So here's what seems to have happened:
1) Lehman loaned $355M to a fund headed by Asclepius Ltd.2) Asclepius was a 100% subsidiary of LTT Bio-Pharma, which is a TSE listed company (ticker 4566). Not sure if the fund and Asclepius are one and the same. Asclepius was originally independent and was purchased by LTT Bio-Pharma
3) Documents provided by two former contract employees of Marubeni indicate
Marubeni is the gaurantor, i.e. Marubeni "secured" the loan. Meetings with Lehmans took place in Marubeni's offices.
4) The loans were meant to finance Marubeni's equipment leases and supply contracts with hospitals. Lehman gave the partnership money in advance.
5) Lehman requested a meeting and met the Marubeni general manager involved.
6) The issue came up on Feb 29, when Lehman tried to collect a payment from Marubeni under the deal. When they met the general manager to complain, Lehmans learned that the first person they met was an impostor.
7) Asclepius announced on March 19th that its bankruptcy proceedings were approved by Tokyo District Court, and that its president was dismissed on March 7th. . .although I also read that the president of Asclepius submitted his resignation at the end of January.
Now here's what I don't understand:
1) LTT Bio-Pharma total revenue was about $12M in 2007. That's revenue. What are they doing with a subsidiary that needs $355M for leases?
2) LTT Bio-Pharma stock has been declining steadily for 4 years - clearly something was amiss that was broader than the current market uncertainty.
3) What documents and meetings are enough to secure a $355M loan without broader credit checks and meetings with all the involved parties? Clearly more than a meeting with some junior employees and their boss? Marubeni is not an unknown company - clearly its senior people, who are authorized to affix a seal to a loan security document, are known to bankers?
4) Why is LTT Bio-Pharma, that does research and drug systems delivery, suddently going into medical leases?
5) Why would the set up a fund as a subsidiary, and not as a fund (with a trustee, etc.)? why would Lehman not ask that same question?
This whole thing smells. I suspect what happened is that LTT Bio-Pharma had some serious problems and its management was under pressure. Some con artists (possibly yakuza) came to them with a plan to sort it all out - that involved setting up Asclepius and coordinating with private hospitals that do indeed use Marubeni, perhaps as a way of gaining knowledge how such contracts work. However, the actual documents were fake and there never was a Marubeni lease contract. The $350M is probably gone and offshore, using the same evidence of legitimacy to bypass any Anti-Money-Laundering flags or other banking controls. I suspect also that the Lehman employees involved were also under some pressure to make some numbers, and this deal looked like a pretty good chance to book some revenue quickly.
Now here's what I don't understand:
1) LTT Bio-Pharma total revenue was about $12M in 2007. That's revenue. What are they doing with a subsidiary that needs $355M for leases?
2) LTT Bio-Pharma stock has been declining steadily for 4 years - clearly something was amiss that was broader than the current market uncertainty.
3) What documents and meetings are enough to secure a $355M loan without broader credit checks and meetings with all the involved parties? Clearly more than a meeting with some junior employees and their boss? Marubeni is not an unknown company - clearly its senior people, who are authorized to affix a seal to a loan security document, are known to bankers?
4) Why is LTT Bio-Pharma, that does research and drug systems delivery, suddently going into medical leases?
5) Why would the set up a fund as a subsidiary, and not as a fund (with a trustee, etc.)? why would Lehman not ask that same question?
This whole thing smells. I suspect what happened is that LTT Bio-Pharma had some serious problems and its management was under pressure. Some con artists (possibly yakuza) came to them with a plan to sort it all out - that involved setting up Asclepius and coordinating with private hospitals that do indeed use Marubeni, perhaps as a way of gaining knowledge how such contracts work. However, the actual documents were fake and there never was a Marubeni lease contract. The $350M is probably gone and offshore, using the same evidence of legitimacy to bypass any Anti-Money-Laundering flags or other banking controls. I suspect also that the Lehman employees involved were also under some pressure to make some numbers, and this deal looked like a pretty good chance to book some revenue quickly.
So why isn't this bigger news? It is after all, more than a QUARTER BILLION DOLLARS!!!
My more cynical Japanese friends suggest the following:
a) since the victim was a foreign company (Lehman Brothers) nobody really cares, or
b) actually this happens a lot, it is just the lawsuit that made it public this time. Normally, it would have been sorted out in smoke-filled back rooms between the parties involved.
The scam appears to have been well planned. According to some reports, other investment banks participated in similar deals in the past and got paid back - allowing Ascelpius to establish a track record.
Marubeni is denying any responsibility. The law does not seem to be on Marubeni's side. Employment law is quite clear that Marubeni is responsible for the commercial actions of its employees, and that includes contract staff. Nevertheless, if the courts consider that Lehmans failed to due sufficient due diligence, then any damage award could be reduced.
That said, my same cynical friend suggests that all the things that are a red-flag to my mind are actually completely normal in Japan, i.e. financing for leases being run through listed, but low revenue companies with falling stock prices.
None of this is good for Marubeni who depends on international finance and is now a suspect counterparty. It is not good for Lehmans for having been duped in the first place. It is not good for Japan, Inc. either as it serves to remind that big chunks of the economy here still exist at the fringe of a murky underworld.
Another friend pointed out that at the same time the fraudulent meetings were taking place, a TV drama in Japan about scam victims who are helped to scam the scammers had a scenario about fake meetings that are eerily similar to what the reports of seems to have gone on here. Life imitates art!
