December 10, 2018 / 2:05 AM / a month ago

Ghosn, Nissan formally charged in financial misconduct scandal

TOKYO (Reuters) - Tokyo prosecutors indicted Carlos Ghosn, the ousted chairman of Nissan (7201.T), for under-reporting his income, and officially charged the automaker for its role in the financial misconduct scandal that has shocked the industry.

FILE PHOTO: Carlos Ghosn, chairman and CEO of the Renault-Nissan-Mitsubishi Alliance, attends the Tomorrow In Motion event on the eve of press day at the Paris Auto Show, in Paris, France, October 1, 2018. REUTERS/Regis Duvignau/File Photo

Ghosn was arrested on Nov. 19 on suspicion of conspiring to understate his compensation by about half of the actual 10 billion yen ($88 million) awarded over five years from 2010.

He has been held in a Tokyo jail since then for questioning, but had not been officially charged until now. Prosecutors re-arrested him on Monday on fresh allegations of understating his income for three more years through March 2018.

Nissan, which fired Ghosn as chairman days after his arrest, has said the misconduct was masterminded by the executive with the help of former Representative Director Greg Kelly, who was also indicted for the first time on Monday.

The indictments also put the ball back in Renault’s (RENA.PA) court, as Nissan’s alliance partner and 43.4 percent-owner prepares for a Dec. 13 board meeting likely to discuss Ghosn’s future as its chairman and chief executive.

Ghosn and Kelly have not made any statement through their lawyers, but Japanese media reported that they have denied the allegations. Calls to Ghosn’s lawyer, Motonari Otsuru, at his office went unanswered.

Nissan, indicted for filing false financial statements, said it takes the charge seriously.

“Making false disclosures in annual securities reports greatly harms the integrity of Nissan’s public disclosures in the securities markets, and the company expresses its deepest regret,” it said, adding it will correct past financial reports to include appropriate compensation figures.

Japan’s securities watchdog, the Securities and Exchange Surveillance Commission (SESC), said the crime carried a fine of up to 700 million yen ($6.2 million).

SUPPORT WAVERING

Renault has so far stopped short of dismissing Ghosn while repeatedly demanding access to the findings of the Nissan internal investigation that led to his arrest.

Support for that position may now weaken among the French carmaker’s employees and their four board representatives. Before Monday’s indictment, the leftist CGT union had already criticized second-in-command Thierry Bollore for pledging unconditional staff support for Ghosn.

“The situation can’t continue like this,” said an official at another Renault union, closer to the political middle-ground, after the charges were filed. “Unless things change, Mr Ghosn should be officially dismissed so that Renault can move on.”

Much may depend on the position of the French government - Renault’s biggest shareholder - when the board meets on Thursday. A finance ministry official declined to comment.

Ghosn’s arrest has shaken the foundations of the Renault-Nissan alliance, with Nissan Chief Executive Hiroto Saikawa calling for changes to weaken the French parent’s control.

Under French government pressure, Ghosn had been exploring a deeper tie-up or even a full merger between Renault and Nissan, despite strong reservations at the Japanese carmaker.

But analysts and legal experts say it may be hard for Ghosn’s former acolyte to avoid blame, regardless of whether other executives knew about the misconduct or that the company lacked internal controls.

“It becomes difficult to overlook Saikawa’s role in all of this. That becomes the main focus now,” prominent lawyer and former prosecutor Nobuo Gohara said.

Ghosn, if convicted, faces up to 10 years in prison and/or 10 million yen in fines under the Financial Instruments and Exchange Act.

FALL FROM GRACE

Ghosn’s arrest marks a dramatic fall for a leader once hailed for rescuing Nissan from the brink of bankruptcy.

The executive has been treated like others in detention, held in a small chilly room. Authorities have limited his opportunities to shower and shave, according to a person familiar with the matter.

Asked about criticism that Japanese prosecutors often try to force confessions from suspects, deputy prosecutor at the Tokyo District Public Prosecutors Office, Shin Kukimoto, said no such method was being used with Ghosn and Kelly.

“Questioning is by no means being conducted in a way that forces confession,” he told a news conference. “It’s my understanding that both of them are being treated appropriately at the Tokyo Detention Center.”

The Japanese automaker is also seeking to block access by Ghosn’s representatives to an apartment in Brazil, citing a risk that the executive may remove or destroy evidence.

Reporting by Kiyoshi Takenaka, Chang-Ran Kim and Malcolm Foster; Additional reporting by Laurence Frost and Chris Gallagher; Writing by Ritsuko Ando; Editing by William Mallard/ Muralikumar Anantharaman/Himani Sarkar/Jane Merriman

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