Controversy Dogs Japan Golf Course Developer in U.S.
Golf course developer Minoru Isutani has generated his share of controversy in his native Japan, despite a determination to keep a low profile. Now, as Isutani ventures into the United States, his reputation is following him across the Pacific.
Since incorporating in California in 1985, Isutani’s Los Angeles-based Cosmo World Corp. has begun investing in golf course developments throughout the United States. The firm is developing the Los Angeles International Golf Club in the San Fernando Valley and a $600-million golf resort project near Las Vegas. Cosmo is also co-developing a $200-million golf resort along the Kona Coast in Hawaii with the IDG Development Corp. of Newport Beach.
A Cosmo affiliate has tentatively agreed to pay $400 million for a 49% stake in the Pebble Beach Co., which owns some of the world’s most famous golf courses on the Monterey Peninsula. In 1988, privately held Cosmo acquired Ben Hogan Co. of Ft. Worth, which manufactures golf clubs and sportswear, for $52 million.
In Japan--where his affiliated companies own 13 golf courses--Isutani, 50, is a controversial figure.
Some members of Isutani’s golf clubs contend that he has sold as many as 10 times more memberships than promised, making it difficult for them to get weekend golf reservations even two months in advance. They also accuse him of reneging on pledges to allow them to resell their memberships.
Isutani’s name has been splashed across the pages of Japanese magazines. Among the subjects were his business practices and his relationship with former NTT Corp. Chairman Hisashi Shinto, who is being tried for political bribery in the Recruit stock scandal case.
Headlines range from “The Suspicious Conglomerate: The Secret of the Rapid Growth of the Isutani Business Group” in a 1984 monthly business journal to “Pursuit of the Key Figure in the NTT/Recruit Stock Scandal: Mastermind Minoru Isutani” in the reputable weekly Shukan Gendai last year. Even the tabloids have leaped into the fray. “Dark Shadow Cast Over Famous Pebble Beach” blared Focus magazine in an article last month on Isutani’s tentative deal.
Now, Isutani is getting scrutiny on this side of the Pacific. In July, the Las Vegas Sun reported that Isutani’s application for a Nevada gaming license is likely to be rejected. Gaming authorities are concerned about his relationship with NTT’s Shinto and possible involvement in the Recruit scandal, the newspaper reported.
Even his proposed Los Angeles International Golf Course in the Tujunga Wash area of the San Fernando Valley has drawn controversy. Although the Sunland-Tujunga Chamber of Commerce and others support the project, the Sunland-Tujunga Assn. of Residents fears that it would deprive them of a recreational area, threaten endangered species and contaminate the underground water supply with pesticide runoffs, association President Joe Downey said.
The questions over Isutani have affected his tentative agreement to purchase a major stake in Pebble Beach Co. from the real estate partnership of Miller, Klutznick, Davis & Gray, which is best known for Los Angeles partner Marvin Davis. Although the two parties reached agreement in June, Mitsubishi Trust & Banking Corp. has decided not to make a loan to Cosmo unless Isutani resolves the controversies surrounding him, said Akio Utsumi, general manager of the bank’s planning and coordination division in Tokyo.
Ted Honda, executive vice president of Cosmo World in Los Angeles, called allegations of excessive sales of golf memberships and possible involvement in the Japanese stock scandal “a cheap shot and erroneous.” He also noted that Cosmo’s management of the Ben Hogan company has been widely praised, with the Professional Golf Assn. handing out kudos for the firm’s decision to begin sponsoring a Ben Hogan golf tour.
“We take a lot of pride in (our projects), and we believe they’re all successful. We contribute to the American golf business, the American golf community, in a very positive way,” Honda said.
President of 6 Firms
Honda would provide few details about Isutani, saying the executive fiercely guards his privacy. Honda added that he did not want to compromise the Nevada gaming license review of Isutani. Details about Isutani in Japan are also sketchy--and some information that his companies provides to others is subject to doubt.
For instance, Isutani’s official biography--submitted by his companies to the Teikoku Data Bank in Tokyo--said he graduated in economics from Meiji University in 1962 and immediately joined Kobe Newspaper Co. But both Meiji University and Kobe Newspaper Co. said they have no record of Isutani.
The biography states that Isutani was born in Osaka in western Japan on Feb. 25, 1940, and founded his first company, a frozen-food enterprise, in 1970. Honda, however, said the correct birthplace was nearby Nishinomiya.
Isutani is president of six companies: Cosmo World Co., which in Japan produces software; Olympic Staff Co., which makes sporting equipment, and four land development firms.
But if the multimillionaire is close-mouthed about himself, his critics in Japan are getting louder.
Seiji Hoshino, a Tokyo attorney and former official with the Tokyo Metropolitan Police Agency, said he is preparing to file a civil fraud suit against Isutani’s golf clubs on behalf of at least 10 members. Hoshino said his clients were promised that membership would be limited to 1,500 or 2,000 at the Sakawa Royal Country Club and the Kannami Springs Country Club but estimated that more than 10,000 were actually sold.
“They sold the memberships to individuals based on the presumption that, in exchange for the membership fee, they could play golf. However, in reality, they are not able to play golf. That is a crime,” Hoshino said.
His allegations are echoed by a former Isutani employee, Mitsuaki Seikaku. The former manager at Isutani’s golf-management firm, General Coast Enterprise, said there were 15,600 members at the Sakawa Royal Country Club when he left in 1983. Although the club didn’t officially open until 1984, memberships were pre-sold from at least 1979.
