Private firms got undue benefits of Rs 1.8L cr in 'Coalgate': CAG

Source: The Timesof India (Mumbai) Edition, May 22,2012

NEW DELHI:

The Comptroller and Auditor General's final report on allocation of coal blocks between 2004 and 2009 without auction is expected to peg the value of "undue benefits" that the government extended to private entities alone at more than Rs 1.8 lakh crore, sources have indicated.

The last draft of the report, first reported by TOI on March 22, had said the government extended undue benefits of Rs 10.67 lakh crore by giving away 155 mines to 100 commercial entities, including public sector bodies, without bidding since 2004.

The government auditor has brought down the value of undue benefits by taking out public sector and state government entities from the final report and focusing only on private ventures. This was done at the coal ministry's behest, which argued during the 'exit conference' that public sector entities are audited separately.

But even at the reduced level, the value of undue benefit to coal block allottees is higher than the outer limit of the Rs 1.76 lakh crore-loss estimated by CAG in the 2G spectrum allocation case.

Besides, removal of public sector and state entities from the final report would mean the entire undue benefit of over Rs 1.8 lakh crore has accrued to private entities alone. The final report can still cause discomfort to the government .

CAG's coal report in House today?

Sources said the Comptroller and Auditor General's (CAG) final report on allocation of coal blocks has been lying with the government since May 11 and may be tabled in Parliament on Tuesday, the last day of the Budget session.

After TOI reported the final draft, the Prime Minister's Office had made light of the figure and selectively quoted from a letter to the PM written by CAG Vinod Rai to say it was "not even pre-final".

Even Rai was targeted by some economists and ministers. But on March 27, he hit back by saying CAG auditors had a global standing and did not make "fundamental errors".

"We are incapable of making fundamental errors as being discussed in media. Our report will make clear all doubts on fallacies being talked about... They (CAG auditors) are the best in the world. Both developing and developed countries send their auditors to train with us at our academies... the report (on allocation of coal blocks) will make clear how sound our processes are," Rai had said at the concluding session of a seminar on Public Accountability and Role of CAG.

The government auditor had calculated the undue benefit at the price of the lowest grade of coal. It first estimated the cost of production for each block by taking into account the actual cost of production in a similar Coal India mine for the same year. Then the difference between CIL's sale price and cost of production was multiplied by 90% of the reserves in each block. The figure thus obtained was the windfall gain for that block.

The reasoning behind taking 90% of the total reserves rather than the entire lot, according to CAG, is that "detailed exploration establishes reserves at a confidence level of 90%".

The final draft report said the coal ministry had in 2004 said that chances of any allottee not being able to recover this much from the reserves "would be, if at all, very remote".

Sebi sets up new cell to detect corporate accounting fraud

Source: The Indian Express, Mauy 20 2012

Market regulator Securities and Exchange Board of India (Sebi) is all set to tackle corporate frauds by listed firms and market entities through its newly set up Forensic Accounting Cell.

“We have recently created a forensic accounting cell inside Sebi and we will look into samples for filings and check for discrepancies,” said Sebi chairman UK Sinha on Saturday. The unit has been set up in the wake of many complaints by investors of companies rigging their financial results and disclosure statements, such as the financial irregularities by former software firm Satyam.

To tackle this menace, Sinha, who was speaking at a seminar on ‘Reporting on Securities Markets — Issues and Challenges’ said that the cell would study the consistency in disclosures made by a listed firm and in case of any wrongdoing forward the report to the market regulator.

The cell, which includes highly trained accountants and experts, is expected to help assist in detection of financial irregularities so as to serve as an effective early warning mechanism.

Internationally, such dedicated teams have been set up by other regulators as well, such as the Office of the Chief Accountant, at the US Securities and Exchange Commission, who helps ensure that disclosures are accurately filed. To address this problem of bungling of financial statements, Sebi has also asked stock exchanges to look into filings by companies and check for discrepancies.

