Arrests in Alleged $4 Billion Japanese Cow-Raising Ponzi Scheme

A former cattle farm manager and two other executives were arrested by Japanese authorities on Tuesday after they were accused of misleading participants in an investment venture that promised steady returns from a "wagyu beef ownership system."  Former president Kumiko Mikajiri, 69, and former managing senior directors Susumu Masubuchi, 59, and Katsuya Oishi, 74, were charged with soliciting investors based on misleading information relating to the actual number of breeding cows.  The company, Agura Bokujo, filed for bankruptcy in August 2011 with stated debts of approximately ¥420 billion - equating to approximately $4.2 billion - and ranks as the largest episode of consumer fraud in Japan's history.

Agura Bokujo was established in 1981, and was once Japan's second-largest beef producer.  Several decades ago, the company began offering a "wagyu beef ownership system" in which investors could purchase "wagyu" cows with an initial investment ranging from $35,000 to $58,000 per cow.  The cows would then be used for breeding, which would then yield proceeds from the sale of their calves.  Investors were promised steady returns of up to 8% annually, as well as the promise that Agura Bokujo would buy the cow back at the end of a period of several years.  Wagyu cows are a delicacy due to their enhanced diet, and their steaks can cost over several hundreds of dollars per pound.  Tens of thousands of investors took advantage of the program, no doubt drawn in by the promise of steady returns.  Agura Bokujo represented in business reports that it had 90,000 to 100,000 breeding cows on hand.

However, the massive earthquake that struck Tokyo in March 2011 wreaked havoc on the company, with fears that radiation from a Tokyo nuclear power plant had entered Japan's food chain.  These fears were well-founded after it was discovered that cattle had consumed severely-contaminated hay.  The discovery led to numerous requests by investors to cancel their contracts, and combined with a sharp decrease in demand for beef over radioactivity fears, the company was forced to file for bankruptcy protection in August 2011.  At the time of the bankruptcy, the company had approximately 71,000 investors in its cattle breeding program.  In a rehabilitation plan, the company proposed that it would buy back cattle for 10% of their principal value - a nearly total loss for investors.

After an investigation by Japanese authorities, it was discovered that company principals may have inflated the amount of cattle it purportedly owned.  According to authorities, approximately 100 investors received brochures containing incorrect information just before the company filed for bankruptcy.  Rather than a herd of 90,000 to 100,000 cows, authorities believe the amount of cows were closer to 60,000.  Thus, because the number of investors outnumbered the actual number of cows, it would appear that the same cow was sold multiple times to investors.  

According to a bankruptcy administrator, of the approximately $4.2 billion owed to investors, Agura Bokujo can currently repay only approximately $200 million.