Shareholders to make legal claim against Tesco

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Tesco is to face a compensation claim from disgruntled shareholders who suffered loss as a result of its recent overstatements of profit.

The claim is set to allege senior management either knew or were reckless with Tesco's statements to the market, which misleadingly and/or dishonestly concealed their true financial position, in breach of the Financial Services and Markets Act.

Bentham Ventures BV, a joint venture between Bentham Europe and IMF Bentham Ltd, will be funding the legal action against the supermarket on behalf of shareholders.

The claim, which will be conducted by commercial litigation firm Stewarts Law, will seek to establish that shareholders are entitled to compensation for losses caused by Tesco's alleged breaches of the Financial Services and Markets Act arising from overstating its earnings.

In October, Tesco announced that recent profit overstatements totalled £263m, which wiped over £2bn from Tesco's share price. The supermarket further downgraded its expected profits for the current financial year significantly and reported a fall of 92 per cent in pre-tax profits.

This alleged conduct has resulted in the suspension of senior Tesco executives and investigations by lawyers, a forensic accounting firm, the Financial Conduct Authority and now the Serious Fraud Office.

Stewarts Law is currently acting for more than 300 institutional shareholders in the multi-billion pound RBS Rights Issue litigation, which is also a claim under the Financial Services and Markets Act.

Partner at Stewarts Law Sean Upson commented: "We expect to issue proceedings against Tesco in the High Court in London within six months. We do not intend to wait for the outcome of the SFO investigation which may take some years."

John Walker, managing director of Bentham Europe, said: "The overstatement of earnings has caused significant harm to Tesco's shareholders who bought shares since 17 April 2013. Shareholders are justifiably concerned that Tesco has misrepresented its earnings resulting in material losses. We expect the legal claim to reveal the true extent of the problem and allow shareholders to seek compensation for harm suffered."

In order for the claim to proceed a sufficient number of shareholders will need to join the action. All current and former shareholders who acquired at least 10,000 Tesco shares during the period 17 April 2013 to 22 October 2014, and who had not sold all of those shares prior to the market announcements made by the supermarket on 29 August, 22 September or 23 October 2014, are eligible to participate in the proposed action.

Walker concluded: "Shareholders ought to be able to allocate capital on the London Stock Exchange assuming earnings are not being misstated. When there has been a material misallocation of capital due to misstated earnings, compensation ought to be paid. This is the biggest crisis in Tesco's history and shareholders - who saw billions wiped off the value of the company within days - deserve more than just an explanation for what went wrong."

John van der Luit-Drummond is legal reporter for Solicitors Journal