Sinha said Sebi had taken a series of measures in the recent years to enforce compliance and curb market manipulation. “Sebi is not a perfect institution, but we are trying to improve,” he said.

Speaking at the event, Shekhar Gupta, Editor-in-Chief, The Indian Express, called for better coverage of corporate investigations by the media.

Everyone's Problem: Looking Beyond the Wal-Mart Bribery Case

Published: May 09, 2012 in Knowledge@Wharton

In a case that continues to reverberate across borders, Wal-Mart Stores, the world’s largest retailer, announced recently that it has started its own probe into allegations that executives at its Mexican operations made hundreds of illegal payments -- worth more than $24 million -- to help expedite the opening of new stores. According to a report in The New York Times, Wal-Mart officials in the U.S. learned about the bribery allegations in 2005, but failed to alert U.S. or Mexican officials at the time.

The charges have cast a dark cloud over Wal-Mart, which is also the largest retailer in Mexico and the country's top private-sector employer. According to news reports, Wal-Mart’s own probe of possible bribery could force the firing of some of the firm’s executives, and bring serious fines from the U.S. government if investigations reveal that the company’s senior managers knew about the illicit payments but did not take sufficient action. The day after the allegations were made public,

Wal-Mart shares fell nearly 5%.

That may be only the beginning of Wal-Mart’s troubles: In other repercussions, leaders of New York City’s pension funds said they would vote their shares against the five Wal-Martdirectors standing for re-election at the company’s shareholder meeting in June. Also, the California State Teachers' Retirement System, which holds more than 5.3 million Wal-Mart shares, has filed a lawsuit alleging that the firm's senior officials engaged in massive opportunistic sales of the company’s stock before news of the Mexico allegations broke in late April.

According to legal and ethics experts at Wharton and elsewhere, the Wal-Mart case raises broader questions about how multinational companies conduct business in foreign countries. Is Wal-Mart’s alleged bribery in Mexico an anomaly, or is it more typical of multinational behavior than many corporate executives would like to admit? Is the practice of bribing public officials ever justifiable from an economic or ethical point of view? And apart from collapsing share prices and shareholder lawsuits, what are some of the other possible consequences of bribing foreign officials?

Mind the Rules

Despite the hoopla surrounding the Wal-Mart case, corporate bribery of public officials remains an all too common practice in many countries around the world, according to the most recent annual report by Transparency International (TI), a Berlin, Germany-based nonprofit with more than 100 chapters around the world. The organization’s Corruption Perceptions Index 2011 charges that many governments in Asia, Latin America and the Middle East still fail to protect their citizens from the abuse of public resources, bribery and secretive decision-making. Among them, Mexico is hardly the worst offender on the list.

The 10 countries where bribery and other forms of corruption were most frequent last year include Somalia, North Korea, Burma (Myanmar), Afghanistan, Uzbekistan, Turkmenistan, Sudan, Iraq, Haiti and Venezuela. Mexico ranked 100^th among 183 nations surveyed by TI, exactly the same ranking earned by far less-developed countries such as Benin, Burkina Faso and Malawi.

For all the dissatisfaction expressed in that report, corruption experts generally agree that multinational executives in the U.S. and other countries are taking anti-corruption statutes more seriously than in the past. One reason is the U.S. Foreign Corrupt Practices Act (FCPA) of 1977, which imposes serious penalties on U.S. companies that bribe foreign officials. In addition, a growing number of executives recognize that bribery is not only ethically wrong, but economically counter-productive.

In an article published in the most recent edition of American Business Law Journal, titled “The Business Case for Complying with Bribery Laws,” Philip M. Nichols, a professor of legal studies and business ethics at Wharton, writes that several scholars have “convincingly marshaled together research that demonstrates the impediment to economic growth, degradation of social and political institutions, misallocation of resources and skills, impoverishment and numerous other societal ills that corruption inflicts on polities and economies.” He adds that although there is a shortage of “firm-level empirical data on the consequences of paying bribes,” the existing research, combined with theoretical discussions and the realities of the regulatory environment, makes "a very strong business case ... for complying with the rules regarding bribery.”

