Greg Kelly (left) and Carlos Ghosn. Photo: Screenshot

Based on information from additional interviews and newly obtained documents, Roger Schreffler has expanded his latest series (begun in September) on Nissan and the Carlos Ghosn case. This is part 9. Read part 1 herepart 2 herepart 3 here, part 4 here, part 5 here, part 6 here, part 7 here and part 8 here.

Automotive industry writers follow closely the explosive details that keep emerging to fill holes in the epic tale of Carlos Ghosn’s ouster at Nissan. Hans Greimel of Automotive News has likened the storyline to that of a Franz Kafka novel. The obvious reference is to Kafka’s bleak book The Trial, with the part of the accused, “Josef K,” taken by Ghosn. In the accuser role is a secret faction inside Nissan that colluded with the Tokyo prosecutors’ office.

For any who don’t know the story, here‘s a quick plot summary: Joseph K is a rather ordinary bank clerk who is arrested on his 30th birthday by “two unidentified agents from an unspecified agency for an unspecified crime.” Joseph K spends the next 12 months trying to find out the nature of the charges and details about his accusers. The book comes to an abrupt end with his execution on the day before his 31st birthday.

Jeremy Irons in Steven Soderbergh’s Kafka (1991). Photo: JSTOR

Their real-life experience varying a bit from what befalls the fictional Josef K – but hardly less surreal – Ghosn and his American colleague Greg Kelly were arrested on November 19, 2018, in a highly publicized sting operation unparalleled in Japanese history, and had to wait three weeks to hear explicit charges.

The charges, made on December 10, 2018, and then again on January 11, 2019, were concealing from Japanese regulators 9.3 billion yen ($82 million) in deferred income over an eight-year period dating back to 2010, when Ghosn had taken a 50% pay cut during what was for Nissan a difficult business period. The original charges are in Japanese. Here is an English translation.

After three years of asking the right question – not “Can you prove your innocence?” but “Can you prove that Nissan lied?” – and with the progress of the quest reported in a score of published Asia Times stories, we now can say unequivocally that Kelly is innocent of the two charges.

Ghosn almost certainly is innocent of them as well. The latter two among the four charges against Ghosn – that he enlisted two respected billionaire businessmen in the Middle East to help him launder Nissan money – are implausible. They probably would have been disproven, at least in part, by an internal investigation had Nissan not removed the lead investigator, Christina Murray, before she completed her work

We won’t spend time on those additional two charges against Ghosn, as this article is focused on the Kelly trial. Note that Kelly was charged only with concealing deferred income.

Scorching documentary evidence

A document dated July 3, 2019, which we believe Asia Times is disclosing publicly for the first time, makes Kelly’s innocence clear. The document is a lawyers’ summary of an interview in which Hari Nada, Ghosn’s and Kelly’s main accuser, declared that he had discussed Ghosn’s salary and retirement with Kelly on “countless occasions” and emphasized that “fees had always been designed to compensate [Ghosn] for post-retirement services.

That last part is important: for post-retirement services. The prosecutors’ charges alleged concealing income for pre-retirement services. 

The document further quotes Nada, who ran the CEO’s office, as saying, “Kelly explained that reimbursing Ghosn [for the lost wages following his pay cut] was a ‘debt of gratitude’ or ‘moral obligation’ owed by Nissan for his services [but] not a legal obligation.

Again: not a legal obligation. If Nissan was not legally obligated, then there is no “deferred income” and, therefore, no crime.

Let us explain that: Ghosn and Kelly were charged with making false statements about Ghosn’s annual compensation for eight consecutive years from April 2010 to March 2018.

If there was no legal obligation to pay him, then the board wasn’t required to pay him – and didn’t. And only the board – not a mere manager in the CEO’s office, as the prosecutors have alleged – could have made a binding contractual commitment to authorize this disbursement, regardless of what Nissan and the Tokyo prosecutors’ office (and even the US Securities and Exchange Commission) would want us to think.

The money never left the general ledger. Thus, the alleged false statements in the annual securities reports that are blamed on Kelly and Ghosn couldn’t have been false because, again, there was no board decision authorizing any deferred income or even making provisions for such.

