TT-428 -- Profits from the Forensics of Finance

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, July 08, 2007 Issue No. 428


- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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On June 26th a company called UBIC Inc., listed on the
Mother's market (2158) of the Tokyo Stock Exchange.
Although there was very little hype about the firm
beforehand, a recent record of outstanding profitability
and fast growth ensured that it would draw a lot of punters
and by close of the first day the stock price was up 250%
over the IPO price of JPY8,500. Indeed, the stock climbed
to a peak of JPY24,000 before eventually falling back to
17,000 last Friday.

UBIC, not to be confused with the UBIT company featured in
Japan Inc's October 2005 issue, is a computer forensics
company based in Tokyo. UBIC's business is to help
investigate fraud and IP cases by looking through e-mail
and stored or deleted data on user hard disks, establishing
a base of evidence for prosecution. The company does this
by drawing on its resources as a leading supplier of hard
disk duplicators, disk sanitizers, and of course forensics
services. Its main customers are those confirming the
compliance of their senior staff, those mired in accounting
scandals and IP litigation, and those suspecting employees
of engaging in insider trading or other malfeasance.

Although we don't know the UBIC guys personally, reading
through their business description we get the sense that
CEO, Masahiro Morimoto, is one smart guy. He has taken the
firm from zero to successful IPO in just 4 years by picking
a convergence of technology and law changes (think J-SOX
next year) and has gone out and licensed the best-of-class
technologies overseas to put together his very advanced
services inventory. As a result, he has had to do very
little coding, no re-invention of the wheel... just
pin-point extrapolation of the trends and outstanding

UBIC's services are enjoying a dizzying increase in
popularity as larger listed firms start to gear up for the
new J-SOX regulations to be introduced in 2008. UBIT's
unconsolidated sales and net profits over the last 2 years
and looking forward through til the end of this fiscal
year have/will be: FY2005 -- JPY79.3m sales, -JPY42.7m
profit; FY2006: JPY190m sales, -JPY59.9m; and FY2007 --
JPY481m sales, JPY132m profit. Note the big jump in
profit between FY2005 and FY2006 -- as the firm's services
started gaining traction. This is a classic 3-year "hockey
stick" result that VC investors look for.

As if that isn't enough, the forecast for the next
financial year is for sales of JPY824m and net profit of
JPY232m, up 270% and 260% respectively.

[Continued below...]

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UBIC's strengths in comparison with its competitors are
that it has a firm background in restoring deleted data,
as well as parsing large volumes of data to derive patterns
and trends. To acquire these skills, the company very
intelligently lined up some of the best technologies in the
world and negotiated to become the Japanese licensee. These
include: AccessData Corporation, a US leader in computer
forensics tools; Intelligent Computer Solutions, a hard
drive duplicator maker; Digital Intelligence, another
leader in forensics services; and Ibis Consulting, a major
supplier of electronic discovery and compliance services.

Another smart move by the company is that it has harmonized
its own internal standards to those common in the USA,
putting it on a global best-practice platform that is
possibly unique in Japan. As the company says on its own
website, UBIC employs, "Judicial chain of evidence
protocols for all digital data preservation, analysis and
reporting necessary in litigation cases." This means that
major Japanese companies embroiled in overseas intellectual
property rights disputes and industrial espionage cases can
turn to local, Japanese-speaking UBIC to help prepare their

As we have mentioned in recent newsletters
(e.g.,, Canon's IP Troubles),
US lawsuits and in particular those over patents and
licensing are becoming major impediments to the growth of
Japanese companies. As we reported in TT407, the claim by
Nano-Proprietary Ltd. against Canon caused the Japanese
manufacturer to have to ditch a joint venture with Toshiba.
This must surely have cost Canon some tens of millions of
dollars and may make them abandon the SED TV manufacturing
effort altogether.

Again, drawing from the UBIC website, they make the point,
"When a civil or criminal case requires the discovery,
analysis and preservation of certain evidentiary documents,
it can be a challenge to find the right files from the
massive amounts of available data. The task of searching
and analyzing can be compounded by having some or all of
the documents in a foreign language. UBIC specializes in
foreign language data searching and analysis to support
litigation efforts."

The third thing that UBIC appears to have done right is
that it has aligned itself with some well-known local and
foreign partners so as to establish credibility. For
example, last year the company announced that it would
launch an insurance product with AIG whereby companies
looking to contain data leaks by employees could have both
pre-incident consulting and post-leak forensics consulting
capped to JPY3m. Given how much data leakage there has been
from large corporate databases recently, this was a very
smart service to announce. We're sure they got great PR.
Other noteworthy local alliances have included TIS, a major
SI firm, Kroll International, and NRI.

