in a hotel room in Naha, capital of the Japanese island of Okinawa, according to the Asahi Shimbun, a daily newspaper.

Mr. Noguchi, 38, was found lying on a bed at 2:35 p.m. Wednesday by a hotel employee and was pronounced dead at a nearby hospital an hour later. Okinawa police said Mr. Noguchi had left no suicide note and no will, and prosecutors stated that he had not been questioned or called in.

‘As in the U.S., there will be a comeback, and the best will survive.’

-Gerhard Fasol,

Eurotechnology Japan

But H.S. Securities’ offices had been raided by prosecutors as part of their investigation into alleged fraudulent stock dealings by Livedoor.

The report describes Mr. Noguchi as a close associate of Livedoor CEO Takafumi Horie, who had worked at Livedoor and its predecessor company, Livin’ On the Edge, until 2002. He was instrumental in preparing Livedoor for its 2002 listing on the Mothers board, the startup sub-board of the Tokyo Stock Exchange.

A subsidiary of H.S. Securities, Japan M&A Management, handled the stock valuations in the stock-swap deals that Livedoor used in acquiring companies, according to the Mainichi Shimbun newspaper.

The controversial Mr. Horie, whose calculated iconoclasm and savvy handling of the Japanese media has won him celebrity status in Japan, was dumbstruck when Nippon Television reporters informed him of the apparent suicide, managing after a moment to utter, “Why?”

Livedoor to be Delisted?

Tokyo authorities are investigating whether the company’s marketing unit, Livedoor Marketing, formerly known as ValueClick Japan, may have violated securities regulations by announcing in October 2004 that it would execute a stock swap to make a publishing company called Money Life into a wholly owned subsidiary.

However, Livedoor already owned Money Life through an investment fund financed by Livedoor. Profits from the sale of Money Life allegedly went to Livedoor.

Widespread reports suggest that the company was suspected of overstating its revenues for the year ended November 2004 to cover up a loss and make it appear to be a profit.

According to the Yomiuri Shimbun, a Japanese-language daily, Livedoor transferred profits from three of its affiliates to cover up a ¥1-billion ($8.7-million) deficit. The three affiliates were Livedoor Finance, Royal Shinpan (now known as Livedoor Credit), and Cueznet, an online matchmaking firm.

The TSE has asked Livedoor for more information by Friday. Livedoor director Ryoji Miyauchi, who manages merger deals, said he would take responsibility but contended that the company had not violated the law.

Prosecutors are questioning him, along with Mr. Horie and company president Fumito Okamoto. Japanese authorities reportedly have emails that support some of the allegations against Livedoor.

“If we can confirm they violated listing regulations, we will have no choice but to… delist their stock,” said TSE Chairman Taizo Nishimuro at a news conference.

Livedoor said in a statement, “We will make the utmost efforts to investigate the facts and will report as soon as we conclude.”

Split Personality

Mr. Horie made ownership of Livedoor stock a possibility for small investors by engineering a series of four stock splits between May 2001 and April 2004 that saw the number of shares on the market multiply by a factor of 30,000, according to Benjamin Joffe, CEO of the mobile and Internet business consultancy Plus8Star.

“The stock splits provided a lot of liquidity in a market where stocks are usually priced in the thousands-of-dollars range, out of reach of most individual investors,” said Mr. Joffe.

Speaking at a press conference, Norio Wada, president of the Japanese carrier NTT, said, “I have been thinking for a long time that a 1,000-for-1 stock split [in less than six months] is way beyond reason,” Kyodo News service reported.

“The unanimous approval of Livedoor`s entrance in the Business Federation last December was a mistake, or at least too swift,” said Katsuya Okada, chairman of the Japan Business Federation, or Keidanren.

Mr. Okada acknowledged the challenge to Japan’s ossified business culture for which the maverick Mr. Horie has been praised, however. “Despite this situation, we respect the passion deployed by young executives to build new business models,” he said.

Mr. Horie made headlines for his unsuccessful attempt last year at a hostile takeover of Fuji Television and its radio company, the Nippon Broadcasting System.

Mr. Horie has also run unsuccessfully for a seat in the Diet, Japan’s parliament, and tried to buy a Japanese baseball team. The 33-year-old exec had planned to release a CD of his music this year, but that has been postponed in the wake of the scandal.

On the Bright Side

Despite the setbacks on the Tokyo Stock Exchange, Gerhard Fasol, chief executive of the consulting firm EuroTechnology Japan, doesn’t expect the effect of Livedoor’s troubles will last with other Internet and mobile technology companies.

“At the moment online auctions, online stock trading, and many other things have become so much a part of Japanese life that they are not going away,” said Mr. Fasol.

“Of course that does not mean that in five years’ time, it will be exactly the same players as today, but the industry as a whole will definitely survive and prosper,” he added. “Of course we could also have something like the bursting of the Internet bubble here in Japan. But as in the U.S., there will be a comeback, and the best will survive.”

If the day was any indication, the comeback may be sooner than Mr. Fasol expects. The Nikkei 225 index closed up 335 at 15, 696 on Thursday.

While investors continued to shed shares of Livedoor, sending its stock price down by its maximum daily of 16 percent to close at ¥416 ($3.61), down 40 percent from its pre-scandal Monday close of ¥696 ($6.04).

Yahoo Japan rallied to end the day, rising ¥20,000 ($173.63) to ¥168,000 ($1,458.53), for a gain of 13.5 percent.

Yahoo Japan’s major investor Softbank rose by 15 percent to close at ¥3,840 ($33.38). Web mail provider Rakuten ended the day unchanged at ¥104,000 ($902.81