Seven persons, including the former chairman of scam-hit Olympus Corporation, and three other executives, were arrested in Japan on Thursday for their role in the $1.7 billion accounting fraud, which unravelled last year.

Tsuyoshi Kikukawa, the former chairman, resigned late last year after Briton Michael Woodford, a former CEO, blew the whistle on the scam in the Japanese company. Woodford was sacked in October, days after he raised questions about irregular payments made to shady intermediaries by Olympus while acquiring overseas firms.

The 71-year-old Kikukawa was named as the mastermind in the fraud that aimed to move $1.7 billion worth of losses on Olympus' balance-sheet to present a rosy picture about the company to shareholders.

The Tokyo district public prosecutor's office announced that along with Kikukawa three other former Olympus executives had been arrested: former vice-president Hisashi Mori, former auditor Hideo Yamada, and former brokerage executive Akio Nakagawa. Three executives of an investment fund were also arrested on Thursday.

Olympus, which is facing a probe by regulators and law enforcement agencies in Japan, the UK and the US, is also facing shareholder lawsuits. Its share value has lost more than 50 per cent since the accounting fraud was revealed.

The former chairman and the other executives began falsifying the accounts in the 1990s following hefty investment losses suffered during the Japanese stock market crash. They allegedly began inflating the cost of overseas acquisitions, hoping to square up the accounts much later.

All the former Olympus executives have admitted to having falsified the accounts. Even Olympus has agreed to cooperate with investigators in the case.

The troubled Japanese camera-maker expects a net loss of 32 billion yen ($412 million) for the current fiscal ending March 31. In its December quarter reports, announced earlier this week, the company reported a net loss of 756 million (as against a net profit of 2.04 billion yen in the same quarter in the previous fiscal).

A few Japanese and Korean firms are not eager to partner Olympus, especially its profitable endoscopy business. However, Shuichi Takayama, the president – who will retire after the shareholder's meeting in April – has said the present management would not take any decision about possible tie-ups.

Olympus has a 70 per cent share in the global market for diagnostic endoscopes. Sony is keen on making a foray in this segment and is believed to be eager to partner Olympus. (See: Scam-tainted Olympus projects $412 million loss for current fiscal)