Witness Testifies Livedoor Doctored Earnings

The trial of a brash, young Japanese entrepreneur entered its second day Tuesday with a prosecution witness testifying that Livedoor, the Internet company Takafumi Horie founded, doctored its earnings by selling and buying its own stock.

The trial is the most closely watched in Japan in years, given Horie's fame as a one-time TV celebrity and businessman who challenged the nation's staid corporate culture with his bold takeover attempts and defiant manner.

Horie, 33, was arrested in January on charges of violating securities laws.

At Monday's opening session, he pleaded not guilty to charges of securities laws violations. Prosecutors outlined a complex scheme in which Livedoor Co. executives used "dummy" companies to buy up its own and subsidiary shares to inflate profits, all under Horie's instructions.

Defense lawyers argue that the charges are groundless, the transactions in question were totally legal, the companies weren't dummies at all, and Horie didn't know about the dealings anyway.

During Tuesday's testimony, Hiroshi Onishi, president of an investment fund, said he was ordered on several occasions by a Livedoor executive to sell shares in the company to other firms he suspected were affiliated with Livedoor.

"I thought that they wanted to window dress their earnings," Onishi told the court, adding that he followed through on what he considered irregular trading practices partly because of the large commissions he stood to earn.

Onishi testified Tuesday that his buying and selling was done at the orders of Hideaki Noguchi, who headed a finance unit of Livedoor. Noguchi was found dead in a hotel in the southern state of Okinawa in January in what police say was a suicide.

But Onishi later contradicted himself in cross-examination by defense lawyer Yasuyuki Takai.

"I don't think Mr. Noguchi was the kind of person to window dress earnings," Onishi said, adding that manipulation may have taken place as cash flowed through the Livedoor group.

Horie, a college dropout, catapulted to stardom as a symbol of a more modern, freewheeling market economy by founding Livedoor and building it into an empire through repeated acquisitions of smaller rivals.

He also tried — unsuccessfully — to buy a professional baseball team and take over a radio broadcaster that is a key part of a powerful media conglomerate led by Fuji Television Network Inc.

Horie wore a dark suit and tie for the second day, a rarity given his trademark T-shirts. The Japanese media have followed the trial closely, reporting even his gourmet seafood lunch during the break. His lawyers have said he is getting a grilled beef lunch Tuesday.

During the sessions, Horie has listened intently to the proceedings, cocking his head quizzically at what a prosecutor or witness said, while looking at times a little bored, shooting glances at the clock on the wall.

"I've never sat still for so long like I did today. I realized how tiring it is just to sit," Horie said in a statement through his lawyers late Monday. "I will do my best to reveal the truth in court."

After his January arrest — which sparked a sell-off in Tokyo's stock market called "Livedoor shock" — the public has been largely critical of Horie and questioning his aggressive business tactics.

Thousands of individual investors suffered big losses for their Livedoor shares, which have since been delisted.

If convicted, Horie faces a maximum penalty of five years in prison or 5 million yen ($42,000) in fines, or both.