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Livedoor Co.’s former Chief Financial Officer Ryoji Miyauchi testified about his former boss Takafumi Horie in court Friday and said that he and other former executives acted on orders from Horie to inflate the company’s earnings for the business year to September 2004.

The key witness, speaking for the first time in Horie’s trial at the Tokyo District Court, said former board members would go to Horie before executing the fraudulent share transactions to get his go-ahead.

“Our target was to earn 2 billion yen in pretax profit (for fiscal 2004) . . . and Horie ordered us to include the proceeds from the transactions (in Livedoor’s financial records) to boost profits,” Miyauchi told the court.

Miyauchi was only a meter away from Horie when he took the witness stand, but the two men, dressed in dark suits and ties instead of their former uniform of T-shirts and casual pants, avoided making eye contact.

Miyauchi made a slight bow to Horie as they left the courtroom for lunch, but his ex-boss did not look at him.

Horie and four other ex-Livedoor board members have been charged under the Securities and Exchange Law for conspiring to fabricate Livedoor’s financial statements and spreading false information on affiliated Internet ad firm ValueClick Japan Inc. to boost its share price. The affiliate is now called Livedoor Marketing.

In their opening statement Sept. 4, prosecutors said that the four executives acted on Horie’s orders to fabricate a 5 billion yen consolidated pretax profit for fiscal 2004 when the Internet services firm actually had a 300 million yen loss.

Horie, the 33-year-old Internet entrepreneur, has pleaded not guilty, saying he did nothing illegal and did not order anyone else to commit a crime.

Horie’s defense team says that he didn’t know anything about the executives’ deeds because he completely handed the reins to Livedoor’s subsidiaries to Miyauchi. They also said the chief financial officer sometimes had more control than Horie did over the firm’s operations.

Horie smiled bitterly as Miyauchi testified that the former president knew all the details of the illegal scheme.

Prosecutors accuse Livedoor’s executives of using dummy companies to log proceeds from sales of Livedoor stock as its earnings. The transactions involved stock swaps and the lending of shares to dummy firms.

Miyauchi said Horie was a capable manager and should have known what was going on. He said he believed Horie went through all the details of each proposal to illegally log the proceeds from the transactions.

Miyauchi said it was Hideaki Noguchi, the head of a Livedoor financial unit at the time, who came up with the idea to use the dummy companies. But he said it was Horie’s determination to increase Livedoor’s earnings that drove them to invent the plans.

When Noguchi showed Horie a plan to inflate Livedoor profits by 1 billion yen using dummy companies in October 2003, Miyauchi said Horie looked pleased and responded by saying: “Can we make such a large amount of money?”

Noguchi, 38, was found dead in an Okinawa hotel in January after it was announced that Livedoor was being investigated. Police said he committed suicide.

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