Police investigating the collapse of Italian airline Volare arrested six former company executives on Wednesday, accusing them of diverting funds to set up a new airline.

Volare collapsed under heavy losses and debt just before last Christmas, leaving thousands of passengers stranded. "The various charges are false accounting, fraudulent bankruptcy, bankruptcy in relation to the diversion of funds. The financial hole is about EUR500 million (USD$653 million)," Colonel Marcello Ravaioli of the financial police in the northern town of Varese said.

Financial police said in a statement the funds had been channeled into a new airline, but did not name the company.

"The diversion of funds was aimed at creating the necessary capital for the new airline, which not by coincidence used people, means and structures from the Volare group," the statement read.

A legal source said the warrant for the arrests specified that the new group was low-cost carrier MyAir.com, founded by some of Volare's former managers.

A spokeswoman for MyAir.com, which flies to a number of domestic and European cities, was unaware of the developments and not able to comment.

Ravaioli said another 50 people were being investigated. Of the six arrested, three are held by the police and the other three have been put under house arrest.

Among those arrested are Volare's founder and former chairman, Gino Zoccai, former board member Giuliano Martinelli, and former chief executive Vincenzo Soddu, the police said.

Former Chairman Mauro Gambaro -- who recently left his post as chairman of bank Interbanca, part of the Antonveneta group -- has been placed under house arrest.

Argentine businessman Eduardo Eurnekian, a former Volare shareholder, is one of the 50 people under investigation. His lawyer said he was the "victim of illegal acts by third parties."

A group of managers quit Volare in early 2004, and the incoming management asked accountants KPMG to examine the airline's accounts. KPMG then submitted a report to prosecutors in Busto Arsizio near Milan, who opened an investigation.

Volare's current chief executive, Cosimo Giulio De Metrio, has said he plans to secure a fresh loan to resume flights from Milan to southern Italy.

The airline has been placed under extraordinary administration, a form of creditor protection that allows day-to-day business to continue.