Iranian authorities have arrested five employees of Swedish direct-sales cosmetics firm Oriflame and shut its Tehran office amid reported Iranian allegations of a massive pyramid scheme.

• Swedish cosmetics firm closed by Iran authorities

Iranian media reported Monday that the closure and arrests were linked to suspected fraud in connection to a massive pyramid scheme.

According to hardline Iranian daily Kayhan, the Oriflame headquarters in Tehran had on Sunday morning been "searched and sealed" and "four top managers were arrested on accusations of 250,000 cases of fraud" linked to a 70-million-dollar (55-million-euro) pyramid scheme.

The conservative Tehran Emrouz newspaper also said tax officials had seized Oriflame documents and had halted all its operations over suspected fraudulent operations.

"The company managers did not have a convincing answer when asked about compulsory sales of products, charging membership fees and recruiting members as consultants," Hassan Radmard, the head of the Traders' Centre at the Iranian commerce ministry, told the paper.

Oriflame "has over 200,000 members so it is a pyramid scheme with unlimited members," he added.

Oriflame'schief financial officer Gabriel Bennet said he would not comment on these "rumours" further than to say any reference to a pyramid scheme was "ridiculous."

"We work the same way in Iran as in the rest of the world, in over 60 countries ... A pyramid firm could not run an internationally recognised business for more than 40 years," he said.

The Oriflame Tehran branch was on Sunday "abruptly shut down with authorities coming into the office", Gabriel Bennet said.

"We are working with the embassy to find out why this is, and to try to secure (our employees') release," he said, adding that one Swede and one other foreigner were among those arrested.

Bennet said the company so far had received no explanation from authorities about the closure and arrests, but believed they may be linked to its business model.

"Our business model is to sell cosmetics and give 40,000 Iranians, mainly women, a possibility to earn money through direct sales," he said, adding that the arrests could be seen as a sign that business conditions in Iran were worsening.

A permanent closure in Iran may lead to extraordinary costs of 10 million euros, the company said. The company sees an operating margin at about 12 percent for 2010, compared with a prior forecast of more than 12 percent.