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The Livedoor scandal deepened late last month as four former executives, including the group's founder Takafumi Horie, faced fresh allegations that they overstated profits at the internet services group.
Prosecutors said they were now investigating Mr Horie, Livedoor's former chief executive, as well as the others for allegedly concocting a Y5.3bn ($44m) group profit in the year to September 2004 to cover an actual loss of Y300m.
Meanwhile, Fumito Kumagai, who currently serves as the representative director of the internet services group, was arrested late last month on suspicion of accounting fraud.
The fresh allegations, which had been widely anticipated, increase the possibility that Livedoor will be de-listed from the Tokyo Stock Exchange (TSE) where it has been on a shortened trading schedule to minimise the impact of a flood of sell orders.
Taizo Nishimuro, head of the TSE, said that falsification of financial statements would be cause for a de-listing.
Mr Horie and his former colleagues were first arrested for providing false information regarding an acquisition by one of Livedoor's subsidiaries and for accounting fraud at that subsidiary.
Meanwhile, Livedoor's shares, which have plunged since the group was raided by prosecutors in January, closed up 12.5 per cent late last month at Y72 after it emerged that several funds controlled by Scion Capital of the US had acquired a 5.5 per cent stake in Livedoor. Capital Research of the US has also increased its stake in Livedoor to 8.58 per cent, according to a filing with the authorities.
The investments by the two foreign funds suggest there is a view that Livedoor's current share price is cheap due to substantial assets it is believed to own.
One financial industry official called it "a high-risk high-return strategy".
The Livedoor case has triggered concerns about the impact of market deregulation and criticism of the ruling Liberal Democratic Party, which supported Mr Horie in a bid to win a seat in parliament last year.
Junichiro Koizumi, prime minister, and Seiji Maehara, head of the opposition Democratic Party of Japan, squared off in parliament over the question of a possible payment by Livedoor to the son of a senior official in the LDP.
The opposition claims it has evidence that Livedoor made a Y30m payment to the official's son but it has so far failed to provide concrete evidence. The LDP official has repeatedly denied the allegation. Mr Maehara said in parliament: "From a variety of information we are positive there was not only [election] campaign support but that money had changed hands."
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FT Syndication Service
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