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Tesco Opens £85M Compensation Scheme for Investors After Accounting Scandal

The accounting scandal came to light in 2014 after Tesco admitted it had identified a £250 million overstatement of first-half profits that year.

Image via C41n/Wikimedia

Tesco PLC (LON:TSCO) has opened a £85 million compensation scheme for ten thousand bondholders and investors. The British retailer announced the opening of the redress scheme last Thursday, which will compensate shareholders who were misled by a 2014 trading statement.

The scheme was initially announced in March after Tesco came to an agreement with the Financial Conduct Authority to compensate investors who purchased bonds or shares between August 29, 2014 and September 19, 2014.

The accounting scandal came to light in 2014 after Tesco admitted it had identified a £250 million overstatement of first-half profits that year. It was later found that the retailer deliberately withheld money owed to its suppliers to boost performance and sales artificially.

The scandal caused many senior staff members to leave the company and prompted an investigation.

Investors sued the company after news of the scandal. The retailer also settled a separate suit in New York federal court in 2015 for $12 million over losses. In September, Tesco settled yet another suit in Ohio federal court, which involved a group of insurance companies and one investment firm. The settlement award in that suit has not been disclosed.

Tesco’s shares lost nearly half their value in the following months.

The newly-launched redress scheme will entitle eligible investors to 24.5p per share, plus interest at 1.25 cent per year for institutional investors. Retail investors are entitled to 4 cents per year in interest.

The company has appointed KPMG to manage the scheme, and the Financial Conduct Authority will provide oversight.

Tesco in March came to an agreement with the Serious Fraud Office to pay £129 million in fines. In exchange, the retailer was able to avoid prosecution.

The FCA has stressed that there is no indication that Tesco PLC’s board knew, or could have been expected to know, about the fraudulent information in the trading statement.

Accounting watchdog Financial Reporting Council concluded its investigation into PricewaterhouseCoopers LLP, a Tesco auditor, but says there is an ongoing investigation into other members involved in the approval and preparation of the company’s accounts.

Tesco is looking to put the accounting scandal behind it, and changes made in the years since the incident have improved the company’s performance.

“I’m very happy to be able to report another considerable improvement for Tesco,” said Tesco chairman John Allen in the company’s annual report. The company posted a profit of almost 50 million pounds and operation profit of 1.28 billion pounds. The figures represent a 25% increase in performance.

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