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IPE special report May 2018

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Tesco to compensate investors over £250m accounting error

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Institutional investors could share in an £85m (€93m) settlement from UK supermarket Tesco, relating to an accounting error that led to “inflated” prices for its stocks and bonds in 2014.

It is the first time the UK regulator, the Financial Conduct Authority (FCA), has used its powers to force a listed company to pay compensation to investors.

In addition, Tesco faces a fine of £129m from the Serious Fraud Office (SFO). The SFO will present its case for a “deferred prosecution agreement” on 10 April at the Crown Court in London. If successful, Tesco will pay the fine but will not face prosecution.

The actions relate to a trading update issued by the FTSE 100-listed supermarket chain on 29 August 2014, in which it claimed to have made a £1.1bn trading profit in the previous six months.

However, on 22 September 2014 the company issued a further update admitting that it had overstated profits by £250m.

The FCA said the August update gave “a false or misleading impression” about the value of Tesco shares and bonds.

“As a result of the false or misleading information within the 29 August 2014 announcement, the market price for Tesco shares and bonds was inflated,” the FCA said in an announcement this morning.

“This continued until Tesco issued a corrective statement on 22 September 2014. Purchasers of shares and bonds between these dates paid a higher price than they would have paid had the false impression not been created.”

The compensation fund will only be open to investors who purchased shares or bonds between 29 August and 22 September 2014. The FCA indicated that there were “about 10,000 retail and institutional eligible investors” who made purchases during the period and so could claim for compensation.

Last year a group of 112 institutional investors – including several UK and European pension funds – filed a lawsuit against Tesco claiming losses of roughly £150m.

Investors backing the lawsuit included Alecta, the BT Pension Scheme, Stichting Shell Pensioenfonds, Unipension Invest, Church Commissioners for England, and BAE Systems’ pension plan.

A spokesperson for Stewarts Law, which is representing the investors in the compensation claim against Tesco plc, declined to comment, citing “ongoing civil and criminal proceedings”.

The redress scheme will launch by the end of August 2017, the FCA said. More information is available from KPMG’s dedicated webpage. KPMG is administering the scheme.

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