Yakult Honsha shares dropped sharply today following a report in Japanese press this weekend that the Japanese beverage maker paid off a suspected racketeer, reports Dow Jones.
The article noted that although Yakult denied it had padded advertising expenses to pay a total of about Y90 million to the suspected racketeer, investors sold off the stock amid increasing nervousness over corporate irregularities in Japan and overseas.
A similar racketeer pay-off scandal report in 2000 was also denied by the company. This followed the indictment of the company's former vice president in 1999 on several charges related to the purchase of highly- speculative Princeton bonds, reported Dow Jones.
At midday today on the Tokyo Stock Exchange, Yakult shares were down 12 per cent at Y1,142 - the largest percentage decliner on the bourse's first section. The benchmark Nikkei 225 Stock Average was 1.9% lower.
The report, published in the Mainichi Shimbun yesterday, said that Yakult is suspected of paying the money over five years through 2000 to a company executive, who is believed to have played the role of a "sokaiya" corporate racketeer, to prevent disruption at its general shareholders' meetings.
Apparently Yakult booked about Y150 million in payments to an advertising agency, run by an acquaintance of the executive, to place ads on the backs of motorway toll receipts between 1996 and 2000. But only Y60.6 million reached an affiliate of the motorway operator, while the rest - about Y89.4 million - was allegedly given to the executive or the advertising agency, the report said.
"It's true that we paid a total of about Y150 million to an advertising agency based on fair contracts with the agency. But we don't know anything beyond that, " a Yakult spokesman said.
Yakult said in a statement it decided to place the advertisements based on the agency's credibility, the fair value of the contract and the effect of the ads.
Last year Yakult stopped placing ads on the backs of motorway toll receipts because of "a change in the company's advertisement policy", the spokesman said.
Dow Jones reported that the news is a blow to Yakult's efforts to regain investor trust after several disappointments in recent years.