The Financial Conduct Authority (FCA) has ordered Tesco to pay investors redress in the region of £85m after it found the company had engaged in market abuse.
The regulator said a trading update published on 29 August 2014 by Tesco had given a false or misleading impression about the value of publicly traded Tesco shares and bonds.
Tesco has agreed to pay compensation to investors who purchased the company's shares and bonds on or after 29 August 2014 and who still held those securities when the statement was corrected on 22 September 2014.
In addition, Tesco Stores Limited has entered into a deferred prosecution agreement (‘DPA') with the Serious Fraud Office (‘SFO') relating to false accounting, pursuant to which it will pay a fine of £128,992,500, the FCA said.
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.
It said about 10,000 retail and institutional investors purchased approximately 320 million shares during the period and may be eligible for compensation under the scheme.
Chief executive Andrew Bailey 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. They have cooperated fully with us and this sets a good example for the market and so is a good outcome for Tesco and investors."
On 29 August 2014, Tesco published a trading update in which it stated it expected trading profit for the six months ending 23 August 2014 to be in the region of £1.1bn. A month later, on 22 September, the firm published a further trading update in which it said 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," the FCA said.
The regulator said Tesco could reasonably have been expected to know that the information in the August announcement was false or misleading, even though Tesco plc's board may have been unaware.
As a result of the false information, the market price for Tesco shares and bonds was inflated. Purchasers of shares and bonds between then and September paid a higher price than they would have paid had the false impression not been created, the FCA said.
Compensation open to all
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 amount they are deemed to have overpayed in the first place. The amount has been established with the assistance of an independent expert engaged by the FCA.
The scheme is open to all purchasers who acquired Tesco shares and bonds after 29 August and who still held some or all of them on the last day of trading before the corrective statement was issued on 22 September.
The FCA estimates the total amount of compensation that may be payable under the scheme will be approximately £85 million, plus interest.
The compensation scheme will launch before 31 August and will be administered on Tesco's behalf by KPMG.
As a result of the £129m fine, and in light of the conduct of Tesco plc and Tesco Stores Limited in accepting responsibility for market abuse, the FCA said it will not impose any additional sanction on them for market abuse.
Furthermore, the DPA concerns only the potential criminal liability of Tesco Stores Limited and does not address whether liability of any sort attaches to Tesco plc.
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