Atlus Parent Company Investigated For Fraud, Files For Bankruptcy

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Atlus, the video game publisher behind titles like Demon’s Souls and Shin Megami Tensei, may be in trouble.

The publisher’s parent company, Index Corporation (also referred to as Index Holdings,) has filed for rehabilitation—a type of bankruptcy—due to 24.5 billion yen in outstanding debt. Index purchased Atlus in 2006.

Seven years later, Index Corporation’s (and by extension, Atlus’s) troubles go much deeper than outstanding debt or bankruptcy.

The parent company has been accused of fraud, and specifically “window dressing” or inflating sales numbers to create an illusion of corporate stability.

The company’s offices were raided after the Japanese Securities and Exchange Surveillance Commission determined the company was inflating sales far beyond their actual numbers and using round-tripping, a practice that that helped inflate the image of Enron as a far more successful company than it actually was, to paint a false picture of the company’s financial state.

Round-tripping is an accounting strategy in which an asset is sold to another firm with the agreement that the asset will be repurchased at a later date by the original owner. Firms can use this to give off the appearance of higher sales and revenue generated during a specific financial period.

Not everyone agrees on whether this practice is ethical, and some argue that it can serve a legitimate business need.

However, round-tripping is illegal in Japan.

Investigators also reported uncovering falsified financial documents during the Index raid.

This spells trouble for Atlus, one of the best-loved publishers of Japanese roleplaying games. Atlus titles are often high-quality games with excellent localization for western consumers. The future of the company is now uncertain as investigations into Index Corporation continue.

So far, no reports of criminal charges have been filed, though company president and CEO Yoshimi Ochiai and board chairman Masami Ochiai have both expressed interest in leaving the company.

Whether this could lead to liquidation or the sale of Atlus remains an open question. Hopefully the publisher can ride the storm. Any number of firms would be wise to buy the company and its portfolio, though even if Atlus is purchased intact the future of their games and localization efforts remains uncertain.

http://www.forbes.com/sites/erikkain/2013/06/27/atlus-parent-company-investigated-for-fraud-files-for-bankruptcy/

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