Three investors in Chinese restaurant chain Totenko Co. were arrested on Tuesday for allegedly trying to manipulate the price of its shares by spreading unfounded news that it would be the target of a takeover bid.

The Tokyo Public Prosecutor's Office arrested Yoshikazu Horibe, a 52-year-old company executive from Nara Prefecture; Yoshiaki Matsuura, a 43-year-old company executive from Kawasaki, Kanagawa Prefecture; and 49-year-old Yasuo Matsuzawa from Tokyo's Shibuya Ward.

Working with officials from the government's Securities and Exchange Surveillance Commission, the prosecutors also searched the homes of the suspects.

According to investigative sources, on Feb. 17 the three, aiming to manipulate the price of Totenko shares, sent out a press release saying, "Yoshiaki Matsuura will announce on (Feb.) 22 a takeover bid against Totenko." Matsuura, however, had no such intention.

The release also said, "Already we have acquired 5,238,000 shares in the company and notified Totenko (about the acquisition of a major stake), but no one on the board was willing to meet us. This is an act of negligence toward shareholders, and we have therefore decided to act on a takeover bid."

On the Tokyo Stock Exchange's First Section on Feb. 18, Totenko's stock rose by a maximum allowable gain to 1,660 yen and climbed further to 1,800 yen on Feb. 21.

The investors were scheduled to hold a news conference the same day to announce details of the purchase, but the event was abruptly canceled and the price of Totenko shares dropped sharply to 1,400 yen.

The investors apparently failed to unload their holdings when the stock price was high, the sources added.

Manipulating share prices by spreading unsubstantiated information, whether true or false, is prohibited under Article 158 of the Securities and Exchange Law.

Even if the information is true, those who circulate it can face up to five years in prison or a fine of 5 million yen.

In 1995, Matsuzawa was convicted of conspiring to obtain loans and loan guarantees from trucking company Tokyo Sagawa Kyubin Co. for a financially fragile medical equipment firm he owned from 1989 to 1991, knowing the firm would not be able to repay. He served a five-year prison term for the crime.