Story highlights NEW: Seven men arrested in connection with $1.7 billion Olympus Corp fraud

Seven men arrested in connection with $1.7 billion Olympus Corp fraud Ex-Chairman Tsuyoshi Kikukawa and two other former executives detained

Questions center over hidden losses from failed investments in the 1990s

Kikukawa and two other executives have resigned in the wake of the scandal

Japanese prosecutors arrested seven men, including former Olympus Corp. Chairman Tsuyoshi Kikukawa, for their alleged involvement in a massive $1.7 billion accounting fraud at the Japanese camera and medical equipment maker.

Other former executives arrested Thursday include ex-Executive Vice President Hisashi Mori and former Auditor Hideo Yamada, according to the Tokyo District Public Prosecutors Office. Four others arrested were financial advisers who allegedly assisted Olympus executives in the coverup.

"We are deeply concerned about the seriousness of this situation," the Olympus Corp said in a statement. "In order to find the full facts, we will continue to fully cooperate with law enforcement authorities in the investigation."

Allegations at Olympus came to light after the October dismissal of former President Michael Woodford who was fired when he questioned Kikukawa, Mori and Yamada about dubious transactions at the center of the case.

A special audit of Olympus in December, led by a former Japanese Supreme Court judge, detailed $1.7 billion of hidden losses from failed investments in the 1990s by the company. The report blasted the culture of the company that allowed the losses to be disguised in dubious fees and overvalued payments for companies, as well as the tight control of Kikukawa. "The management was rotten to the core, and infected those around it," the panel's report said.

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The scandal has been an embarrassment to Japan Inc. and came at the end of a difficult year punctuated by a strong yen, which has eroded profits of Japanese multinational companies, and the March 11 earthquake, tsunami and nuclear disaster.

"I actually see this as a turning point for corporate Japan. Up until now, this would have been glossed over or swept under the rug. People would have ignored this," said William Saito, a member of the Japan Prime Minister's special commission on National Strategy and Policy.

"That this is such a commotion now, I think a lot of businesses understand that in order to get global respect, one needs to address this issue," Saito said. "They're on notice and will have to change because of that."

Kikukawa, Mori and Yamada resigned in the wake of the allegations. The allegations have sparked investigations in Tokyo, London and New York.

The former Olympus executives were charged with allegedly filing false financial reports in 2007 and 2008.

The Olympus saga started with a five-page expose in Japanese magazine FACTA -- a small circulation magazine that has only nine people on staff -- on July 20 that raised questions over advisory fees of $687 million paid in 2008 for the purchase of Gyrus, a UK medical instruments firm. The article also questioned the $773 million paid for three small Japanese companies -- a face cream maker, a plastic container maker and a recycling business, each with fewer than 50 employees.

Others charged include banker Akio Nakagawa, who advised Olympus on the Gyrus transaction.

Olympus lost more than 75% of its share value in the weeks following the October 14 firing of former CEO Woodford, the first foreigner to lead the company, after Woodford went public with his claims.

Woodford, a British executive who spent 30 years with Olympus before he was named the first foreign president last April, led a public campaign to fire the existing Olympus board and return to company management. He gave up that fight in January, saying he didn't have the backing of Japanese institutional investors in the company.

The current Olympus board, led by President Shuichi Takayama, are expected to step down at an extraordinary shareholders meeting on April 20, when the new company management is expected to be named.