Friday, February 23, 2007

Gross accounting trickery

See Sanyo's Legal Problems Are Bad News for Goldman...

"Sanyo Electric Co. announced today its accounting practices are being investigated by the Securities and Exchange Surveillance Committee, sending shares down a whopping 21% in Tokyo trading. Wall Street Journal says the news has serious implications for Goldman Sachs, which helped bail Sanyo out of its difficulties last year by purchasing more than a billion dollars worth of preferred shares....The charges, reported in the Asahi Shimbun this morning, state the company misrepresented its F2004 losses by as much as $1.1 billion.....Fukoku Capital Management analyst Tomokatsu Mori: "The company lacks management competence."

So it's not just US companies that are cooking their books..who would have thought? I'll bet the people from Goldman's due diligence team on that preferred stock purchase choked on their Wheaties this morning. Certainly the audit opinions that were rendered for the periods in question weren't worth the paper they were printed on.

According to a Bloomberg story on this subject "Goldman, the world's most profitable securities firm, Daiwa and Sumitomo Mitsui invested 300 billion yen ($2.5 billion) in Sanyo in January 2006 in return for management control. New York-based Goldman and Daiwa SMBC, each bought 125 billion yen of preferred stock that can be converted into a 24.5 percent stake in the company and sold to outside investors without Sanyo's consent starting March 14."

So Goldman was about to be able to start dumping shares in Sanyo...there is certain to be quite a tale behind the timing of this disclosure.

An interesting related fact included in the Bloomberg story is that "the company is seeking buyers for its chipmaking unit in a transaction that may raise more than 100 billion yen($826 addition), two people familiar with the plan said on Feb. 2. The company was forced to stop operations at its chip factory in Niigata, central Japan, after an October 2004 earthquake. Operating losses in the chip unit mounted to 17.7 billion yen in the year to March 2005 and 35.1 billion yen the following year...." I haven't noticed before specific indications of economic loss to a company attributable to an earthquake.

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