Shaun Donnelly, vice president of investment and financial services at the United States Council for International Business, a New York City-based nonprofit, says that “the trend is in the positive direction.... The public sentiment is that bribery is not an acceptable way to do business,” and global companies are becoming more scrupulous about compliance with the law. In the years following the FCPA of 1977, “U.S. companies were constrained to do the right thing, but other countries’ companies were not,” Donnelly notes. However, since the 1990s, international institutions have enacted their own similar anti-corruption conventions, including those endorsed by the Organization of American States (1997), the Council of Europe (1999), the African Union (2003) and, most significantly, the Anti-Bribery Convention of the Paris-based Organisation for Economic Co-operation and Development (1999). “A lot of big companies take this seriously, and have training programs, annual reviews and reminders,” he adds.

Nichols argues that growing global economic integration has also helped to encourage many companies to shun bribery and other acts of corruption that might have seemed commonplace in the past. “Governments recognize that controlling the local damage done by bribery requires coordination [with other governments]," he says. "Any actor who engages in [what seems to be] a local activity exposes himself to global coordination” in this newly integrated economy. Globalization “has made more people aware of corruption and of its negative impact. What was thought of as 'other people’s problem' now becomes 'our problem,'" he notes. Likewise, businesses no longer view themselves as single companies, but rather as a regional or global network of suppliers, employees and distributors.

According to Felipe Monteiro, a Wharton management professor, multinationals should gladly accept today’s more stringent legal requirements as the premium paid for the numerous benefits that they derive from operating on an unprecedented scale. For example, huge firms like Wal-Mart have power over their suppliers, and can implement some best practices not accessible to small firms. The Wal-Marts of the world “have lots of advantages,” including access to global sourcing, he points out. “Being less flexible on issues of corruption [than some of their local competitors] is a cost they have to pay.”

More broadly, Monteiro notes that global managers must make a series of trade-offs between those business practices that they may need to adapt to local ways and those practices they must maintain as core procedures everywhere around the world. The more stringent the international requirements for transparency, disclosure and documentation become, “the more difficult it is for multinationals to have different practices [in different countries] without getting into trouble.”

A Dose of Skepticism
William S. Laufer, a Wharton professor of legal studies and business ethics, takes a more skeptical view of current trends. “It is true that Foreign Corrupt Practices Act enforcement is increasing ... and that having a robust FCPA compliance program is seen as part of a larger firm-level risk mitigation practice," he says. "It is unclear, however, whether the step-up in extraterritorial enforcement along with renewed FCPA compliance efforts have any significant impact on rates of corruption and bribery. Not surprisingly, these data are lacking. Evidence-based research on the effectiveness of different anti-corruption compliance programs and overall strategy is also sorely lacking.... [Confidence] that any of this makes a difference is premature and likely imprudent.”

Until recently, there has been “no systemic study” of the topic, Nichols notes, in part because corrupt activity takes place under the table, and many people are reluctant to talk openly about what they are doing, with whom and how often. TI’s Corruption Perceptions Index, for example, has been criticized for relying on third-party survey data. Critics also note that TI data about specific countries varies widely depending on the public perception of the nation, the completeness of the surveys and the methodology used.

What Went Wrong at Wal-Mart?
Given the growing consensus that anti-corruption requirements must be taken seriously, the allegations against Wal-Mart are somewhat surprising, experts note. After all, for Wal-Mart, opening new stores in Mexico and other foreign locations is “a fundamental part of its business model,” says Nien-he Hsieh, a professor of legal studies and business ethics at Wharton. Either Wal-Mart’s senior management didn’t know what was going on, or it knew what was happening but did not particularly care about clamping down on such illegal behavior, he suggests.

