The Japanese financial watchdog launched an investigation yesterday into Sanyo’s accounting practices, sending shares in the electronics giant plunging by a fifth and sparking fears of a “Japanese Enron”.

More than 89 billion yen (£375 million) was wiped from Sanyo’s stock market value, as the company said that it was co-operating with the inquiry by the Securities and Exchange Surveillance Commission (SESC). The investigation, which is thought to centre on a possible fault in Sanyo’s accounts, could prove to be a significant blow to Goldman Sachs, the Wall Street bank, and other large investors in Sanyo.

It could also undermine wider confidence in Japanese accounting and auditing methods. Motomi Hiratsuka, the head of sales trading at BNP Paribas, said yesterday: “We’ve already had a patch of problems with ChuoAoyama [the auditor temporarily suspended by Japanese regulators over its involvement in accounting fraud at the cosmetics giant Kanebo], and now Sanyo. What is going to weigh on people’s minds is whether all this can snowball into a Japanese Enron.” The SESC investigation is thought to relate to the way in which Sanyo, one of the industry’s ten largest by sales, accounted for losses in some of its weaker businesses in the year to March 2004.

Japanese press reports said that the company had contemplated counting about Y190 billion of losses in the year but decided to write off only Y50 billion in its final accounts. Had Sanyo executives written off more than the Y50 billion, the group likely would have fallen into the red, the reports said.

It is understood that Sanyo had accounted for all its losses by last year. However, the intervention of the SESC could lead to a fine for misleading shareholders. The company declined to comment on the detail of the investigation. Shares in Sanyo, which have slumped by a third in the past year on weak sales of products such as digital cameras and mobile phones, tumbled a further 21 per cent to Y181 yesterday in Tokyo.

The share price dive added to the woes of Goldman Sachs and Daiwa Securities, the Japanese brokerage, which invested about $1.1 billion each last year in a controversial, highly discounted, recapitalisation of Sanyo. Each firm has lost about $1.57 billion in potential profits since last February, when shareholders agreed a complex deal that would effectively allow them to buy shares at only Y70 each, compared with the prevailing market price of about Y285.

Goldman’s and Daiwa’s stakes, which they cannot offload until March 14, are still worth about $1.5 billion more than each paid for them, but fears are mounting that Sanyo’s share price could continue to plummet.

Goldman Sachs said yesterday that it was “committed to supporting the company for the long term” despite reports that it had recently come close to agreeing to sell the shares for a substantial profit. If the SESC does find accounting rule violations at Sanyo, Tokyo analysts fear that it could lead to the delisting of Sanyo shares.

The SESC and Goldman Sachs declined to comment on the investigation into Sanyo.

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