The interview with Nada was conducted by a team of outside lawyers representing Nissan, from the law firm Latham & Watkins, LLP, who play an integral role in this story and will be the focus of Part 10. Our sources indicate that the lawyers set up the interview to serve as an informal deposition in hopes of mollifying Nada critics including Christina Murray and Ravinder Passi, Nissan’s global general counsel, who was a member of Murray’s investigative task force.

The task force had wanted to interview Nada as part of its investigation, after learning two weeks earlier that Nada had received a 30 million yen ($260,000) windfall by backdating redemption dates for stock appreciation rights (SARs) income – a separate issue, nothing to do with Ghosn or Kelly.

This came one week after Murray’s team was caught by surprise when Bungei Shunju, a respected Japanese magazine, published an interview with Kelly in which Kelly revealed that Ghosn’s immediate replacement as CEO, Hiroto Saikawa, separately had received a 47 million yen ($408,000) windfall in 2013 when he was representative director and executive vice president. (He became co-CEO in October 2016, then CEO from April 2017, a year and a half before he and his group carried out the coup against then-Chairman Ghosn.) As in Nada’s case, his windfall has been blamed on Saikawa himself. Nothing to do with Kelly or Ghosn, it was a separate issue.)

Summing up

Although Ghosn jumped bail and fled Japan before trial, fearing (no doubt correctly) that he would not be tried fairly, Kelly has recently had his days in court and is now in Tokyo awaiting the verdict. Having concluded that the entire Kelly case reeks of kangaroo, we will walk you through the case as a prosecutor would do – although taking the side of the defendants.

Our case begins with identifying the false charges.

First, let’s acknowledge that to people who had not seen the evidence it could have seemed plausible, even believable, that Ghosn, aided by Kelly, might have concealed future income from Japanese regulators. Ghosn had been quite open about his displeasure in being substantially underpaid by industry standards – he even raised the issue at a general shareholders meeting.

But – and this is an enormous but – the record shows that there was no crime, that the Tokyo prosecutors’ office made a terrible mistake in judgment and that Nissan lied. That is the common thread through Parts 8, 9, 10 and 11 of this series, in which we focus on the trial.

To see how such a poor case found its way to a court docket in Japan – a solemn outcome in a country where a reported 99% of criminal charges result in convictions – we looked at the role of a conflicted law firm, Latham & Watkins, and two conflicted lawyers representing that firm (the focus of coming Part 10). The two worked initially for Ghosn and then against him.

Through the publication of documents in this and a previous installment, we get further into their role while raising serious questions about their conflicts of interest.

Then, in Part 11, we will focus on motive: why a small group of nationalists in Nissan’s management ranks felt compelled to remove Ghosn from management. It wasn’t about his alleged criminality, accusations of which substantially focused on his jet-setting lifestyle. It was about preventing a French takeover of the Japanese automaker. The record proves this beyond a reasonable doubt.

Who’s the boss in the Renault-Nissan Alliance? Photo: Autoevolution

Four additional documents, all still officially kept from the public, prove Kelly’s innocence. The documents were displayed during Kelly’s trial, but Japan’s secretive court procedures – with no cameras permitted in the courtroom – do not allow them to be shared with the public. That doesn’t mean the content can’t be reported.

We went into great detail about the nature and background of a series of proposals from 2011 to 2015 that were prepared for Ghosn in an effort to ensure that when he eventually retired from Nissan management he would continue to work for the automaker – or, at least, not for a competitor.

Timeline of those proposals, which were revealed for the first time during Kelly’s 2020 trial: November 2011 (two proposals), September 2013 and June 2015. They are absolutely exculpatory and will be the focus of the remainder of this installment.

The four documents need to be made public because, like the July 3, 2019, Nada interview, they persuasively back Kelly’s and Ghosn’s arguments that they are innocent. They sharply contradict the prosecution’s assertions to the contrary.

As we’ve reported before, Nissan and the Tokyo prosecutors office had these documents in their possession, including Ghosn’s copies, from day one, November 19, 2018, when Nada engineered raids on Ghosn’s residences and had his team remove Ghosn’s personal papers and bring them back to Nissan headquarters.

