Tesco £85m investor compensation scheme opens

Tesco (Frankfurt: 852647 - news) has opened its £85m compensation scheme for shareholders who lost money after being misled by the company's overstatement of its profits three years ago.

Around 10,000 retail investors are expected to qualify for an average pay-out of around £400 each under the scheme.

Tesco announced the scheme, which is being administered by the accountancy and business services firm KPMG, in March this year as part of a settlement it reached with the Serious Fraud Office and the Financial Conduct Authority.

The grocery giant stunned investors when, in September 2014, it admitted that it had overstated its profits by £263m following an investigation into its accounting practices sparked by a whistle-blower.

The news sent Tesco shares down sharply on the day and, over the following eight trading sessions, the shares lost more than a fifth of their value.

Tesco was subsequently sued by a number of its shareholders.

It went on to reach a deferred prosecution agreement with the Serious Fraud Office in which it agreed to pay a £129m fine.

It also agreed with the FCA, the UK's leading financial watchdog, that it would pay £85m in compensation to shareholders.

It was the first time the FCA had made use of its powers, granted 17 years ago, to make a listed company pay compensation to investors for market abuse.

At the time, Andrew Bailey, the chief executive of the FCA, said Tesco had done the right thing and the compensation scheme was a good example to set to the market.

However, some law firms subsequently sought to squeeze more out of the company, arguing the terms offered by Tesco were unlikely to adequately compensate institutional investors.

A group of 125 institutional investors tabled a £100m lawsuit against Tesco in October last year.

Under the compensation scheme, investors who bought shares or certain Tesco bonds between 29 August 2014 and 19 September 2014 - the last trading day before Tesco admitted the shortfall - will be entitled to compensation of 24.5p for every share bought.

Retail shareholders will also be awarded interest at the rate of 4% per year while institutional investors will receive interest at the lower rate of 1.25% per year.

Investors will have six months in which to make a claim while KPMG is also writing to all those shareholders whom it believes to be eligible for a pay-out.

Those seeking compensation will have to provide evidence of the transactions in the form of contract notes or statements from their stockbroker.