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OSAKA — The former president of a failed firm here that sold mortgage-backed securities was arrested along with 18 others Tuesday on suspicion of defrauding clients of about 1.1 billion yen by misrepresenting the financial products of the firm’s affiliates, police said.

Police only identified Hiroshi Toyonaga, 65, the former president.

About 17,000 people, many of them over 60, were allegedly victimized by the Daiwa Toshi Kanzai group’s scam.

Toyonaga denied any wrongdoing, claiming there was no fraud and he never deceived his clients, police said.

The group and its affiliates had sold mortgage-backed securities and other financial products since 1988. Police believe the total could amount to 110 billion yen.

Police alleged that between the end of 1999 and this past April, Toyonaga and the others bilked 210 investors out of 1.1 billion yen by selling a financial product sold by the firm’s Tokyo-based affiliate, General Finance Partner, claiming the products were extremely safe, while the firm and its affiliates were actually bankrupt.

They failed to invest the collected money and instead used it as operating capital or to pay interest, police said.

According to police, the product was sold in 42 prefectures to about 2,800 investors. The amount sold totaled 14.1 billion yen, they said.

Toyonaga told Kyodo News in a recent interview was “not at all” aware that such actions were considered fraudulent.

He said the firm did not have a capital deficit and was capable of redeeming the financial products and mortgage securities sold by GFP when the firm was declared bankrupt.

“There were many investors lining up for the mortgage securities,” he said.

Asked whether the funds collected by GFP were used as interest payment for the mortgage securities sold by Daiwa Toshi Kanzai, Toyonaga said: “Not directly. But it may have been used through the affiliates.”

On April 16, the Osaka District Court issued an order to begin legal proceedings to shut down the group to protect its assets from creditors.

The move came shortly after the Financial Services Agency declared the firm insolvent and asked the court to take legal proceedings to liquidate it. FSA sources said Daiwa Toshi Kanzai is believed to have a negative net worth of some 5 billion yen.

It is the first time authorities have resorted to taking action under Provision 381 of the 1938 revision of the Commercial Code.

Daiwa Toshi Kanzai is the only independent mortgage-backed securities firm in Japan. It has 10 subsidiaries and affiliates, including moneylenders, golf course operators and real estate brokers, with a total workforce of about 600. Its proceeds from selling securities backed by mortgages on group assets are chiefly invested in group companies.

Mortgage-backed securities, which originated in the United States, are problematic due to the difficulty for ordinary customers to confirm the risk behind assets in collateral.

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