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Tuesday, June 2, 2009

Nova chief admits skimming funds


Staff writer

OSAKA — The former president of Nova Corp. admitted Monday he siphoned off employment benefit funds just before the language school giant went bankrupt in 2007 but pleaded not guilty to embezzlement, claiming he used the funds for employees.

News photo
Apologetic: Former Nova Corp. President Nozomu Sahashi leaves the Osaka District Court on Monday. KYODO PHOTO

Nozomu Sahashi, 57, who once headed one of Japan's largest and most popular English conversation school chains, is charged with funneling nearly ¥320 million from employment benefit funds in July 2007 by transferring the money to a bank account belonging to an affiliate, which has not been named.

"I apologize to the students and employees for all of the trouble I caused, but it was not my intention to do wrong," Sahashi told the Osaka District Court at the opening of his trial. "I don't think I can judge whether what I did constitutes embezzlement or not."

Nova's financial situation worsened considerably in February 2007, when the company was responsible for monthly salary payments of ¥1.1 billion to its foreign instructors and ¥500 million for its Japanese staff. In addition, there were monthly classroom rental fees of ¥1 billion.

By July 2007, Nova owed students nearly ¥900 million in cancellation fees, which it could not pay.

Many students had canceled their contracts out of anger over Nova's system, which they claimed made it impossible to actually take all of the lessons they paid for.

In April 2007, the Supreme Court ruled the way the company calculated its cancellation policies was illegal and ordered Nova Corp. to repay about ¥310,000 to a Tokyo man who received no refund when he canceled his contract.

Faced with mounting debts, Sahashi in July 2007 allegedly diverted nearly ¥320 million from an employment benefit fund to the affiliate's account.

The money was then supposedly used to reimburse students who had canceled their contracts. Nova officially declared bankruptcy in October 2007 and much of its operation was taken over by Nagoya-based G.Communications.

Sahashi argued he had the employees' welfare in mind when he used the funds to pay the cancellation fees.

"Use of the money is not a violation of the funds' purpose. The defendant thought it was money in an account with his name to be used for the welfare of the employees," Sahashi's lawyers said in a statement to the court. "Unless the cancellation fees were paid, the company was facing bankruptcy. Because there were no other funds, the money was used to avoid this worst possible case, and to maintain a minimal (amount) of welfare for the employees."

Sahashi faces not only a lawsuit over the diversion of the employee benefit funds but also a suit by former students seeking ¥16 million in damages.

An attempt by the Osaka-based General Union, which represents many ex-Nova employees, to get prosecutors to indict Sahashi for nonpayment of wages failed last year. But in March, after the union pushed the local labor bureau to get prosecutors to probe their decision, auditors for the prosecutor's office ruled the initial decision not to charge Sahashi was unjust.

The union hopes Sahashi will be tried separately for nonpayment of wages to 5,000 dismissed employees.



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