Tesco faces £100m claim from investors over accounting scandal

Group of 124 British institutional funds claim they lost millions after supermarket mis-stated profits by at least £250m

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Tesco is facing a claim of more than £100m in damages by a group of investors who say the supermarket made misleading statements to the stock market.

The group of 124 British institutional funds, who say they lost millions of pounds after Tesco mis-stated profits two years ago, are involved in the claim filed by law firm Stewarts Law at the high court in London on Monday.

The action is being funded by Bentham Europe, a group that specialises in funding litigation and is ultimately controlled by US activist hedge fund Elliott Management.

It will aim to prove Tesco made misleading statements to the stock market that omitted material information and investors relied upon when making investment decisions.

Related: Who are the specialist investors behind the £100m Tesco case?

Jeremy Marshall, the chief investment officer of Bentham Europe, said: “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.

“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.”

Stewarts Law began soliciting disaffected shareholders to support joint action against Tesco in November 2014, 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 £250m.

The accounting scandal has led to several investigations and threatened legal action against Tesco.

Law firm Scott + Scott is representing a group called Tesco Shareholder Claims, which is seeking to bring British investors together to claim billions of pounds in compensation for losses from Tesco.

David Scott, the firm’s managing partner, has said the group will wait to see the results of the SFO investigation before pressing ahead with the claim.

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

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

The SFO said its investigation into Tesco continues and further individuals could face action. City analysts have warned that Tesco may face a £500m fine for the accounting scandal.

But there has also been speculation that the supermarket could be one of the first companies in the UK to strike a new type of deal with the SFO, which would enable it to avoid a criminal prosecution.

Under powers introduced in 2014, the SFO can offer a deferred prosecution agreement, a deal requiring high court approval, which includes fines and other undertakings with a cooperating company if such a course of action is considered to be in the public interest.

In January, the UK supermarket regulator, the Groceries Code Adjudicator, ruled that Tesco had deliberately delayed payments to suppliers to support its profits between June 2013 and February 2015, a move that spurred Stewarts Law to push ahead with its legal action.

Sean Upson, the partner leading the Tesco case for Stewarts Law, said: “Tesco has mis-stated 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.”

Tesco declined to comment on the latest action.