Japan Rocked By The Biggest Wagyu Beef Ponzi Scheme Ever; $4.34 billion ponzi scheme defrauded 73,000 investors

Japan Rocked By The Biggest Wagyu Beef Ponzi Scheme Ever

STEVEN PERLBERG JUN. 21, 2013, 9:37 AM 5,840 6

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Three former managers of a Japanese wagyu farm were arrested Tuesday on suspicion that they lead a beefy, $4.34 billion ponzi scheme that defrauded 73,000 investors, the Wall Street Journal reports. Wagyu — the “caviar of beef” — retails for hundreds of dollars a pound. Farmers add beer or sake to the coddled cows’ food and massage them to prevent muscle cramps. The managers of the Agura farm offered investors a “wagyu beef ownership system” with promised annual returns of 8%. They claimed the investors would profit from the calves born to purchased cows. From the Journal:

In reality, there weren’t as many cows as the number sold. According to the former managers, the farm had to file for bankruptcy after being hit by the double whammy of falling beef prices and lower sales following the 2011 Fukushima nuclear accident. (The farm is located less than 100 kilometers from the Fukushima plant.) That left 73,000 investors with losses totaling around ¥420 billion ($4.34 billion), according to lawyers for the plaintiffs.

Agura had reported to investors that they kept 90,000 to 100,000 breeding cows. Investigators found the number wasn’t quite as meaty — at 60,000. The case may be one of the biggest consumer fraud episodes in recent Japanese history.June 20, 2013, 12:24 PM

Wagyu Beef Scandal Leads to Arrests

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By Yuko Takeo

Japan’s storied gourmet beef, Wagyu, was in the headlines this week–not on the food pages, but in the crime section, for a case dubbed the biggest consumer fraud incident in recent Japanese history.

On Tuesday, three former managers of a farm that offered investors a “wagyu beef ownership system” guaranteeing annual returns of up to 8% were arrested on suspicion of misleading consumers. A Tokyo Metropolitan Police spokeswoman said the managers have not yet been charged with any crime.

The managers of the Agura farm, located in Tochigi Prefecture, had promised the returns to investors who temporarily “bought” cows from the farm, claiming the returns would come from the sales of calves born to the cows.

In reality, there weren’t as many cows as the number sold. According to the former managers, the farm had to file for bankruptcy after being hit by the double whammy of falling beef prices and lower sales following the 2011 Fukushima nuclear accident. (The farm is located less than 100 kilometers from the Fukushima plant.) That left 73,000 investors with losses totaling around ¥420 billion ($4.34 billion), according to lawyers for the plaintiffs.

“They had pretended that consumers’ dividends were safe, when they were based on cows that weren’t there,” said Shinichi Hirasawa, a lawyer for the victims at a press conference Tuesday.

“Dreams of building houses and the savings of pensioners were taken away,” said Kikuko Suzuki, another lawyer.

The lawyers for Agura farm declined to comment, but said they were cooperating with the investigation.

In a curious sidebar to the drama, the current leader of the opposition Democratic Party of Japan, Banri Kaieda, also has a connection. As an economics commentator in the early 1990s, Mr. Kaieda wrote a number of articles recommending the investment. In a 1992 article for the weekly Shukan Seven magazine, he wrote that “interest is guaranteed at the point of application, meaning there is zero risk.”

As a result, lawyers for the victims have also filed suit against Mr. Kaieda, demanding ¥620 million in damages caused by his advice.

In a written statement to JRT, Mr. Kaieda’s lawyer said: “My sympathies go out to those who were affected by the bankruptcy of Agura farm,” but the case against Mr. Kaieda “takes issue with articles he wrote over 20 years ago, and is unrelated to the current investigation.”