Reebok India has alleged over $157 million fraud by its former Managing Director Subhinder Singh Prem and former Chief Operating Officer Vishnu Bhagat.
If the allegations are found true, then this could be the second biggest corporate scandal in India, after Satyam Computers, where its former chairman and founder Ramalinga Raju was accused of orchestrating a Rs 14,000 crore fraud in the year 2009.
Reebok India lodged an FIR with the Gurgaon police alleging that 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 multi-crore dent to the company.
"Our criminal complaint has been registered for investigation by the Indian law enforcement authorities," Adidas said on Wednesday, reported Reuters. Reebok India carried out an internal investigation after noticing certain fraudulent activities in January this year.
An inquiry conducted by the economic cell of Gurgaon police found that Singh and Bhagat had allegedly rented four secret warehouses in Delhi and used them to store goods and claimed they were supplied to genuine dealers. Products worth millions were allegedly invoiced but not delivered and such fictitious sales took place over several financial years. They also apparently siphoned off goods to ghost companies and distributors across the country, claiming they were defective pieces. The two officials are also accused of running an unauthorized franchise referral program for collecting money under the pretext of opening new stores, against the instructions from Adidas.
"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. Almost no franchise stores were opened under the scheme despite hefty collection 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), reported The Times of India.
When the alleged scam came to light, Adidas said that it will cut down upon the number of Reebok stores in India by a third due to its financial irregularities at Reebok Indian operations.
On the other side, Prem filed a suit against Adidas after its announcement and claimed damages of 150 million rupees while denying any involvement in financial irregularities, according to The Economic Times.