Brazilian-born, of Lebanese descent and a French citizen, he is one of the few foreigners in such a senior position in Japan.
Nissan said it conducted an internal investigation that lasted several months based on a report from a whistleblower regarding misconduct by Ghosn and Representative Director Greg Kelly. It shared its findings with public prosecutors for their own investigation.
“I am not in a position to talk about the progress of the investigation itself, but as a result of the investigation, we heard that the arrests have been made of the two gentlemen,” CEO Hiroto Saikawa said during a news conference at the company headquarters in Yokohama.
Saikawa said he would convene a meeting of the board on Thursday to remove Ghosn and Kelly.
Nissan said its investigation showed numerous “significant acts of misconduct,” including underreporting Ghosn’s compensation to the Tokyo Stock Exchange to the tune of more than $40 million over five years. It also said he used investment funds for personal gain and misused company expenses.
Nissan said Kelly was also deeply involved in the wrongdoing.
Renault shares tumbled nearly 10 percent in Paris, while Nissan’s German-listed securities fell by a similar amount.
Ghosn, 64, began his career at tiremaker Michelin in France in the late 1970s before moving on to Renault in 1996. There he helped engineer a turnaround in the carmaker’s fortunes that earned him the admiration of the business world — but not of labor unions or leftist politicians, who resented his high salary while he presided over massive job losses in the wake of the global financial crisis.
He joined Nissan in 1999 after Renault bought a controlling stake and became its CEO from 2001 until 2017, engineering a similar turnaround there and earning the nickname “Le Cost Killer.”
Ghosn stepped down as Nissan CEO last year but remained chairman of the company.
He became a star in the business world in Japan, appearing on magazine covers dressed in a kimono and even spawning a manga comic book on his life, although he also attracted more criticism for his high salary.
Ghosn was one of the first executives to champion electric cars, and he developed a range of low-cost cars for emerging markets.
In June, Renault shareholders approved Ghosn’s $8.5 million compensation for 2017. He also received the equivalent of more than $10 million in his final year as Nissan CEO.
The scandal also raised eyebrows in France, where the French government is a major shareholder in Renault. Finance Minister Bruno Le Maire said Monday that the government would not comment on the judicial investigation in Japan but had already made inquiries with Renault about the company’s management structure.
In a late-night news conference, Saikawa, the Nissan CEO, did little to hide his anger at Ghosn for letting the company down.
“The concentration of power in one individual,” as well as Ghosn’s “long reign” at the automaking conglomerate, affected operations and could have been factors in allowing the misconduct to take place, he said.
“People who reported to Mr. Ghosn became limited in number,” Saikawa said. As a result, instead of making decisions based on a range of information and opinions, Ghosn “made decisions based on limited input in some cases.”
Saikawa also spent considerable time expressing his deep regret over the “bewilderment and anxiety” that the news has caused employees and stakeholders.
“Beyond being sorry, I feel big disappointment and frustration and despair and indignation and resentment,” he said.
The news is the latest scandal to sully Nissan’s brand. In July, it acknowledged it had uncovered falsified emissions data from most of its factories in Japan, while in 2017 it admitted it had allowed unqualified personnel to carry out postproduction tests at some of its plants, forcing it to recall more than a million vehicles for reinspection.
Although the company denied a direct link between the failure to carry out proper testing and its ongoing efforts to cut costs, Chief Competitive Officer Yasuhiro Yamauchi said at the time that he “needed to reflect on whether there was an environment at Nissan in which anything could be tolerated if it led to cost-cutting.”
Tim Hubbard, assistant professor of management in the University of Notre Dame’s Mendoza College of Business, said Ghosn’s arrest complicates an interconnected set of relationships among Nissan, Renault and Mitsubishi.
“This has widespread implications for a large portion of the auto industry, as these alliances have become more critical in the increasingly interconnected design, manufacturing and support of auto customers worldwide,” he said. “Ghosn’s arrest is another unfortunate example of the perils of having too much power concentrated in one individual within — and across — corporations.”
One of the puzzles was why Ghosn, with all his wealth, might have wanted to defraud his own company, if the accusations are true.
“It seems very shortsighted to me, when you have that much money, why you would want to nickel-and-dime the company and shareholders,” said Carl Tobias, a professor at the University of Richmond’s law school.
Tobias said that if the alleged transgressions had occurred in the United States, someone like Ghosn, who could afford the best legal counsel available, might have been able to strike a deal with prosecutors to avoid jail time by paying a large fine. But he said it was far from clear whether this would be the case in Japan.
Akiko Kashiwagi in Tokyo and James McAuley in Paris contributed to this report.