Adidas’ Reebok Business in India Faces Fraud Investigation

Adidas AG’s Reebok business in India will be investigated by the country’s anti-fraud agency for suspected accounting irregularities, government officials said.

Adidas filed a criminal complaint on May 21 after saying last month it had found flaws at the Indian arm of its Reebok unit. Police are investigating two former Reebok India executives after the company made allegations of fraudulent practices worth as much as 8.7 billion rupees ($155 million), one person involved in the inquiry said on May 23.

The Serious Fraud Investigation Office on May 29 was asked to investigate the matter and submit a report within four or five months, two government officials familiar with the matter said today. They declined to be identified because they aren’t authorized to speak publicly. Investigators may request more information from Adidas’ headquarters in Herzogenaurach, Germany, if needed, one of the people said.

“We don’t comment on pending investigations,” said Katja Schreiber, a spokeswoman for Adidas. “We shall continue to cooperate with the authorities in their investigation.”

Adidas shares gained 0.5 percent to 59.96 euros as of 11:41 a.m. in Frankfurt. The stock has risen 19 percent this year, the second-best performance in Germany’s benchmark DAX Index.

Investor Concern

A quick investigation and trial may help rebuild investor confidence after India slipped to 46th place, behind Grenada, among the 183 nations ranked for ease of doing business in the World Bank’s 2012 “Doing Business Report.” It was 44th in 2011.

“Investors will be keeping an eye on the investigation and on what would be the consequences for Reebok and other brands there going forward,” said Mark Josefson, an analyst at Silvia Quandt Research GmbH in Frankfurt, Germany. “It’s good that Adidas quantified what the costs will be. The investigation speeds up the planned reorganization process within India for the Adidas Group at large.”

Adidas estimated last month that irregularities at Reebok India may cost as much as 125 million euros ($155 million). Reebok India filed the criminal complaint on behalf of Adidas. The parent company operates about 900 Reebok franchise stores and about 700 Adidas licensed retailers in India.

The Economic Times newspaper reported earlier today the Serious Fraud Investigation Office will investigate Reebok India.

The probe is the second conducted by the agency in the past 16 months involving an overseas company. Citigroup Inc. was investigated in January 2011 after a local employee illegally siphoned off almost $66 million from investors.

The Serious Fraud Investigation Office was set up under the Ministry of Corporate Affairs to detect and prosecute fraud. It consists of experts on subjects including accounting, taxation, law and capital markets, according to its website.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE