On February 12, 2018, SEBI issued an interim order in the matter of Ricoh India Limited (“Company”) against certain past directors and KMPs of the Company and the Managing Director of FDSL, a vendor of the Company, for alleged violations of the provisions of SEBI (PFUTP) Regulations, 2003.
The Company had appointed Pricewaterhousecoopers (“PwC”) to conduct a forensic review of its books of accounts. The PwC report observed that : (i) adjustments were made to suppress losses and inflate revenues; (ii) the Company was engaged in circuitous transactions with certain entities to falsely inflate its books and meet its monthly forecast and budgets. Without any pre-sales efforts, the Company procured products or services from one party only to sell it to another party. Further, even the recording of these transactions in the books of accounts was backdated; (iii) Credit was extended to the entities involved without any documentation of their creditworthiness; (iv) the spouses of certain KMPs of the Company were directors in an entity related to FDSL, with which the Company was having the abovementioned circuitous transactions; (v) several personal financial favours were extended to the above-mentioned KMPs by the MD of FDSL.
Based on this PwC report, the Company requested SEBI to conduct an investigation. In its investigation, SEBI observed that a huge amount of receivables were written off by the Company, 58% of which were with respect to transactions with FDSL and its connected entities. SEBI also noted that the shareholders of the Company relied on the misstated results published by the Company to base their investment decisions and resultantly lost significant wealth. Therefore, SEBI observed that the KMPs and MD of FDSL have prima facie violated provisions of SEBI (PFUTP) Regulations, 2003.
In light of this and given the weak financial situation of the Company, SEBI decided to intervene by issuing a show cause notice to the people involved, to protect the interest of the shareholders. SEBI has restricted the noticees from accessing the securities market, and in order to adequately unearth the fraud, SEBI has decided to appoint an independent audit firm to conduct a forensic audit of the Company.