“I know the exact number, because I was partly managing the membership,” said Seikaku, now a consultant specializing in golf course management in Tokyo.
Memberships Issue
Seikaku said the firm began buying back some memberships to offset growing public criticism, but estimated that total membership at Sakawa remained at about 10,000.
One of Japan’s leading golf magazines, Par Golf, reported such problems at three of Isutani’s courses in a March, 1989, article. The magazine said Isutani’s country clubs have consistently denied repeated requests for membership rosters the past several years.
“Their failure to produce it deepens the suspicion that they are engaged in the unlawful business practice of overselling memberships to create a windfall income to finance their diverse business operations,” the magazine wrote.
One member of Isutani’s golf clubs said he paid $26,000 to join the Sakawa Royal Country Club but has been able to get weekend reservations only five times in six years. He also paid $32,500 in 1986 to join another Isutani enterprise, the Kannami Springs Country Club, but has been able to play weekend golf only once. In an interview, the member, who asked to remain anonymous, said each successful reservation required at least 50 attempts. He also maintained that Sakawa had reneged on promises that he and others could sell their memberships as investments after three years.
Spokesmen for Isutani in Los Angeles and Tokyo denied the accusations. Tadahisa Tsuchiya, vice president of an affiliated firm, Olympic Co., said membership has never exceeded 2,300 at any of the clubs. He also said membership lists are kept confidential to protect the privacy of members.
Controversy surrounding Isutani has begun to affect his U.S. projects.
Utsumi of Mitsubishi Trust confirmed that Isutani approached the firm six months ago about financing the Pebble Beach deal. But, Utsumi said, Mitsubishi decided not to lend the money, either directly or through a third party, unless controversy over Isutani’s background and business dealings was “solved peacefully.”
“In fact, we worry that Isutani’s bad image and criticism may spread abroad in the U.S. due to some misunderstandings,” Utsumi said. Mitsubishi has had a 10-year business relationship with Isutani, including a 5% share in one of his affiliated companies, sporting equipment maker Olympic.
Role Probed
Utsumi said Mitsubishi would re-examine the loan request only if Isutani met three conditions: that he establish good relations with the Pebble Beach community, ensure that he maintain the property’s prestigious reputation and resolve all other controversies.
Despite the questions about Isutani’s business practices, Miller, Klutznick, Davis & Gray has no plans to cut off negotiations with Isutani on Pebble Beach, said partner Gerald Gray. He said the firm’s own research found Isutani to be a reputable businessman.
“On the basis of the research we’ve done . . . nothing has come to our attention that suggests we should not continue having discussions,” Gray said.
In Nevada, Cosmo World is developing a $600-million golf resort community near Las Vegas featuring two courses, an 800-room hotel, 2,000 homes and condominiums and a neighborhood shopping mall. Isutani also has purchased the Barcelona Motel in Las Vegas and applied for a gaming license.
But in July, the Las Vegas Sun quoted an unnamed gaming official as saying that Isutani “is probably unsuitable (and) may never be licensed” because of concerns raised about his background during an investigation by the Nevada Gaming Control Board.
The newspaper specifically cited as a concern Isutani’s “possible ties” to the Recruit stock scandal in 1988 and 1989, in which politicians received unlisted and undervalued shares in exchange for political favors. The scandal led to the resignation of former Prime Minister Noboru Takeshita and the arrest of former NTT Chairman Shinto, who made an overnight profit of $147,000 by selling his shares after Recruit went public.
Involvement Denied
There has been no evidence linking Isutani to the scandal. But the Tokyo Prosecutor’s Special Investigations Division questioned him in December, 1988, to determine whether he had a role in the stock scheme, according to Japanese press reports. Isutani, who met former Recruit Co. Chairman Hiromasa Ezoe through Shinto, is alleged to have played a leading role in designating the 150 people to receive the unlisted shares, according to unnamed law-enforcement officials quoted in the weekly Shukan Gendai last year. Isutani, through his lawyers, has denied being questioned by the Tokyo prosecutor’s office.
Cosmo’s Honda said Isutani and NTT’s Shinto were business associates, collaborating on such ventures as telephone payment cards. He also said they were close socially. But he vehemently denied that Isutani was ever involved in the stock scandal.
The Nevada review of Isutani’s request for a gaming license, which is routinely performed on all applicants, has taken 15 months so far and is expected to last months longer. It has spanned the Pacific, with an investigative team dispatched to Japan earlier this year and requests to the Los Angeles City Planning Department to notify Nevada on all developments in the San Fernando Valley golf course project.
For all applicants, the Nevada board scrutinizes associates and examines business practices, including the source of their funds. The investigation delves back at least 15 years into an applicant’s past, said board investigator Jim Martin.
The length of time required to undergo the review and obtain a gaming license, which Isutani first applied for in June, 1988, has caused Cosmo World to abandon plans for now to include a casino in a separate project, its $600-million Silver Canyon development in Henderson, Nev. Cosmo has signed an agreement with Caesars World Inc. to manage a non-casino hotel.
“We have no plans of managing a casino now (in Henderson) although we originally planned developing golf courses, a hotel and casino all together,” said Teruo Asai, a general manager of General Coast Enterprise. “But it looks like we’ll never get the license of managing the casino there.”
Times researcher Takeshi Yabe in Tokyo contributed to this report.
