Tesco faces £100m damages claim over profit overstatement

Tesco will face a damages claim for more than £100m filed by 125 institutional funds over the grocer's over-statement of profits and alleged misleading statements to the stock market.

The damages claim was filed on Monday for "well in excess of £100m" over Tesco's alleged breaches of the Financial Services & Markets Act in relation to over-statement of earnings.

Referring to the FTSE 100 supermarket group's October 2014 admission that it had previously over-stated its profits by £263m, the legal action will seek to prove that Tesco made misleading statements to the stock market that "omitted material information and which were relied on by investors when making investment decisions".

The claim is being led by litigation funding specialist Bentham Europe, with litigations specialist Stewarts the law firm taking the case.

“The misstatement of profits leading to a dramatic collapse in the Tesco share price caused substantial damage to many shareholders who manage money for thousands of investors,” said Bentham's chief investment officer Jeremy Marshall.

“Investors have a right to rely on statements made by companies to ensure that they correctly allocate capital. The claim will assert that Tesco’s misstatements are in clear breach of its obligations under the Financial Services & Markets Act and investors must be compensated.”

Sean Upson, the partner at Stewarts Law leading the case, said: “Tesco has misstated its accounts, and in particular its treatment of payments from suppliers, to give the appearance of static trading margins. The reality was that those margins were falling. Institutional investors were therefore misled when making investment decisions in respect of Tesco. This is precisely the type of wrongdoing which the Financial Services and Markets Act was designed to redress and therefore to prevent”.

Shares in Tesco were down 1.5% at 212.5p by 1400 GMT on Monday.