If companies understand the risks of non-compliance, why would they make payoffs? One possible reason, says Nichols, is that some people “get a cowboy thrill from making a bribe.” This may be particularly true among unsophisticated companies that don’t want to invest the time and effort to do things right. More commonly, perhaps, this pattern of behavior may derive from a perception that bribery is simply "business as usual" in developing countries. “It is a lazy person’s solution instead of really selling your solutions,” says Donnelly, a former U.S. ambassador to Sri Lanka. “Some people think [incorrectly] that ‘this is a poor country, so everyone is corrupt. This is just the way things are done.’”

When senior managers engage in this behavior, it has a negative impact throughout the organization, according to Nichols. “There is a tendency, when top managers engage in undisciplined or self-motivated behavior, for the managers below them to engage in the same behavior.” Such behavior becomes part of the corporate culture, fueling a vicious cycle of low ethical expectations.

“In the U.S., you can clearly distinguish between a gift and bribe,” Nichols adds. That’s because a bribe involves a specific quid pro quo in return for the payment. But in emerging nations, it may be more difficult to make such a distinction. In some countries, executives are instructed that the giving of lavish gifts is an essential component of the local culture, not something to be scorned as improper. Shunning such a practice may even sour key personal relationships.

To avoid any possibility of impropriety, however, Nichols says that some companies wisely “draw the line very low” -- excluding even small gifts, such as free lunches, from what is considered acceptable. Adhering to the "when in Rome, do as the Romans do" rule ascribes to others an “inflexibility that we won’t ascribe to ourselves. The idea that my rules are slightly different from yours, and there is an unbridgeable gap, is an argument that has no reality; it is presumptuous,” warns Nichols. People will realize that you are not insulting them if you politely refrain from any kind of gift exchange, even when a specific quid pro quo is not spelled out, he suggests.

Hsieh agrees, noting that some companies may “tend to underestimate the extent to which they can engage in certain practices” -- such as firmly refusing any kind of improper payments. “We shouldn’t assume that everyone is corrupt in [a given] country. We have to make it clear” that payoffs are not acceptable, he adds. The aim should be to nip corruption in the bud at the outset.

At the same time, companies from developed nations should bear in mind that corrupt practices like bribery are not limited to the developing world; they often just take more subtle form in tightly regulated countries. “One of the unfortunate artifacts of narrowly thinking about corruption as an impediment to development is an unbecoming sense of self-righteousness," Laufer points out. "To be sure, there should be indignation about the impact of corruption on poverty, the unlevel playing field at the base of the economic pyramid and the exploitation by multinational corporations of lax enforcement of laws in countries where the rule of law is compromised.” However, "there should be some measured humility in how the ‘developed’ world prescribes anti-corruption strategies.

"Put aside all of the forms of corruption for which federal, state and local laws apply, and consider something [such as] corporate-political influence," Laufer adds. "Late last fall, the CPA-Zicklin Index of Corporate Political Accountability and Disclosure was unveiled at Wharton.... This annual index tracks the extent to which companies disclose their political spending -- spending that is designed quite simply to buy influence. Is this corruption?”

Fraudster's grandiose lifestyle ends in jail

A New Zealand judge has jailed a former IT executive for eight years over an $80 million fraud carried out to support a lavish international lifestyle.

Sydney was a favourite playground of Gavin Clifford Bennett, who leased luxury apartments in The Rocks and spent millions of dollars on fine-dining, French champagne, fashion and female escorts.

In six years from 2005, the 54-year-old former managing director of Christchurch IT group Datasouth, falsified documents to fraudulently obtain and repay loans from South Canterbury Finance.

The scheme led to losses for the company of $18 million which were ultimately covered by the taxpayer.

In sentencing, Judge Jane Farish said Bennett had committed "an unprecedented level of fraud" to inflate his "business ego" and fund a "grandiose lifestyle".

