A Pot of Gold That Paid for Land, Cars and Pot-Bellied Pigs
The first hint that anything was wrong at Day-Lee Foods, a Japanese-owned meat-processing company in Santa Fe Springs, was not the vacations that Chief Financial Officer Yasuyoshi Kato never took. Nor was it the corporate banking statements that no one but Kato was ever allowed to examine.
Kato’s marital troubles raised no red flags. Neither did the odd but lavish lifestyle of his estranged wife and their two young daughters in Rolling Hills Estates, made possible by court-ordered family support payments that were four times Kato’s annual salary.
The first inkling of what may be the largest embezzlement ever in the United States--perhaps as much as $100 million over seven years--was a blurted confession from Kato himself, prompted by a call from that great leveler of tax cheats huge and tiny, the Internal Revenue Service.
Kato has pleaded guilty to fraud and is to be sentenced today in a bizarre case marked by Kato’s ability to arrange endless loans in Day-Lee’s name and to spend the money on stock, luxurious homes, fancy cars, a motley menagerie ranging from $10,000 macaws to a pair of pot-bellied pigs, a citrus ranch, millions of dollars in jewelry from Beverly Hills’ finest shops, and a bar in Torrance named Club Cha Cha.
Kato faces up to 76 years in federal prison and as much as $3 million in fines. Two receivers have begun selling his assets to help repay Day-Lee’s losses.
The scandal has ruined Kato’s business partners, who contend they had no idea that the money they were investing was not Kato’s own. And the repercussions have been felt in Osaka, Japan, where parent company Nippon Meat Packers recently reported sharply lower earnings because of the embezzlement and then slashed the paychecks of several top executives as punishment.
“It’s a huge embezzlement, the largest that we know of in state history,” said Assistant U.S. Atty. Stephen Larson, who prosecuted the case with Assistant U.S. Atty. Michael Zweiback.
“They really had to work hard to spend all this money,” Larson said. “A whole cottage industry sprang up around this embezzlement.”
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Kato’s wife, Doris Ann Beiler-Hozumi, is believed to have been given the bulk of the purloined funds to support her sumptuous lifestyle and her money-losing business of buying, selling and leasing luxury cars.
In court filings, Beiler-Hozumi has denied knowledge of the embezzlement. She was named in a $95-million civil suit filed by Day-Lee Foods, but no criminal charges have been filed against her or any of Kato’s associates.
Larson refused to comment on whether criminal investigations are continuing.
Kato’s attorney, John Yzurdiaga, said his client was unavailable for comment. Beiler-Hozumi, whose homes have been seized for sale, has checked out of a Torrance hotel that was her last known residence and could not be located for comment.
The corporate victims of Kato’s larcenous energy were Day-Lee Foods, a low-profile processor of meat products established in 1977, and its parent, Nippon Meat Packers, one of Japan’s largest meat processors with products distributed around the world. The company also owns the Nippon Ham Fighters, a Japanese professional baseball team.
At its nondescript factory in industrial Santa Fe Springs, Day-Lee employs nearly 200 people who process meat, poultry and seafood into specialty Japanese food products for sale to U.S. restaurants and markets and for export. Annual revenues last year were a robust $485 million.
As disclosed in court documents, Kato was a trusted executive and a director at Day-Lee, arriving from Japan in 1981. Kato married Beiler-Hozumi in 1984 and welcomed the birth of daughters in 1985 and 1989.
But the marriage began to unravel, and the Katos separated in 1991. The Katos agreed and the court ordered that he should make family support payments of $50,000 a month--that’s $600,000 a year--even though his annual income from Day-Lee totaled $150,000 and his net worth was $200,000.
None of the court filings explain how Kato expected to meet those payments or why he agreed to them. But it was about that time, or perhaps the year before, Kato later told the court, that he began to siphon money from Day-Lee Foods into his own accounts.
The scheme was artfully simple.
Kato merely wrote company checks to himself and his wife. They deposited the checks in automated teller machines at bank branches near his beachfront Redondo Beach condominium and her extravagant estate-cum-menagerie.
Then, in his capacity as chief financial officer, Kato went to California subsidiaries of Japanese banks and arranged loans to Day-Lee to replace the money that he stole. As years passed, Kato arranged even more loans to cover the earlier loans.
As chief financial officer, Kato had sole control over Day-Lee’s accounts and financial records, according to filings in the civil lawsuit.
