The co-creator of Sonic the Hedgehog — a veteran programmer who ranks among the most famous figures in the Japanese games industry — has been arrested over an alleged insider dealing scam involving an investment of just $20,000.
Yuji Naka, whose producing credits during his early career at games developer Sega spanned major hits such as Phantasy Star Online to 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 protagonist of more than 15 games, to give Sega a character to compete with Nintendo’s Super Mario franchise — a clash that would define a generation of “console wars” fought in the late 1980s and early 1990s.
Prosecutors alleged in a statement that Naka, who moved to games developer Square Enix in 2018, had bought Y2.8m ($20,000) worth of shares in the smaller Tokyo-listed games studio Aiming in January 2020.
A few weeks later Square announced it would be working with Aiming on the next iteration of its massively popular Dragon Quest mobile game series — information prosecutors allege Naka possessed when he made the investment.
The shares surged on the announcement, and spiked to an all-time high in July when the game itself was released, giving Naka a theoretical gain of about 250 per cent, or roughly $50,000, on his investment.
Before the reform of the Tokyo Stock Exchange this April, Aiming was listed on its Mothers section, which was known for the volatility of its high-growth and emerging stocks. The section was a favourite among retail investors who used the volatility to chase high returns.
Following his arrest, Naka could not be reached for comment. Prosecutors said two Square Enix executives were also arrested on Thursday on allegations they invested larger sums in Aiming at around the same time.
Prosecutors have not disclosed whether they believe Naka sold the Aiming shares.
Square Enix said it had been “fully co-operating with requests” from Japan’s Securities and Exchange Surveillance Commission, which started an investigation into the company in June 2021.
Past Japanese high-profile insider trading cases include those of shareholder activist Yoshiaki Murakami and Takafumi Horie, who were convicted in 2007 of trading shares with advance knowledge of a takeover bid by Horie’s Internet firm Livedoor for a radio operator.
Naka’s arrest follows an unusually public and acrimonious dispute with his former employer Square Enix. The clash centred on Naka’s misgivings over Balan Wonderworld, a game he directed but which he viewed as unready for sale. When it was released in 2021, it scored poorly with critics and ultimately prompted Naka to declare Square Enix a company that “did not value games or games fans”.
After Balan Wonderworld’s miserable performance, Square Enix sacked Naka, who then sued the developer for wrongful dismissal.
Naka made the lawsuit public by posting tweets earlier this year. Square Enix has declined to comment on the lawsuit.