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1/19/2006
11:34 AM
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Tokyo Market Scrambles To Recover From Livedoor Charges

The scandal over allegations of accounting fraud by Livedoor, an Internet portal operator, caused a run on IT stocks and has claimed at least one life.

TOKYO — The Tokyo Stock Exchange rallied on Thursday (Jan. 19) in the aftermath of what is being called "Livedoor Shock."

The affair, which brought the Tokyo exchange to its knees earlier this week after allegations of accounting fraud by Livedoor Co., the upstart Internet portal operator, caused a run on IT stocks and has claimed at least one life. An executive of a company with ties to Livedoor was found dead Thursday after apparently committing suicide.

The televised police raid on Livedoor's offices that precipitated the panic exposed weaknesses in the stock exchange's computer networks, which proved unable to handle a flood of "sell" orders. The bourse closed early on Tuesday, and is operating on a reduced schedule until the exchange's computers can be upgraded. The upgrade is not expected to be completed until the fall.

Livedoor, which is headed by 33-year-old Takafumi Horie, has been diversifying into other Net-based businesses. It is a partner of Skype Technology S.A., distributing co-branded telephony software in Japan. Livedoor's value has skyrocked to ¥730 billion (about $6.3 billion) through aggressive tactics like hostile acquisitions and efforts to pump up its stock. Horie has succeeded in ruffling feathers in the business community here, but has so far been unable to acquire media companies, start a baseball franchise or get himself elected to the Japanese Diet.

Investigators accuse Horie of bad-mouthing competitors to drive up Livedoor's stock, and the subsequent probe clobbered other IT stocks before buyers moved in Thursday to scoop up what were considered underpriced stocks.

Horie has denied any wrongdoing and has pledged to cooperate with authorities.

Livedoor lists its shares on the Tokyo exchange's "mothers' market" for startups, along with other IT-related stocks. This week's panic forced suspension of trading 20 minutes early on Wednesday, when the number of transactions reached 4 million contracts, the level at which the exchange halted operations to avoid another system failure.

Market hours were again shortened by 30 minutes on Thursday, delaying the start of the afternoon session but ending without further problems. The exchange said it plans to expand capacity to handle as many as 5 million daily transactions by Jan. 30.

Trading was also suspended last November for four hours after overloading. An electronic trading system supplied by Fujitsu Ltd. was introduced in 2000. However, the system has proven unable to handle growing trading levels as Japan emerges from a decade-long economic slump. Japan outperformed U.S. and European exhanges in 2005.

Taizo Nishimuro, president of the Tokyo exchange, said the planned upgrade would bring its computer systems up to the level of U.S. and European exchanges. It plans to invest about ¥23 billion over three years to upgrade the system.

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