Kanebo Ltd., already under fire for falsifying financial statements for years, used the pretext of buying back cosmetics products that were being sold at heavily discounted prices to raise money for slush funds, it was learned Saturday.

The buybacks were never executed, and the off-the-books funds did not come to light due to lax financial management, sources close to the company said.

Three former Kanebo executives, including 69-year-old former President Takashi Hoashi, were arrested Friday on suspicion of submitting false financial statements to authorities in violation of the Securities and Exchange Law. The three have admitted to the charges, according to investigative sources.