Chairman Kazutsugi Nami, 75, and other L&G executives arrested Thursday on suspicion of defrauding investors

Japanese police have arrested the chairman of a bedding company on suspicion he swindled investors out of $2.5 billion, in what local media said would be the biggest financial scam in Japanese history.Officers from the Tokyo Metropolitan and Miyagi and Fukushima Prefectural police departments converged on the home of Kazutsugi Nami, 75, chairman of L&G KK, a bedding supplier, on Thursday, arresting him and 20 other people, said an official in the Metropolitan Police Department who declined to give his name, citing policy.
In front of crowds of reporters and TV cameras, Nami denied any wrongdoingL&G, which has been in bankruptcy proceedings since November 2007, originally sold futons and health foods after it was established in August 1987, according to Hirotaka Tanaka, an attorney representing victims of the alleged fraud.A trustee involved in the bankruptcy proceedings, Daisuke Fukuda, said L&G collected ¥226.5 billion, or $2.53 billion, from 50,000 investors between 2001 and 2007. He declined to give further details.Chairman and executives of bankrupt Tokyo-based bedding supplier L&G K.K. were arrested Thursday on suspicion of defrauding investors.Chairman Kazutsugi Nami, 75, and other L&G executives are believed to have collected ¥118 million in total from six clients between July and December 2007 despite knowing they could not pay the promised returns on investments, according to a joint investigation squad of the Metropolitan Police Department and the Miyagi and Fukushima prefectural police forces.Tokyo police said further investigation indicates the suspects collected a combined ¥126 billion from about 37,000 clients from 2000 to 2007.In all, 22 people were arrested, including Nami, who, when questioned by police, denied intending to defraud.Nami and others allegedly promised the investors they would earn a 9 percent dividend every three months on every ¥1 million invested, or 36 percent annually, in order to fraudulently obtain money.They also collected funds by issuing the firm's own "enten" quasi currency, claiming it could be used at company-sponsored bazaars nationwide and Internet markets, the investigation found. The company stopped paying cash dividends in February 2007 and began giving clients enten instead. The company later stopped issuing enten.Established in 1987 by Nami, the company initially sold bedding as well as health products. The investment scheme was begun in 2001, the same year enten began to be issued.After most employees were dismissed in September 2007, police searched L&G's head office, suspecting investment law violations.
Before his arrest, Nami told some 100 reporters Thursday morning: "It was not a fraud. The police have destroyed my businesses. . . . I am a victim of the police investigation."Asked if he is willing to apologize to the investors, Nami said, "No."
One of the investors was eager to see harsh punishment meted out to Nami and the other suspects. She invested some ¥30 million about three years ago, after being told by an L&G employee that her investment would double in three years.
The woman, 65, who runs a restaurant in Hokkaido and borrowed some ¥5.5 million for the investment, said, "I did not believe in the scheme initially, but I trusted it as the company had run its businesses for more than 10 years."It is my fault, but I hope they (the suspects) will face severe punishment," she added.