Earlier today, NHK reported that Index Holdings was under criminal investigation for fraud. According to the publication, Index engaged in repeated fictitious and inflated business transactions. The process, known informally as “round-tripping” or a “Lazy Susan” occurs when a company sells “an unused asset to another company while at the same time agreeing to buy back the same or similar assets at about the same price.” Round tripping is typically used in tax evasion and money laundering, and played crucial roles in a number of higher-profile financial scandals.
When asked about the investigation, Index released the following statement:
It is true that I can not report at the moment because it is under investigation by the relevant authorities. Soon, will report promptly future, we will cooperate with the investigation, the facts become clear
In non Google Translate, the company stated that they are complying with the investigation, though they can’t comment on the matter yet.
“So what does this have to do with ANYTHING?”
Well, dear reader, Index Holdings is the owner of two brands that are important in the anime subculture: Madhouse studios and Atlus. While Madhouse exists as a functioning entity with a degree of autonomy, Atlus does not share such luxuries. Atlus was acquired in 2007, when Index purchased a controlling majority of the company’s stock. In 2010, Index merged Atlus into itself, destroying the house that MegaTen built and reducing the prominent game maker to little more than a brand and a reputation.
The fact that the owner of two incredibly powerful brands is being investigated for dodgy financial dealings should raise a few eyebrows. Round-tripping carries severe financial penalties, and potentially other sanctions. If Index is found guilty of the allegations, its capital will be severely reduced, which will lead to severe limitations on the company’s operations as a whole.
Sanctions aside, the reduced funding serves as a hobble, as it limits the ability of the company to compete in its market. with reduced funding, product development takes a hit. In the case of Madhouse and Atlus-branded products, this would lead to smaller budgets, and less adventurous releases, as management scrambles to make up for the lost funds. If additional penalties are added, the situation grows even less predictable, as the severity of the crime would then determine how much of a punishment they will face. Likewise, the company will lose the confidence of the market, as investors will be repelled by the stigma, and external capital will begin to slow.
At this point, it’s still a bit early to proclaim guilt or innocence, though I don’t doubt we’ll see people taking sides, regardless. How this case progresses will have a profound impact on Index’s future, and there will be numerous calls for somebody’s head on a platter regardless of which way the case turns out.