Phony Telephony in Japan?

This week, the Japan Times has run two Kyodo News stories reporting that earlier in the week, Japanese police searched the offices of KDDI Corp., a leading telecommunications service provider, and Kinmirai Tsuushin, an Internet telephony company that had leased circuit capacity from KDDI. Kinmirai reportedly had taken in about 40 billion yen (US$348 million) from approximately 3,000 investors, promising what Kyodo News termed "unrealistically generous returns from their investments, which it claimed were being used to build a proprietary server network."
Kinmirai reportedly "had advertised that it had set up servers with state-of-the-art voice encoding technology around the globe for its Internet protocol phone service." However, during a government inspection in November 2006, Kinmirai "admitted that only seven of the 2,466 servers it claimed to have installed at 123 locations in Japan and elsewhere were operating." That same month, KDDI canceled its contract with Kinmirai after Kinmirai failed to pay KDDI approximately 32 million yen (more than US$278,000). Kinmirai also had stopped paying "returns" to investors, and shut down most of its and its subsidiaries' operation on November 20.
The article also notes that "[m]uch of the 'investment returns' are thought to have been funded by money paid in by new investors," though it does not make clear whether the thoughts are those of the police, regulators, investors, or others. Although Japanese investors have encountered larger Ponzi schemes before, in the form of "Special Purpose Vehicles" and Martin Armstrong's "Princeton notes", the possibility of a massive Ponzi scheme in a cutting-edge sector like VOIP would be unwelcome news throughout the Japanese IT and electronics industries.