Supreme Court acquits 3 ex-LTCB execs

The Supreme Court on Friday absolved three former top executives of the failed Long-Term Credit Bank of Japan (LTCB) of all criminal and civil responsibility for actions they took before the institution went belly up in 1998.

The court's Second Petty Bench overturned lower court rulings that found the former president and two former vice presidents guilty of filing false financial statements and allowing inappropriate dividends to be paid out.

Katsunobu Onogi, 72, Masami Suda, 68, and Yoshiharu Suzuki, 71, were given suspended sentences by those courts for underreporting losses on the bank's financial statements for the fiscal year ended March 1998. The LTCB was not generating profits at the time.

In addition, the Second Petty Bench rejected an appeal by the Resolution and Collection Corp. for damages in a civil lawsuit against seven former LTCB executives, including the three who were involved in the criminal case.

The key issue before the Supreme Court was whether the financial statements were appropriate, given the accounting practices that were common in those days.

The Tokyo District Court ruling of September 2002 and the Tokyo High Court ruling of June 2005 both said that the executives should have followed guidelines released in March 1997 by the Finance Ministry on the appraisal of loans made to affiliated nonbank institutions. Many of those loans were not recoverable, but the bank's financial statements did not reflect that fact and the executives were accused of underreporting losses.

However, the Supreme Court ruled that the Finance Ministry guidelines were very general and did not clearly state that they should be used to appraise loans to financial institutions other than banks.

Moreover, the top court noted that 14 of 18 major banks at that time used similar accounting practices to the LTCB's.

"Making appraisals based on accounting practices used at that time cannot be said to be illegal," the court said.

The latest ruling could also affect the verdict in a case now also before the Supreme Court involving former executives of the failed Nippon Credit Bank. Three former executives at that bank were found guilty by district and high courts.

The LTCB was temporarily brought under state control after it went bankrupt in 1998. It was reincarnated as Shinsei Bank in 2000.

In the end, about 3.2 trillion yen in public funds was spent to cover the losses stemming from the LTCB's bankruptcy.

Analysts said the initial arrest of the three former LTCB executives was triggered by moves to apportion blame for failed financial institutions.

"In some sense, the former executives of LTCB became scapegoats," said Kazuhito Ikeo, an economics professor at Keio University. "However, the verdict will probably not be readily accepted by taxpayers since it does not state who was actually responsible for the mess."

Other former LTCB officials said Friday's judgment validated their doubts about the propriety of prosecutors investigating supposed wrongdoing at the bank.

"There was something questionable about the investigation from the very beginning," said one former official. "Concealing bad debt was supposed to have been a task involving the central government, too. There was something not right about judging bank executives instead of those at the Finance Ministry who oversaw the industry at the time."

Reports at that time showed that a Finance Ministry check of LTCB in 1996 was not particularly vigilant when it came to perusing bad loans.(IHT/Asahi: July 19,2008)