Tesco to pay up $12m to settle accounting scandal US lawsuit
Published 26/11/2015 | 09:05
Tesco has agreed to pay $12m (£8m) to settle a US lawsuit over the accounting scandal last year which saw its shares crumble.
US owners of American Depositary Receipts (ADRs), instruments which allow those across the Atlantic to hold shares in a non-US company, brought the class action lawsuit against the supermarket chain.
They were among the investors who suffered as Tesco’s shares lost over a quarter of their value within a fortnight after the supermarket admitted to an accounting scandal at the company.
The grocer will cough up $12m to settle the lawsuit, but it is not admitting any liability.
Tesco revealed last September that it had overstated its commercial income by £250m, due to the “accelerated recognition of commercial income and delayed accrual of costs”.
In layman's terms, the accounting error arose because of the way Tesco recognised and accounted for payments to suppliers, and the payments suppliers paid to the supermarket.
After re-examining its accounts, it later emerged that the income overstatement was higher than the initial £250, at £326m.
This was equal to roughly a quarter of Tesco’s profits, and the scandal led to the departure of top staff, including its former chief executive Phil Clarke, and an internal investigation. A Serious Fraud Office inquiry into the company could last up to seven years.
The settlement is subject to confirmation by a federal court in New York. “The agreement, if confirmed, will settle one of two claims before US courts arising out of the commercial income overstatement,” Tesco said.
The second claim is being brought in Ohio by holders of ADRs, which Tesco says make up less than 0.2pc of the company’s total shares.