UK and European pension funds are among 60 institutional investors planning to file a milestone lawsuit against Tesco, the UK’s biggest supermarket, for losses of around £150m (€173m) incurred because of accounting irregularities by the company, resulting in overstated earnings.
The case is believed to be the first to be brought under Sections 90 and 90A of the UK’s Financial Services and Markets Act.
These provisions allow investors to bring a claim against companies that issue prospectuses or publish statements on which the investors intend to rely and that contain false information, causing a loss.
On 22 September 2014, Tesco issued a market announcement saying it had previously overstated its expected profits for the half year just ended by £250m.
On 23 October 2014, Tesco announced that recent profit overstatements now totalled £263m.
The supermarket also issued a third profit downgrade for the current financial year (2014-15), reporting a fall of 92% in pre-tax profits.
The reaction from markets was swift, with more than £2bn being wiped off Tesco’s share price.
The investors’ lawsuit will allege that Tesco made misleading and untruthful statements and omissions to the market in relation to its profits for recent financial periods.
It is being funded by litigation funders Bentham Europe.
The case will be filed in the High Court of Justice within the next four weeks, according to Sean Upson, partner in the commercial litigation and investor protection litigation departments at Stewarts Law.
Upson, who is leading the action on behalf of the investors, told IPE: “The investors are bringing the action because, when the mis-statements in Tesco’s accounts were revealed, it caused losses. And many investors want to see better corporate governance at Tesco in the future.
“One could see this case leading to similar actions because Section 90A has shown the way.”
Jeremy Marshall, CIO at Bentham Europe, said: “There is a compelling reason for pension funds to take part in an action like this, if a recovery is achieved without risk of loss, because they have to act in the interests of their members.”
Bentham Europe acts on a no-win, no-fee basis.
All current and former shareholders that acquired at least 10,000 Tesco shares during the period 17 April 2013 to 22 October 2014, and that had not sold all of those securities prior to market announcements made by Tesco on 29 August, 22 September or 23 October 2014, are eligible to participate in the action.
More information is available at https://www.benthameurope.com/tesco-plc-overview.
Meanwhile, three former Tesco executives are also facing criminal charges, after an investigation by the Serious Fraud Office.