The former boss of Sigma Pharmaceuticals and the company’s chief financial officer could be jailed after pleading guilty to falsifying the company’s accounts.

Former chief executive Elmo De Alwis and CFO Mark Smith pleaded guilty at Melbourne’s County Court on Thursday to falsifying Sigma’s books after inflating the prices of medicines bought by the company in 2009.

The corporate watchdog, ASIC, says the pair also indicated they would plead guilty to charges of giving false or misleading information to Sigma’s auditors and board.

The pair was charged after the Australian Securities and Investment Commission launched an investigation into how the men overstated Sigma’s income, profits and inventory between June 2009 and March 2010.

The men organised for Sigma to buy wholesale pharmaceutical drugs at inflated prices, with the inflated payments returned to Sigma and recorded in its accounts as revenue.

They then allegedly misinformed Sigma’s board and auditors about how the transactions were accounted for.

Sigma’s net profit was found to have been overstated by nearly $9.6 million for the year to January 31, 2010.

Its income for the year was also overstated by $15.5 million and its inventory by $11.3 million.

The company’s shares plummeted when Sigma, which owns the Amcal and Guardian pharmacy chains, reported a net loss of $390 million for the 2009/2010 financial year in March 2010.

The men, who resigned from Sigma in 2010, will next face court on September 17.

They each face a maximum penalty of $11,000 or imprisonment for two years, or both, for falsifying Sigma’s accounts.

They could also face fines of up to $22,000 or five year’s jail, or both, if they plead guilty to giving misleading information to Sigma’s board and auditors.

Sigma said the company had fully co-operated with ASIC during its investigations and that no charges had been laid against it or any of its other current or former executives or non-executive directors.

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