Ex-Nissan exec Greg Kelly found guilty in Tokyo, but gets suspended sentence

TOKYO — A Tokyo court has found the former Nissan executive Greg Kelly guilty of playing a role in helping former boss Carlos Ghosn allegedly hide more than $80 million in deferred compensation, but was cleared on the bulk of the allegations in a closely watched trial.

After more than three years of prosecution, Kelly, 65, was given a six-month suspended sentence by chief judge Kenji Shimotsu. The Tennessee human resources executive and attorney, arrested while on a Nov. 2018 business trip to Japan, may soon be free to return home.

Kelly, dressed in a grey suit, white shirt and red tie, stood impassively with his hands clasped before him as the judge read out the verdict before a packed courtroom. But afterward, in a written statement, Kelly said he was "very surprised and shocked" by the judgment.

"I had consistently worked with the best interests of Nissan in mind, and in no case was I involved in any illegal act," Kelly said. "I am innocent on all counts."

Kelly's lawyers said the American was "completely innocent" and would appeal the decision.

Security was heavy for the hearing with gallery observers, screened by metal detectors and guards. Kelly's wife Dee sat in the front row seat she has occupied for more than a year as the trial unfolded, busily taking notes on the consecutively translated explanations from the bench.

The three-judge panel found Kelly guilty of violating financial disclosure laws regarding Ghosn's payment in only one of the eight fiscal years under scrutiny from 2010-2018, and it cleared the American defendant on other allegations.

Kelly was sentenced to six months in prison, but the execution of the sentence was suspended for three years, meaning Kelly can remain a free man, pending good behavior.

Prosecutors, who sought two years in prison, said it was regrettable the court did not accept most of their allegations against Kelly and indicated they might consider an appeal.

The court upheld the notion that Ghosn conspired to hide deferred compensation from regulators and investors over the period, saying the actions undermined Japan's disclosure system. "The case not only shocked the business community but society at large," he said.

But Shimotsu rejected most of the counts against Kelly saying that a key witness linking Kelly to the alleged postponed compensation was not reliable. This was partly because the witness, a Nissan manager, had taken a plea bargain with prosecutors to avoid prosecution.

"There is considerable room for him to make statements that conform to the prosecutors' wishes," Judge Shimotsu said of the witness, calling his testimony "not credible."

The judge also fined Nissan, as a corporate entity, 200 million yen ($1.73 million) for its responsibility in filing falsified securities reports that failed to account for Ghosn's full remuneration. Shimotsu said Nissan bore heavy responsibility for fostering a dysfunctional corporate governance system that allowed Ghosn to get away with financial misconduct.

Click here for all of Automotive News' coverage of the Carlos Ghosn saga.

With a suspended sentence, Kelly may return to the U.S., even if prosecutors decide to appeal the acquittal, Kelly's defense attorney Yoichi Kitamura said.

The U.S. Ambassador to Japan Rahm Emanuel welcomed the end of the lengthy trial.

"We are relieved that the legal process has concluded, and Mr. and Mrs. Kelly can return home," he said in a statement. "While this has been a long three years for the Kelly family, this chapter has come to an end. He and Dee can begin their next chapter in Tennessee."

The decision, read out in Tokyo District Court on March 3, has been a lightning rod of corporate and diplomatic maneuvering.

But working against Kelly was a justice system that boasts a 99 percent conviction rate.

Shimotsu said Kelly's "responsibility cannot be underestimated." But the chief judge said there were circumstances that warranted a suspended sentence. For starters, his misconduct occurred in only one fiscal year, it was not aimed at enriching himself and he played a far lesser role in the falsified financial reports than either Ghosn or another figure, Toshiaki Ohnuma, the Nissan official who administered Ghosn's pay and struck a plea bargain to avoid prosecution.

Kelly was initially jailed for more than a month before being released late Christmas Day in 2018. Since winning bail, he has lived in a cramped Tokyo apartment with his wife just across the moat from Japan's Imperial Palace. Under the terms of his bail, Kelly was grounded in Japan. His wife had to enroll in a Japanese language school for a visa that enables her to stay by his side.

Emanuel pledged during his October confirmation hearing as ambassador to make Kelly's case a "top priority." After arriving to take up the post in January, the diplomat called Kelly to talk with the American defendant and his wife.

The trial turned an unflattering spotlight on Japan's legal system and the country's attractiveness as a place to do business. It also highlighted corporate governance problems that long festered inside Nissan -- from allegations of misconduct and overreach by former Chairman Carlos Ghosn to the actions of a rogue group of executives that brought him down.

Testimony told of lapdog auditors, rubber-stamp board meetings, internal investigations tainted by conflicts of interest, and long-seething tensions between Nissan and its alliance partner and top shareholder, French automaker Renault, also headed by Ghosn.

Japan prosecuted the charges against Kelly as a criminal case, even though such allegations might have been handled as a civil or administrative affair in other jurisdictions.

In Japan, the charges carry a maximum sentence of up to 15 years. But prosecutors said they sought two years, mindful of the time Kelly had already spent detained in Japan.

