Police raid Japanese Internet phone firm

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Police raid Japanese Internet phone firm

US$173m company is 'bogus', local media say.

Police in Japan have raided the offices of an internet phone company and one of its affiliates, amid accusations that the company took US$173m in investment to help pay for 2,100 VoIP servers around the world, but only operated seven of them. 

VoIP operator Kinmirai Tsuushin Inc abruptly shut its offices across the country on Monday as police moved in. The company is a licensed telecoms carrier in Japan. 

Kinmarai was founded in 1997 to sell jewellery and fur coats, but suddenly dropped that business and took a sidestep into the burgeoning VoIP telephony sector the following year.

The company began to set up VoIP relay server centres to route long distance and international phone calls over the internet as far as possible, greatly reducing call costs.

Investors were continually solicited for funds to set up more relay server centres to expand the network. Some investors said they were attracted by lavish, expenses-paid trips to visit the numerous server centres around the country and abroad.

VoIP relay centres were set up as far afield as London, Hawaii and Sydney, as well as throughout Japan. Kinmarai also opened offices in the US, Singapore, Hong Kong, Taiwan and other countries.

The company took in a total of US$173m in investment funds. But newspaper reports now claim that, of more than 2,100 servers the company said it had paid for, only seven were actually required to run the VoIP network. 

Despite this, the system was reported to be functioning adequately even after Kinmarai's offices closed this week.

Server centres were set up ahead of investor visits, newspapers reports said. In many cases, no software was installed on the servers so they performed no real function.

The Yomiuri Shimbun reported three months ago that generous payouts to existing investors were being funded with money contributed by new investors, citing company documents.

In mid-November, one of the investors filed a lawsuit against the firm after dividend payments were delayed. This was followed by a torrent of complaints from investors to consumer affairs officials, which apparently sparked this month's police action.
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