Muddy Waters: Nidec Scandal Exposes Limits of Japan's Corporate Governance Reform
nashnova research
Muddy Waters founder Carson Block says Nidec's ¥632 billion impairment scandal confirms Japan's governance reforms have not reached the root — problem companies persist, and no one is ever truly held accountable.
What happened at Nidec?
Nidec has been engulfed in an accounting scandal since last year. A third-party probe found widespread fraud across multiple subsidiaries.
The company booked roughly ¥632 billion (about $4 billion) in impairment charges for the fiscal year ending March 2025.
Nidec failed to secure an auditor's opinion by deadline, putting it at risk of delisting from the Tokyo Stock Exchange. Its shares sit near a ten-year low, down more than 30% since the TSE placed it on a special-alert list in October 2025.
Why does Muddy Waters say "we warned you"?
In 2016 Muddy Waters published a short report flagging "aggressive" accounting, "questionable" acquisitions, and governance problems at Nidec — the market largely ignored it, and Muddy Waters closed the position.
Block says the current scandal closely matches that decade-old warning.
This means → The problems did not erupt overnight. They were buried by what Block calls "a willful conspiracy of silence" — insiders chose not to speak, and short sellers got no traction.
Can the investigation itself be trusted?
The third-party probe formally covers FY2020 through Q1 FY2025.
Block questions whether the review skipped years where problems were already obvious, leaving Nidec's full picture unclear.
In plain terms = the auditors only examined the most recent stretch, but the fraud may have started much earlier — too narrow a scope for a reliable conclusion.
What does this reveal about Japan's corporate governance?
Block is blunt: "There are a meaningful number of problematic companies, and people in this market have never really been held accountable."
He argues Japan's market suffers from genuine dysfunction that requires activist short sellers and the media to force transparency.
Yet a corporate culture of "don't make waves" makes it hard for short sellers to gain traction — Block admits "my confidence in being able to get somewhere is not high."
What is Muddy Waters planning next?
Since shorting biopharma firm PeptiDream in 2019, Muddy Waters has published no short reports on Japanese companies and has no plans to open new equity positions in Japan.
Block revealed, however, that as Japanese firms ramp up AI-related borrowing, he is considering buying credit default swaps (CDS) on Japanese corporates — CDS are essentially credit insurance that pays off if a borrower defaults.
This means → Muddy Waters is no longer betting against Japanese stocks directly, but is shifting to a credit-risk wager — the bet is not that share prices fall, but that debt turns sour.
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