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Nissan's Ghosn crisis

Ghosn ran tech fund using millions from Nissan partner

Prosecutors say money from Oman ended up with Silicon Valley investor

PARIS/TOKYO (Dow Jones) -- Nissan Motor Co. boss Carlos Ghosn built a parallel business as an investor in Silicon Valley with his son, using millions of dollars he received from an executive at a Nissan business partner in Oman.

The operation, known only to a handful of people, adds crucial new details to what is seen as the most serious criminal charge in a broad financial-crimes investigation against Mr. Ghosn. Japanese authorities arrested the former chief executive and chairman of Nissan at a Tokyo airport in November, following a monthslong secret investigation started by Nissan executives.

The Oman-related criminal charge alleges Mr. Ghosn stole Nissan money by arranging for the auto maker to pay a Nissan distributor there $10 million, and then having $5 million of that amount kicked back to him by moving the funds through a Lebanon-based company.

New details show how money from the business partner in Oman eventually ended up in the Silicon Valley investment fund, according to bank-transfer documents and emails reviewed by The Wall Street Journal, and interviews with roughly two dozen people close to Mr. Ghosn and the investigations.

Mr. Ghosn was directly involved in running the investment business, ordering multimillion-dollar injections into his Silicon Valley operation and approving investments in startups such as an Asian ride-hailing company.

People familiar with Nissan's investigation said the relationship with the Oman-based executive shows Mr. Ghosn improperly mixed family ties, personal business interests and the business of the publicly traded companies he led. With Mr. Ghosn at the helm, Nissan made inappropriate deals with his friends or acquaintances in several Mideast countries and India, the people said.

Mr. Ghosn didn't inform Nissan that he had started the investment business with an executive at a Nissan customer in Oman, according to people familiar with the matter.

Mr. Ghosn, who has lost all his corporate titles, denied wrongdoing. "The prosecutors, in collaboration with Nissan, have stepped up their campaign to attack Mr. Ghosn and sully his reputation through leaked fabrications, falsehoods and misrepresentations. We intend to present our case in a court of law, not the press. Mr. Ghosn is innocent and will be vindicated if given a fair trial," said a spokesman for Mr. Ghosn.

A spokeswoman for Mr. Ghosn said all of his investments and investment advice were kept private, which is "normal, expected and proper."

People close to Mr. Ghosn said that the Silicon Valley investments were similar to the executive's other personal holdings, including a wine business in Lebanon, significant stakes in two Lebanese banks and investments in Mideast real estate. They also said Mr. Ghosn formed relationships with people in the Middle East and India with the aim of benefiting Nissan's business in those regions.

The Tokyo prosecutors' full case against Mr. Ghosn includes charges of underreporting his compensation in Nissan financial documents, and of using his executive position at Nissan for personal gain. Mr. Ghosn, who spent four months in jail before being released on bail in late April, is set to go to trial in Tokyo next year, potentially facing a sentence of up to 15 years if convicted.

Nissan declined to comment on the legal proceedings against Mr. Ghosn, but pointed to an earlier statement that said Mr. Ghosn's dismissal from Nissan was appropriate because, separate from the criminal charges, his behavior was "blatantly unethical."

The deputy chief Tokyo prosecutor, Shin Kukimoto, has said prosecutors brought charges based on sufficient evidence and expect to prevail at trial. A spokeswoman declined to comment further.

Mr. Ghosn is also under investigation by French authorities for allegedly misusing funds at Nissan's partner Renault SA , where he served as chief executive and chairman. Mr. Ghosn has denied wrongdoing at Renault through a spokesman.

Some of the Silicon Valley dealings by Mr. Ghosn's son, Anthony Ghosn, and the Oman connection have emerged previously in the criminal case. The younger Mr. Ghosn, who resides in the U.S., hasn't been charged with wrongdoing.

People at both Nissan and Renault, as well as those close to Mr. Ghosn, said they see the Oman-related charge as the most serious one against him.

