LAWSON, INC. ("LAWSON") discovered through an internal investigation that the senior managing and representative director (the "SMD") and the director in charge of accounting (the "Director") of LAWSON ENTERMEDIA INC. ("LEM"), a consolidated subsidiary of LAWSON, misappropriated large sums of money without authority and without following internal corporate procedures.
Stated below, the background leading to this discovery, a summary of what has been discovered through our investigation to date, and measures to be taken from now on.
We offer our sincerest apologies to have caused any inconvenience and concern to our shareholders, customers, business partners, and other stakeholders.
1. Background to Discovery of Misconduct
On January 24, 2010, LAWSON and LEM were informed by the SMD and the Director that Plaisir Co., Ltd. ("Plaisir"), a company which, pursuant to an agreement with LEM, was engaged in the payment of ticket fees to companies planning concerts and other events (each a "CPC"), faced financial difficulties as it had misappropriated certain monies and was therefore unable to make payments to the CPC's. LAWSON and LEM were also informed by the SMD and the Director that LEM had paid ticket fees to some CPC's on behalf of Plaisir without obtaining approval of the board of directors and that LEM had also provided direct support to Plaisir.
Upon receipt of this report, LAWSON promptly interviewed both the SMD and the Director in the presence of its outside legal counsel and confirmed that a large sum of money had been misappropriated. An internal investigating committee was then set up, with Takeshi Niinami, President & CEO of LAWSON, as its chairman, with the cooperation of outside legal counsel (Anderson Mōri & Tomotsune) and of its accountants (KPMG FAS Co., Ltd). The committee, constituted of twenty one (21) members, upon conducting thorough investigations, and discovered the following facts.
2. Summary of Misconduct
LEM was normally commissioned directly by CPC's to sell tickets for concerts and other events. From November 2007, however, in respect of the sale of some tickets, LEM began to enter into three-party contracts, with LEM, the CPC's and Plaisir and LEM as the parties, whereby the money that LEM received from customers for tickets was to be paid to the CPC's through Plaisir (see attachment 1).
The idea for this three-party contract was introduced to LEM by the SMD, who was the de facto second highest-ranking person within LEM. In the ticket sales industry, ticket sales companies sometimes pay to CPC's certain monies as a "cooperation fee" in order to receive the right to sell tickets. LEM entered into three-party contracts with a view to reducing the amount paid as "cooperation fees" by having Plaisir paying all or a part the "cooperation fees" to the CPC's on behalf of LEM.
The term between receipt of monies from LEM as payment for the tickets and payment to the CPC's, however, was long and such monies would be held for a long time (two (2) to six (6) months) within Plaisir. Plaisir used this fact to misappropriate funds.
From around October 2008, payments from Plaisir to the CPC's began to get delayed, and the SMD began to receive numerous complaints from CPC's. The SMD consulted with the Director, and the two, although aware of the fact that Plaisir was misappropriating monies, has LEM make payments on behalf of Plaisir directly to the CPC's without formal internal corporate approval. In addition, from around October 2009, they also misappropriated monies by making advance payments to Plaisir on concert tickets event though the sale of such tickets had not yet commenced.
We learnt that LEM entered into three-party contracts with Plaisir from November 2007, and that the SMD and the Director misappropriated monies for sixteen (16) months, from November 2008 to January 2010 (see attachment 2).
As of this juncture, LEM's estimated total losses are approximately 15.0 billion yen at most. The amount which LEM paid directly to the CPC's on behalf of Plaisir, the amount which LEM paid in advance to Plaisir, and the amount owed to LEM and uncollected from Plaisir, total about 10.0 billion yen. The amount which LEM will have to pay in the future directly to the CPC's on behalf of Plaisir will be about 5.0 billion yen.
3. Measures vis-a-vis Concerned Parties
LAWSON held an extraordinary meeting of its board of directors today and resolved to extend to LEM a credit line in the amount of 8.5 billion yen. Maximum efforts will be taken see that CPC's are not inconvenienced, by, inter alia, having LEM assume payments on behalf of Plaisir to CPC's in respect of tickets sales, as it is expected that Plaisir will have difficulties in making payments on the same. From now on, collection of monies from Plaisir will be effected and efforts will be made to minimize losses.
Tickets which customers purchased from LEM for future concerts continue to be valid. All efforts will be taken to avoid any inconvenience to customers.
4.Impact on Earnings
The impact on the earnings of both LEM and LAWSON for the current and past fiscal years is currently being examined and will be announced as soon as it becomes clear.
5. Treatment of the Two Directors and Disciplinary Actions
(1) The SMD and the Director resigned, as of today.
LAWSON and LEM have begun consultations with the authorities with a view to filing not only civil but also criminal charges in connection with their misconduct.
(2) LAWSON and LEM will attempt to recover its losses from Plaisir.
(3) Disciplinary actions against persons involved
Disciplinary actions will be taken against the following in view of their management and supervisory responsibilities.
・ Yasuhiro Hibi, President & Representative Director of LEM - resignation (as of February 10, 2010.)
・ Sadayuki Nobayashi*, Corporate Advisor of LAWSON- resignation (as of February 9, 2010.)
・ Takeshi Niinami, President & CEO of LAWSON – voluntary return of thirty percent (30%) of monthly compensation for three (3) months
・ Yoshiyuki Yahagi, Member of the Board, Senior Executive Vice President & CFO of LAWSON– voluntary return of twenty percent (20%) of monthly compensation for three (3) months
*Former President & Representative Director of LAWSON TICKET INC., the former name of LEM (assumed the position from May 2006 to May 2009.）
(4) Appointment of new representative director
Noriyuki Nobayashi, Director of LEM is to be appointed as President and Representative Director of LEM as of tomorrow.
