- 1 -
(Translation)
May 6, 2010
Dear Sirs,
Name of Company:
SEGA SAMMY HOLDINGS INC.
Name of Representative:
Hajime Satomi, Chairman, President and Representative Director (CEO)
(Code No. 6460, Tokyo Stock Exchange 1st Section)
Further Inquiry:
Koichiro Ueda, General Manager of Group Communications Office (TEL: 03-6215-9955)
Notice of Mid-Term Report on Investigation Concerning Inappropriate Transactions
by Former Employee of the Company’s Subsidiary (SEGATOYS CO., LTD.)
As publicized on April 15, 2010, it has been discovered that a former employee of
SEGATOYS Co., Ltd., a subsidiary of SEGA SAMMY HOLDINGS INC. (the “Company”) had been conducting inappropriate transactions with multiple business partners. SEGATOYS’ internal investigations and external investigation committee are continuing. The external investigation committee submitted a mid-term report today, and SEGATOYS has disclosed the release entitled “Notice of Mid-Term Report on Investigation Concerning Inappropriate Transactions by Former Employee” attached hereto.
SEGATOYS has announced as follows in “5. Impact on Earnings” in its release, and the
impact on the Company’s consolidated earnings are expected to be similar. •
The incident is expected to have no impact on operating results for the year ended March 31, 2009 and earlier.
•
As for operating results for the year ended March 31, 2010, the Company plans to provide an annotation as contingent liability due to the possibility of payment in response to demands from civil procedures by parties that claim to have acquired fictitious accounts receivable (around 420 million yen) through the inappropriate transactions.
•
As for operating results for the year ending March 31, 2011 and later, there is a possibility of changes if payment is made in response to demands from civil procedures by parties that claim to have acquired fictitious accounts receivable (around 420 million yen) through the inappropriate transactions.
The Company will promptly announce the results of the final report as soon as they are determined.
- 2 -
Attached material:
Press release of SEGATOYS CO., LTD.
“Notice of Mid-Term Report on Investigation Concerning Inappropriate Transactions by Former Employee”
- END -
- 1 -
(Translation)
May 6, 2010
Dear Sirs,
Name of Company:
SEGATOYS CO., LTD.
Name of Representative:
Yoshiharu Suzuki, President and CEO
(JASDAQ, Code No. 7842)
Further Inquiry:
Akira Sugano, Senior Managing Director, Head of Corporate Department (TEL: 03-5822-6244)
Notice of Mid-Term Report Concerning Investigation on
Inappropriate Transactions by Former Employee
SEGATOYS CO., LTD. (the “Company”) has been conducting an investigation
concerning the “Notice of Inappropriate Transactions by Former Employee” announced on April 15, 2010 through internal investigations and an external investigation committee. We are currently considering emergency in-house inspections, the impact on earnings, criminal complaint procedures, as well as confirmation of facts, investigations and future measures to prevent recurrence through the external investigation committee. Since the external investigation committee has submitted a mid-term report, we hereby inform you of the current status of investigation as follows.
1. Circumstances that led to the investigation On the night of April 5, 2010, the former employee (hereafter, “X”) made a declaration to former superior and the Company’s Senior Managing Director Kenji Yokozeki that X formulated fictitious transactions in the Company’s name, created accounts payable with the Company as the debtor in form (hereafter, “fictitious accounts receivable”; individual fictitious transactions conducted by X, “fictitious transaction”; the series of fictitious transactions collectively, the “inappropriate transactions”) and fictitious accounts receivable that are unpaid existed at the time of the declaration. X retired from the Company as of March 31, 2010 due to applying for the voluntary early retirement program in December 2009. There is no correlation between the retirement and the inappropriate transactions. Following the report by Kenji Yokozeki, the Company immediately established the Taskforce on Inappropriate Transactions Conducted by Former Employee, with the Company’s President and CEO Yoshiharu Suzuki serving as Taskforce Director, and proceeded with investigating the incident in cooperation with relevant departments and the Company’s legal adviser. Furthermore, on April 15, the Company established an external investigation committee comprised of two attorneys and one certified public accountant (CPA) for further investigation and prevention of a recurrence, and continued with deeper investigations. Following the establishment of the external investigation committee, the Taskforce on Inappropriate Transactions Conducted by Former Employee reported the results
- 2 -
of investigation to the committee, and thereafter has investigated and reported based on instructions from the committee. Members of the external investigation committee Chairperson
Hitoshi Kanamori
Sanno Law Office, Attorney
Member
Ryosuke Ito
TMI Associates, Attorney
Member
Masatoshi Ishikawa
Aiwa Tax Accountants Corporation, CPA/Tax Attorney
2. Internal investigation The Taskforce on Inappropriate Transactions Conducted by Former Employee instructed the Company’s Auditing Office and parent company SEGA SAMMY HOLDINGS INC.’s Internal Auditing Office to conduct investigations and obtained the following results. •
X did not have any authority concerning the acts of solely placing orders and settling payments, etc.
