Monday, September 04, 2006

Livedoor: The Meaning of Horiemon

(Failed to get life today. Japanese version follows.)

Head of disgraced upstart IT/financial conglomerate Livedoor Takafumi Horie, known as Horiemon in his heydays, once again dominated the headlines today (Sept.4), as he presented himself at the first hearing of his criminal trial over Securities Law violations. He denied all allegations, and we must assume his innocence for now, but the 99% conviction rate on our side of the Pacific does not bode well for Mr. Horie. (His business associates have pleaded guilty and are fingering Mr. Horie as the ringleader, so it’s essentially his word against theirs).

However, the ongoing debate over his guilt or innocence misses the point. For, if there is one undisputable fact in this case, it is that Livedoor in essence issued shares, waited till its stock went up, then sold the shares and claimed the difference as earned profits, instead of counting it towards its capital account. This is fraudulent on the face of it; Livedoor justified extraordinarily high multiple over earnings by racking up extraordinarily high earnings growth. If any of this apparent earnings growth represented the part of the actual share price that in turn represented expectations of earnings, and not the actual earnings themselves, it constituted a kind of double counting, a self-feeding Ponzi game of sorts.

So, Mr. Horie is damned if he is acquitted, and damned if he’s condemned. He is either the fiendish mastermind of a short-sighted ploy to fulfill shareholders expectations, as the prosecution claims, or the absent-minded figurehead that failed to see his stack of cards crumbling under his feet. Good luck to Mr. Horie, I wish him no ill will. But We’ve heard this story before. And if Enron CEO Jeffery Skilling’s misfortune is anything to go by, Mr. Horie has Japanese criminal law to thank that Japan does not hand out cumulative sentences for the accusations that are being levied at him.

Of course, the really important question for the rest of us is, what has this, together with the case against Yoshiaki Murakami, done for equity financing and corporate governance in general? By happenstance, I have a couple of opportunities next week o talk to some people in the investment business. Stay tuned.





1 comment:

Jun Okumura said...

In case anybody is wondering why I've stopped posting, the Blogspot thinks this could be a spam blog, and is suspending posts while they dispatch "a human on our team" to look into it.

If you know anybody there, I'll meet them half way, and let them send Storm, if you know what I'm sayin'. If she's busy, I'll settle for Jean Grey.