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The Livedoor Co. group deliberately overassessed the value of a publisher owned by an investment union it controlled to increase the gains made from share sales, which were then passed on to it through investor dividends, sources said Friday.

The Livedoor group assessed Money Life four to eight times above its actual value, the sources said.

An investment union effectively controlled by the group purchased Money Life for 42 million yen in June 2004, according to prosecution and other sources.

The Livedoor group then put 30 million yen into Money Life and the publisher’s number of issued shares increased to 1,600 from 1,000, they said.

Now ex-Livedoor Chief Financial Officer Ryoji Miyauchi was in charge of assessing the value of the publisher at the time, the sources said.

Miyauchi, 38, Livedoor President, until Tuesday, Takafumi Horie, 33, and two other executives were arrested Monday for alleged securities law violations.

Prosecutors are reportedly grilling them over the alleged overvaluation, believing Livedoor deliberately increased the number of Money Life shares with the intention of increasing the gains from their sales.

Those gains are believed to have been passed on to Livedoor through investor dividends.

In October 2004, ValueClick Japan Inc., a Livedoor affiliate now called Livedoor Marketing Co., announced it was buying the publisher in a one-to-one stock swap.

ValueClick said the ratio of the stock swap was determined by a third-party institution. That third party was actually an employee of a Livedoor affiliate, according to the sources.

The Livedoor-linked investment union later sold ValueClick’s shares, according to the sources and prosecutors. In August 2004, ValueClick’s 1,600 shares were worth about 600 million yen, and when the stock-swap announcement was made, they were worth about 280 million yen.

The Commercial Code was revised in 1999 to allow buyouts through stock swaps.

This type of takeover has many advantages for the buyer. It does not require cash for the acquisition nor do taxes have to be paid on the transaction if it is done through a one-to-one stock swap.

Companies decide the equity swap ratio after assessing the assets and market value of each firm.

Horie frets over firm

Livedoor Co. founder Takafumi Horie is worrying about the Internet firm’s management from his jail cell and continues to deny wrongdoing after his arrest earlier this week for alleged securities exchange law violations and subsequent exit as president, sources close to the tycoon said Friday.

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