Tesco settles U.S. lawsuit over profit overstatement

Tesco has agreed to pay $12m (£8m) to settle a U.S. lawsuit over the accounting scandal past year which saw its shares crumble.

The cash settlement was disclosed on Wednesday in the US District Court in Manhattan and requires court approval.

The scandal surfaced last September when new chief executive Dave Lewis said previous payments from suppliers had been moved around to different periods in its profit-and-loss figures, going back at least as far as 2012/13.

The US law suit had claimed that Tesco and top executives misled investors into believing the company was performing well, when it was instead reporting profit incorrectly, taking too long to recognise costs and overstating inventory.

American investors, who have a holding of 2% of Tesco’s stock, sued the retailer after the news of the profit overstatement caused the value of their shareholding to drop by 15%. Tesco later raised the estimated overstatement to £263 million pounds.

Tesco Shareholder Claims, which is funded by USA litigation specialist Scott + Scott, includes the vast majority of British pension funds.

What followed that was a barrage of bad news including Tesco’s colossal £6.4bn loss and an investigation by the Serious Fraud Office. “The agreement, if confirmed, will settle one of two claims before U.S. courts arising out of the commercial income overstatement”, Tesco said.

Kahn Swick & Foti plan to seek legal fees of up to 30 percent of the gross settlement fund.

The settlement agreement, which is subject to confirmation by a federal court in NY, has asked Tesco to pay damages in order to settle the class action with no admission of liability.