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Police on Thursday arrested four former executives of the failed credit union Eitai who allegedly had their firm take over 7.8 billion yen in bad loans extended by an affiliated company to ailing borrowers, even though they knew the loans were unrecoverable.

Arrested were former credit union chief Yukio Yamaya, 54; a former managing director, Kazuharu Minematsu, 65; former finance department chief Saburo Nakagawa, 67; and Yasunori Yoshizawa, 67, president of the affiliated firm.

According to police, the affiliated firm, a mortgage securities company, fell on tough times in the 1990s following the burst of the bubble economy, and it had been urged to pay back its loans to major banks.

Yamaya and other executives decided to take over 7.8 billion yen in bad loans that the affiliate had extended to 10 real estate companies and other firms so that the affiliate could pay back its bank loans as part of its reconstruction efforts.

But Eitai failed to collect the money, as the real estate firms and other recipients went bankrupt.

Based on investigations into the financial situations of the 10 companies, police found that Yamaya and the executives took over the loans knowing that they would not be repaid.

The Financial Services Agency declared Eitai insolvent in January 2002, forcing it to begin insolvency proceedings under the Deposit Insurance Law.

Established in 1926, Eitai was considered one of the most prominent credit unions in Tokyo, with 279.4 billion yen in deposits and 26 branches as of the end of March 2001.

It had actively promoted loans to venture firms, and the establishment of a “citizens’ bank” union for lending operating funds to businesses closely linked with communities.

Before his arrest, Yamaya denied the allegations.

“Not in my dreams have I thought (the act) constitutes a breach of trust,” he said. “We simply bought loans that we felt were recoverable.”

He added that although it was likely that the full amount of the loans would have taken a long time to be repaid, interest payments had not been in arrears.

Meanwhile, in a report submitted to the FSA, court-appointed administrators for the credit union noted that Yamaya alone had representative rights and that his instructions were regarded as absolute. A former senior executive said that Yamaya only listened to people from the outside, and that the credit union’s executive board did not function.

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