Flocks of sheep were imported to Japan and then sold by a company called Poodles as Pets, marketed as fashionable accessories, available at $1,600 each.
That is a snip compared to a real poodle which retails for twice that much in Japan.
The scam was uncovered when Japanese moviestar Maiko Kawamaki went on a talk-show and wondered why her new pet would not bark or eat dog food.
She was crestfallen when told it was a sheep.
Then hundreds of other women got in touch with police to say they feared their new "poodle" was also a sheep.
One couple said they became suspicious when they took their "dog" to have its claws trimmed and were told it had hooves.
Japanese police believe there could be 2,000 people affected by the scam, which operated in Sapporo and capitalised on the fact that sheep are rare in Japan, so many do not know what they look like.
"We launched an investigation after we were made aware that a company were selling sheep as poodles," Japanese police said, the The Sun reported.
"Sadly we think there is more than one company operating in this way.
"The sheep are believed to have been imported from overseas - Britain, Australia."
Many of the sheep have now been donated to zoos and farms.