Taking into account Bennett's cooperation with the investigation, the judge set a minimum non-parole period of three-and-a-half years.

Source: By New Zealand correspondent Dominique Schwartz Posted May 04, 2012

Ex-MD Sues Adidas Over Fraud Charge

Ex-MD Sues Adidas Over Fraud Charge

Subhinder Singh Prem seeks . 15 crore in damages, says German co was fully in the loop

Subhinder Singh Prem, the former boss of Adidas in India, has sued his former employer for 15 crore in damages, in a dramatic escalation of hostilities between him and the German giant that have stirred up the usually sedate world of sporting goods MNCs. Prem suggested that Adidas, which earlier this week said unspecified “commercial irregularities” in its Indian operations had forced it to take a . 870-crore charge, was fully in the loop on how the company was run.

He said the company was not a one-man show and all its financials and accounts were approved by up to five layers of officials. The finance chief of the Indian operations for the past year was a person specially appointed by the Adidas Group and all business and expansion plans were vetted by Adidas’ headquarters. While Adidas refused to say more than its statement issued on Monday, Prem for the first time gave more details on the manner of his departure, confirming a widely held perception that he was fired and did not leave on his own. Prem said he was called to Arizona, US, on March 25 and after he had presented his annual business plan there, he was coerced into disengaging from the company and promised a severance package. Four days later, he received a mail saying his services were being terminated. “Despite repeated mails, Adidas did not offer any reason for sacking me,” he said, adding that three hours before Adidas issued the statement containing reference to the commercial irregularities in India, he got a mail from the company saying his services were being terminated due to “financial irregularities”. Prem was a Reebok veteran who became an Adidas employee after the German company bought Reebok in 2005.

Prem Claims He Exposed 3 Big Frauds

Prem, who was appointed the head of the combined entity’s Indian operations last year, denied being involved in any financial irregularity and said on the contrary he had exposed three major frauds at Adidas. “The biggest scam was the scavenger deal running into. 200 crore, where about . 20 crore was illegally made by senior officials,” Prem’s lawyers said in a legal notice to Adidas, its global CEO, board members and its various entities in India.

“However, the scam was brushed under the carpet because it related to Adidas and not Reebok, and the request to notify the fraud to the auditors at the year-end was turned down by the headquarters,” the notice added. The lawyers have also demanded from Adidas contractual dues of . 12.7 crore

Source: The Economic Times (Mumbai) Edition, 03.05.12

Hackers are now targeting employees to compromise entire networks of a company

Trojan warfare

On May 8 last year, Reliance ADAG boss Anil Ambani received a Microsoft Word document from what appeared to be the account of a journalist. However, when company officials contacted the reporter, it became clear he had not sent the email. Fearing a breach, the officials alerted the Mumbai Police cyber crimes cell. The investigators had alarming news - the document had a worm designed to steal data.
Reliance ADAG denied any data was compromised but one investigator who spoke to Business Today on condition of anonymity, believes otherwise. Hiding a worm in an MS Word document is "extremely difficult", says the cyber-sleuth, but the hackers persevered, as the flaw they exploited had only just been discovered and few computers were likely to be patched for it. Once the document was downloaded, the worm went after the hard drive, hunting for data. "Anti-virus programs could not detect it," says the source. The investigators could not even establish what data was stolen. They only know that it was the work of Romanian hackers. Reliance ADAG declined comment. 'Social engineering' is the term experts have coined to describe attacks like the one on Ambani. It is the act of deceiving an insider to gain access to a secure network - in much the same way the Greeks used a wooden horse to get past Troy's defences and defeat their rivals. Hence the name for such worms: Trojan.

A Bangalore-based software firm faced a similar attack in the summer of 2008. An employee had downloaded what he thought was a clean program onto his office laptop. In reality, it hid a virus that swept through his folders and uploaded his data on the hacker's server. This data included the source code to his company's products. Fortunately, the hacker was not as skilled as the ones who targeted Ambani and was tracked down.

