Tokyo public prosecutors on Tuesday arrested Mr. Mototaka Ikawa, former chairman of Daio Paper Corp., on suspicion of causing financial damage to four subsidiaries by taking out massive loans from them for personal use on gambling. The arrest came two months after he suddenly stepped down.

He is suspected of having instructed executives of the subsidiaries to remit a total of ¥3.2 billion, in seven installments between July and September, to various bank accounts, including his own and those of companies related to casinos overseas, without indicating how he would use the money. The loans were extended without approval by the companies’ boards and without collateral. Not only Mr. Ikawa but also the board members should be criticized for such irresponsible behavior.

The in-house investigative committee of Japan’s No. 3 paper maker has found that Mr. Ikawa borrowed a total of ¥10.68 billion from seven subsidiaries between May 2010 and September 2011. He also borrowed ¥530 million from a Daio-affiliated firm.

In a statement issued through his lawyer, Mr. Ikawa admitted that he bet most of the borrowed money at casinos. He said winnings at casinos following his losses in futures stock trading and foreign exchange margin trading encouraged the casino gambling.

He has repaid ¥2.1 billion of the ¥10.68 billion in cash. Daio filed a criminal complaint against him, alleging that he caused ¥8.58 billion in damages to the group companies. The remaining more than ¥5 billion will be the target of further investigation by prosecutors. He said he will repay it, but he should realize that that on its own will not solve the problems plaguing the Daio group.

Mr. Ikawa’s grandfather founded a predecessor company of Daio. The in-house committee said Daio’s corporate culture was characterized by absolute obedience to relatives of the founder, who have served as executives. Allegedly the board members of the subsidiaries could not turn down the loan instructions from Mr. Ikawa. But this cannot justify their actions.

Mr. Masayoshi Sakou, the current Daio president, said Oct. 28 that he still respects the Ikawa family and has no intention of severing ties with it. Unless Daio ensures transparency by keeping a strict watch over management and puts in place the means to prevent wrongdoing, both it and Japan Inc. will lose credibility.

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