Tesco is facing multimillion-pound legal action from four US pension and investment funds after its “massive restatement” of profits last year.  

Tesco is facing multi-million dollar legal action from four US pension and investment funds after its “massive restatement” of profits last year.

  • Four US investment funds launch legal action against Tesco
  • They claim the grocer “dramatically overstated” profit in 2014
  • Four funds acquired £42m-worth of shares over two years
  • But their value collapsed after last year’s accounting scandal

The complaint, which was filed in an Ohio court just hours after Tesco unveiled a 55% slump in first-half operating profits on Wednesday, centres on the grocer’s £263m accounting scandal in September 2014 that caused its share price to plummet.

Action has been filed by The Western and Southern Life Insurance Company, Western & Southern Financial Group, Integrity Life Insurance and Touchstone Strategic Trust.

It comes amid reports that Tesco is close to reaching a ‘deferred prosecution agreement’ with the Serious Fraud Office, which would spare the supermarket giant from a criminal case, providing it agrees to pay a fine and compensation.

‘Disregarded’ facts

The 72-page document filed by the four groups says Tesco “recklessly disregarded” facts and “dramatically overstated” profit, according to The Daily Mail.

The papers include evidence of hundreds of purchases of Tesco Depository Receipts, which are certificates representing shares, during a two-year period. The total value of shares acquired during the timeframe are said to be worth $65m (£42.39m) in total.

Lawyers representing the four groups are asking for the recovery of cash lost through the acquisition of the shares, plus “punitive damages”.

Tesco’s profit overstatement, which was pointed out by a member of staff to boss Dave Lewis just weeks after he took the reins 13 months ago, centred on the issue of commercial income, which the legal action says was overstated.

Invoices

The paper cites a number of people providing evidence against Tesco, including a potato farmer from Ireland and two others from a sports drink supplier. One complained of being sent invoices for as much as £25,000 from Tesco, which had not been previously agreed.

The invoices are said to have included “listing fees” for new products and charges for adding “small strips of paper” with the word “new” on them to help promote the goods.

According to the court papers, the supplier had never agreed to pay the fees at any stage and refused to settle the invoices, before ceasing selling to Tesco in January 2015.

The paper adds that Tesco category manager David Beardmore spoke to a second person from the supplier later in the year. It is alleged that Beardmore apologised and claimed he was interested in the carrying the products again.

The papers go on to claim that the “purported success” that Tesco was experiencing was the result of “fraudulent financials”.

Tesco declined to comment this morning.