Carlos Ghosn, chairman of Renault SA. (Photographer: Marlene Awaad/Bloomberg)

Nissan’s Ghosn Re-Arrested in Japan While Still in Jail

(Bloomberg) -- Japanese prosecutors re-arrested Nissan Motor Co.’s former chairman Carlos Ghosn on fresh, more serious allegations of financial misconduct, dealing a blow to the car titan’s efforts to end his month-long stay in jail and seek bail.

In the latest twist in the drama that has shocked the global car industry, prosecutors said Friday Ghosn is suspected of inflicting financial damage to Nissan from his own unprofitable investments. The re-arrest gives prosecutors the right to detain Ghosn for at least a further 10 days and possibly longer, while potentially hurting his chances for bail after that. Ghosn’s lawyers declined to comment.

While the charges against Ghosn had thus far been related to a relatively arcane point of accounting -- whether retirement payments were properly booked -- the new accusations are for a misdeed that has an actual victim: Nissan. The prosecutors’ allegations are now more aligned with those of Nissan, which has accused Ghosn of misusing company assets and ousted him as chairman quickly after his arrest.

Nissan’s Ghosn Re-Arrested in Japan While Still in Jail

“It’s a very serious charge,” said Colin Jones, a professor of law at Doshisha University in Kyoto. “If there was a conviction, I think it would mean that there’s been a judgment that it’s more than just typical self-dealing corporate malfeasance but something that really harmed the company and was particularly malevolent in terms of the amount of planning that went into it.”

The latest development is a big reversal from events late Thursday when the Tokyo district court refused to entertain prosecutors’ plea to extend the jail detention of Ghosn. That had raised the prospect that his lawyers may be able to seek bail and get him out of prison to wait for his trial.

The arrest of the high-flying executive has rocked the world’s biggest auto alliance, raising questions over whether the decades-long partnership between Nissan and French partner Renault SA will survive his downfall. Renault has kept Ghosn as chairman and chief executive officer, saying it needs evidence of wrongdoing before moving to replace him.

Investment Losses

Ghosn was originally arrested on Nov. 19 at Tokyo’s Haneda airport, and he and Nissan were indicted on Dec. 10 for falsifying securities reports which under-reported his income by tens of millions of dollars. Ghosn has denied wrongdoing.

The new arrest warrant states that Ghosn conducted an “aggravated breach of trust” by allegedly transferring obligations on his own personal investment losses worth about 1.85 billion yen ($16.6 million) to Nissan, inflicting financial damage on the automaker. The alleged violations took place from 2008 to 2012, prosecutors said.

The new allegations would be in violation of Japan’s Companies Act and are seen as a more serious charge than under-reporting income, part of the Financial Instruments and Exchange Act. Japan’s Companies Act states that such a charge could carry a maximum prison sentence of up to 10 years. Prosecutors searched Ghosn’s home after the the latest re-arrest, TV Asahi reported.

Ghosn’s lawyers have previously denied such suspected wrongdoing, which was reported by the Asahi newspaper last month but wasn’t part of the original indictment last week. Ghosn has acknowledged consulting Nissan about the collateral related to the derivatives contract, but didn’t transfer the losses to the automaker, Motonari Otsuru, a lawyer representing the former chairman, told Bloomberg Nov. 28.

By detaining him longer, prosecutors are making it more difficult to Ghosn to start mounting a defense. Japan’s prosecutors have faced criticism for a lack of clarity and communication on how they are handling the case, with Ghosn held in detention without charge for longer than would be permitted in the U.K. for a suspected terrorist.

Justice Minister Takashi Yamashita, asked about international criticism for the long detention, said that in general, detention “is being carried out properly as legally prescribed, and the criticism is unwarranted,” Kyodo reported.

Ghosn has been widely credited with saving Nissan from failure and bringing it together with Renault to create a formidable auto union. His arrest came after a months-long investigation by Nissan into his conduct and compensation that was largely kept from its French partner. That lack of transparency and concern Nissan will use Ghosn’s absence to push for more power within the alliance has heightened tensions between the two automakers.

Nissan’s Ghosn Re-Arrested in Japan While Still in Jail

Nissan Probe

Nissan has also accused Ghosn of misusing company funds, including over homes from Brazil to Lebanon. Nissan CEO Hiroto Saikawa -- a one-time protege of Ghosn -- has emerged as a driving force in the carmaker’s investigation into the alleged wrongdoing by Ghosn and his aide Greg Kelly, who is also indicted in the case.

The arrests were the result of a coup by executives including Saikawa, Kelly’s wife, Dee Kelly, said in a video released Wednesday.

Saikawa was asked by reporters on the day Ghosn and Kelly were arrested whether a coup was underway at Nissan. He replied: “That is not my understanding. I didn’t make such an explanation and think you should not think of it that way.”

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