New Delhi: German sportswear maker Adidas AG said it was ignorant of irregularities at the Reebok India unit in the past few years, rejecting accusations that it had in any way been aware of the wrongdoing that led to a fraud estimated by it at Rs.870 crore.
“The financial irregularities at Reebok India were conducted by the former Reebok India company management, without knowledge or any involvement of the Adidas Group HQ,” the company said in an emailed statement. “Such false and baseless allegations were made as a defence by the accused and the police has found no truth in such allegations.”
Adidas has put the blame for the financial irregularities reported in May 2012 on those running Reebok India at the time—Subhinder Singh Prem, former managing director, and Vishnu Bhagat, former chief operating officer. The company said its Reebok India unit has “petitioned the government to conduct further investigations to unearth the full extent of fraud perpetrated against the company, which has reportedly been ordered in the matter”.
Adidas, which acquired Reebok in August 2005, had accused Prem and Bhagat of perpetrating the fraud by siphoning off funds by creating “ghost distributors”, “secret warehouses” and generating forged bills during years they were in charge.
The Gurgaon police filed charges in the case on 12 November and pegged the loss at Rs.11.3 crore. Prem and Bhagat, along with Sanjeev Mishra, who ran a staffing services company that supplied contract employees to Reebok India, have been in custody since September. Eight other former executives who were arrested in the case are out on bail.
The Serious Fraud Investigation Office (SFIO) under the ministry of corporate affairs, is also investigating the case.
“Due to the complexity and the large scale of the financial irregularities conducted at Reebok India, we had filed an FIR (first information report) with the Indian law enforcement authorities,” Adidas said. “Reebok India has extended full cooperation to them as well as to all the other investigating authorities involved.”
A senior SFIO official said on condition of anonymity that it would be difficult to say that no one in the headquarters was aware of what was taking place in the Indian unit but the person declined to elaborate. “It is a delicate matter and we cannot say anything beyond it.”
He added that the SFIO report will only be finalized after Reebok India submits the annual audit report by its statutory auditor.
There was no response to queries from the Gurgaon police.
One of the lawyers of those accused said on condition of anonymity that the development stemmed from the demands made of the Indian managers. The head office had asked the local unit to push sales targets aggressively to offset the impact of losses the company made in various international markets in 2009, this person said.
“Globally, in 2009, Greece suffered a loss due to the economic depression and Greece was a big market for them, worth 400-500 million euros, so, to offset the impact of Greece, they pushed emerging markets like South Korea and India to increase their sales,” said the lawyer. The efforts of the Indian unit led to higher sales in 2010 and 2011.
Adidas agreed that the global financial crisis had an impact on sales for 2009 worldwide, but rejected the lawyer’s contention, saying both brands started performing well in 2010.
“Despite the difficult economic environment, the Adidas Group managed to deal with it relatively well,” said a Reebok India spokesperson. After a 6% decline in sales in 2009, “in 2010, both brands and consequently the Adidas Group returned to a strong sales growth”.
Adidas also said that it didn’t intend to let the Reebok brand die in India. “We are committed to the Indian market and see great growth potential in the mid and long term. Reebok is a premium global sports brand,” it said. “Our recent as well as future campaigns will focus on strengthening our fitness proposition with consumers in India. It is our clear intention to grow the business of Reebok brand in India focusing on profitability.”
Reebok stores in India have been getting rid of stock at a discount over the past few months, ever since news of the fraud case broke. Adidas said that it’s scheduled to make a corporate announcement in India on Thursday. It didn’t elaborate.