BY Fraser Tennant
In a move set to send further shockwaves through the financial world, more than 125 institutional funds have filed a £100m claim for damages against Tesco PLC over alleged breaches of the Financial Services & Markets Act.
The aim of the legal action is to prove that Tesco made a series of misleading statements to the stock market – comments which (it is alleged) omitted pertinent information and resulted in investors making investment decisions based on erroneous data.
“The misstatement 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, chief investment officer at Bentham Europe, the litigation funder coordinating the claim for damages. “Investors have a right to rely on statements made by companies to ensure that they correctly allocate capital.”
In October 2014, Tesco admitted to overstating its profits by £263m. Following the announcement, the retail giant posted a 92 percent fall in interim profits.
“Tesco has misstated its accounts, and in particular its treatment of payments from suppliers, to give the appearance of static trading margins,” said Sean Upson, a partner at Stewarts Law, which is leading the case against Tesco. “The reality was that those margins were falling. Institutional investors were therefore misled when making investment decisions in respect of Tesco. This is precisely the type of wrongdoing which the Financial Services and Markets Act was designed to redress and therefore to prevent”.
Last month, the UK’s Serious Fraud Office charged three former Tesco executives – Christopher Bush, at one time Tesco’s UK managing director; Carl Rogberg, a former UK finance director; and John Scouler, who used to be Tesco’s UK commercial director for food – over the scandal, alleging that they acted dishonestly by giving false accounts of the commercial income earned by Tesco Stores as well as its financial position.
The men are scheduled to stand trial at Southwark Crown Court in September 2017.
Jeremy Marshall concluded: “The (damages) claim will assert that Tesco’s misstatements are in clear breach of its obligations under the Financial Services & Markets Act and investors must be compensated.”