In March 2015, the Ghosns set up in Delaware an investment vehicle called Shogun Investments, which Mr. Ghosn described as a fund that would invest in Silicon Valley startups. Mr. Ghosn was majority owner while his son, Anthony, held a stake, according to people familiar with the matter. The younger Mr. Ghosn, who was about to graduate from Stanford University, was working at the time as chief of staff for Silicon Valley venture capitalist Joe Lonsdale, providing the elder Mr. Ghosn a close-up view of the tech investment world. The lofty returns had stunned him, according one of the people.

Around the same time, in Beirut, Mr. Ghosn's personal lawyer, Fadi Gebran, set up a company called Good Faith Investments. Lebanese corporate records show nearly all of the company's shares were owned by Divyendu Kumar, an Indian national who was managing director of Suhail Bahwan Automobiles, the Nissan distributor in Muscat, Oman.

On May 20, 2015, Mr. Kumar made his first deposit into Good Faith Investments, transferring five million euros from his Swiss bank account, according to bank documents and a person familiar with the matter. He would make four additional transfers of the same amount that year. People familiar with the matter said Mr. Kumar was Good Faith's sole source of funds. In total, including his last transfer on Sept. 13, 2018, Mr. Kumar put 39.56 million euros, or about $44 million, into Good Faith.

Mr. Kumar, who hasn't been charged with wrongdoing, didn't respond to requests for comment.

People close to Mr. Ghosn said the money transferred to Good Faith came from Mr. Kumar's personal fortune.

People familiar with the investigations said it was improbable that Mr. Kumar had such funds, and are seeking to determine whether some of the money was illegally funneled out of Nissan accounts to Mr. Ghosn.

These people said prosecutors are focusing on $10 million in Nissan payments to the Oman auto business that were characterized in Nissan's accounts as sales incentives and overseen by Mr. Kumar. The funds came out of Nissan's "CEO reserve," an accounting label for discretionary payments made by the chief executive for unplanned expenses. Prosecutors allege $5 million of the incentives were kicked back to Mr. Ghosn via a company he controlled, which the people said was Good Faith.

Incentive payments to car dealers are common in the auto industry, but they are typically part of a company's annual budget as opposed to discretionary payments. The Nissan payments to the Oman business began as early as 2012 and occurred regularly, even after Mr. Ghosn stepped down from the CEO position in 2017. From 2012 to 2018, Nissan paid $32 million in incentives to the Oman business. Renault also paid the company roughly $11 million in incentives during some of those years.

On April 28, 2017, Mr. Ghosn's personal lawyer, Mr. Gebran, wrote Mr. Kumar that the "expected amounts to be transferred" from Mr. Kumar to Good Faith that year were 2.85 million euros and $1.25 million, according to an email that was read to the Journal. After further exchanges, on May 29, Mr. Kumar wrote to the lawyer, "I have couriered the transfer order today."

People close to the investigations believe these and other emails suggest that the "sales incentive" characterization was a charade so that Mr. Ghosn could get Nissan's money into his own hands.

Beginning in October 2015, Mr. Ghosn began transferring funds from Good Faith into Shogun Investments, the company he set up in Delaware. In an email that month to Mr. Gebran, he requested $5.5 million be moved. In total, from 2015 to 2018, $27.2 million would move out of Good Faith into the Ghosns' investment fund. No other money from other sources was added to the investment company, according to people familiar with the matter.

Mr. Gebran died in 2017.

People close to Mr. Ghosn said the funds were invested on behalf of Mr. Kumar and that Mr. Kumar was promised first priority on any profits from Shogun's portfolio.

Anthony Ghosn had the role of finding investments for Shogun's funds. He was permitted to make smaller investments on his own, but for larger investments, the son needed his father's approval, people familiar with Shogun's operations said.

"Following our phone conversation, I ordered a transfer of $3 million," Carlos Ghosn wrote in a December 2017 email to his son, who was 22 years old at the time.

