Window Dressing by Startup: Fraudulent Accounting Practice Undermines Japan’s Growth Strategy

Editorial

14:51 JST, December 1, 2025

It is essential for Japan’s economic growth that emerging companies be nurtured, but allegations of a fraudulent practice that hinders this trend have been revealed. Oversight measures need to be strengthened to prevent recurrences.

The Tokyo District Public Prosecutors Office has indicted four people — including the former president of artificial intelligence service company Alt Inc., which was listed on the Tokyo Stock Exchange’s Growth section — on suspicion of violating the Financial Instruments and Exchange Law by inflating sales to window-dress the company’s earnings.

Out of ¥12.8 billion in sales from 2022 to 2024, ¥11.1 billion, or more than 80% of the total, is believed to have been falsely reported. The company went public in October 2024 but was delisted in August this year.

It is utterly appalling if most of the company’s reported sales were false. This constitutes a grave betrayal of the stock market and investors.

Alt was founded by the former president in 2014 and drew attention for its business using cutting-edge AI technology. In 2018, the company was selected to receive support from the Economy, Trade and Industry Ministry, which regarded the firm as having the potential to compete globally.

The ministry’s decision was in line with the government growth strategy that calls for nurturing and supporting emerging companies. However, the alleged fraud involving Alt could impact the development of other startups.

The suspected fraud is connected to AI Gijiroku, an automated transcription service to create minutes that Alt launched in 2020 based on the AI tool that it developed. Alt aimed to boost its performance, with an eye on seeking an initial public offering, but demand for the service was sluggish.

The former president then allegedly came up with the idea of “cycling transactions.” The company is believed to have padded sales by funneling fictitious advertising fees, which it paid to an agency, back to itself via a different external company in the guise of payments for using the AI Gijiroku service.

This practice may have been spurred by the former president and other executives’ desire to accelerate the company’s listing. There have been cases in which startups appeared to focus excessively on growth, leading to weakened awareness of legal compliance and the neglect of management ethics.

Alt’s auditing firm raised suspicions over the cycling transactions and terminated its contract with the company in 2022. These concerns were relayed to the subsequent auditing company, but that company accepted Alt’s false explanations and failed to prevent the fraud. Neither the Tokyo Stock Exchange, which is responsible for screening prospective listings, nor securities firms detected the irregularities.

The allegations reportedly came to light after a former Alt employee revealed the misconduct to the outside world.

Strengthening oversight measures is an important issue. However, overly stringent screenings for listings could hinder fundraising for startups.

How can sound management practices be ensured while promoting the growth of emerging companies? It is crucial to examine why the alleged fraud went undetected and apply the lessons learned from this case to the future. Needless to say, startups’ management teams must impose strict self-discipline.

(From The Yomiuri Shimbun, Dec. 1, 2025)