Tesco has agreed to pay compensation to investors who purchased some of its shares and bonds in 2014 after the FTSE 100 firm admitted to overstating its profits.
The supermarket had been the subject of an investigation by the Serious Fraud Office for allegations of market abuse, and has now been hit with a fine of £129m in order to avoid prosecution.
According to an update, published today (28 March), the company issued a statement on 29 August 2014 which gave a misleading impression about the value of publicly-traded Tesco securities.
Tesco has agreed to pay compensation to investors who bought its shares and bonds between 29 August 2014, and who still held those securities before a corrective statement was issued on 22 September 2014.
In the corrective statement, Tesco announced that it had “identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs”.
This redress is expected to amount to £85m, and figures from the Financial Conduct Authority revealed that about 10,000 retail and institutional investors will be eligible after purchasing 320 million shares during the period.
Andrew Bailey, chief executive of the FCA, said distributing information that gives a false impression around traded securities harms the integrity of the markets.
“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.”
This is the first time the FCA has used its powers to demand that a listed company to pay compensation for market abuse.
The compensation scheme is set to launch by the end of August this year.
Dave Lewis, Tesco group chief executive, said: “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.”
Tesco expects to book a total charge of £235m in the current tax year as a result of the penalties.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "This is a big slap on the wrist for Tesco, reflecting the seriousness of the offence and its impact on the share price in 2014."
He said investors will be pleased that compensation is now going to be issued to those who bought shares in the supermarket at an inflated price.
The Hargreaves analyst said this kind of accounting error is "exceptionally rare" in the UK stock market.
However, he added: "Shareholders in all companies will be heartened to learn that in instances where false information is provided to the market, the regulator will see to it that investors are duly compensated."