Prosecutors on Wednesday arrested Livedoor Representative Director Fumito Kumagai in connection with the alleged accounting fraud in which his former colleagues are embroiled, putting the firm one step closer to being delisted.

They also served fresh warrants on former Livedoor Co. President Takafumi Horie and three other ex-executives on suspicion of falsifying the company’s financial figures for the business year through September 2004.

The new warrants allow Tokyo prosecutors to continue to hold for further questioning Horie and the other three, who have been in custody since Jan. 23 for alleged securities law violations.

The Tokyo Stock Exchange will begin procedures to delist Livedoor if the Securities and Exchange Surveillance Commission files a fresh criminal complaint with prosecutors against the firm over alleged accounting fraud or if the state presses charges, TSE officials said Wednesday.

Prosecutors believe the five inflated Livedoor earnings for the year through September 2004 by more than 5 billion yen.

Livedoor is suspected of claiming a pretax profit of 1.4 billion yen through fictitious sales to two companies that it was in the process of taking over, although it actually incurred a pretax loss for the year.

In addition, the five are suspected of recording as profits gains worth more than 3 billion yen on sales of stock in Livedoor and its group companies by Livedoor-controlled investment partners, instead of a rise in the firm’s capital base as required under accounting rules.

The 33-year-old Horie has denied committing accounting fraud during questioning by prosecutors, according to investigative sources.

But the other now-former executives have owned up to the allegations and said Horie approved the padding of Livedoor profits, the sources said.

The period during which Livedoor is suspected of cooking its books overlaps when its financial strength was often compared with its larger rival, Rakuten Inc. The two were at the time in heated competition to enter the professional baseball business. Rakuten eventually succeeded in acquiring a team.

Kumagai, 28, took up the post of representative director on Jan. 24, the day after Horie and the three other executives were arrested.

The current Livedoor president, Kozo Hiramatsu, 60, is not a member of the board.

With the new allegations, it is likely Livedoor will be delisted from the TSE.

“If prosecutors’ charges are trustworthy, or if foul play becomes evident, then that breaches the rules for listing,” TSE President Taizo Nishimuro told reporters earlier this week.

In custody along with Horie are former Livedoor Chief Financial Officer Ryoji Miyauchi, former Livedoor Director and Livedoor Marketing Co. President Fumito Okamoto, and former Livedoor Operating Officer and Livedoor Finance Co. President Osanari Nakamura.

On Feb. 13, Horie and the others, all 38, were charged with breaking the Securities and Exchange Law by spreading false financial information in 2004 about a takeover of a publisher by Livedoor Marketing, then known as ValueClick Japan Inc., and releasing inflated financial figures for the group company in November of the same year.

If Kumagai steps down from his post following his arrest, Livedoor will only have two board members. By law, a joint-stock firm must have more than three directors.

Helm transfer

Staff report

Livedoor Co. said Wednesday it has transferred the right to represent the firm to Director Noriyuki Yamazaki from Fumito Kumagai, after prosecutors arrested Kumagai and slapped Livedoor founder Takafumi Horie and three others already in custody with fresh arrest warrants for accounting fraud.

In a statement after Kumagai’s arrest, Livedoor said it had tapped Yamazaki on Feb. 14 as Kumagai’s successor in the event he is arrested.

“We gravely accept this situation and will continue our internal probe to shed light to the facts,” Livedoor President Kozo Hiramatsu said.

“(Executives) seemed to be too focused on raising the stock price,” he said. “They apparently did not feel a need to fulfill a social responsibility.”

Hiramatsu also apologized to stakeholders, investors and the market for causing a “great nuisance” from Kumagai’s arrest and the new action taken against Horie and the three other arrested Livedoor figures.

Yamazaki, 34, who is overseas on business, joined Livedoor in May 2000 and became a director in December 2001. He is also chief executive officer of RedSIP Inc., which develops IP phone technology.

Kumagai is still a Livedoor director because the company has yet to receive his resignation, Hiramatsu said.

If he resigns, Livedoor will lack three board directors as stipulated under the Commercial Law and will need to select a new member and get approval at a shareholders’ meeting, which the firm plans to hold by June.

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