Of that amount, $2 million was for an investment in Grab, a Southeast Asian competitor to Uber Technologies Inc., Mr. Ghosn wrote, adding that he was sending "$1 million for the company of your friend that you think will do very well." It wasn't clear which company Mr. Ghosn was referring to.

The people familiar with Shogun's operations said the investment in Grab took place. Grab declined to comment.

Anthony's own startup also received Shogun money. In October 2016, he started a financial services company that among other things helps people find loans online for home renovations. Shogun invested early on to help establish the company, called Shogun Enterprises, according to the people. Other investors included Anthony's former boss, Mr. Lonsdale, the venture capitalist. Mr. Lonsdale didn't respond to a request for comment.

Anthony also took $5.2 million in loans from Shogun over the next two years, which he invested in his startup, according to one of the people familiar with its operations, who said the amount was roughly 25% of the funds raised by Shogun Enterprises over this time period.

In all, Shogun invested in more than 45 startups. They included Fresco News Inc., a now defunct digital media startup; and Skurt, a car rental app that was bought by a competitor last year. Mr. Ghosn also transferred shares that he purchased in 2011 in Levo League, a career resources website co-founded by his eldest daughter, Caroline, to Shogun Investments, according to an email read to the Journal and people familiar with the matter.

Shogun also put nearly $10 million into other investments, said the people familiar with its operations.

From 2015 to 2018, Shogun invested nearly $12 million in startups, the people said, adding that the companies were valued at more than $19 million as of early 2019. The Ghosns haven't cashed in any returns, and Mr. Kumar hasn't received any payments, according to the people.

Separately, roughly $12 million from Good Faith Investments, the Beirut company, went to Beauty Yachts Pty., a company registered in the British Virgin Islands, which owns and maintains a 100-foot yacht used by the Ghosn family to cruise the Mediterranean, according to people familiar with the matter. Several million dollars remain in Good Faith's account, according to a person familiar with the matter. Last week, a judge in the British Virgin Islands issued a provisional order aimed at preventing the sale of the vessel.

People close to Mr. Ghosn said he kept his management of Nissan and Renault separate from the personal investments he made with Mr. Kumar's money, and said none of the money the Ghosns were investing in Silicon Valley came from Nissan. "Nissan and prosecutors are trying to draw a connection that does not exist to attack Carlos Ghosn," said a person familiar with Mr. Ghosn's thinking.

Renault's audit committee has reviewed some, but not all, of the evidence in the Oman case, according to people familiar with the matter. "These elements are suspicious but honestly, they don't prove anything," said a person close to Renault. The French car maker has stopped looking into the matter and passed the evidence it has to French authorities, the people familiar with the matter said. Renault declined to comment.

An official in the French prosecutor's office confirmed it has been investigating alleged wrongdoing by Mr. Ghosn since February but declined to give more details.

Neither Mr. Kumar nor his boss, Ahmed Bahwan, son of the company's billionaire founder, Suhail Bahwan, have offered evidence to support the prosecutors' case, according to people familiar with the matter. The Bahwans, personal friends of Mr. Ghosn, haven't been charged with wrongdoing and didn't respond to requests for comment.

Japanese prosecutors traveled to Oman in July to interview Ahmed Bahwan, according to people briefed on the visit. The businessman denied diverting any Nissan money for Mr. Ghosn's benefit and said he had been unaware of Mr. Kumar's investment relationship with Mr. Ghosn, the people said.

Earlier this year, Mr. Kumar contacted Anthony Ghosn seeking an update on how his investments were doing, according to people familiar with the communications. Anthony had never heard of Mr. Kumar, the people said.

Mr. Kumar asked if there was a way to take direct ownership of the investments, but the two sides didn't change the arrangement, the people said. Mr. Kumar has left his post at the Omani dealership and returned to India, his native country, according to people familiar with his whereabouts.

The judge in Japan has ordered Carlos Ghosn not to contact potential witnesses in his case, so father and son -- once investment partners -- aren't speaking to each other.

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