Tips to Stay Safe Do not download any attachment or software unless you have confirmation it was sent by someone you trust On business trips and vacations, carry a secondary laptop and mobile phone Do not email or copy sensitive data to your laptop, especially if you have to access this data outside a secure network

"Earlier, hackers targeted servers, so organisations set up firewalls," says Dhruv Soi, Director of Torrid Networks. "So, hackers are now targeting employees." Soi - and every cyber security expert BT spoke to - considers social engineering the biggest threat to a company's data.

Since such attacks do not set off alarm bells at the firewall, most companies remain unaware of the breach. A study released by US-based internet and telecom firm Verizon this March said 85 per cent of hack victims were not aware of the breach for several weeks. Worse, 92 per cent of the victims found out about it only after a third party alerted them.

The Indian government has itself been the victim of three such social engineering attacks, all from China. The most recent was LuckyCat, which targeted Indian and Japanese government computers beginning June 2011. In all, it hit 233 computers.

LuckyCat mirrored a 2009 campaign called GhostNet, which targeted Tibetan officials and Indian embassies. The ShadowNet campaign, one year later, was even more devastating. It first hit India's TRACK II diplomacy teams:members of think tanks or the media. They interact regularly with diplomats, as well as defence and intelligence officials. "It's almost like a social network," says a former intelligence officer, requesting anonymity. "Once they got into the think tanks and media, they targeted their contacts in government." Three years after the attacks took place, "even the GhostNet botnet is still operational," he says, referring to the network of hijacked computers the hackers used to carry out the attack.

While the people behind the GhostNet and ShadowNet campaigns were never found, investigators identified Gu Kaiyuan, a former student of China's Sichuan University, as the mastermind behind LuckyCat. Sichuan University is a favoured hunting ground for China's cyberspy recruiters.

"Everything critical was lost. Our anti-Naxal strategy, our posturing towards Sri Lanka… It is extremely frustrating to see the same old attack vectors working [repeatedly] against sensitive government systems," says the former intelligence official, who also investigated GhostNet and ShadowNet and is familiar with LuckyCat. Some experts blame Microsoft for China's hacking success. In 2003, and again in 2010, the company handed over sections of its Windows operating system's source code to the Chinese government. Russia was another recipient.

The company defended the decision, saying it gave governments "insight and a deeper understanding of Microsoft products" so they could be confident of security. However, Western experts warn that hostile governments now have access to potential flaws in Windows.

Social engineering is also used by 'phishers' to make money. This breed of scamster indulges in fairly simple duplication by copying the webpages of banks and fooling people into entering account information and passwords. RSA, a US-based cybersecurity firm, recorded 8,324 such attacks in India in 2011. Total losses were estimated at Rs 171.9 crore.

Telecom is another vulnerable sector. One threat lies in common apps such as games or ringtones, popular among India's 911 million mobile phone connections. These are often created by small, thirdparty developers with razorthin profit margins. They have little to spend on security. Most only use a username and password to access the telecom company's online store servers to upload new apps.

Hackers who crack the app developers' accounts not only replace genuine products with malwarelaced ones, they also gain access to the telecom company's server. "I'll be surprised if any telecom company has an idea of who fully controls its [app] servers," says a cyber security expert, formerly with the military, and now in the private sector. "They're five per cent of the revenues but 95 per cent of the problem."

With millions of subscribers to target, mobile phone hackers are not just a threat to privacy and finances, they automatically become a national security problem as well. Such cyber attacks are costly. Out of 200 Indian organisations surveyed by computer security firm Symantec for its 2011 State of Security Survey, 144 reported hacks over the previous 12 months; 92 per cent reported financial losses. On average, companies lost Rs 41.3 lakh in revenues and Rs 33 lakh in reputation costs. As for non-monetary damages, 37 per cent reported down times, 31 per cent lost confidential customer information and 28 per cent had intellectual property stolen.

