UPDATE 2-Taiwanese man arrested in US in Olympus probe

* Chan Ming Fon arrested in Los Angeles, to appear in US federal court

Accused of direct role in making hundreds of millions of dollars disappear

* Chan was paid $10 million for role in fraud - U.S. authorities

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By Erin Geiger Smith

Dec 20 (Reuters) - Banker Chan Ming Fon was arrested in Los Angeles on Thursday and accused of helping "liquidate" hundreds of millions of dollars in the Olympus Corp accounting scandal, one of the worst corporate frauds in Japan's history.

Chan, who resides in Singapore and is a citizen of Taiwan, was scheduled to appear Thursday in federal court in Los Angeles, U.S. authorities said. The case is filed in federal court in New York.

"The defendant had a direct role in the secret liquidation of hundreds of millions of dollars of Olympus investments. He then waged a six-year campaign to conceal that misdeed by lying, certifying to auditors that the investments still existed years after liquidation," said FBI Assistant Director-in-Charge George Venizelos.

Chan is charged with one count of conspiracy to commit wire fraud, which carries a maximum penalty of 20 years.

The decade-long $1.7 billion accounting fraud at Olympus, a 93-year-old maker of medical equipment in Japan, was exposed last October by chief executive Michael Woodford, who was fired after he questioned dubious deals that were later found to have been used to hide losses.

Three former Olympus executives - former chairman Tsuyoshi Kikukawa, former executive vice president Hisashi Mori and former auditor Hideo Yamada - pleaded guilty in September to charges that they inflated the company's net worth in financial statements for five fiscal years to March 2011.

Chan was paid $10 million by Olympus or entities controlled by Olympus for his role in the fraud, court papers said.

In 2005, he established an entity in the Cayman Islands called SG Bond Plus Fund. Until about 2010, Chan submitted false and misleading documents to Olympus' outside auditor regarding hundreds of millions of dollars' worth of assets purportedly maintained by Chan at SG Bond for the benefit of Olympus, the complaint said.

Chan had actually transferred the assets to a British Virgin Island-based entity controlled by Olympus, the complaint said.

Chan was interviewed by the Federal Bureau of Investigations on Monday and Tuesday.

An investigative panel report, commissioned by Olympus last year, mentioned a banker referred only by his last name Chan as an outside collaborator who first met Olympus executives Yamada and Mori in 1998. At the time "Chan" was working at Commerzbank in Singapore, but resigned in 2000. After leaving Societe Generale in 2004, the report said Chan formed his own company where he continued to work for former Olympus executives.

Olympus declined to comment.

(Reporting By Erin Geiger Smith; Editing by Gary Hill)