In the U.S., by contrast, Kelly settled a Securities and Exchange Commission administrative proceeding over the accusations by agreeing to a $100,000 penalty, a five-year bar on serving as an officer and director, and a five-year suspension from practicing or appearing before the Commission as an attorney. Kelly settled without admitting or denying the SEC's allegations and findings.

(Ghosn agreed to a $1 million civil penalty and a 10-year ban on serving as a corporate officer or director at a publicly traded U.S. company -- also without admitting to the allegations.)

Shimotsu, the veteran chief judge who oversaw Kelly's trial, has a tough-nut reputation.

Just last autumn, he sentenced a 90-year-old former senior government bureaucrat to five years in prison for negligence in a deadly car crash. The defendant was found guilty of mistaking the gas pedal for the brake as he plowed through a crowd, killing two people and injuring nine. The judge reportedly said he was being lenient because the driver was at least not inebriated at the time.

At the heart of Kelly's case was whether the former executive was part of an alleged under-the-table effort to hide nearly half of Ghosn's super-sized compensation by paying it out to him later.

Prosecutors accused Ghosn, 67, and Kelly of hiding some 9.3 billion yen ($80.5 million) in postponed compensation from 2010 to 2018. Both men, arrested the same day in 2018, deny any wrongdoing. But after Ghosn fled Japan for Lebanon in 2019, Kelly -- his longtime American human resources chief and a former director on the board -- was left to fight the charges alone.

The court agreed with prosecutors that Ghosn conspired with Ohnuma to omit the deferred compensation from the company's annual securities report, in violation of the law.

But judges said there was only evidence linking Kelly to the final fiscal year of the scheme.

Kelly readily admitted that Ghosn took a massive pay cut -- to the tune of around half his salary -- in 2010 when Japan's financial disclosure rules changed. According to Kelly, Ghosn feared that if the true scale of his Nissan paycheck were known, he would face a withering backlash in France.

The court agreed with prosecutors' allegation that Nissan made a deal to pay back that salary shortfall -- the amount Ghosn would have earned had he not taken the pay cut -- thereby illegally skirting disclosure rules.

Kelly's defense rested partly on the notion that there was nothing to disclose because no retirement deal was ever finalized. The defense also argued that he was working on a retirement package to be paid in retirement for work done in retirement. As such, the defense maintained, there would be no obligation to disclose that payout, and therefore the charges are moot.

The pay cut Ghosn took, referred to as a shortfall by Kelly, only served as a frame of reference for Ghosn's expectations.

In closing their case against Kelly, prosecutors said the retirement plans were simply a pretense to compensate Ghosn for the pay cut he took in his last eight years.

"It is clear that Kelly knew that the shortfall equals postponed remuneration, according to pieces of objective evidence," the prosecutor said.

The prosecutors pointed to compensation agreements for Ghosn and spreadsheets maintained by Ohnuma, the latter of which clearly list certain pay figures as "postponed remuneration."

Prosecutors also argued that Kelly had the motivation to devise the scheme for Ghosn partly because Kelly himself hoped to benefit from a similar deferred compensation plan with his own pay. After being appointed to the board, Kelly asked Ghosn for approval to receive remuneration in another form later without it being disclosed in Nissan's securities report, they said, and Ghosn acceded.

The court ruled that Ghosn and Ohnuma indeed conspired over the years to finagle postponed compensation without reporting it in financial filings.

But the judges said there was reason to doubt Kelly knew about the existence of this plan or the obligation to report the remuneration.

The decision partly backs the defense argument that Kelly was not involved in the tabulation of any "postponed remuneration" tables and did not even know about their existence.

Kelly maintains that he worked on compensation for Ghosn, but the defense says those were potential retirement packages aimed at retaining Ghosn's services after he stepped down. And because they were for post-retirement work, there was no requirement to report it.

But in the end, Kelly maintained, no package was ever even finalized.

Ghosn, now holed up in Beirut as an international fugitive still wanted in Japan, maintains that old-guard nationalists inside Nissan framed him on false financial misconduct charges to block him from further integrating the Japanese automaker into Renault under a holding company.

Kelly's backers posited the same theory. But the argument did not feature prominently in Kelly's courtroom defense, as his attorney focused instead on trying to pick apart the various legal claims.

Ghosn jumped bail from Japan saying that he could not get a fair trial in Tokyo. There was no immediate comment from Ghosn on the verdict or sentence.

But Judge Shimotsu did not give Ghosn a pass. Instead, he blasted Ghosn for conspiring to falsify financial filings over the entire period out of sheer self-interest. "This case is about Ghosn," Shimotsu said. "This case was motivated by Ghosn's personal greed."

Ghosn faces two additional criminal indictments -- more serious accusations of breach of trust -- that were never even leveled against Kelly.

Those charges were not touched on at all in Kelly's trial. And their details have yet to be divulged by prosecutors, who are still hoping that one day, Ghosn will be hauled before a Japanese judge.