•
As a result of verifying the Company’s establishment and operation status of internal control with regards to procedures related to order placement, delivery, payment, contracts, etc., it was found that they are generally managed adequately.
3. Mid-term report by external investigation committee The external investigation committee, which was established on April 15, 2010 for the purpose of investigating the inappropriate transactions and preventing recurrence, submitted a mid-term report as follows. The external investigation committee confirmed that the contents of the “2. Internal investigation” had no problems and included the results in its mid-term report. The main contents of the mid-term report are as follows: (the full text of the external investigation committee’s mid-term report is attached) (i) Content of the investigation (ii) Content of the inappropriate transactions (iii) Criminal responsibility of concerned parties (iv) Impact of the inappropriate transactions on SEGA TOYS’ settlement of accounts
4. Company’s response (1) Company’s views The Company’s views regarding the inappropriate transactions at this point based on the results of the “2. Internal investigation” and “3. Mid-term report by external investigation committee” are as follows:
(i) Non-existence of organizational involvement in the inappropriate transactions
Although the fictitious transactions were conducted by X in the Company’s name and using order forms, etc. in the Company’s name, X did not have the authority to prepare or issue order forms in the Company’s name and never followed the Company’s internal approval procedures. The targets of each fictitious transaction that the Company was to receive in each fictitious transaction were obviously never received by the Company. Therefore, the Company had no involvement in the inappropriate transactions.
(ii) Non-existence of the Company’s accounts payable in the inappropriate transactions
The inappropriate transactions were not conducted with the intention to go through the Company’s accounting records, and they were actually never recorded on the
- 3 -
Company’s accounting records. Due to the above, the purpose of X formulating each fictitious transaction was not to increase the Company’s sales on the surface, but to have the respective other companies record accounts receivable with the Company as the debtor in form, and to obtain kickbacks from the respective other companies. Thus, each fictitious transaction was not conducted through the Company’s accounting records, and even in the results of internal investigations it was actually confirmed that the inappropriate transactions were never recorded in the Company’s accounting records, and do not fall under the Company’s accounts payable.
(iii) Non-existence of other concerned parties within the Company
Neither the internal investigations nor the external investigation committee’s investigation found evidence that executives, employees, etc. of the Company other than X were involved in the inappropriate transactions. In addition, the mode of formulating each fictitious transaction was such that X was capable of conducting alone. Therefore, there is no concerned party within the Company other than X.
(iv) Existence of collaborator outside the Company
The Collaborator apparently gained benefits in as commission of around 3% by transferring in the Company’s name the money transferred to the Collaborator’s account. The Collaborator played an essential role in the inappropriate transactions of transferring money regarding the inappropriate transactions with the purpose of gaining a commission.
(v) Criminality of the inappropriate transactions
At the very least, the act of X preparing and issuing order forms in the Company’s name without authority is considered to constitute crimes of counterfeiting private documents and uttering the counterfeit documents. In addition, there exists a party that is suspected to have committed the crime indicated above in collaboration with X among the external parties involved in the inappropriate transactions. The inappropriate transactions include criminal acts.
The Company’s understanding is that the respective factors or the combination of factors are the reason that the inappropriate transactions did not surface for approximately two years, and the Company considers that the incident is a very special case. As for indirect and internal factors such as internal management and supervision and intradepartmental communication, we will promptly report after sorting out information gathered through further internal investigations. (2) Criminal complaint The Company considers that the acts of X preparing order forms in the Company’s name (methods such as scanning legitimate order forms with the Company’s seal and creating PDF files, cutting the name section and red ink seal section using paint software and pasting them onto the order form in an Excel file and printing them out) and issuing them without authority constitute crimes of counterfeiting private documents and uttering the counterfeit document. Based on this, the Company has prepared a criminal complaint and is currently deliberating the contents of the complaint with the Metropolitan Police Department. The Company has responded in the same manner with regard to the external party concerned that allegedly collaborated with X in the inappropriate transactions. The Company intends to cooperate with any future investigation by authorities.
