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Suicide Is Linked to Business Scandal

The man had been an executive at firm whose travails sparked a stock sell-off. Tokyo exchange recovers after a nearly $400-billion drop.

January 19, 2006|Bruce Wallace | Times Staff Writer

TOKYO — The apparent suicide of a 38-year-old Japanese venture capitalist has added a sinister aura to the investigation into the dealings of Takafumi Horie, the brash Internet entrepreneur at the center of a drama that has roiled stock markets.

The body of Hideaki Naguchi, a former executive with Horie's multibillion-dollar Livedoor Co. online media services empire, was discovered Wednesday night in a business hotel in Naha, Okinawa, 1,000 miles south of Tokyo. Media reports said he had slashed his wrists.

Naguchi left Livedoor in 2002 to join H.S. Securities Ltd., which handled mergers and acquisitions for Livedoor, according to Japanese media reports. The securities firm's offices were among those raided this week when prosecutors launched an investigation to determine whether some Livedoor deals violated securities laws.

News of the suicide added to the sensation surrounding an affair the Japanese are calling the "Livedoor Shock."

The investigation triggered a collapse in the value of Livedoor shares -- the company has lost about a third of its $6.3-billion value. Panic selling across the board knocked billions of dollars off Tokyo stock values, humiliating the world's second-largest exchange.

After losing almost $400 billion in value over the last three days, the Tokyo Stock Exchange recovered today as investors steadied their nerves. The Nikkei index ended at 15,696.28, up 355.10 points, or 2.3%.

Today's trading hours were cut by 30 minutes in anticipation of heavy volume, after waves of sell orders Wednesday forced the exchange into an embarrassing early close because its computer system was in danger of overloading.

The market's recovery eased fears that Japan's woes would spiral into a regional stock crash.

"Overall, the Japanese economy remains stable and corporate performance is expected to be steady, so this incident is accidental and temporary," said Satoru Otsuka of Mizuho Research Institute in Tokyo.

Livedoor says its own investigation shows it broke no securities laws.

But Japanese news reports say investigators are looking at other Livedoor deals, as well as whether the company concealed losses.

The affair has become a proxy battle for a larger struggle between competing business cultures in Japan.

Horie and Livedoor are the most visible exponents of a new breed of Japanese entrepreneur, with no patience for the customs of a cautious and cozy business establishment. It is a clash that has been stoked by Horie's rock star lifestyle of private jets, actress girlfriends and such an appetite for publicity that he appears on TV quiz shows and writes an Internet blog.

In the process, the 33-year-old entrepreneur has become a rebel with a cause for a generation of Japanese happy to see someone take a chisel to the calcified ruling class.

Horie's popularity has been a driving force in popularizing stock trading by small investors in Japan, where the phenomenon of day traders is relatively new.

Day traders, many of whom use Livedoor's Internet portal, were credited with helping push the Nikkei index up more than 40% last year, its best gain since 1986. But they were also among those who tried to bail out of Livedoor stock when news of the raids hit this week.

It is unclear what triggered the inquiry into Livedoor's dealings. But the raids have spawned consequences far beyond one man or one company.

Most damaging was the Tokyo exchange's inability to handle the volume of sell orders, resulting in a plea Wednesday for brokerage houses to slow down and consolidate their orders.

Some veteran U.S. investment managers say that despite broader economic reforms in Japan, the stock exchange's inability to cope with volatile trading demonstrated how structural weaknesses in the country's financial system hadn't been fully addressed.

"I kind of like the fact that the stock exchange is getting humiliated. It's what it needs," said Mark Headley, president of Matthews International Capital Management in San Francisco, which invests across Asia. "The more shocks to the system in Japan, the better."

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Times staff writer Tom Petruno in Los Angeles contributed to this report.

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