How big is the computer forensics market? Well, if you
subscribe to the theory that Japan's compliance market will
follow US trends, then one can imagine that it will be
around 50% of the US size. Currently, according to UBIC's
US technology partner, AccessData:
* About 90% of information stored in America is in digital
* The estimated market for law-enforcement computer
forensics is US$100m
* The estimated market for corporate computer forensics is
* The number of law-enforcement and government workers
specializing in computer forensics is now 20,000 people,
compared to 1,000 people in 2000 -- so this is a hugely
growing industry.

Now tell us if UBIC doesn't have an almost perfect business
model?!! :-)

...The information janitors/


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+++ NEWS

- Sanyo ups lithium-ion battery production
- Abe's chances look worse for wear
- Tokyo Tomin sues MUFJ for rights infringement
- Stealth stock purchase restrictions on the way
- 7 foreign brokerages have record revenues

-> Sanyo ups lithium-ion battery production

Sanyo Electric has said that it plans to increase its
production of lithium-ion batteries for laptop computers
from the current 60m a month to 70m. It will achieve the
15% increase by investing JPY30bn (US$245m) on expanded
production lines at two of its factories. Sanyo has 40%
of the global market for laptop lithium-ion batteries.
***Ed: This is an interesting set of statistics, both
because it gives an idea of just how many batteries are
being consumed globally, a massive number of around 150m a
year, and also because if there was an earthquake or fire
at either plant location -- the world would lose 20% of
its laptop computer battery supply for some months! It
really is quite amazing to see how fragile the IT ecosystem
is in such a fundamental area.** (Source: TT commentary
from, Jul 4, 2007)

-> Abe's chances look worse for wear

Although no one really thinks the opposition are up to the
challenge, the ruling LDP party has shot itself in the foot
so many times over the last few months, that for the first
time analysts are openly wondering if Abe will win the
upper house elections set for June 29th, and if not,
whether he will be forced to step down. Prior to last week,
the main political issue was the mess over at the Social
Insurance Agency, especially since it has become public
that the Agency has known since 1964 that many of its
records are faulty but has done nothing about it. Then,
last week, Defense Minister Fumio Kyuma was forced to
resign for making callous remarks about the atomic bombings
of Hiroshima and Nagasaki. Now, there is the revelation
that Farm Minister Norihiko Akagi misreported taxable
expenses in relation to his parent's house being registered
as a campaign office. ***Ed: The only problem is that Akagi
forgot to tell his Dad, who denies ever receiving the rent
and other expenses booked as expenditures in maintaining
the premises. Slight oversight... we'd guess that Akagi's
days are numbered, not for scamming the tax office but for
being stupid.** (Source: TT commentary from,
Jul 5, 2007)

-> Tokyo Tomin sues MUFJ for rights infringement

In what surely has to be counted as a David-versus-Goliath
court encounter, the Tokyo Tomin Bank Ltd. has filed suit
against Mitsubishi UFJ Financial Group Inc., Japan's
biggest bank, for copying a business model it uses for
customer lending. The Tokyo Tomin IP centers on its pay-day
loans business, whereby employers can deposit funds with
the bank, and workers can seek advances on the deposits
based on actual hours worked to date. The employers like
the service because they get to split the commissions with
the bank. ***Ed: MUFJ reckons that their similar service
is not covered by the Tokyo Tomin patent. However, we think
this case will be important to the judiciary, because there
have not been many high-profile tests of business model
patents.** (Source: TT commentary from,
Jul 3, 2007)

-> Stealth stock purchase restrictions on the way

The Fair Trade Commission (FTC) has said that it plans to
put forward legislation which will prevent companies buying
the stock of another firm by stealth (e.g., in off-hours
markets). They will now have to report these purchases to
the FTC in advance. Under the current law, stock purchases
by large companies on the open markets need only be
reported to the FTC after the fact, providing they do not
exceed the 10%, 25%, and 50% marks on each round of buying.
***Ed: Interestingly, banks, life insurance companies, and
investment funds are completely exempt of the stock
purchase reporting requirements. The FTC apparently plans
to close that loophole as well.** (Source: TT commentary
from, Jul 4, 2007)

-> 7 foreign brokerages have record revenues

Seven of the 10 major foreign securities firms in Japan
enjoyed record operating revenues for the last fiscal year.
Morgan Stanley was Number One, with JPY238.6bn in operating
revenue, then Goldman Sachs with JPY231.3bn, followed by
Nikko Citigroup with JPY149.5bn, Deutsche Securities with
JPY144.8bn, UBS with JPY138.2bn, Merrill Lynch with
JPY123.8bn, BNP Paribas with JPY116.3bn, Credit Suisse with
JPY107.3bn, JPMorgan with JPY69.8bn, and Barclays Capital
with JPY50bn. Despite the record income, pretax profits of
most firms was down and indeed, two, Credit Suisse and
JPMorgan, posted pretax losses, apparently due to increased
recruiting and salaries costs. (Source: TT commentary from

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.


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