Here's how the former CEO and CFO of Sigma Pharmaceuticals cooked the books to 'create' revenue

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Elmo De Alwis, the former CEO, and Mark Smith, the former chief financial officer, of Sigma Pharmaceuticals have pleaded guilty to falsifying the company’s books.

The charges relate to four transactions at Sigma between June 2009 and March 2010 which inflated revenue, making the company look financially healthier than it really was.

Sigma is a wholesaler to pharmacies and owns the Amcal brand.

In the County Court in Melbourne today, De Alwis and Smith each pleaded guilty to organising for Sigma to buy wholesale pharmaceutical drugs at inflated prices.

The amount of the inflated payment was then returned to the company and recorded in Sigma’s books as revenue.

As a result, for the full year to the end of January 2010, Sigma’s reported income was overstated by $15,500,616, its inventory value was overstated by $11,313,224, and its profit after tax was overstated by $9,599,000.

Sigma subsequently made adjustments to its accounts to reverse these overstatements.

De Alwis and Smith will be back in court on September 17 for a plea hearing.

The Commonwealth Director of Public Prosecutions is prosecuting following an investigation by the corporate watchdog, ASIC.

De Alwis and Smith today each pleaded guilty to two charges under s1307 of the Corporations Act for falsifying Sigma’s books.

They also indicated they would each plead guilty to two charges under s1309 of the Corporations Act for giving false or misleading information to Sigma’s auditors and board.

The offences each carry a maximum penalty of $11,000 or jail for two years, or both. The offences under s1309 of the Corporations Act each carry a maximum penalty of $22,000 or imprisonment for five years, or both.

Sigma released a statement today saying it had fully co-operated with ASIC and that no charges had been laid against the company or current or former non-executive directors.

“This matter will have no impact on Sigma’s ongoing business,” the statement said.

Sigma shares are trading down 2.3% today at $0.762.

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