Nearly 20 offices, including the head office, of Kinmirai Tsushin Inc., an Internet protocol telephony service provider, have been searched following allegations that it lured and defrauded investors with talk of new technology and lucrative returns.

Kinmirai Tsushin is one of numerous telecommunication firms that have mushroomed since the deregulation of the telecommunications sector in Japan. As of October, there were some 13,700 such companies, up about 500 from last year.

Kinmirai Tsushin spread its name via a massive public relations campaign. It invited people to invest at least 10 million yen to become an owner of a communications server, or relay station, explaining that they would receive nearly 1 million yen in monthly dividends from returns on service charges after one year and thus recoup their investment in a few years.

Although some investors received dividends, payments of promised dividends began falling into arrears in September. By November all the executives, except the president, had resigned. The president is now in hiding.

For the business year ended July 31, 2005, the company reported total sales of 18.1 billion yen, 98 percent of which was found to be investment receipts. Actual service charges amounted to only about 300 million yen. New investment money apparently served to pay dividends to earlier investors.

Although the firm reported to the communications ministry that it had installed 2,466 communication servers in Japan and abroad, it later admitted that only seven were in operation. Thus the firm is suspected of fraudulently hyping claims that it was developing a new protocol telephone service.

While the company said it collected some 20 billion yen from 900 people, it is now reported that 40 billion yen came from about 3,000 investors. Some people invested for their old age.

People should remember that an investment opportunity that sounds too good often conceals a trap. The Telecommunications Business Law, which can be evoked when users suffer damage, needs to be revised to give it more teeth, as the communications minister Yoshihide Suga suggests. No stone should be left unturned in unraveling the suspected fraud in this case.

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