Sonic Co-Founder Yuji Naka Arrested for Insider Trading

Yuji Naka, a popular co-creator behind the Sonic series, has reportedly been arrested in Japan on charges of insider trading linked to the Dragon Quest game, according to the Fuji News Network. The reported arrest adds another murky layer to Naka’s tumultuous relationship with Square Enix, which ended in a public remonstration on Naka’s part after he had sued his former employers.

Two others have also been arrested by the Tokyo District Public Prosecutors Office according to the report, believed to be former Square Enix employees Taisuke Sasaki and Fumiaki Suzuki. The charges date back to 2019 and surround Square Enix’s collaboration with the gaming studio Aiming for the Dragon Quest Tact mobile game, when Naka allegedly purchased shares in Aiming with knowledge of the deal through the other alleged suspects.

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Image Credit | Rock Paper Shotgun

Sasaki is said to have been privy to this confidential information before it was disclosed to the public. The announcement was made on February 5 2020. In December 2019, three months before the news became public, Sasaki and Suzuki started buying shares in Aiming. Over the next couple of months, they reportedly bought up a total of 162,000 of Aiming’s stocks, presumably knowing they would rise once the collaboration was announced. The shares were worth approximately 47.2 million yen, which is equivalent to around $336,760. It’s unknown yet whether they managed to sell all their shares.

Naka, who was also an employee of Square Enix at the time, allegedly knew about the Aiming partnership as well. He is said to have bought 10,000 shares before the information was made public, which were value at around 2.8 million yen (approx. $20,000).

Naka’s Tenure With Square Enix Had Ended In A Lawsuit

Naka began his career as a programmer with Sega, the Japanese multinational video game company famous for the Sonic the Hedgehog, Total War and Yakuza series, between 1984 and 2006. His work on Phantasy Star and the Genesis port of Ghouls ‘n Ghosts impressed his superiors at Sega, and he was assigned the development of Sonic the Hedgehog.

Naka’s tenure at Square Enix lasted from 2018 to 2021. In late 2019, around the same time that he was allegedly involved in insider trading, Naka was working on a new game, Balan Wonderworld. After the game’s release in 2021, he left his role at Square Enix and announced that he was considering retirement.

Further developments revealed that Naka’s relationship with Square Enix wasn’t all roses and sunshine. In 2022, a year after Balan Wonderland’s release, Naka sued Square Enix after revealing that he was removed as the director of Balan Wonderworld six months before release. The game showed stability issues, Naka had alleged, and disagreements regarding them could not be resolved. Multiple parties at Arzest – Balan Wonderland’s developer – including the game’s producer stood behind the decision to want Naka out.

In addition to stepping down from the project, Naka was also banned from sharing and liking any of the game’s related posts on social media. Naka claims that he tried to address these issues with his partners but was ignored, which led to his decision to file a lawsuit after concluding that Square Enix and Arzest did not “value games or game fans”

Square Enix Say They Are Collaborating With The Investigators

Following the news break about insider trading, Square Enix released a public statement on Thursday, stating that they are fully cooperating with the investigation and answering requests from the Securities and Exchange Surveillance Commission.

“We deeply regret the great concern this has caused to all concerned,” read Square Enix’s statement. “We have dealt with this incident strictly, including internal disciplinary actions taken against the suspected employees.”

Square Enix says they have now set up a protocol about confidential information and a system in place to prevent insider trading. This includes a mandatory obligation for employees to notify the company when trading with their stock and prohibiting trade of the company’s stock without permission. This applies not only to Square Enix itself but also to any company in collaboration with them. Stock trading with such companies before the disclosure of non-public information is prohibited.

“We will take further actions as preventive measures throughout the Company,” said Square Enix, “by further tightening internal regulations and conducting more thorough employee education programs.”