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Mr. Takafumi Horie, president of the high-flying Internet services company Livedoor Co., has once again been thrown into the media spotlight as a criminal investigation into his business activities begins.

Beginning as a small Web-site production firm Mr. Horie created in 1996 while a student at the University of Tokyo, Livedoor Co. has grown into a company whose consolidated annual sales are 78.4 billion yen and current-account profits total 11.2 billion yen. The key to its growth was mergers and acquisitions carried out using a variety of tactics in the capital market. Now these business methods have become a target of investigation.

Investigators from the Tokyo District Public Prosecutor’s Office raided Livedoor’s offices and Mr. Horie’s residence on Jan. 16 to determine whether a Livedoor subsidiary had misled the market during a takeover by disseminating false information. The subsidiary under suspicion is Livedoor Marketing Co., formerly Value Click Japan Inc., in which Livedoor holds about a 75 percent stake.

Value Click announced Oct. 25, 2004, that it would purchase Money Life Inc., a financial-information magazine publisher, through a stock swap. But prosecutors suspect that Money Life was already under Livedoor’s control, having been purchased by an investment cooperative funded by Livedoor. Thus they believe that Value Click’s announcement violated Article 158 of the Securities and Exchange Law, which prohibits the spread of false information for the purpose of influencing stock prices.

It is suspected that, by ostensibly referring to a new business deal, the announcement was intended to rouse the interest of investors and raise the stock price of Value Click. On Nov. 8, 2004, Value Click also announced that it would split its shares 100-for-1. Share-splitting is one of the methods Livedoor used to make quick money. When shares are split, the number of shares relative to demand from investors becomes extremely small and the share price is likely to go up. This is because the printing of new shares takes about 50 days.

In fact, Value Click’s share price at one time rose roughly 45 times what it was worth before the announcement. It is reported that the soaring share price eventually made Livedoor several hundred million yen richer.

Prosecutors also suspect that Value Click padded its sales and pretax profits in its Nov. 12, 2004, business report (covering the first three quarters of 2004) — in another attempt to help raise its share price — and that Livedoor itself falsified its books for the business year ended Sept. 30, 2004. Value Click took over Money Life in January 2005 when Value Click obtained the publishing firm’s shares through a mutual exchange with the investment cooperative that owned the Money Life shares.

Mr. Horie has made one headline after another. In 2004, he shook the sports establishment by proposing to establish a professional baseball team in Sendai. In February 2005, Livedoor became the largest shareholder in Nippon Broadcasting Systems, the largest shareholder in Fuji TV, and attempted to acquire the TV network. Taking advantage of a trade-rule loophole, Livedoor acquired NBS shares in after-hours trading so that it did not have to immediately declare a takeover bid. The method, however, became a target of public criticism. In September 2005, Mr. Horie ran as an independent “assassin” candidate against a foe of Prime Minister Junichiro Koizumi’s postal-services privatization plan but lost.

Mr. Horie’s business activities appear to have been driven by a philosophy that money is everything and that one can do anything to make money as long as it’s not illegal. The driving force of Livedoor’s growth was not its substantial business activities but its share-splitting activities. Its shares were split four times to an eventual 30,000-for-1 value, pushing its aggregate market value to 730 billion yen as of the day the criminal investigation was launched.

The investigation has called into question the legality of Livedoor’s business tactics. It is hoped that it will shed light on the real picture of Livedoor’s operations and Mr. Horie’s role in them. The investigation also signals a need to plug securities trade-rule loopholes and, if necessary, to write new rules to ensure transparency and fairness in the stock market.

If a lesson can be drawn from the Livedoor incident at this time, it is that money games removed from true toil and labor — including the old scam of “shilling” to raise stock prices — are likely to bring unexpected damage not only to the people playing such games, but also to ordinary citizens who are shaken by the economic reverberations.

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