6. Emergency Measures and Future Steps
As an emergency measure, LAWSON has reviewed the accounting procedures of all its group companies, including LEM, and has confirmed that there is no other misappropriation of funds. Moreover, we have strengthened supervision, such as making it compulsory for subsidiaries to report the flow of capital to LAWSON on a regular basis.
A third party investigating committee was established as of today to start building an internal control system to insure thorough financial administration at LEM.
The third party investigating committee is comprised of the following members:
• Chairman: Toshio Takano (Attorney; Head of Takano Law Firm; Former Superintendent Public Prosecutor of Nagoya High Public Prosecutors’ Office)
• Michio Masaki (Attorney; Partner of City-Yuwa Partners)
• Toshifumi Takaoka (Certified public accountant; Executive Director and Partner of KPMG FAS Co., Ltd.)
The outcome of the investigation by this committee will be made publicly available as soon as it is completed.
Please refer to attachments 2 and 3 for, respectively, a chronology of the events concerned and a corporate profile of LEM. |
■ Attachment 2: Chronology of Events Concerned
| Nov. 10, 2007 | Three-party transactions involving LEM (then-LAWSON TICKET, INC.）, Plaisir, and CPC's began. | | Oct. 31, 2008 to Nov. 4, 2008 | *Plaisir delayed payment of 2.3 billion yen to the CPC's, due to a cash shortage.
*SMD asked Director to assume repayment to the CPC's on behalf of Plaisir.
The Director made payments of 2.3 billion to one CPC twice (October 31, November 4) without receiving approval from the Board of Directors. | | Nov. 18, 2008 | Despite realizing misappropriation, Director prepared a "notarized agreement for the payment of debt" for a total amount of 2.3 billion yen paid in October and November on behalf of Plaisir, under which Plaisir agreed to pay such amount by December. However, there was no payment under the document and no more notarized documents have been prepared since then. | | 20-Jul-09 | LAWSON TICKET, INC. changed its corporate name to LAWSON ENTERMEDIA, INC. | | Around Aug. 2009 | SMD received numerous complaints from CPC's about delayed payment by Plaisir. | | Oct. 1, 2009 to Dec. 15, 2009 | Director transferred money to Plaisir eight times, amounting to a total of 4.6 billion yen, under the pretext of advance payments prior to the actual sale of tickets, in order to alleviate Plaisir's cash shortage, without receiving prior consent from the Board of Directors. | | Dec. 2009 to Jan. 2010 | LEM's SMD and Director assumed repayments totaling 1.1 billion yen to three concert planning companies on behalf of Plaisir, without receiving approval from the Board of Directors. | | Jan. 4, 2010 | SMD and Director secretly visit Plaisir to check on its cash flow status. | | Jan. 24, 2010 | SMD and Director reported the case to LAWSON. | | Jan. 24, 2010 | An internal investigating committee was set up. | | Jan. 25, 2010 to Feb. 8, 2010 | The internal investigating committee conducted an investigation including interviews with 22 individuals concerned. | | Feb. 1, 2010 | Upon receiving formal internal clearance, LEM assumed direct payment of approx. 1.2 billion yen to the CPC's on behalf of Plaisir. | | From Feb. 2010 | Expected direct payment to the CPS's on behalf of Plaisir: approx. 5.0 billion yen
Uncollected amount from Plaisir (payback for cancelled concerts and advanced promotional expenses): approx. 0.8 billion yen |
Estimated total amount of damages: approx. 15.0 billion yen at most
■Attachment 3:Profile of LAWSON ENTERMEDIA, INC.
Company name: LAWSON ENTERMEDIA, INC.
(Changed to its current name from LAWSON TICKET, INC. on July 20, 2009)
Established: July 23, 1992
Capital: 2,892,575,000 yen
Head office: 11-2, Osaki 1-chome, Shinagawa-ku, Tokyo 141-8643, Japan
Offices: Sapporo, Sendai, Nagoya, Osaka, Hiroshima, Fukuoka
Number of employees: 272 (as of August 31, 2009)
Stock Exchange Listings: JASDAQ market (stock code 2416)
Percentage of Operating Revenue
Business activities: Ticket sales (for various types of entertainment events) 74%
Other business (sale of products, e-commerce, product development, manufacturing and sales, marketing activities including sale of media for announcements, planning and operation) 26%
Stock information (as of August 31, 2009)
Authorized shares: 136,000
Shares issued: 55,892
Number of shareholders: 1,750
Major shareholder: LAWSON, INC.
(Holds 42,214 shares, representing 75.5% of voting rights)
Number of tickets LEM handles p.a.: Approx. 18 million
Number of members: Approx. 2.5 million
Transaction amount with Plaisir:
Fiscal 2007 – approx. 3.2 billion yen
Fiscal 2008 – approx. 14.0 billion yen
Fiscal 2009 – approx. 16.0 billion yen
Business results:| (Millions of yen) | FY2005 | FY2006 | FY2007 | FY2008 | | Transaction amount of tickets | 53,027 | 54,600 | 60,212 | 72,933 | | Operating revenues | 6,258 | 6,533 | 6,960 | 7,620 | | Revenues from sales of tickets | 4,486 | 4,606 | 5,013 | 5,741 | | Other revenues | 1,772 | 1,926 | 1,946 | 1,878 | | Operating income | 821 | 836 | 635 | 791 | | Ordinary income | 843 | 870 | 697 | 840 | | Net income | 487 | 506 | 422 | 550 | |
Years ended at the end of February |
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