Livedoor

• 1. Introduction

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  Livedoor was a Japanese internet company that collapsed under the weight of a securities fraud scandal in 2006, but for a decade before that, it stood among Japan's premier online businesses. At its height, it employed more than 1,000 people and operated both an internet service provider and one of the country's most-visited web portals. The man behind its rise was Takafumi Horie, a founder who became so famous in Japan that fans and critics alike called him "Horiemon." His ambitions pushed Livedoor into acquisitions, baseball, and the American market. They also made him enemies in places that mattered. What drove Livedoor's explosive growth? What set off the chain of events that ended with prosecutors raiding Horie's home on a January morning in 2006? And what happened to the company, the people, and the reforms that followed?

• 2. From a Startup to a Giant

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  Takafumi Horie and a group of college friends launched what would become Livedoor in 1995 under the name Livin' on the Edge. The company was officially incorporated as Livin' On the EDGE Inc. in April 1996, in Minato, Tokyo. It started as a yugen kaisha, a limited company, then reorganized into a kabushiki kaisha, a joint-stock company, in July 1997. Within three years of that reorganization, the company went public on the Tokyo Stock Exchange's Mothers market in April 2000.

  In November 2002, Livin' on the Edge made a pivotal move, acquiring the free internet services business of Livedoor Corp., a firm that had already gone bankrupt. The company renamed itself Edge Co., Ltd. in April 2003, then took the name of the ISP it had just absorbed, becoming livedoor Co. Ltd. in February 2004. That renaming was followed immediately by a 1:100 stock split, a signal of how aggressively the company intended to grow.

  Growth through acquisition became Livedoor's signature strategy, and it made the company both prominent and controversial. Horie's reliance on stock swap mergers to fuel expansion was seen as clever by some and distasteful by others. By the time the company reached its peak, it had over 1,000 employees and a portfolio of businesses that reached well beyond Japan's borders, including MailCreations in Miami, Florida, acquired in June 2004 and used as the company's American headquarters.

• 3. Baseball, Rivalry, and Sendai

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  In March 2004, Livedoor entered a very different arena. During the 2004 Nippon Professional Baseball realignment, Horie's company moved to acquire the Kintetsu Buffaloes, a professional baseball team. The bid was eventually withdrawn, but Horie did not abandon the idea of owning a team. In September 2004, Livedoor founded its own team, called livedoor baseball, and applied for entry into Japan's professional baseball organization.

  The plan was to base the team in Sendai, in Miyagi Prefecture. That bid, however, ran directly into competition from Rakuten, a Japanese e-commerce company with its own expansion ambitions. Livedoor lost the contest to become Sendai's home team. Rakuten won the right, and the resulting franchise, the Tohoku Rakuten Golden Eagles, began play in 2005. The baseball episode illustrated both Horie's appetite for bold moves and the limits of what ambition alone could accomplish.

• 4. The January Raids

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  On the 16th of January 2006, Tokyo prosecutors raided multiple Livedoor locations along with Horie's home and the residences of other executives at Livedoor and its subsidiaries. The suspicion was securities fraud. Investors did not wait for answers. On January 17 and 18, shares plunged as panic selling swept through the Tokyo Stock Exchange. The volume of sell orders became so heavy that it threatened to crash the TSE's computer systems entirely, forcing a halt in trading across the entire market. It was the first time this had ever happened, setting a record the exchange did not want.

  On the 18th of January 2006, Hideaki Noguchi, an executive at H.S. Securities, a firm tied to the investigation, was found dead in a hotel room in Naha, Okinawa. Authorities ruled the death a suicide. The TSE demanded a formal written response from Livedoor. When the company submitted a report based on a hasty internal review, the exchange rejected it and demanded a more thorough accounting, threatening delisting if wrongdoing was confirmed.

  Horie was called in for questioning on January 23. After several hours with investigators, prosecutors felt they had enough to act. Four arrest warrants were granted that same day, and by mid-evening Horie, Livedoor's chief financial officer, and the presidents of two subsidiaries were all in custody on charges of securities and accounting fraud. They were held without bail for two months. During that time, Livedoor's temporary Representative Director, Fumito Kumagai, was also arrested.

• 5. Verdicts and Lawsuits

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  Japan's Securities Commission filed a criminal complaint against the five arrested former executives on the 13th of March 2006. Horie himself was sentenced to two and a half years in jail on the 16th of March 2007. Four days later, the other defendants received their own sentences, though each of them appealed.

  The civil fallout was just as significant. Fuji Television sued Livedoor for 35 billion yen in damages in March 2007. A class-action suit filed in May 2006 by 1,000 individual investors eventually grew to 3,340 plaintiffs seeking 23 billion yen. The final ruling in that case awarded 7.6 billion yen against the company. Additional suits produced at least one further judgment of 4.9 billion yen. Livedoor also turned around and sued its own leadership: Horie settled for 21 billion yen, and six other executives collectively settled for 760 million yen.

  The investigation's reach extended beyond the company. Fund manager Yoshiaki Murakami was arrested and convicted for using inside information to profit from a stake Livedoor had purchased in Nippon Broadcasting System in 2005. That piece of information had surfaced specifically because of what investigators uncovered during the Livedoor inquiry.

• 6. Horie's Defense and the Conspiracy Question

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  While his appeals were pending, Horie wrote an autobiography titled Complete Resistance. In it he proclaimed his innocence and argued that he had been targeted because of his public notoriety, not because of the actual nature or severity of any crimes.

  His argument found sympathy in some quarters. Many observers suspected that the timing of the January raids was not coincidental. Critics of the prosecution read the case as a political move by defenders of the status quo, an effort to punish Horie for daring to challenge established business culture. His methods, including aggressive stock-swap acquisitions and public confrontation of entrenched institutions, had been labelled distasteful and "un-Japanese" by opponents. Whether or not the conspiracy reading was accurate, it reflected how polarizing Horie had become as a symbol of a new kind of Japanese entrepreneurship.

• 7. Aftermath and New Ownership

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  Livedoor lost 90 percent of its stock value in four months. The Tokyo Stock Exchange delisted the company on the 14th of April 2006. Japan's parliament passed legislation modelled on the American Sarbanes-Oxley Act, nicknamed J-SOX, on the 14th of June 2006, specifically to prevent a recurrence of the kind of accounting failures the scandal exposed.

  In 2007, the company reorganized, spinning off a new subsidiary that kept the Livedoor name along with most of its portal-related businesses. The parent became a pure holding company called Livedoor Holdings, which oversaw the legal and financial management of its subsidiaries, reportedly 44 in total as of the end of 2005. Livedoor Holdings later renamed itself LDH Corporation in 2008.

  Rumors circulated in 2006 and 2007 that a two-billion-dollar IPO was being prepared for 2008. Several technology companies expressed interest. The offering never happened. Instead, South Korea-based NHN Corporation purchased Livedoor in early 2010 for a reported 6.3 billion yen. LDH Corporation entered voluntary liquidation in August 2011 and completed the process in December 2012. The ISP and blog services that carried the Livedoor name were subsequently operated by Line Corporation, developers of the Line messaging platform and the Naver Japan search portal, from 2012 through 2022. In February 2022, Horie himself returned, becoming executive advisor to livedoor.