• Kyodo News

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Police searched KDDI Corp. offices in Shinjuku Ward, Tokyo, on Wednesday in connection with suspected fraud by Kinmirai Tsuushin Inc., an Internet telephony company that was leasing circuit capacity from the major telecommunications service provider.

Kinmirai Tsuushin, based in Tokyo, solicited investors by promising unrealistically generous returns from their investments, which it claimed were being used to build a proprietary server network. Earlier reports suggested the firm amassed some 40 billion yen from roughly 3,000 investors.

Investigators believe Kinmirai Tsuushin was operating its telephony business using lines leased from KDDI rather than through its server network, as it has claimed.

KDDI canceled its contract with Kinmirai Tsuushin at the end of last month after the company failed to pay about 32 million yen in dues.

Kinmirai Tsuushin had advertised that it had set up servers with state-of-the-art voice encoding technology around the globe for its Internet protocol phone service. Police are investigating to determine if the firm actually engaged in telephony operations.

During a government inspection last month, Kinmirai Tsuushin admitted that only seven of the 2,466 servers it claimed to have installed at 123 locations in Japan and elsewhere were operating.

Officials of the Internal Affairs and Communications Ministry joined Wednesday’s police raid and it is believed KDDI officials gave them details about Kinmirai Tsuushin’s use of its circuits.

Investigators and other sources say Kinmirai Tsuushin was offering an IP telephony service that allowed people to make low-priced calls using fixed-line phones.

Kinmirai Tsuushin stopped paying returns to investors and shut down most of its operations and those of its subsidiaries on Nov. 20 after starting to fall behind on payments in September. Much of the “investment returns” are thought to have been funded by money paid in by new investors.

Police raided the company’s head office and other places Monday on suspicion that it swindled investors by making promises to pay fantastically high dividends to get them to sign contracts.

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