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Livedoor Co. executives, including Ryoji Miyauchi, the Internet company’s No. 2 man, have reversed themselves and are now telling prosecutors that President Takafumi Horie was involved in corporate takeovers currently under scrutiny, investigative sources said Tuesday.

Horie was told about takeovers involving affiliated firms and stock swaps and gave his approval, the executives were quoted as saying.

Horie was replaced as head of the company later in the day.

The Livedoor scandal took a fresh turn Monday after prosecutors arrested Horie, who became a household name with his bold challenges to Japan’s business old guard, Miyauchi and two other Livedoor group executives over alleged securities law violations.

Miyauchi, the chief financial officer, and the executives had previously denied that Horie, 33, was involved in the alleged offenses, claiming he knew little about the group’s financial operations.

But right before the arrests, they started telling investigators that buyout plans involving stock swaps and investment groups were explained at executive meetings that Horie attended, the sources said.

Prosecutors believe Horie gave the green light to Miyauchi and other executives to engage in fraudulent corporate practices, based on their remarks and in-house e-mails investigators have obtained and examined, the sources said.

Miyauchi, 38, admitted that Livedoor used an investment union as a vehicle to transfer a large amount of profits to the company when it carried out acquisitions involving its subsidiaries, they said.

But Miyauchi, the financial brain of Livedoor, and other executives have said they did not think their activities violated the Securities and Exchange Law, the sources said.

Horie, the T-shirt-wearing entrepreneur who built a business empire largely through aggressive acquisitions, is also reportedly denying he broke the law.

Prosecutors are looking into whether Livedoor Marketing Co., an affiliate previously known as ValueClick Japan Inc., spread false buyout information on the takeover of a publisher and inflated earnings results in 2004 in a bid to boost its and the parent firm’s stock prices.

The Livedoor group announced in October that year that it would acquire the publishing house Money Life, but it is suspected that the publisher was already under the group’s umbrella.

Livedoor is also suspected of falsifying its 2004 financial figures by claiming it posted a 1.4 billion yen profit in the year that ended in September, though it actually incurred a loss of 1 billion yen.

Also arrested Monday were Livedoor Director Fumito Okamoto and Livedoor Finance Co. President Osanari Nakamura, both 38.

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