May 23, 2012 7:11 pm

Adidas files fraud complaint in India

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Adidas has filed a criminal complaint in India against two former executives of its Reebok India subsidiary in connection with an alleged multimillion-dollar fraud, police officials said.

The German sports goods group, which last month revealed a potential €125m hit from “commercial irregularities” at its Reebok India unit, said on Wednesday it was in contact with Indian police over an investigation of the case but did not disclose further details.

“We are given to understand that our criminal complaint has been registered for investigation by the Indian law enforcement authorities,” Adidas said. “We shall continue to co-operate with the authorities in their investigation of the matter.”

The alleged fraud would be the biggest corporate scandal in India since 2009, when Ramalinga Raju, Satyam Computer Services’ former chairman, confessed to fixing the company’s books over “several years” in a fraud worth at least $1bn.

An Indian inspector at the Gurgaon police station, where the case involving Reebok India was lodged, said the complaint had been filed against two former executives.

The former executives are formally under investigation over allegations that receipts were falsified, Reebok merchandise was siphoned off, Adidas-owned goods were hidden in four different warehouses and that goods were sent to fake distributors, two investigators told the Financial Times.

A police officer in Gurgaon, in the state of Haryana, said the amount at stake could yet exceed €125m. This is the amount by which Adidas has so far acknowledged it may have to restate past accounts as a result of the problems in India.

“It is hard to say how big this case is, it’s too early to have an exact figure,” the officer said. “The dimension of the fraud case will become clear once we gather more evidence.”

Adidas, the second-largest sports goods group by sales after Nike, said this month that it would slash one-third of its 1,000 Reebok stores in India and “aggressively restructure”, leading to up to €70m in further costs. “Our goal is to begin 2013 with a clean sheet in this market,” said Herbert Hainer, chief executive.

Adidas bought Reebok in 2005 and the brand has a significant market share in India, where it is particularly linked to cricket, although India is not one of Adidas’s largest markets. The German group expects worldwide sales this year to rise by almost 10 per cent compared with last year’s €13.3bn.

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