updated 6/16/2005 6:26:12 AM ET 2005-06-16T10:26:12

Railroad and hotel magnate Yoshiaki Tsutsumi, once listed by Forbes as the world’s richest man, pleaded guilty to charges of insider trading and falsifying financial records at the opening of his trial Thursday, in a case that highlights Japan’s moves toward tougher corporate governance.

The high-profile trial of the former Seibu Railway Co. chairman in Tokyo District Court underlines the sometimes-shady dealings that fueled Japan’s rags-to-riches growth after World War II — but also the country’s recent push toward greater corporate accountability.

The bespectacled Tsutsumi, 71, entered the courthouse somberly, wearing a dark business suit. A court official confirmed that the session ended after about two hours and that Tsutsumi pleaded guilty to the charges.

Tsutsumi apologized for what he had done and acknowledged he had hurt shareholders, the quasi-public NHK TV reported.

“There is no mistake” to the charges, he was quoted as saying.

A fallen figure
Over the decades of Japan’s modernization, Tsutsumi was respected as a charismatic billionaire who made his fortune on a nationwide hotel chain, major railway and resort development.

But since his arrest in March, the Japanese media have portrayed him as a fallen figure of the past, whose rise to glory was based on methods and standards that are no longer relevant to rapidly globalizing Japan.

At the opening of the trial, prosecutors said Tsutsumi conspired with several executives to falsify Seibu Railway’s 2003 financial statement, putting the stake of Kokudo Corp., his privately owned company, in the railway far lower than actual numbers, according to the prosecutors’ office.

Having a handful of top executives owning too much was a violation of Tokyo Stock Exchange rules. Seibu has acknowledged the deception, and the stock exchange delisted the company in December.

Prosecutors said Tsutsumi feared the consequences of getting delisted and wanted to sell the Seibu stocks last year but didn’t want to take losses because their price was low.

Tsutsumi resigned as chairman last year to take responsibility for a separate racketeer scandal involving other executives.

If convicted, Tsutsumi faces up to five years in prison and a fine of up to $46,000 for falsifying financial statements, or up to three years in prison and a fine of up to $27,000 for insider trading.

Scandals raise difficult questions
Besides the Seibu case, Japan is periodically shaken by corporate scandals that raise serious questions about management ethics, such as chronic bid-rigging, cover-ups of financial data and auto defects as well as paying off gangster racketeers rather than face embarrassing questions at stockholders meetings.

Cases like Tsutsumi underline the insular corporate culture that has ruled Japan’s world of business built on an old-boys network that shunned outsiders, Hitotsubashi University professor of management Kanji Tanimoto said.

“Unless the system changes, the arrests and problems will continue,” Tanimoto said.

A one-time chief of Japan’s Olympic committee, Tsutsumi was given the title world’s richest man by Forbes magazine in the late 1980s. Crashing land prices in early 1990s toppled him from that rank, but he is still estimated to be worth $3 billion.

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