Reebok India Case, 2012








The Reebok Scam is one of the biggest corporate frauds in India and due to this fraud, the parent company of Reebok India had announced a net loss of 153 million Euros. Before focusing on this scam, it is required to note that Reebok India is a subsidiary company of Adidas AG and the Managing Director of Reebok India was the main accused in this case along with the Chief Operating Officer of the company.











Adidas AG, the parent company, alleged a case against Reebok India for a fraud amounting to Rs. 870 crore.



In this regard, it is to be stated that the managing director and the COO of Reebok India were accused of stealing the supplied products to Reebok India. The accusation was also made for fraudulent practices and criminal conspiracy. As per the charge against Reebok India, the company was involved in fraudulent practices such as stealing the products by forming Secret Warehouses”.









In addition to the above charge, the following allegations were also included in the First Information Report (FIR) against Reebok India.




1.     Reebok India was accused of making over-invoicing of Rs 147 crore.









2.     The company had organised false franchisee referral programme, from which it earned a revenue of Rs 114 crore.      









3.     Fake invoice of Rs 98 crore was also made by MD and the COO of the company for claiming high bonus and incentives.




    




    4. Investigations were made by three agencies such as the Income Tax department, Serious Fraud Investigation Office (SFIO) and Economic Offences Wing of Gurgaon Police regarding the aforementioned allegations.









SFIO had played an important role in this case and after transferring the case to the SFIO, it had investigated books of accounts of Reebok India since 2003. In this regard, the SFIO had studied the financial position statement or balance sheet and the income statements of the major apparel and footwear companies in order to understand the industry standard. After such investigation, the SFIO concluded that there was a scam of overstating the invoices. On the other hand, the SFIO had concluded that the revenue amount of the company was also inflated.









Apart from SFIO, the Income Tax (IT) Department of India, ROC, ICAI and the Enforcement Directorate (ED) were also involved in the inquiry. The IT Department had also called Adidas AD for a detailed report regarding their role and transactions in India. Adidas filed a defamation case against the former Managing Director making abusing comments against Adidas. In addition to the stated actions, the city police had raided the godowns of Reebok India and the residents of the accused. A team of CAs was also formed in order to examine seized computers of the stated company.