Puzzle & Dragons studio says a former executive embezzled $2.3 million of company funds
GungHo’s already under-fire CEO will take a pay cut for three months
The publisher and developer of mobile hit Puzzle & Dragons says a former executive embezzled around $2.3 million of company funds over the past few years.
In a statement made to investors, GungHo Online Entertainment said it had “recently discovered that a former executive-level employee… who has already been dismissed for cause, had engaged in misconduct over the past several years”, and that “this misconduct included misappropriating company funds through fictitious business orders”.
According to the company’s claims, the former employee used a work-matching service site to create fake business orders, with the company as the client and the employee as the contractor. By doing this they alleged embezzled ¥246 million ($1.67 million) over the course of a few years.
On top of this, GungHo also accuses the employee of “improperly paying outsourcing feeds to a certain business partner, despite the fact that no actual business [was] conducted,” resulting in a further loss of ¥100 million ($680,000).
Following an investigation led by two independent outside company auditors and supported by an external law firm and a forensic team from an accounting firm, GungHo fired the employee and says it is has now “begun consulting with a criminal investigative authority and discussing the possibility of filing for a criminal complaint”.
GungHo says that although this was a solo act committed by the former employee only, its management is taking responsibility and will be temporarily cutting its salaries as a result. Company president and CEO Kazuki Morishita will take a 30% reduction in base salary for three months, while four other executive directors will get a 10% reduction in salary for three months.
The news comes at a particularly bad time for GungHo, which has also just confirmed the date of an extraordinary general meeting in which shareholders will vote whether to dismiss Morishita.
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The group of shareholders calling for the vote has argued that Morishita’s pay is close to that of Nintendo president Shuntaro Furukawa, and more than those of Capcom and Konami, despite – according to the claim – spending more than ¥100 billion ($645 million) developing new games other than Puzzle & Dragons, and earning less than ¥10 billion ($64.5 million) from them.
The group argues that Morishita’s pay has risen drastically over the past 10 years from ¥120 million ($775,000) to ¥340 million ($2.19 million), despite market capitalisation dropping 78% and operating profit dropping 69% over the same period.
“By almost any measure GungHo would usually not be in the same league as Nintendo, except for some reason the amount of remuneration for the top management is comparable,” it says. “While the president of GungHo and Nintendo make similar salaries, as far as profits are concerned, with less than 1/10th that of Nintendo, we would say that GungHo is not even playing the same game.”
GungHo has said the extraordinary general meeting will take place on September 12. The company says it opposes the proposal to oust Morishita, saying he “has made a significant contribution to the company’s business performance”, and that it “is necessary for President Morishita to continue serving as a member of the board of directors from the perspective of enhancing the corporate value of the company”.
