Tesco is paying £235 million to settle two investigations into its accounting black hole

LONDON — Tesco is paying out £235 million ($US294.9 million) to settle two investigations by watchdog’s into the supermarkets 2014 accounting scandal.

The supermarket announced on Tuesday that it has agreed a deferred prosecution agreement (DPA) with Britain’s Serious Fraud Office (SFO), agreeing to pay a £129 million fine in exchange for not being taken to court. The DPA resolves an investigation into “false accounting” between February and September 2014. Tesco has also agreed to pay the SFO’s investigation costs.

Tesco overstated profits by more than £300 million after bringing forward payments from suppliers to flatter its results. The scandal led to the suspension of four executives and the ousting of then-CEO Philip Clarke. Clarke has already been cleared by the SFO.

Tesco also said Tuesday that it has also agreed to a judgment of market abuse levelled by the Financial Conduct Authority (FCA), relating to a statement to the market overstating profits. The FCA is not fining Tesco and the board have been cleared.

However, the FCA has asked Tesco to set up a compensation scheme for people who bought Tesco shares and bonds in the wake of the update. The regulator says its records indicate that there are 10,000 retail and institutional investors eligible for compensation, who between them purchased approximately 320 million shares.

In total, Tesco says it expects the two settlements and related costs will add up to £235 million, which it will book in its results this year.

CEO Dave Lewis says in Tuesday’s statement:

“Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”

FCA CEO Andrew Bailey says in a statement:

“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 SFO fine must still be approved by a judge and a hearing is set for April 10.

While the SFO has all but resolved its case against Tesco as a corporate entity, it still has proceedings on-going against individuals involved in the case. Three former executives have been charged with fraud and await trial.

Also on Tuesday, Tesco faces a rebellion from two of its biggest shareholders over its planned £3.7 billion merger with food wholesaler Booker. Schroders and Artisan Partners said in a letter to chairman John Allan that they believe the deal will destroy value for Tesco shareholders.

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