Reebok alleges Rs 8,700 crore fraud, second biggest corporate scandal after Satyam


GURGAON: Reebok India on Tuesday lodged a first information report (FIR) with Gurgaon Police alleging that its former managing director Subhinder Singh Prem and COO Vishnu Bhagat had “stolen” products by setting up “secret warehouses”, fudged accounts and indulged in fictitious sales to cause a Rs 8,700 crore dent to the company

In Left : Subhinder Singh Prem ; Right : Vishnu Bhagat

If the allegations are found correct, this would be the second biggest corporate scandal after Satyam, where Ramalinga Raju is accused of orchestrating a Rs 14,000 crore fraud

In regulatory filings on May 1, Adidas, which owns the Reebok brand, had said that commercial irregularities in India had forced it to take a Rs 870 crore hit in addition to restructuring spend of Rs 470 crore planned in 2012. Reebok India’s turnover is estimated at around Rs 600 crore

In the FIR filed with the Sector 40 police station in Gurgaon, Reebok said that it carried an internal investigation after certain “fraudulent activities” were noticed in January this year. When contacted, both Prem and Bhagat refused comment saying they were unaware of the FIR

Padath alleged that the sales were fictitiously diverted to these warehouses. At the end of December 2011, products worth Rs 147 crore were allegedly invoiced but not delivered. “The said products were thus stolen by accused 1 and 2 (Prem and Bhagat) and the secret warehouses mentioned above were used for storing some of such stolen products,” the FIR said, while estimating the value of these goods at Rs 63 crore

The rent for these warehouses was allegedly paid by one Shivam Enterprises, which “supply manpower to the complainant’s warehouse”. Reebok has also alleged that its two former executives ran an unauthorized franchise referral programme and money was collected on the pretext of opening stores. This was done despite instructions from Adidas headquarters to not expand the store base further, the company said.

“Almost no franchise stores were opened under the scheme despite collection of about Rs 114 crore from various investors,” the FIR said. It added that Prem and Bhagat forged and fabricated cash receipts and also “maintained parallel books of accounts”, known as regional outstanding reports (ROR).

“In respect of the account receivable balances, which were at such regional outstanding reports, showed the official balance reported to the group and various adjustments to be made (for) arriving at a ‘net recoverable amount’,” the FIR said. In case of one customer, the company alleged that the amount outstanding as per its records was Rs 34.36 crore, compared to Rs 13.32 crore in the ROR. On December 31, 2011, the official accounts receivable of all customers was estimated at Rs 1,007 crore, compared to around Rs 476 crore in the ROR.

“In order to hide the fraud, the accused malafidely (sic) passed on extra margin to the customers on the invoice which were treated as credit note reduction as issuing a credit note would have made it obvious that the balance reported in the books (were) not correct,” it added.

The company has also accused the two former executives of raising invoices of Rs 86 crore on customers for products already invoiced and delivered in 2010-11, which is against the norm. Reebok said that this was done to claim bonus and incentives.

Reebok has suggested that the police conduct a “thorough investigation and custodial investigation” of the two former executives. Maheswar Dyal, DCP (East) Gurgaon, said that the police would call Reebok executives on Wednesday to get more details on the FIR.

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  3. #3 by chthan s on May 25, 2012 - 10:17 PM

    Subinder Singh Prem has been keeping false sales records (clcothes madde but not sold) and is a thief. now also trying to get articles written on his behalf showing pity on him because he is caught. just like RAJU from satyam he is a claver poltician and keeping away from eye of adidas since long time. now that he is caught he will keep fooling the public by vanising the clothes and lodging another fir showing he is innocent!! what a move mr subinder making india name bad in corruption in the whole world. also getting fraud articles written by inbound etc. please look at article which he paid to write to show did nothing … this kind of sold journalism is bad for india http://www.indbound.com/blog/does-adidas-even-like-indians/ and also forbes india where comments are deleted by moderators becaus of payment from subinder pren http://forbesindia.com/article/special/the-curious-case-of-the-empty-adidas-godowns/33012/1 this article also tries to defend cheater liar subinder

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