Sanyo set to admit it paid out illegal dividends

BY TAKASHI KAMIGURI, THE ASAHI SHIMBUN

Electric appliance maker Sanyo Electric Co. is expected to admit Tuesday that it paid about 28 billion yen in illegal dividends to shareholders from 2002 to 2004 despite being in the red, sources said.

However, Sanyo, which is now undergoing reconstruction, has no plan to seek redress from its former executives over the "unintentional" dividends, nor will it file criminal complaints, the sources said.

The company, based in Moriguchi, Osaka Prefecture, paid the 3-yen per share dividends over five half-year terms from the first half of fiscal 2002 up to September 2004.

It had failed to maintain sufficient reserves to cover the dividends, which is a violation of the former Commercial Code, sources said.

Angry stockholders may decide to seek redress against the executives, sources said.

Former chairman Satoshi Iue, the son of Sanyo's founder, is said to have owned 16.7 million shares in Sanyo around that time.

On Tuesday, Sanyo is set to announce its revised unconsolidated earnings results for the fiscal years from 2000 to 2005, ending in March.

The Tokyo Stock Exchange may move Sanyo from its First Section to its monitoring post to screen it for possible delisting if wrongdoing is found.

Sanyo has worked with auditor Grant Thornton Taiyo ASG since May to voluntarily revise its past earnings reports.

The 3 yen per share dividends to September 2004 came to about 28 billion yen.

It has previously been reported that Sanyo would not have had the cash for the dividend if it had properly written off all losses, including sour loans to subsidiaries with no prospect for recovery.

However, a panel of outside observers set up in May to probe Sanyo's accounting methods is expected to conclude the delay in disposing of losses was not intentional.

The panel led by Takaharu Dohi, former chief of the Supreme Public Prosecutors Office, questioned former Sanyo executives.

This week, Sanyo is expected to admit the dividends were paid illegally through negligence. That admission would seem to suggest that Iue and other executives had inflated allocations for dividends by postponing disposal of the losses.

The padded dividends likely reduced the amount Sanyo listed for its operations, cutting into its competitive edge and leading to its current fiscal difficulties, the sources say.

The Securities and Exchange Surveillance Commission, which has been examining materials submitted by Sanyo, is expected to recommend Sanyo be fined by the Financial Services Agency this year.

However, the fine won't apply to the illegal dividends because the new administrative penalty system covers only violations since the first half of fiscal 2005. Sanyo hopes the FSA penalty, along with orders from Sanyo that the former executives repay retirement allowances and that current executives take a pay cut, will close the scandal.(IHT/Asahi: December 24,2007)