Shareholders Sue Tesco Over Multi-Million Dollar Restatement

Chris Gaetano
Published Date:
Oct 3, 2016

A group of investors have filed suit against British supermarket chain Tesco over losses that resulted when it was revealed the company had overstated its profits by £263 million (or $338 million today), according to the BBC. The investors say that, because of the accounting scandal that followed, they wound up losing £150M. 

Tesco, in 2014, was found to have manipulated earnings figures through abusing rebates with suppliers: a company policy allowed stores to receive rebates from suppliers if the store could clear a certain volume by a specified time. A summary of the matter by The Financial Times said that stores, despite not meeting these sales targets, would claim these rebates anyway and promise suppliers extra benefits in the future. The suit comes after three executives were charged with fraud in connection with the scandal, which they denied at a hearing in late September. 

One factor in how these practices developed in the company is, according to another Financial Times article, cultural: namely, that there was immense pressure to deliver positive results year after year after year, which filtered down the chain. This, combined with rather shaky internal controls, allows people to get creative with their accounting in order to drive up the numbers. 

It calls to mind the more recent scandal at Wells Fargo, which is facing mounting scrutiny over the revelation that it had created millions of phantom accounts that resulted in customers being charged for services they never signed up for. Workers have reported sales goals for individual bank branches that, while characterized as wildly unrealistic, they were none the less under immense pressure to meet. While over 5,000 workers were fired for creating these accounts, the CEO has maintained that there was no deliberate effort on the part of bank leadership to do this. Like with Tesco, however, the bank has still come under fire for setting a tone at the top that were felt to have encouraged such practices--to the point where workers who tried to stop the practice were, instead, fired

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