Japan Parent Firm Alleges $95-Million Embezzlement

A top financial executive at a Santa Fe Springs meat-processing firm managed to embezzle up to $95 million over seven years and invest it in stocks, citrus groves and real estate, the company’s Japanese parent alleged in court Monday.

The case again calls into question the oversight of remote subsidiaries of Japanese firms, reviving memories of the 1995 Daiwa Bank debacle in which $1.1 billion was lost through the machinations of a star bond trader in its U.S. operation.

Day-Lee Foods, the U.S. subsidiary of Nippon Meat Packers Inc. of Osaka, filed suit Monday in Los Angeles County Superior Court against Yasuyoshi Kato, the chief financial officer of Day-Lee Foods, a $485-million company that processes meat and agricultural products for export to Japan. The civil suit, which seeks $95 million in damages, accuses Kato of embezzlement.

A Day-Lee spokesman said Kato is cooperating with the investigation but was not available for comment.

Kato, 39, who joined Day-Lee in 1982, is alleged to have begun using company funds in 1990 to invest in California real estate and stocks. Checks from Day-Lee accounts were made out to Kato, and some of the funds were then transferred to his wife, Doris Ann, the suit says.

Kato, who is a member of Day-Lee’s board, then arranged for loans to Day-Lee from Japanese-owned banks in California to replace the funds, but those loans were never put on the books at Day-Lee, according to a statement by Day-Lee. Kato later allegedly took out more loans to repay the earlier loans.

Day-Lee received a temporary restraining order Monday against Kato, which freezes his personal assets. The company will go back to court today in an attempt to get temporary restraining orders against Kato’s wife and various companies in which the Katos invested funds that were allegedly embezzled.

“We suspect one of our accountants embezzled between $80 million and $100 million,” Nippon Meat President Hiroji Okoso said at a news conference in Osaka on Saturday.

“We believe this is an isolated incident and that nobody else in the company was involved,” said Okoso, whose company is one of Japan’s largest meat processors and also owns the Nippon Ham Fighters, a Japanese professional baseball team. “This will not result in any significant loss for the company,” he said.

Nippon Meat became aware of the problem last week when it was alerted by the Internal Revenue Service and Day-Lee received a grand jury subpoena.

A forensic accounting team led by Deloitte & Touche has uncovered at least $60 million in investments made with embezzled funds, according to a declaration filed with the lawsuit.

Poor oversight of accounting practices “is where the generous backside is most exposed” in any business operating across national borders, said Jackson L. Huddleston Jr., a Seattle management consultant and author of the book “Gaijin Kaisha: Running a Foreign Business in Japan.”

But Japanese companies are particularly vulnerable because their auditors usually come from within the company and their directors are almost always employees, Huddleston said.

“I have seen it in every country I’ve worked in,” he said. “‘If you don’t have proper controls in place and external auditors that know the business, you’re going to get ripped off.”

Reuters contributed to this report.