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Tesco hit with £100m claim from investors over accounting scandal

| International retailers

Tesco has been hit with a damages claim for more than £100m from over 125 institutional investors who say they lost significant sums of money as a result of the accounting scandal that rocked the supermarket group two years ago.

The claim alleges Tesco breached the Financial Services & Markets Act in relation to the over-statement of earnings. It was filed by law firm Stewarts Law at the High Court in London yesterday, backed by Bentham Europe, a firm that specialises in funding litigation.

Bentham Europe said the legal action will seek to prove that Tesco made misleading statements to the stock market that omitted material information and which were relied on by investors when making investment decisions.

On 23 October 2014, Tesco announced it had previously over-stated its profits by £263m. The announcement, which was accompanied by a 92% drop in interim profits, cut a
further £1bn from Tesco’s market capitalisation (which had already reduced by £2bn following the initial disclosure to the market in September 2014).

Jeremy Marshall, Chief Investment Officer of Bentham Europe, said: “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.”

“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 misstatements are in clear breach of its obligations under the Financial Services & Markets Act and investors must be compensated.”

Sean Upson, the partner at Stewarts Law leading the case, added: “Tesco has misstated its accounts, and in particular its treatment of payments from suppliers, to give the appearance of static trading margins. 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”.

Reports said the lawsuit will be a setback for Tesco’s Chief Executive Dave Lewis who has attempted to put the accounting scandal behind the company and focus on its recovery. Tesco has yet to comment on the lawsuit.

The Serious Fraud Office (SFO) recently charged three former Tesco executives over the
accounting scandal alleging that the men acted dishonestly by giving a false account of the commercial income earned by Tesco and a false account of its financial position. Christopher Bush, who was Tesco’s UK Managing Director; Carl Rogberg, former UK Finance Director; and John Scouler, who used to be UK Commercial Director for food, will stand trial at Southwark Crown Court in September next year.

The SFO investigation into Tesco is continuing.  This could lead to further individuals facing action and a large fine for the company.

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