Accounting Scandal Results in Tesco Facing £100m Claim from Investors

A group of investors say that the supermarket Tesco made misleading statements to the stock market and as a result the company is facing a claim of more than £100m in damages.

Involved in the claim filed by law firm Stewarts Law at London’s high court on Monday are a group of 124 British institutional funds, who claim they lost millions of pounds after Tesco mis-stated profits two years ago. An offshoot of Australian group IMF Bentham, which specialises in funding litigation – Bentham Europe, is funding the action.

“The mis-statement of profits, leading to a dramatic collapse in the Tesco share price, caused substantial damage to many shareholders who manage money for thousands of investors,” said Jeremy Marshall, the chief investment officer of Bentham Europe.

“Investors have a right to rely on statements made by companies to ensure that they correctly allocate capital. The claim will assert that Tesco’s mis-statements are in clear breach of its obligations under the Financial Services and Markets Act and investors must be compensated,” Marshall added.

Shortly after more than £2bn was wiped off the supermarket’s value when it admitted in September 2014 that profits had been artificially inflated by at least £250 million,  Stewarts Law began soliciting disaffected shareholders to support joint action against Tesco in November 2014.

Following an independent audit the number was increased to 326 million pounds.

Jeremy Marshall, chief investment officer at Bentham Europe, said in the statement that the misstatement led to a “dramatic” collapse in Tesco’s share price and investors “must be compensated”.

In the US, where Tesco agreed to a $12 m (£9.87m) deal to settle one of two shareholder class action suits over the accounting scandal, the company is s also facing potential legal action.

For abuse of position and one count of false accounting, three former Tesco executives over the accounting scandal with one count of fraud have been charged by the Serious Fraud Office. The case would enter trials in September of 2017 as John Scouler, who used to be the UK commercial director for food, Carl Rogberg, the former UK finance director and Christopher Bush, who was Tesco’s UK managing director, have pleaded not guilty to the charges.

Further individuals could face action as its investigation into Tesco continues, the SFO said.

The supermarket had deliberately delayed payments to suppliers to support its profits between June 2013 and February 2015, the UK supermarket regulator, the Groceries Code Adjudicator, ruled in January.

Tesco declined to comment on the latest action.

Chief Executive Officer Dave Lewis is seeking to rebuild Tesco’s battered reputation as well as its profits amid an industry price war and the litigation is an unwelcome distraction for Lewis.

The company’s shares fell 2.2 percent to 211 pence at 2:48 p.m. in London trading.

(Adapted from The Guardian & Bloomberg)

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Categories: Economy & Finance, Regulations & Legal

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