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Police on Wednesday arrested Osamu Tadokoro, former honorary chairman of health food firm Zenkoku Hachiyo Butsuryu (Hachiyo), and 13 of its former employees for allegedly defrauding investors out of some 70 million yen by promising them their money would grow within a certain period.

Tadokoro, 68, and his employees are suspected of collecting the money last December, despite knowing that Hachiyo, based in the town of Chatan, Okinawa Prefecture, would soon go under, police said.

The company had apparently collected some 160 billion yen from 50,000 investors since 1999 by way of a Ponzi scheme, in which initial investors would be expected to get their money back and more from later investors. The Tokyo District Court declared Hachiyo bankrupt on Jan. 29.

Of the money the firm allegedly swindled, about 13.9 billion yen was returned to investors as dividends, while another 7.7 billion yen was spent on real estate and other investments.

It is largest case of organizational fraud after the bogus gold transactions offered by Toyoda Shoji Co. in the early 1980s, in which investors lost some 200 billion yen.

The charges against Tadokoro and the other Hachiyo officials concern 32 victims, including a 52-year-old Tokyo woman, from whom Hachiyo allegedly defrauded a total of 69.3 million yen on 13 occasions in December.

Hachiyo employees promised investors, whom they called agents, that their money would be doubled, police said.

Police said they determined that the actions of the Hachiyo officials constituted fraud as they were aware that the company would soon go under.

Tadokoro and some of the former employees have owned up to being party to the fraud, police said, adding they plan to send papers to prosecutors on dozens of other Hachiyo officials who were allegedly involved.

Beginning 1999, Hachiyo and its group companies allegedly persuaded investors to purchase Hachiyo products, including food supplements made from crab shells or bee hives, for about 1.5 million yen per set. The companies then promised to sell the goods on behalf of the agents and pay them a 3 million yen return on their investment a year later.

But only a small number of products were produced and ordered, and police believe much of the money collected by the firm was paid as dividends to members.

Hachiyo went bankrupt in January with some 50 billion yen in debts to 40,000 investors, investigative sources said.

On March 25, police raided the company’s regional headquarters in Tokyo and group companies in over 10 prefectures for evidence related to the investment scam.

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