Institutional and other investors will receive a share of £85 million ($105.3 million) in compensation from Tesco PLC following market abuse by the U.K. retailer.
The Financial Conduct Authority announced Tuesday that Tesco agreed it had committed market abuse in relation to a trading update, published Aug. 29, 2014, which gave a false or misleading impression about the value of publicly traded shares and bonds.
In its trading update, Tesco said trading profit for the six months ended Aug. 23, 2014, was expected be about £1.1 billion. On Sept. 22, 2014, the firm published a revised update announcing it had identified an overstatement of expected profit, “principally due to the accelerated recognition of commercial income and delayed accrual of costs.”
As a result of the false or misleading information in the original announcement, Tesco share and bond prices were inflated, continuing until the correction was made in September, the FCA said.
The FCA said in a news release that it has a database of all reported transactions in the period, indicating about 10,000 retail and institutional eligible investors, with about 320 million shares purchased between them in the period. These purchasers might be eligible for compensation.
Tesco has agreed to pay compensation to investors who purchased shares and bonds on or after Aug. 29, 2014, and still held those securities when the update was corrected in September 2014.
This is the first time the FCA has used its powers under Section 384 of the Financial Services and Markets Act to require that a listed company pay compensation for market abuse.
“Conduct by issuers in the primary market affects the integrity of investments, and securing compensation is an important step in ensuring effective access to redress for those investors, especially for the very significant number of retail investors that this redress scheme will benefit, whether they invested privately or through participation in a pension fund or similar investment,” the news release said.
“Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets,” said Andrew Bailey, CEO of the FCA, in the release. “The FCA is committed to U.K. 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.”
The retailer will pay an amount to each purchaser of shares and bonds who makes a claim under the proposed compensation scheme, equal to the inflated amount for each security. An independent expert was used by the FCA to calculate the inflated amount. This compensation is open only to those who acquired shares and bonds after Aug. 29, 2014, and still held some or all of them on the last day of trading before the corrective statement, Sept. 22, 2014. These buyers are described as net purchasers.
The compensation program will launch by Aug. 31. KPMG will administer the program on Tesco's behalf. Further information is available on KPMG's website.