Tesco share price falls after being fined £129m by Serious Fraud Office and shelling out £85m to investors in compensation

Oliver Gill
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Blown over? Tesco may hope today's announcement draws a line under the 2014 accounting scandal (Source: Getty)

Tesco has been fined £129m by the Serious Fraud Office (SFO) for false accounting between February and September 2014.

Shares in the group fell nearly one per cent in opening trading this morning.

The supermarket giant has entered into a deferred prosecution agreement with the SFO. This means the group will not be prosecuted on condition it fulfils certain requirements, including payment of the fine.

Financial regulators have conducted a separate investigation into market abuse allegations over a trading statement issued on 29 August 2014.

Read more: Tesco fined £129m by the fraud squad: This is how the City reacted

Tesco has agreed with the Financial Conduct Authority (FCA) a compensation scheme for purchasers of shares between 29 August 2014 and 19 September 2014 inclusive.

The compensation is estimated to cost Tesco £85m, with accountants from KPMG appointed to administer proceedings.

Dave Lewis, Tesco's chief executive, said:

Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business.

We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.

How is the compensation calculated?

  • Each net purchaser of shares will be entitled to compensation of 24.5p per share purchased
  • Plus interest at 1.25 per cent per annum if the net purchaser is an institutional investor; or
  • Four per cent per annum if the net purchaser is a retail investor, in each case with such interest running from 19 September 2014 until approximately four months after the opening of the scheme.
  • This compensation is the difference in price of the relevant shares and bonds between market close on Friday 19 September 2014 and market close on Monday 22 September 2014 after Tesco had announced in the morning of Monday 22 September 2014 that it had identified an overstatement of its expected profit. It has been further adjusted for other industry-wide effects on the market.

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The FCA is not levying a direct penalty onto Tesco.

The total cost in relation to both the SFO and FCA investigations will be £235m and concludes both parties' investigation into Tesco as a corporate entity.

Separately in September, three former Tesco executives were charged individually with fraud by the SFO in relation to its accounting scandal.

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