Training is an essential first step to protect corporate networks from attack. Firewalls are not enough. "Companies build [network security] like a fortress: a wall on the outside and nothing much inside. One breach is all it takes," warns Sundar Ramakrishnan, Director of Engineering at networking company Cisco Systems. Monitoring systems are expensive but provide good protection- they can spot potential hacks. For example, data leaving a network that was not moved by a user is likely the work of a worm.

Earlier, hackers targeted servers, so organisations set up firewalls. Now, hackers are targeting employees: Dhruv Soi

The government has a security agency to tackle these issues. The eight-yearold CERT-In (Computer Emergency Response Team) issues warnings and probes each attack. But it is understaffed; CERT-In's website lists just 23 officers as "scientists". In 2010, the last year for which there are figures, these 23 men and women had to investigate 10,315 reported cyber crimes and 14,348 defacements of Indian websites. However, they are often assisted by experts from over 60 empanelled organisations. Ultimately, even computers with the latest security features are vulnerable to what techies call zero-day attacks. This, says R. Srikanth, a cyber strategies researcher at the Takshashila Institution, is "where malicious hackers find and exploit bugs in the code before anyone realises their existence".

Data for some graphics courtesy Symantec
Source: Business Today, Edition May 13,2012

Adidas India hit by 1,350cr internal fraud

Mumbai: Adidas, the world’s second largest sports goods maker, may take a Rs 1,350 crore hit after unearthing a massive commercial fraud in its Indian unit. The German giant has already booked a negative impact of €125 million and warned it could suffer a further €70 million loss barely a month after replacing the local leadership team in India.

This makes it one of the worst financial irregularities to surface in the Indian arm of any MNC, and comes amid mounting concerns over corporate governance issues in the country. TOI had first reported on March 27 that managing director Subhinder Singh Prem and chief operating officer Vishnu Bhagat had exited the local unit of Adidas, which also owns Reebok, after it plunged into the red due to financial irregularities.

1,350CR FRAUD Did success mask Adidas ex-MD’s actions?

Mumbai: In March, the Adidas group had remained silent on specific queries by TOI whether the top-level changes were linked to financial mismanagement.

The 13-billion-euro group had replaced the top management in India with Claus Heckerott taking charge as MD and Frederic Serrant assuming the role of sales director. “We discovered commercial irregularities at our Reebok business in India. These irregularities will likely affect the prior-year consolidated financial statements of the Adidas group. In total, we are talking about a negative impact of up to a pre-tax amount of 125 million euros. Additional onetime charges in the remaining quarters of 2012 amounting to an estimated 70 million euros could also occur,” said Herbert Hainer, CEO of the group, in the internal communication sent across to employees, and reviewed by this newspaper. He said the company may take legal action if necessary.

Allegations of financial discrepancies and losses swirled at the group’s India unit following the merger of Reebok’s operations. Adidas and Reebok merged in India only last year, even though a $3.8-billion global buyout of the latter happened in 2005. Reebok India had a turnover of about Rs 600 crore, while Adidas clocked a revenue of Rs 480 crore in 2011. The company on a combined level had debts to the tune of Rs 600 crore and had registered a loss of about Rs 90 crore with the Registrar of Companies

The former MD Prem and COO Bhagat came into the Adidas fold through the Reebok merger. Prem, who denied any wrongdoing while he was at the helm of the India operations, had joined Reebok in 1995 when it entered the country and rose up the ranks to become the MD in 2003.

The alleged financial irregularities at Adidas India pointed to inflated performance figures, said a senior industry executive who on condition of anonymity.

“When the Germans appointed Prem last year as the MD of the group, they did that seeing the huge success that Reebok has achieved in India. They thought he must have done something right. But it did not turn out to be that way,” he said.

Source: The Times of India, 01.05.2012