Law firm Stewarts Law has announced that it is preparing a case against Tesco based on the losses of investors in the company from the overstatement of profits. To quote from their announcement: “The Claim will allege that directors and senior management knew or were reckless as to whether Tesco’s statements to the market were untrue or misleading and/or dishonestly concealed the true position, in breach of the Financial Services and Markets Act“. They don’t intend to await the results of the investigation by the Serious Fraud Office (SFO) which may take some years, but hope to file the case in court within six months. It is understood that the case may be financed by litigation funders Bentham Ventures.
It seems likely that the case is being backed by a number of institutional investors and it is not yet clear whether smaller investors will be able to join the action. Other legal actions are also being pursued in the USA based on similar claims.
The Editor of Investors Chronicle, John Hughman, jumped in with an editorial on Friday (28/11/2014) with a headline of “Don’t play the blame game”. He attacked these legal cases against Tesco with comments such as “I suggest shareholders grasping for money they’ve willingly put at risk is an unwarranted distraction Tesco’s new bosses could do without“. He also attacked the case against RBS which Stewarts Law is also involved in, along with a number of other law firms. He says “shareholders had plenty of reason to be wary already, and cannot blame RBS alone for the subsequent financial crisis that hit their investments so hard“. Finally he says “Sometimes we, the investors, should just put our hands up and accept that we have made a bad investment, rather than attempting to transfer the blame for our loss“.
Comment: This writer totally disagrees. There is a big difference between making a bad investment decision based on our own misapprehension of the facts, and being duped into doing so. When companies publish false information, then it is not our fault – it is that of the company and its directors. In the cases mentioned above (and the LloydsTSB/HBOS one also), the essence is that there was a breach of the Financial Services and Markets Act. In the RBS and Lloyds/HBOS cases, the claim is in respect of a false prospectus , with significant and relevant facts being omitted and being generally misleading. Is Mr Hughman seriously suggesting that we should walk away and ignore such transgressions of the law?
If investors cannot rely on published accounts (probably audited ones in the case of Tesco) or on the contents of a prospectus, then it turns investment into a pure speculation. It would undermine the whole financial system and the basis of company law if directors can publish anything without recourse if they can be shown to have misled investors.
Indeed I would suggest that the development of a system to enable such legal cases to be financed in the UK is a positive one. It would certainly ensure that in future the directors of public companies take a lot more care about what is issued in their name.
Whining about our losses is one thing. Pursuing a claim based on the law of the country is altogether another.