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Day-Lee Sales Director Takahito Okoso said in a declaration that Kato reported he concealed the embezzlement by intercepting the company’s bank statements so that no other employee ever saw them, and then understated the size of corporate borrowings on Day-Lee’s computerized accounting system of financial statements.
It amounted to the latest in a series of spectacular frauds made possible by lax corporate oversight of employees posted abroad, notably a 1995 debacle involving Japan’s Daiwa Bank in which $1.1 billion was lost through the machinations of a star bond trader in its New York operations.
The Day-Lee scheme came apart in March. Criminal investigators for the Internal Revenue Service, made suspicious in part by Kato’s personal tax statements, secured a grand jury subpoena for company records and telephoned Kato.
“I then realized that I could no longer hide my wrongful taking of the company’s money over the past several years and decided to confess,” Kato said in a statement to forensic accountants from Deloitte & Touche who were subsequently hired by Day-Lee to track the missing funds.
“I then told the IRS investigators that I had been using the company’s money for my own personal purposes,” Kato said in the statement, filed along with the civil lawsuit. “I feel I should let the company know what I have been doing.”
Kato went on to say that 70% of the $85 million to $95 million that he could remember embezzling went to his wife.
Kato’s lawyers later contended that he made the statement under duress while held as a virtual prisoner by the Day-Lee auditors. But forensic accountants Bruce Kelton and John Sboto of Deloitte & Touche have denied imprisoning Kato and described him as relaxed, cooperative and “apparently relieved” during the interviews.
Beiler-Hozumi, in contrast, was visibly distraught when auditors visited her home, they said in court filings. She briefly delayed the interview until they could move to another of her numerous homes and out of earshot of her staff of household servants, armed security guards and others.
Court filings detail a life of luxury, largess, poor investments and bad business decisions.
In a petition for protection from her creditors under Chapter 11 of the U.S. Bankruptcy Code filed in April, Beiler-Hozumi produced a handwritten list of her collection of assets, which she valued at just under $1 million, including real estate. She listed her monthly expenditures as “$25,576.48+”. Her creditors, many of them jewelry stores and pet supply shops, numbered 172.
The assets range from $60 tennis rackets to a $12,000 piano. Also on the list were antique kimonos, a Japanese doll collection valued at $2,000 to $5,000, $10,000 worth of china, and Mickey Mouse portraits valued at $1,600-$3,000.
There were 30 pairs of shoes, 33 handbags and 14 long evening dresses.
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She also listed dozens of animals, including nine cats, 10 rabbits, six guinea pigs, two Hyacinth Macaws worth $10,000 each, nine llamas, two emus, six miniature horses, two pot-bellied pigs, four iguanas, six leopard sharks and two nurse sharks. There also were cockatoos, chickens, ducks and cows.
The bankruptcy court refused Beiler-Hozumi’s request for bankruptcy status, ruling that it was filed in bad faith to protect ill-gotten gains.
Auditors also found several rare cars from Beiler-Hozumi’s unprofitable dealership, Car Connection Inc.
Receivers are working to liquidate Kato’s real estate partnership, which included a Century 21 real estate franchise and a related mortgage brokerage, in which Kato invested about $6 million, and 12 residences. Kato also invested $8 million to $9 million in a Temecula lemon-and-grapefruit ranch.
Kato’s real estate partnership owned eight to 10 homes in Southern California as well as a hospital in Corning, Ark., which were “running on a cash-flow negative basis and required constant infusions of cash from Mr. Kato,” auditor Sboto said in his declaration.
Beiler-Hozumi told auditors that she employed five people at her car dealership, had nine household employees and required 24-hour armed-guard service with 11 guards rotated to protect her, for undisclosed reasons.
“We’re uncovering assets [ranging] from casino accounts in Vegas that no one knew about to securities accounts to bank accounts,” said Nathan Hochman, a receiver named to dispose of the bulk of the assets.
“We’ve found storage lockers with hundreds of thousands of dollars of possessions,” he said. “We’re tracing purported gifts to friends and employees.”
Some assets, like stocks purchased in a bull market, have appreciated. But many others, such as millions of dollars’ worth of jewelry purchased at some of Beverly Hills’ finest shops and the cars, can’t be resold for their purchase price, Hochman said.
Some of the fish have been donated to a marine preserve and many of the animals are being cared for by the Society for the Prevention of Cruelty to Animals, he said.
“It’s been an exciting challenge to investigate and organize these assets . . . and to try to maximize their value,” Hochman said. “We will sell no asset before its time.”