The charges, again:

Nissan and the Tokyo prosecutors’ office have alleged that Ghosn and Kelly concealed Ghosn’s deferred income for a period of eight years dating back to 2010. These documents, when plugged into the eight-year timeline, prove that isn’t true.

We acknowledge that Ghosn caused confusion by initially receiving advice from two sources (one advising him that he could reclaim lost income, the second that he couldn’t) and not keeping each apprised of what the other was doing. This came out in court testimony. After reviewing the records and timeline, we have concluded that there was nothing inherently wrong about it, let alone criminal. We’ll discuss that below.

On June 23, 2015, shortly before Nissan’s 2015 general shareholders meeting, Kelly and Hiroto Saikawa, then-chief competitive officer, signed what is arguably the second most important document in proving Kelly’s innocence (the July 3, 2019, Nada interview being the most important). Because Ghosn didn’t sign it, they didn’t take the proposal to the board.

The June 23, 2015, document is a proposal, one that amended three earlier proposals, detailing ways to retain Ghosn after he retired including giving him work for Nissan as an independent contractor. It’s not widely known that the proposal was written by Nada himself together with one of Latham & Watkins’s Tokyo lawyers, Michael Yoshii.

It reveals unmistakably Saikawa’s and Kelly’s intent, and by extension Ghosn’s, to come up with a plan to enable Ghosn to continue his association with Nissan.

The proposal is all for post-retirement services and, according to our sources, it makes no reference to reimbursement for past efforts.

We have asked both Nissan and the Criminal Affairs Bureau of the Japanese Ministry of Justice to make the document public. Both have declined. But let there be no doubt: The document is real.

Be reminded that it was the discovery of this proposal and three earlier iterations in December 2018,  with Saikawa’s signature on all four, that ultimately led Christina Murray’s internal Nissan investigative task force to shift gears and question some of the things it had been told about the case – in the process beginning new lines of inquiry.

A second Latham lawyer, Hiroki Kobayashi, drew up the 2013 proposal. Also signing it were Kelly and Saikawa. Ghosn himself didn’t sign the 2013 proposal, but he had empowered Kelly and Saikawa to come up with a post-retirement plan. At the time (as he also was at the time he signed the 2015 document), Saikawa was chief competitive officer.

Included in the document, again written by Kobayashi, were provisions for future “consulting” and “noncompete” fees. The 2015 proposal as drawn up by Kobayashi put more weight on preventing Ghosn from going to a competitor.

Ghosn had been head-hunted by General Motors, Ford and Volkswagen, which all paid their CEOs substantially more than Nissan paid Ghosn after his 2010 pay cut. Helping us put Ghosn’s age into context, GM in 2001 had brought in automotive hall-of-famer and former Chrysler CEO Bob Lutz, then 69, to become vice chairman, a position Lutz would hold for nearly 10 years. Ghosn was 59 in 2013, still eminently marketable.

Kelly and Saikawa weren’t alone in fearing that Ghosn was a retention risk. Toshiyuki Shiga, Nissan’s COO in 2010 when Ghosn took his pay cut, also agreed in court testimony that Ghosn was underpaid by international standards and expressed concern about whether Nissan could keep him.

Nissan Motor Co. CEO Hiroto Saikawa speaks during a press conference at Nissan’s Head Office in Yokohama, Kanagawa prefecture on May 14, 2019. Photo: AFP / The Yomiuri Shimbun / Keita Iijima

Thus, the two senior-most Japanese directors on Nissan’s board, Shiga and Saikawa, were, like Kelly, trying to find ways to keep Ghosn. Yet the prosecutors’ office only arrested and charged Kelly, the only one of the three who couldn’t read, write or speak Japanese – lending credence to the assertions by one of Ghosn’s Japanese lawyers, Hiroshi Kawatsu, that the government’s case is racially and ethnically motivated. See pages 1, 17 and 18 in Kawatsu’s brief.

Further evidence that Kelly is innocent

Early in the eight-year timeframe, Ghosn had received advice from two sources, with different views, about whether he could reclaim income lost from his 2010 decision to take a pay cut.

One occasion involved Kelly, Saikawa and Scott Becker, Nissan’s top lawyer at Nissan North America. The second was from COO Shiga, former co-chairman Itaru Koeda and Toshiaki Ohnuma, the head of Nissan’s secretariat’s office.

