More than 125 institutional funds have collectively filed a civil lawsuit against UK supermarket chain Tesco in the High Court. They are claiming more than £100m (US$122m) in damages from the company over its overstatement of earnings two years ago.
The case centres on Tesco’s announcement in October 2014 that it had previously overstated its profits by £263m. The revelation was accompanied by a 92% drop in interim profits and led to Tesco losing a further £1bn in market capitalisation, in addition to a £2bn loss in market cap while making the initial disclosure in September 2014.
In the first collective legal action against the UK’s biggest supermarket chain, the funds allege that they lost millions of pounds as a result of Tesco’s actions. They also claim that that had made misleading statements to the stock market, which omitted material information. According to the funds they had relied on these statements while making their financial decisions, resulting in losses.
The action is being funded by Bentham Europe, a group that specialises in litigation funding and controlled by US activist hedge fund Elliott Management.
“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,” Jeremy Marshall, chief investment officer (CIO) of Bentham Europe, said in a statement.
“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.”
The claim was filed by the London and Leeds-based litigation-only law firm Stewarts Law, which is acting for the group of asset managers, hedge funds and pension funds that are suing the supermarket chain.
Sean Upson, the partner at Stewarts Law, who is leading the case, said: “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”.