Livedoor Co. intentionally carried out loss-making operations for two months after releasing its financial report in the business year ending in September 2004 to wipe out about 2.4 billion yen in fake profits on its books, sources alleged Wednesday.
Livedoor is believed to have erased the fictitious figures to avoid getting in trouble later.
Prosecutors are also focusing on allegations that Livedoor claimed a profit of 1.4 billion yen that business year, although it actually incurred a loss of 1 billion yen.
The firm is believed to have camouflaged profits generated through business with Royal Shinpan Co., now called Livedoor Credit Co., and several other companies effectively under its control at the time.
But the sources said the company adjusted its sales in October and November 2004 to offset the inflated profits through September.
Prosecutors are also looking into Livedoor's loss-making practices, suspecting the fast-growing firm suffered the losses on purpose as it was probably aware of risks that its bookkeeping might have been illegal, prosecution sources said.
Livedoor President Takafumi Horie and former Chief Financial Officer Ryoji Miyauchi, who is said to be the key figure in the case, were arrested Monday over alleged securities laws violations with two other executives. They were stripped of their posts Tuesday.
Sources said Tuesday the Tokyo District Public Prosecutor's Office is now also pursuing accounting fraud charges against Horie, 33, Miyauchi, 38, and other group executives.