The supermarket giant has reached a Deferred Prosecution Agreement (DPA) with the SFO which will result in its Tesco Stores subsidiary paying both a financial penalty of just under £129m and the SFO’s full costs for the false accounting which took place between February and September 2014. The DPA will become effective if approved by the Crown Court at a public hearing on 10 April.
In the settlement with the FCA Tesco has also accepted that the company committed market abuse in relation to a trading update published on 29 August 2014, which gave a false or misleading impression about the value of publicly traded Tesco shares and bonds.
Tesco has agreed to pay compensation to investors who purchased Tesco shares and bonds on or after the 29 August 2014 and who still held those securities when the statement was corrected on 22 September 2014.
The FCA said that this is the first time that it has used its powers under section 384 of the Financial Services and Markets Act to require a listed company to pay compensation for market abuse. The regulator stated that: “Conduct by issuers in the primary market affects the integrity of investments and securing compensation is an important step in ensuring effective access to redress for those investors, especially for the very significant number of retail investors that this redress scheme will benefit, whether they invested privately or through participation in a pension fund or similar investment.”
The FCA said it has a database of all reported share transactions during the relevant period which indicates there were about 10,000 retail and institutional eligible investors who between them purchased approximately 320 million shares during the period and who may be eligible for compensation under the scheme.
The compensation scheme will launch by 31 August 2017 and will be administered on Tesco’s behalf by KPMG. It is estimated that the scheme will cost Tesco £85 million, plus interest. Tesco said the company expected to take an exceptional charge of £235m in respect of the penalty, compensation scheme and related costs. This will be booked as an adjusting post balance sheet event in 2016/17.
Dave Lewis, Tesco chief executive, said: “Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.“