Kate’s casebook: Tesco to face angry shareholders in court over overstated profits

Tesco has been making headlines for all the wrong reasons over the past few months after overstating first-half profits by over £263m.

Now the supermarket giant is facing a criminal probe by the Serious Fraud Office, with senior bosses facing jail threats as a result.

Before the SFO investigation Tesco took on law firm Freshfields and accountants Deloitte to scrutinise its accounts. The two firms were tasked with investigating the overstatement and determining whether any rules were broken by the supermarket chain.

Now the firm could be going head to head with Stewarts Law, representing a potential raft of shareholders who believe they lost out as a result of the accounting error. Stewarts is preparing a mammoth case against the supermarket and is currently trying to recruit claimants to bring a compensation claim against Tesco.

If the firm’s success in putting together a group claim against the Royal Bank of Scotland (RBS) last year is anything to go by, this case could be huge.

Kate Beioley

Case history

September 2014 – Tesco admits that first-half profits were overstated by £250m and calls in Freshfields and Deloitte to undertake a “comprehensive review” of its accounts

September 2014 – Shares tumble 11.3 per cent in reaction to the news to an 11-year low of 203.5p

September 2014 – Four undisclosed executives are asked to step down

October 2014 – The Financial Conduct Authority (FCA) launches a probe into Tesco accounting

October 2014 – On 23 October 2014, Deloitte and Freshfields reveal Tesco has been overstating profits for several years and says overstatements add up to £263m, wiping over £2bn from Tesco’s share price. The supermarket reports a fall of 92% in pre-tax profits to £112m

October 2014 – The Serious Fraud Office (SFO) announces its own probe and the FCA halts its investigation in response

November 2014 – Stewarts Law secures third-party litigation funding to bring a compensation claim against Tesco, arguing the supermarket made misleading statements and omissions to the market in relation to its profits 

Talking points

  • The supermarket has lost 50 per cent of its market value in a year according to the BBC
  • Tesco is one of Britain’s largest corporate tax payers
  • Freshfields is a longstanding adviser to the supermarket giant. In 2012, the firm secured a partial victory for Tesco in a long-running Office of Fair Trading case relating to the price-fixing of dairy products (21 December 2012). 
  • Investigations and regulatory issues have become major points of work for law firms. With risk shooting up general counsels’ agendas, firms like Linklaters, Clifford Chance and Freshfields have all established risk and global investigations groups.
  • Stewarts Law is currently representing a group of over 300 institutional investors bringing claims against RBS over a 2008 rights issue they claim misrepresented the health of the bank

Do say 

“Group claims appear to be on the up in the UK but how many claimants will Stewarts Law attract for this battle?” 

Don’t say

“Any chance the cost of my shopping was overstated too…?”