Two former Sigma Pharmaceuticals executives have pleaded guilty to falsifying accounts to inflate profits.

Sigma’s ex-CEO Elmo De Alwis and ex-CFO Mark Smith entered their pleas in relation to four financial transactions conducted by the company between June 2009 and March 2010.

Legal action was taken after an Australian Securities and Investments Commission (ASIC) investigation found the transactions resulted in Sigma overstating its income, profits and inventory.

ASIC says the two men arranged for Sigma to purchase wholesale pharmaceuticals at inflated prices, before returning the amount of the inflated payment to Sigma to record in its accounts as revenue.

The regulator found that these transactions saw Sigma's publicly reported income overstated by around $15.5 million.

The pharmaceutical giant’s inventory value was inflated by $11.3 million, and its profit after tax overstated by nearly $9.6 million.

Mr De Alwis and and Mr Smith both pleaded guilty to falsifying the books in Melbourne's County Court this week.

ASIC says the pair indicated they would enter guilty pleas to charges of giving false or misleading information to the company's board and auditors at their next court appearance in September.

Sigma Pharmaceuticals shares halved in value when the company announced a big $389 million loss due to a series of writedowns and having been in a trading halt for five weeks.

A key point in the legal action revolved around the company’s forecasts of “modest net profit growth” when it conducted a $300 million capital raising in September 2009, and the contrast to the massive loss subsequently reported.

The company has now agreed to a $60 million settlement over a class action brought by disgruntled shareholders.