Tesco PLC and its directors misled investors about its financial health, according to a Texas pension fund that sued the U.K.’s biggest retailer just as it’s facing an onslaught from rival European companies.
The $181 million Irving (Texas) Firemen’s Relief and Retirement Fund alleged it bought Tesco stock at artificially inflated prices. It suffered “significant losses” when Tesco said in September that accounting irregularities caused it to overstate profits, according to the complaint filed Thursday in federal court in New York.
Tesco shares plummeted Sept. 22 after the supermarket chain said some income was booked before being earned and costs were recognized later than incurred. The news prompted investors, including Warren Buffett, to cut their stake. On Thursday, the company said the accounting caused it to overstate profit by £263 million ($422 million), with more than half of that amount predating this year.
Tesco declined to comment on the complaint by the pension fund.
The Irving pension fund is seeking to represent all Tesco shareholders who purchased the company’s American depository receipts, each representing one ordinary share, between Feb. 2 and Sept. 22, according to the complaint.
Tesco’s ADRs fell about 43% during the class period from a high of $16.97, the pension fund claimed.
Tesco “carried out a plan, scheme and a course of conduct” that was intended to deceive the investing public, the pension fund said in the complaint.
Tesco has cut its profit outlook three times in two months after losing U.K. market share, sending its shares to the lowest in more than 11 years. CEO Dave Lewis, who joined the firm less than two months ago, has also had to contend with the discovery of accounting issues that led to the suspension of eight senior managers.
Chairman Richard Broadbent said Thursday that he plans to step down. Also Thursday, Moody’s Investors Service lowered its credit rating on Tesco to Baa3, the lowest investment-grade level, and said the rating might be cut further to junk status. Fitch Ratings took similar action.