Ghosn, to be clear, caused some of the confusion for his own case (but not for Kelly’s) by pursuing two tracks on the compensation issue. Nevertheless, we see no impropriety, let alone criminality.

Filling in the blanks: Becker had offered a legal opinion in February 2010, one month before Japan’s new financial disclosure rules for executive compensation became effective, that if Ghosn were to take a pay cut, he couldn’t reclaim lost income later. It would be forfeited.

Separately, Shiga and Koeda offered a different opinion – that he could reclaim lost income for past work. Court records do not indicate Kelly involvement with the Shiga-Koeda initiative. 

In fact, Ghosn would accept Becker’s position by 2013, which also fits with the way Ghosn characterized the proposals during our May interview. “Obviously,” he told AT, “there had been a lot of brainstorming. What was agreed by the two representative directors Greg Kelly and Saikawa – they signed a document, both of them – was a proposal. And this signed document was not executional because to be executional it has to have my signature, number one, [and] had to have the approval of the board to have been executional.”

We don’t know precisely what transpired in Nissan’s secretariat’s office between Ghosn and Ohnuma, the third person involved with the Shiga-Koeda initiative. The court record shows that they regularly discussed ways to make provisional plans for paying Ghosn for past work, much along the lines as his COO (Shiga) and former co-chairman (Koeda) had proposed with Ohnuma. the third person involved with the Shiga-Koeda initiative.

Ohnuma had been hired prior to Kelly’s joining Nissan’s management team. We do know that Ohnuma, along with Nada, entered into plea agreements with the prosecutors’ office on or about October 31, 2018, regarding offenses of his own. That fact certainly raises questions about the veracity of his testimony.

We also know that the process for deciding executive compensation, including compensation of the CEO, has been oversimplified in much of the reporting about it to the point of becoming implausible by insinuating a conspiracy within Nissan’s finance organization to commit fraud.

Reporting to Ohnuma (who didn’t speak English – just as Ghosn, head of the multinational Renault-Nissan alliance, didn’t speak Japanese) were two or three professional staff members in the secretariat who would have dealt with Ghosn’s compensation. They would have presented the numbers to still more professional staff (it’s not clear how many) in Nissan’s accounting and control group, who in turn reported to the global controller, then to the CFO. At some point, the external auditor would have reviewed the numbers.

Shiga-Koeda proposal dies

To whatever extent Ghosn’s initial two-track approach to getting the compensation he wanted may have clouded the record, that was no longer the case as early as October 2013.

The issue of Shiga and Koeda’s counterproposal became moot with Nissan’s board learning that mid-term earnings were going to fall well below the automaker’s fiscal 2013 forecast. Ghosn demoted Shiga, removing him from the COO’s position. Shiga would stay on as a representative director for another six months. But, for all practical purposes, he was no longer part of the senior management group. 

From April 2014, the issue of Ghosn’s future compensation fell entirely on the shoulders of Kelly and Saikawa. At the time, only representative directors could make recommendations to the board on the CEO’s compensation. That was the system at Nissan, rightly or wrongly, and there was nothing secret about this.

Also in the loop: Ghosn’s lawyer

Against this backdrop – and providing more exculpatory evidence – Nada met Ghosn’s lawyer in Paris in spring 2014 to discuss Ghosn’s future employment. The focus of their talks was solely on consulting and non-compete agreements following Ghosn’s retirement.

And a year and a half later in June 2015, as we’ve reported, Nada and Yoshii delivered an amended post-retirement plan, the one Nada alluded to in his July 3, 2019, interview with Latham lawyers including both Yoshii and Kobayashi. 

We have scoured the records of Nissan press announcements since Ghosn’s and Kelly’s arrests and replayed several key press conferences including the highly charged event held by Hiroto Saikawa on the evening of their November 19, 2018 arrests, and not one of the above-outlined facts was ever mentioned.

Again, we’ve requested both Nissan and the Tokyo prosecutors office to make exculpatory documents available for the public to see.

Next: The Lawyers

A veteran correspondent for Ward’s Automotive, Roger Schreffler is also a former president of the Foreign Correspondents’ Club of Japan.