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Tokyo prosecutors on Wednesday arrested the former chairman of Duskin Co. on suspicion of misusing some 180 million yen of the company’s money to help an ailing firm run by a friend.

Koji Chiba, 63, was arrested on suspicion of aggravated breach of trust along with two others, Shuichi Shibahara, 62, a former senior managing director of Duskin, and Kunio Ito, 58, Chiba’s longtime friend and former president of Osaka-based design firm Spice.

Investigators suspect that Chiba and Shibahara provided the money to Ito, whose company was having financial difficulties, concealed as a design contract between 1999 and 2001, even though the company did not provide any services to Duskin.

According to sources with the Tokyo District Public Prosecutor’s Office, the prosecutors believe that part of the 180 million yen was returned to Chiba, probably as a reward for helping Ito’s firm.

Allegations have also surfaced that Duskin, under Chiba’s leadership, provided funds in a questionable manner to a consulting firm run by a daughter of Saitama Gov. Yoshihiko Tsuchiya.

Duskin President Hideyuki Ito told a news conference in Osaka that the company will cooperate fully with the authorities to get to the truth.

“If it becomes clear there was foul play, we will take strict measures, including (seeking) compensation for damages,” Ito said.

The investigators plan to question Chiba and the others to determine the illegal flow of funds involving the firm, the sources said.

Investigations showed that Chiba and others fabricated a contract between Spice and the Mister Donut chain, which is owned by Duskin, related to souvenir goods the restaurant chain gave customers, the sources said.

The payments to Spice were made via three manufacturers of the souvenir goods, the sources said.

The three provided the money in the name of design fees for the souvenir goods. They added 3 yen as a design fee for Spice per item, even though Spice was not involved in the design work, the sources said.

Chiba was president of Duskin at that time. He is believed to have ordered Shibahara to provide the funds to Ito’s firm at the request of his friend, without consulting Duskin’s board of directors.

In a related scandal that came to light Wednesday, industry sources said Duskin concealed about 600 million yen in income over a two-year period through March 2001.

The Osaka Regional Taxation Bureau has ordered the company to pay 200 million yen in back taxes and penalties, the sources said.

Tax authorities classified the 180 million yen that Chiba gave to Ito’s company as a taxable donation because no design services were provided in return, the sources said.

Spice was liquidated in March. Duskin’s public relations department released a statement saying the firm had differences in opinions with tax authorities over how to account for expenses, but had made the necessary revisions.

Chiba had served as Duskin’s president since 1994 and became chairman concurrently in 2000. He resigned from both posts in June 2001 after a disagreement with franchisees about business policies.

Shibahara is also suspected of violating the Food Sanitation Law over Mister Donut store sales of dumplings that contained a banned additive. Police referred that case to prosecutors in January.

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