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Tesco market abuse update: FCA orders investor compensation scheme while the SFO imposes a £129m fine under a deferred prosecution agreement

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By William Allison & Declan Finn


Published 25 May 2017



We have previously reported on the fallout from a trading update issued by Tesco plc and Tesco Stores Limited (Tesco) on 29 August 2014, which inaccurately overstated anticipated profit. Tesco subsequently published a trading update on 22 September 2014 announcing that it had “identified an overstatement of its expected profit for the half year".

On 5 April 2017, the Financial Conduct Authority (FCA) concluded that Tesco committed market abuse as the initial trading update gave a false or misleading impression about the value of publicly traded Tesco shares and bonds. The FCA decided not to impose a financial penalty in respect of this market abuse; instead it required Tesco to pay compensation to investors who purchased Tesco shares and bonds on or after 29 August 2014 and held those securities when the statement was corrected on 22 September 2014. The FCA estimates approximately £85 million plus interest may be payable under the scheme by Tesco.

This is the first time the FCA has used its powers under section 384 of the Financial Services and Markets Act (FSMA) to require a listed company to pay compensation for market abuse.

Separately, the Serious Fraud Office (SFO) and Tesco Stores Limited agreed a deferred prosecution agreement (DPA) relating to false accounting in respect of which Tesco Stores Limited will pay a fine of approximately £129 million. The DPA concerns only the potential criminal liability of Tesco Stores Limited and does not address whether liability of any sort attaches to Tesco.

It will be interesting to see what if any impact the FCA compensation order will have on the shareholder action which is being pursued against Tesco in the Commercial Court, pursuant to section 90A FSMA (statutory civil liability for misleading statements in periodic disclosures to the market). Some commentators had suggested that the claims would fall away but Stewarts Law, which represents claimant shareholders, has confirmed the shareholder action will continue.