28 Mar Tesco agree to pay investors compensation following FCA probe
The Financial Conduct Authority has confirmed Tesco have agreed that they 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 have 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.
This is the first time the FCA 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.
Andrew Bailey, Chief Executive of the FCA, said: “Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets. The FCA is committed to UK markets being fair, transparent and thus competitive. Tesco and its board are doing the right thing here, taking appropriate responsibility and agreeing to rectify the consequences of the misconduct.”
On 29 August 2014, Tesco plc reportedly published a trading update in which it stated that it expected trading profit for the six months ending 23 August 2014 to be in the region of £1.1bn.
On 22 September 2014, Tesco plc published a further trading update in which it announced that it had “identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs.”
Tesco knew or could reasonably have been expected to know that the information in the 29 August 2014 announcement was false or misleading. In making this finding, the FCA does not suggest that the Tesco plc board knew or could reasonably have been expected to know that the information was false or misleading.
As a result of the false or misleading information within the 29 August 2014 announcement, the market price for Tesco shares and bonds was inflated. This continued until Tesco issued a corrective statement on 22 September 2014. Purchasers of shares and bonds between these dates paid a higher price than they would have paid had the false impression not been created.
Under the compensation scheme Tesco will pay an amount to each purchaser of Tesco shares and bonds who makes a claim under the proposed scheme that is equal to the inflated amount for each share or bond.
The FCA estimates the total amount of compensation that may be payable under the scheme will be approximately £85 million, plus interest.
Tesco have been contacted for comment.