Game creator ‘Sonic’ arrested for investment fraud

The co-creator of “Sonic the Hedgehog” – a veteran programmer who is among the most famous figures in the Japanese games industry – has been arrested for an alleged insider dealing involving an investment of just $20,000.

Yuji Naka, whose production credits during his early career at game developer Sega included such big hits as “Phantasy Star Online” and the less famous “Billy Hatcher and the Giant Egg”, was arrested on Friday.

Naka, 57, led the development of his most famous creation, the trainer-clad hedgehog who is the protagonist of more than 15 games, giving Sega a character to compete with Nintendo’s Super Mario franchise — a match that would define an era. generation of “console wars” in the late 1980s and early 1990s.

The prosecution alleged in a statement that Naka, who switched to game developer Square Enix in 2018, bought 2.8 million yen ($20,000) worth of shares in tiny Tokyo-listed game studio Aiming in January 2020.

A few weeks later, Square announced that it would be working with Aiming on the mobile version of its popular “Dragon Quest” game series — information that prosecutors allege Naka had when he made the investment.

Shares soared on the announcement and hit an all-time high in July when the game was released, giving Naka a theoretical gain of around 250%, or about $30,000, on his investment.

Before the Tokyo Stock Exchange reform in April, Aiming was listed in its “Mothers” section, known for the volatility of its emerging and high-growth stocks. The section was a favorite among retail investors who used volatility to seek high returns.

After his arrest, Naka could not be reached for comment. Prosecutors said two Square Enix executives were also arrested Thursday on allegations that they invested larger amounts in Aiming around the same time.

Prosecutors would not say whether they believe Naka sold the Aiming shares.

Square Enix said it is “fully cooperating with requests” from Japan’s Securities Surveillance Commission, which launched an investigation into the company in June 2021.

Past cases of insider trading in Japan include activist shareholder Yoshiaki Murakami and Takafumi Horie, who were convicted in 2007 of trading stock with prior knowledge of a takeover bid for a radio operator by Horie’s internet company Livedoor.

Naka’s arrest follows an unusually public and bitter row with his former employer Square Enix. The confrontation centered on Naka’s doubts about “Balan Wonderworld”, a game he directed but which he considered not ready for sale. When it was released in 2021, it scored poorly with critics, and eventually led to Naka declaring Square Enix a company that “doesn’t value games or game fans”.

After the poor performance of “Balan Wonderworld”, Square Enix fired Naka, who then sued the developer for wrongful termination.

Naka made the process public by posting tweets earlier this year. Square Enix declined to comment on the lawsuit.

Translated by Luiz Roberto M. Gonçalves.