Police arrested 11 people Tuesday, including executives of an Osaka-based mail-order house, for allegedly defrauding university students out of billions of yen in a pyramid scheme.
Kimiyoshi Ishida, 49, president of EarthWalker, and the 10 others are suspected of collecting nearly 2 billion yen from about 5,000 people, mostly students in the Kansai region, over the past few years in a pyramid scheme involving the ownership of rights to distribute mail-order catalogs, according to police.
EarthWalker is suspected of operating the pyramid between December 2003 and June 2005 in which participants would be financially rewarded for luring others into the scheme, police said.
Participants would initially pay 170,000 yen to obtain the right to distribute mail-order catalogs, and someone who had successfully introduced another person to the scheme would be paid about 20,000 yen.
Some victims were forced to borrow money from consumer lenders to finance the initial fees, police added.
The suspects have denied that they were running a pyramid scheme.
EarthWalker, established in December 2003, has about 1.2 billion yen in sales a year, but the revenues mostly came from such initial payments for the right to distribute catalogs. Police said the company does not appear to have any revenue from the mail-order business.
The Ministry of Economy, Trade and Industry ordered the firm in June 2005 to halt operations for three months for violating a law regulating specified businesses.
Lawyers of the Kyoto Bar Association filed a criminal complaint with police last September claiming EarthWalker had violated the law against pyramid schemes.
Thirty-nine people, mostly university students, have sued the firm, demanding repayments of about 20 million yen.
Someone who starts or operates a pyramid scheme can face a prison term of up to three years or a fine of up to 3 million yen. Parties who get others to join a pyramid scheme also face penalties.