TAKAFUMI HORIE, the flamboyant entreprenur who made his name taking on Japan’s business establishment, spent last night behind bars with three senior colleagues after being arrested on fraud charges.

The arrest of the 33-year-old maverick came after his first session of questioning at the Tokyo District Prosecutor’s Office, whose investigators have launched an inquiry into the affairs of Livedoor, Mr Horie’s internet company.

The investigators, who raided Livedoor’s premises and confiscated computers and files a week ago, have been looking for evidence to support allegations that Livedoor had been “window dressing” accounts to make the company look profitable when it was making a loss. The investigation has also cast doubt on the legality of some of the 40 acquisitions carried out by Livedoor since 2004, which helped to keep the company’s share price high. Livedoor Marketing, an affiliate company, is alleged to have put false buyout information into the market as part of the same suspected scam.

Among his innovations, Mr Horie brought the trend for blogging to Japan: on Sunday, and in what may be his last “President Blog” for some time, he denied blame in the scandal, adding that he had never been allowed even to see the search warrant that justified last Monday’s raids.

Investors are braced for the strong likelihood that shares of Mr Horie’s internet conglomerate will be delisted — a move that would badly burn many of Japan’s small investors and, analysts say, probably bring heavy selling on the Tokyo Stock Exchange. Other highly rated IT stocks, such as Rakuten, the online shopping site, Cyber Agent, the online advertising site, and Yahoo! Japan, could bear the brunt of any Livedoor-inspired sell-off.

Many investors used their previously stellar Livedoor shares as collateral to back their margin-trading. If the stock is delisted and that collateral becomes worthless, many of them will become forced sellers of other issues.

Livedoor shares fell by their daily trading limit once again yesterday to hit a record low. The selling pressure of last week’s “Livedoor Shock” was so intense that the entire exchange shut down.

Mr Horie’s attempts to change Japanese business and politics include a daring bid for the country’s largest television company and an election campaign that he lost narrowly. He has endeared himself to legions of young Japanese. Conservative ranks of Japanese businessmen see the T-shirt-wearing university dropout as an intolerable threat to traditional ways.

Among the three other senior Livedoor executives in custody last night was Ryoji Miyauchi, the chief financial officer. Japanese media reports allege that during questioning over the weekend, Mr Miyauchi, Mr Horie’s close ally and right-hand man, described a number of potentially illegal funding practices at Livedoor, but added that he did not know that they had been in violation of the Securities and Exchange Laws. He is also believed to have said that Mr Horie’s personal involvement in these was minimal.

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