Nozomu Sahashi, former president of bankrupt Nova Corp., was arrested June 24 on suspicion of misusing some ¥320 million of the company's reserve funds for employee welfare programs.

Nozomu Sahashi KYODO PHOTO

The Osaka prefectural police served the warrant for the alleged embezzlement after questioning the 56-year-old Sahashi on a voluntary basis.

Sahashi, who headed what was once Japan's largest English-language school chain, is suspected of diverting the ¥320 million in reserve funds, set up specifically for employee benefits, to Nova through an affiliate firm effectively owned by Sahashi himself.

Sahashi is alleged to have then used the money to refund tuition to students who canceled their contracts.

"The money was used to refund tuition, but I did not misappropriate any for my own interests," Sahashi said in a comment released via his lawyer.

Nova faced a liquidity crunch after the government ordered it to suspend some of its operations in June 2007 for allegedly lying to prospective clients about tuition charges and also faced suits by clients seeking tuition refunds.

In October, a labor union that includes non-Japanese Nova instructors requested that labor authorities build a criminal case against Sahashi and others at Nova.

Nova's board sacked Sahashi that month and the company filed for corporate rehabilitation.

Some Nova schools have been taken over by G.communication Co., based in Nagoya.

Established in 1981, Nova at one point had 300,000 students and employed 4,000 foreign instructors.