From the heights of Olympus

Now the two Hajime Sagawa and Akio Nakagawa are at the centre of a growing firestorm over a mysterious $US687 million ($A662 million) payout by Olympus, the Japanese company that runs a lucrative medical equipment business and a less successful, if better known, digital camera business. The money has been described as a fee for advising Olympus on the 2008 takeover of a British company, the Gyrus Group.

But the fee amount was more than 30 times the norm on Wall Street. And it went, in part, to a tiny, unknown firm run by Mr Sagawa and Mr Nakagawa, a review of public records shows. The bulk of the fee later went to a Cayman Islands company that also had ties with at least one of the men. After the deal closed and the fees were paid, both companies closed up shop.

The FBI is now investigating the $US687 million payment.

During the past week, shareholders and analysts questioned why a public multinational company like Olympus would award such an outsize payment for advisory fees. According to securities lawyers and corporate governance experts, federal authorities will probably examine whether the steep fees point to deeper ties between Olympus and the bankers, or even kickbacks to Olympus officials involved in the deal.

Olympus has said its payments were "appropriate". Last Friday, the company said it would set up an independent panel to examine its past merger payments a week after the company fired its chief executive, who said he had questioned the eye-popping fee.

The firing of Michael Woodford, who is British, and his subsequent accusation that he was forced out because he planned to expose the fees, has rocked the company. Its shares have fallen 50 per cent since October 14. Many analysts have suspended their outlook for Olympus, saying the company's future had been thrown into disarray by the seriousness of the matter.

Olympus has been trying to recover since losing almost 115 billion yen ($A1.45 billion) in the year to March 31, 2009. At the time, the loss was widely attributed to the effects of the global financial crisis, but it has now been linked to a sharp write-down in the value of three companies acquired earlier that year.

Mr Woodford has raised questions about those acquisitions, saying Olympus paid $US773 million for the three companies with no due diligence and later wrote down 76 per cent of their value.

Mr Sagawa and Mr Nakagawa have not been accused of wrongdoing and they have no apparent ties to the three other deals. A lawyer for Mr Sagawa did not respond to requests for comment. Efforts to locate a valid address or phone number for Mr Nakagawa in Japan were unsuccessful.

The two Japanese bankers, according to interviews and regulatory records, appear to have first become colleagues in 1988 at Drexel Burnham Lambert, the investment house where Michael Milken helped pioneer the market for high-yield bonds.

Over the years, Mr Sagawa climbed the ranks of finance, soon landing in New York at Drexel, then a much-envied firm that came to represent the Wall Street boom of the 1980s. Mr Sagawa, according to court papers in an unrelated matter, earned $US360,000 in his last year at the firm, a tidy sum in 1989.

At Drexel, Mr Sagawa crossed paths with another up-and-coming banker, Mr Nakagawa, who had started in the brokerage business at Merrill Lynch. The pair left Drexel in the spring of 1990 as it was falling apart.

Both men soon landed at PaineWebber, and departed after Mr Sagawa was laid off in 1996, regulatory records show.

Mr Sagawa toyed with the idea of retirement, but instead began a brokerage venture of his own, Axes America.

Mr Sagawa was finally his own boss, president and chief executive of Axes America, regulatory records show. Mr Nakagawa, at least for a time, was chairman of the firm's global operations, according to an archived version of the firm's website.

For years, the two men ran a sleepy operation arranging private securities transactions and advising on mergers. Mr Sagawa even found time to sail around the world. In late 2002, Axes reconnected with its Drexel roots, organising a conference in Tokyo that featured Milken, the former Drexel executive who pleaded guilty to securities law violations in 1990 and now runs an economic research institute.

In the US, meanwhile, Axes generated mediocre revenue and hired only a handful of employees. In 2008, its final year, the company reported a modest $US8 million profit, according to a securities filing. By 2006, as the firm began to quietly fade into the annals of Wall Street, a lucrative opportunity presented itself.

An Olympus official familiar with Axes sought the firm's counsel. It is unclear who at Olympus made the gesture and whether this person approached Mr Sagawa or Mr Nakagawa.

"We understand that members of the board may have had previous dealings with Sagawa prior to his involvement with Axes," said a recent PricewaterhouseCoopers report that examined the relationship between Olympus and Axes using a trove of internal documents and letters. Mr Woodford, the ousted Olympus chief, had commissioned the report earlier this year.

Under the guidance of Axes, Olympus was examining several targets, including Tyco, records show. Olympus later settled on a British medical device company the Gyrus Group, agreeing to buy it for $US2 billion.

The advice did not come cheaply. While Olympus agreed to pay Axes 5 per cent of the deal's value, the contract was not truly capped at 5 per cent.

On February 1, 2008, the Gyrus deal was officially done. Weeks later, on March 5, Axes notified US regulators it was shutting down, records show. Mr Nakagawa stopped registering with US regulators even earlier, though he continued to represent Axes in Japan. The firm's lease in the Graybar Building in New York ran until April 2011, according to a securities filing, so Axes paid about $US85,000 to end it. And with that, the 11-year-old firm disappeared, even as its stake in Gyrus continued.

Axes assigned its Gyrus shares to a new Cayman Islands operation with a somewhat similar name, Axam Investments, according to a securities filing. Details on Axam and its owners are fuzzy, but Mr Sagawa signed documents as a director, according to PricewaterhouseCoopers. No public records link Mr Nakagawa to Axam.

Mr Sagawa also ran an obscure firm in Florida, Sagawa Capital, which was in the business of "proprietary investing", among other things, according to a filing with local officials.

Both Axam and Sagawa Capital drew little notice for two years. Then, in early 2010, Axam moved to unload its Gyrus shares, selling them to Olympus for $US620 million.

Ultimately, Olympus spent $US687 million on fees, or 36 per cent of the value of the Gyrus deal, according to PricewaterhouseCoopers. An adviser's fee typically amounts to about 1 per cent.

After the payout in March 2010, Mr Sagawa shut down his businesses one by one. In June 2010, Axam was removed from the Cayman Islands company registry "for nonpayment of licence fees", according to PricewaterhouseCoopers.

And by December, Sagawa Capital, too, was extinct.