Prem, ex-deputy deny Reebok fraud charges

The former managing director (MD) and chief operating officer (COO) of Adidas Group India have denied charges against them of fraud and misappropriation made by the present management of Reebok India Company, which is controlled by Adidas Group India. Reebok had filed a formal complaint some days earlier with the police at Gurgaon, close to Delhi, where the legal jurisdiction would be.

Counsel for Subhinder Singh Prem, the ex-MD, and Vishnu Bhagat, the ex-COO, has denied all the charges. In its complaint filed on May 21, registered as a First Information Report (FIR) by the Gurgaon police, Reebok had said internal investigations had shown Prem and Bhagat were operating four secret warehouses in Delhi. Goods diverted from the company were kept at these warehouses, it had said.

Subhash Gulati, counsel for Prem and Bhagat, said all pending return statements on the goods in question as of December 31, 2011, which stood at Rs 62.99 crore, were processed and duly reconciled between January and March 2012.

“All the regular physical stock audits, along with daily cyclical counts, confirmed the accuracy levels and can be verified from the warehouse records,” he said, adding the complaint spoke of the status of goods till December 31, 2011. There was no mention of the status between January and March, when Prem and Bhagat were still employed with Adidas.

The internal probe was conducted by Reebok’s finance director, Shahin Padath, and Claus Heckerott, who replaced Prem as Adidas’ India MD, as well as a private firm called Control Risks, which visited these four warehouses on March 30 and 31 this year. Padath had alleged Prem and Bhagat generated fictitious sales over numerous financial years, which were diverted to these warehouses. This had resulted in a loss of Rs 870 crore to the company.

Gulati says all these mentioned stocks had been entered in the receipt register on arrival at the warehouses. Date-wise and customer-wise details of such pending returns were always available with the warehouse team .The keys of the warehouses and the possession of the stock was always with the Reebok warehouse team (of 300 people), under the supervision of the general manager (GM), operations. This GM was reporting regularly on the status of these returns in the docking warehouse.

Asked for a reaction, an Adidas Group spokesperson said, “Please understand that we cannot provide any further details, since the matter now rests with the Indian law enforcement authorities.”

These developments come at a time when Reebok India is increasingly finding itself in a controversy over the alleged fraud, which first became news on April 30 following a statement by Adidas' global chief executive, Herbert Hainer, of commercial irregularities. Since then much water has flown, with corporate affairs minister Veerappa Moily as recently as three days earlier blaming Reebok for non-cooperation. And, referring the matter to the ministry’s Serious Fraud Investigation Office (SFIO).

Moily had told Business Standard: “I had ordered an enquiry 10 days before. We had asked the company for some more important documents but they have not cooperated with us.”

Adidas had denied it wasn't assisting in the investigation. The group’s spokesperson had said, “We are cooperating with the authorities.” Meanwhile, the SFIO has said it will take four to five months to give its report on the issue, after a detailed scrutiny.

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