Shareholders and convertible bond holders of Yaohan Japan Corp. filed a 260 million yen damages suit Thursday against executives of the effectively bankrupt supermarket chain, arguing they suffered losses because the firm window-dressed its financial statements.

The group of 74 filed the class action suit with the Osaka District Court against Kazuo Wada, 69, chairman of Yaohan Japan, 10 former board members and the central audit corporation in Tokyo. The suit is based on the Securities and Exchange Law, which stipulates that executives and the audit corporation hold compensation responsibility when financial statements are falsified.

A proxy for the plaintiffs said the suit marks the first case in which convertible bond holders have filed a suit against a company based on the law, although there have been examples of shareholders filing a suit based on the law.

According to the suit, the 74 plaintiffs bought either Yaohan Japan shares or convertible debentures or both in the period between July 1994 and September 1997, but the securities they had purchased became worthless when the company filed for court protection from creditors on Sept. 18, 1997. It collapsed with liabilities worth some 180 billion yen.

Yaohan continued converting convertible bonds into shares, although the company had been operating in the red since the business year that ended in March 1994, and planned to newly issue convertible bonds, the suit says. Yaohan continued to falsify its financial statements until 1996 and the audit corporation also vouched for the statements, it says.

Terumasa Wada, 67, a former president of Yaohan, is on trial before the Shizuoka District Court on charges of violating the Commercial Code and the Securities and Exchange Law in the window-dressing case. The plaintiffs did not file the suit against the former president because he has effectively filed for bankruptcy. They said they plan to call on others to join the suit.