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FCA uses its restitution powers for the first time, requiring Tesco to pay approximately £85 million in relation to Market Abuse
Overview On 28 March 2017, the FCA published a final notice finding that Tesco plc and Tesco Stores Limited had engaged in market abuse and requiring them to pay restitution to those investors who have suffered loss as a result of the creation of a false market and the overpayment for relevant securities in 2014. The FCA estimates that the total amount of compensation that may be payable under the scheme will be approximately £85 million, plus interest. Key things to note about the FCA compensation scheme are:
- the restitution payment is being made in respect of a trading statement published on 29 August 2014, which gave a false or misleading impression about the value of publicly traded Tesco shares and bonds;
- compensation will be paid to investors who purchased Tesco shares and bonds on or after 29 August 2014 and who still held those securities when the statement was corrected on 22 September 2014;
- 10,000 retail and institutional eligible investors (who between them purchased approximately 320 million shares during the relevant period) may be eligible for compensation under the scheme;
- each net purchaser of shares will be entitled to compensation of 24.5p per share purchased, plus interest, with interest running from 19 September 2014 until approximately four months after the compensation scheme opens; and
- the scheme will launch on 31 August 2017 and will be administered by KPMG.
- it is critical to have an effective set of systems and controls in place which operate throughout a company's group, and not just at the plc level, in particular for monitoring and disclosing inside information and financial information. These systems and controls should be kept under regular review and there should be frequent training on them for relevant personnel;
- it is important for a company's entire operations to embrace a culture of openness and transparency, and this should be regarded as at least as important as financial performance; and
- in the event that there is a potential breach of rules, it is critical to promptly rectify this. In the immediate term, this might involve publishing a correcting announcement to the market as soon as possible, but will also involve dealing with the regulators in an open and co-operative manner and taking steps to prevent future breaches of the rules.
- Tesco Stores Limited and Tesco plc knew, or could reasonably have been expected to have known, that the information in the August Statement was false or misleading;
- there was knowledge at a sufficiently high level (but below the level of the Tesco plc Board) as to the false and misleading nature of the August Statement for that knowledge to constitute the knowledge of Tesco plc, within the specific context of, and for the purposes of, market abuse;
- the provision by Tesco Stores Limited of incorrect information to Tesco plc amounted to dissemination of it and Tesco had therefore engaged in market abuse contrary to section 118(7) of the Financial Services and Markets Act 2000 (as it was then in force);
- as a result of this market abuse, a false market was created in the Relevant Securities and purchasers of such Securities paid a higher price than they would have paid had there not been a false market and those who purchased more than they sold in the period of the false market suffered loss as result; and
- the false market substantially came to an end when Tesco plc published the September Statement, which it did on an urgent basis when the Tesco plc Board discovered that the August Statement contained information that gave a false or misleading impression.
- that Tesco Stores Limited will pay over £128 million pursuant to a Deferred Prosecution Agreement with the Serious Fraud Office (see "Potential Criminal Liability" below);
- the exemplary co-operative approach taken by Tesco plc and Tesco Stores Limited both with the FCA and the Serious Fraud Office; and
- the steps both companies have taken since to ensure similar misconduct will not occur in the future and the exemplary conduct of the Tesco plc Board in the approach it has taken since the discovery of the overstatement in September 2014,