The Tokyo District Public Prosecutor's Office's special investigation squad arrested Kazutaka Yonekura, 48, the founder and former president of Japanese artificial intelligence developer Alt, and three others on Thursday on suspicion of padding the firm's sales in violation of the financial instruments and exchange law.

The other three include Yusuke Hioki, 34, also a former president of the Tokyo-based company. The special squad did not reveal whether the suspects have admitted to the allegations against them.

They allegedly submitted to the Kanto Local Finance Bureau in September 2024 financial statements, in which the company's sales in the period from January 2022 to June 2024 were inflated by about ¥8.4 billion.

In March this year, after Alt's listing on the Tokyo Stock Exchange's Growth section for startup in October 2024, the suspects submitted a statement that overstated sales for the business year to December 2024 by about ¥4.9 billion, according to the special squad.

Suspicion of accounting fraud surfaced in April this year, six months after the listing. A third-party investigation committee released a report in July stating that the AI firm had overstated its sales by some ¥11.9 billion through fictitious round-trip transactions.

Following the scandal, Yonekura resigned as president in late July. In August, the Tokyo District Court approved the start of Alt's bankruptcy protection procedures under the civil rehabilitation law. The company was delisted from the TSE at the end of August.

According to the report from the third-party panel, Alt paid advertising agencies promotion money for its AI Gijiroku, an AI-based meeting summary service, and then recovered the money as fictitious sales in a circular transaction scheme. Up to 90% of Alt's sales in each business year were allegedly fictitious.

The Securities and Exchange Surveillance Commission searched locations related to the company in April over the alleged window-dressing. The special investigation squad from the prosecutor's office questioned company officials on a voluntary basis.

After Yonekura's resignation, Hioki, then chief financial officer of Alt, became its president. But he stepped down at an extraordinary meeting of Alt shareholders in September.