Every gaijin who was in Japan in 2005 remembers Takfumi Horie. Riding by the seat of his pants, his company, Livedoor, was the symbol of new Japan. Young people, breaking the rules, creating the rules and doing things that they truly believed would better Japan. Unfortunately, when Horie made a hostile take-over attempt for NBS in the first half of 2005 he made an enemy of those who had been his biggest supporter – the media. It’s no secret that Japan’s “old” media companies pay their employees the highest average salaries in the country and so its no surprise that Horie didn’t win any fans talking about “cutting the fat” at NBS and Fuji.

While we were all eagerly supporting him when he started ruffling the feathers of Kamei in Hiroshima #6, he might not have been so smart throwing a cat amongst the pigeons with NBS. Indeed, from the day of his announcement, the tone of the media changed dramatically. Even supposedly respectable magazines like Nikkei Business started reporting more rumor than fact when it concerned Livedoor. As is too often the case, we in the gaijin community had to rely more on the Western press for a more accurate representation of who had been pulling which political strings.

While it was encouraging to see some Japanese people hunting down Japanese translations of the Economist to learn the real story, it is depressing to think that the vast majority of the population only got the censored version of the truth.It’s rare that the Japanese media goes out on a limb to report something anti-consensus or controversial and so I guess I shouldn’t be surprised that the “Livedoor shock” was no exception. I have only been able to find one book so far that even attempts to fill in the blanks ignored by the media. These days, most of the business media seems more focused on the new cabinet or Softbank’s entrance into the mobile sector. While the media seems to have shown Horie and his cronies the back door interms of coverage, their trials are only just starting to heat up now. It is widely known that only Horie has pleaded not guilty, while the rest of the management is pleading guilty. Horie’s former number #2, Miyauchi, is the Tokyo Public Prosecutors’ key witness. As the former head of Livedoor’s financial operations, he was the governor of the livedoor mint and knew more than anyone else about Livedoor’s investment strategy. While Miyauchi claims that he hasn’t done a deal with the prosecutors, he has made it clear that he is willing to “show remorse” and help in the public crucifixion of his former friend. The local media is lapping his story up as his comments certainly do make for very good press.

However, in an unusual example of professional reporting in the Japanese media, Aera has been telling a different version of events. For the last month, Aera has been reporting directly from the court room, focusing on the facts and ignoring the emotional performance by Miyauchi. Aera’s theory is that Horie was little more than a 裸の王様 (Emperor with no Clothes) and that in reality Miyauchi was the one running the show, running loose with no oversight from Horie at all. Of course most newspapers have focused on how Livedoor engaged in illegal insider trading by buying and selling Livedoor shares before and after stock-for-stock acquisitions and it seemed natural to assume that Horie was directly involved in this money making scheme. Strangely, none of the press seemed to notice that over 150 million yen “disappeared” while it was being transferred amongst the group’s private accounts in Hong Kong and Switzerland. In fact, as Aera first pointed out in its September 11 issue, for some reason even the Tokyo Public Prosecutor didn’t seem to notice that this money was embezzled directly into an offshore company called Private Top Investments (PTI). As it turns out, PTI was owned by Miyauchi and his high-school buddy, Nakamura (also part of the management team at Livedoor Finance). To be clear, Horie had no equity ownership in this company and seemingly had nothing to do with the entire process. Could it be that Horie wasn’t involved at all in this complex web of deceit? Strangely enough the Prosecutors haven’t issued any charges in relation to this embezzlement and according to Aera haven’t even sent a team to Hong Kong to investigate this money laundering scheme (although they were very keen to send a team of investigators to Switzerland to examine Horie’s private bank accounts).

The trusty reporters at Aera proceed to point out further evidence against both Miyauchi and Nakamura in the September 18 edition ranging from artificial inflation of revenues to insider trading in a variety of other Japanese stocks. Miyauchi’s own story seems to be changing regularly as well. If the Tokyo Public Prosecutor is pinning its hopes on the credibility of Miyauchi, they might find they have bet on the wrong horse. So far no evidence has been found to show that Horie was involved in any acts to further his own personal wealth. How is the Japanese public supposed to trust a testimony from a man who was embezzling money from under the nose of his trusted friend.

What is particularly interesting is that not only did all of this information come out during Horie’s trial (not Miyauchi’s), it came out during the prosecution’s cross-sectioning. Hold on a second Miyauchi, who were you testifying against? However, the real juice just just begun to flow this week. Horie’s lawyers have just started to cross-examine Miyauchi and Aera’s latest edition (October 2) is thriving in the information flow. According to the article, an internal investigation discovered over 2 billion yen in profits hidden in a Swiss bank account that Miyauchi had made trading on insider information. Allegedly, Miyauchi bought shares in a Korean listed company and then proceeded to spread rumors in the market that Livedoor was contemplating a takeover bid at a huge premium. Better yet – it turns out that he didn’t even use his own money. If the story is true, it appears that Miyauchi had the gall to use Horie’s assets (unbeknown to Horie himself) as collateral to borrow the money to fund the transaction. No wonder Miyauchi wants to see Horie in jail.

Stippy.com champions Aera for sticking its head out on a limb and supporting a fair justice system. Clearly the Tokyo Public Prosecutor has to look into the heart of the fraud and not just go after the “easy headlines” by targeting someone who may have been nothing more than a deluded figurehead..