Feb. 16 (Bloomberg) -- Former Olympus Corp. Chairman Tsuyoshi Kikukawa was arrested by Japanese prosecutors investigating his part in a $1.7 billion accounting fraud, Kyodo News reported, without citing anyone.

The Japanese camera maker is facing shareholder lawsuits and may be subject to further criminal investigation after admitting to a 13-year cover-up. The company restated past securities reports and took a $1.3 billion reduction in net assets in December.

Olympus’ Tokyo headquarters and its affiliated offices were raided Dec. 21 by prosecutors after the company said in November that Kikukawa and two other executives colluded to hide losses from securities investments from the 1990s. The stock has plunged by 48 percent since the Oct. 14 dismissal of its first non-Japanese president, Michael Woodford, who later publicly questioned inflated takeover costs.

Kikukawa, 71, stepped down last year after Woodford’s revelations. Hideo Yamada, 67, who led Olympus’s investment unit since the 1980s and later became an auditing officer, and former Executive Vice President Hisashi Mori also were asked to report for questioning, the Yomiuri newspaper reported, without citing anyone.

Olympus will cooperate fully with prosecutors, Olympus said in an e-mailed statement today. Yoshiaki Yamada, a Tokyo-based spokesman for Olympus, wasn’t immediately available for comment.

Investment Losses

Founded in 1919 as a microscope and thermometer business, Olympus produced its first camera in 1936 and a predecessor to the modern-day endoscope in 1950, according to its website. Olympus now controls 75 percent of the global market for endoscopes, instruments doctors use to look inside the body cavity to help detect disease.

In 1987, President Toshiro Shimoyama announced a strategy to strengthen the company’s investments after operating profit fell by half due to the yen’s gain, according to a panel report disclosed in December. Investment losses began to swell after the Japanese stock market crashed in 1989 and reached about 100 billion yen in 1998, when Yamada and Mori resorted to financial trickery to hide them, the report said.

The company inflated takeover costs of London-listed Gyrus Group Plc and three Japanese companies with the intention of boosting goodwill, according to the Dec. 6 panel report. Yamada and Mori planned to write down the goodwill over years to cancel out losses that were kept off Olympus’s balance sheet.

New Board

Olympus in January sued 19 current and former executives, including current President Shuichi Takayama and five corporate auditors, over their roles in concealing losses. The company formed panels to reform management and nominate a new board.

The company plans to hold an emergency shareholder meeting on April 20 at which investors will vote on new management.

The company is seeking as much as 3.6 billion yen ($46 million) in damages from executives, including Kikukawa, and a combined 1 billion yen in damages from corporate auditors.

The Tokyo exchange last month allowed Olympus to keep its stock market listing after fining the company 10 million yen and telling it to report on efforts to improve management.

Kikukawa, born in 1941 in Japan’s southwestern Shikoku Island, joined Olympus in 1964 after working for a trading company. Under Kikukawa’s leadership from 2001, Olympus’s revenue jumped 82 percent to 847 billion yen, while operating profit remained almost unchanged at around 35 billion yen.

He oversaw about $4.3 billion in 31 acquisitions of companies, including Gyrus, according to data compiled by Bloomberg. Total liabilities swelled to 897 billion yen from 390 billion yen.

Olympus earlier this week predicted an annual loss of 32 billion yen for the year ending in March as it wrote off equipment damaged by Thailand’s record floods. The accounting fraud hasn’t had a major impact on its business, Takayama said.

Olympus is considering ways to boost capital including alliances, he said.