NEC Employees Caught Receiving Kickbacks From Subcontractors

TOKYO – Tax investigators probing Japanese electronics maker NEC Corp. (NIPNY) have found that employees placed fake orders and took kickbacks, compounding the problems at a company long dogged by accounting troubles and possibly facing a Nasdaq delisting.

NEC said in a statement on Tuesday that an investigation by the Tokyo Regional Taxation Bureau had found 10 employees from five divisions within the company had been involved in placing fake orders to subcontractors and receiving kickbacks from them.

The fake orders were worth some 2.2 billion yen ($18 million) and the kickbacks amounted to around 500 million yen, it said.

"It is extremely regrettable that these illegal trades have occurred and we deeply apologize to all the people that have been affected," the company said.

The company said, however, that the problems would not affect earnings and that it was looking at seeking compensation and starting criminal proceedings against the employees.

Last year, NEC rattled investors by restating its earnings three times. The first change was made after it discovered that an employee at a subsidiary had inflated sales figures.

NEC, whose businesses include IT systems consulting, then switched from U.S. to less stringent Japanese accounting rules after an independent auditor asked it to document fair pricing of the company's maintenance services.

It later had to correct the report due to human error.

NEC is also still recalculating earnings results for the business year ended March 2006 for submission to the U.S. Securities and Exchange Commission after missing a deadline, twice extended, to keep its Nasdaq listing.

The U.S. Nasdaq exchange's Hearings Review Council is currently reviewing a decision by its Listing Qualifications Panel that the deadline could not be extended.

NEC's shares shrugged off the news, climbing 1 percent to 627 yen compared with a 0.5 percent increase in the Nikkei benchmark average