Four former employees of Reebok India [ Images ], including two top executives, who were arrested on Wednesday for allegedly cheating the company of Rs 870 crore (Rs 8.7 billion), have been sent to police remand.
The Gurgaon judicial magistrate has sent the accused -- Reebok's former managing director Subhinder Singh Prem, former COO Vishnu [ Images ] Bhagat, former head of warehousing Prashant Bhatnagar and senior sales executive Surakshit Bhatt and Sanjay Mishra, a service provider and owner of Shivam Enterprises, Oriya Sales and Om Trading, to police remand for seven days.
The Gurgaon police stared investigating the case after a complaint by Reebok India finance director Shahim Padath.
The special investigation team of Gurgaon police, which is probing the case, has said that it has found four illegal warehouses, whose existence was not disclosed to auditors, tax authorities or to the Adidas management in Germany [ Images ].
However, both Prem and Bhagat have denied the charges against them.
The SIT has also alleged that billed goods worth Rs 62 crore (Rs 620 million) were kept in these warehouses but not dispatched.
It also says that in FY2011, fake institutional sales of Rs 21 crore (Rs 210 million) were made by Prem and company.
The SIT has contended that the group was involved in fake sales and falsification of accounts since 2005.
It also showed fake receipts from franchisees and collected Rs 108 crore (Rs 1.08 billion) through franchisee referral programme and in-and-out transactions.
The investigating team also alleges that the accused carried out circular transactions of Rs 98 crore (Rs 980 million), where funds were routed through eight customers and vendors.
They also made interest payment of Rs 14 crore (Rs 140 million) against the FRP investment by creating forged ledger account.
The SIT said that Prem and his associates have misused the invoice discounting facility with Standard Chartered Bank, Deutsche Bank and Bank of America to discount the same invoices from two different banks simultaneously.
This way, they obtained short term funding to the tune of Rs 82 crore (Rs 820 million).
The accused also used sales return invoices that were reversed in the system for discounting from banks and obtained credits worth Rs 42 crore (Rs 420 million).
The money obtained from such forgery was deposited in Reebok's bank account on which investigation is going on.
The police statement also mentioned that Prem had nine back accounts and Bhagat had eight in their and family members' names.
Prem holds 20 residential and commercial properties in Gurgaon and other parts of India and Bhagat owns 12 properties.
Prem had rented out some of his own properties to vendors and customers of Reebok, according to the police statement.
"The investigation of the criminal complaint filed by Reebok India Company has progressed to the next stage by the Indian law enforcement authorities.
"Reebok India Company has, and will, continue to cooperate with the investigation authorities," says a Reebok India spokesperson.
The alleged scam came to light in March 2012 and Prem, who had been made the managing director of Adidas India last year as part of an integration of the businesses of both Adidas and Reebok brands, was dismissed from the company.
Bhagat's services were terminated, too.
The case is also being investigated by the Serious Fraud Investigation Office.
The SFIO is expected to come out with its interim report within a few weeks.