Former Index CEO Masami Ochiai and former Index president Yoshimi Ochiai were arrested by the Tokyo District Public Prosecutor's Office early Wednesday Japan Standard Time for suspected accounting fraud, Japanese publication Nikkei reports (translated by Gematsu).
According to the report, the pair were arrested on charges related to Index's collapse, falsifying financial records and inflating profits "by way of round-tripping in violation of the Financial Instruments and Exchange Law." Index, the former parent company of Japanese publisher and developer Atlus, filed for bankruptcy on June 27 and had its stock delisted on July 28. The company reportedly owed debts up to ¥24.5 billion ($224 million).
Citing a source knowledgeable in the matter, Nikkei reports that Index used round-trip transacting to falsify financial records to show that it was buying and selling IT systems and software. Index is now under suspicion of inflating its sales and profits for the quarter ending August 2012, where reported sales were approximately 183 billion yen ($1.8 billion) and 4 billion yen in profit ($39 million).
Index's insolvency wasn't apparent until it entered bankruptcy and an internal investigation began, according to the report. It is thought that Index's round-tripping methods were to avoid being delisted from JASDAQ. A special investigation team heads the ongoing inquiries into Index under the suspicion that its management lead the fraud and was performed systematically. The team will work with a governmental oversight committee to determine how to handle Index's securities.
Sega Sammy Holdings acquired Index Corporation for 14 billion yen ($140 million) last November. Effective April 1, Sega spun off Index Corporation's contents and solution businesses into a new subsidiary under the name Index Corporation, while its remaining game division was renamed Atlus. Subsidiary Index Digital Media was rebranded as Atlus U.S.A., Inc. on the same date.