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Range of U.S., Chinese, and Japanese regulators’ responses to fraud in today’s news – Olympus and Longtop

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Sometimes you get fun results when you look at two news articles side by side. Let’s look at the responses of securities regulators in the US, China, and Japan.  Hat tip to Going Concern for highlighting the articles.

Olympus fine

Japan’s securities market regulator proposed a fine of $2.5M against Olympus for conducting a $1.7 billion financial fraud that was spread over 13 years – Japan market watchdog recommends $2.5 million fine for Olympus.

Let’s put that proposed fine into perspective. All amounts will be in US dollars.

Fine –  $2.5M.  Olympus financial statements for 2011 before restatement can be found here.

  • Daily net sales are $29M.  The fine represents two hours of net sales.
  • Selling general and administrative expenses are $12.1M per day. The fine is equal to five hours of SG&A.
  • Net income is $92.3M for the year or$0.25M per day. The fine is equal to 10 days of net income.

Spread the fine over 13 years the fraud ran and it is equal to 9 min. of net sales per year.

Looks like a reasonably small cost of doing business, huh?

Longtop – demand from SEC and response from China regulators

My extremely brief summary of the Longtop audit can be found here.

In a Wall Street Journal article, China Could Jail Employees Over SEC Subpoena, Deloitte Says, we see that the SEC wants to see Deloitte’s workpapers. They have expanded authority under the Dodd-Frank securities law to issue a subpoena. And subpoena they did.

Position of the Chinese regulators? Declare that the workpapers have state secrets.

Consequence of revealing state secrets? Very serious.

Deloitte says the consequences could include jail time for any staff who comply with the subpoena and possible dissolution of the firm:

“If [Deloitte’s Shanghai unit] were to defy the [China Securities Regulatory Commission’s] command and produce the workpapers directly to the SEC, the severest of sanctions could be imposed on DTTC and its personnel: China regulators would be authorized to dissolve the firm entirely and to seek prison sentences up to life in prison for any DTTC partners and employees who participated in the violation,” the documents said.

Oh, catch that comment that the jail time could be up to life?

Range of responses

So, in today’s news we see:

  • US– SEC demands workpapers as they investigate alleged fraud. They claim the authority to go across borders and subpoena documents anywhere on the planet.
  • China– securities regulators say that because of the state secrets involved, anyone who complies with the subpoena could go to jail for a long time and the firm could possibly be shut down.
  • Japan– for a $1.7 billion fraud running over 13 years it proposed a fine equal to, oh, I don’t know, less than the transaction costs of executing said fraud.

Don’t know what moral can be drawn from the stories, but it is a fun contrast.  I’m not creative enough to pull it off, but wouldn’t it be fun to write a spoof news report of those regulators taking each other’s approach to an issue?

Written by Jim Ulvog

April 13, 2012, 8:54 am at 8:54 am

Posted in Accounting, Audits, Fraud

Tagged with , ,

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