(Bloomberg) Prosecutors opened an investigation into Tesco Plc’s 263 million-pound ($424 million) profit-guidance overstatement, the first sign the accounting problems are being considered as a criminal matter.
With the Serious Fraud Office’s investigation, the Financial Conduct Authority dropped its regulatory probe. The British audit authority, the Financial Reporting Council, is also looking into the matter.
“Now that Tesco are being investigated for fraud by the SFO, the Financial Reporting Council have yet greater reason to start an investigation into the auditors’ role with regard to these irregularities,” Crawford Spence, a professor at Warwick Business School in Coventry, U.K., said.
Eight senior managers have been suspended since the Cheshunt, England-based company disclosed the accounting problems last month. Chairman Richard Broadbent announced plans to step down as Tesco reported a 41 percent slump in first-half profit this month. Accounting firm Deloitte LLP, commissioned to do an independent review, sent its findings to the FCA, Tesco said last week.
No Tesco employees appear to have benefited from the overstatement, the grocer said last week.
“Tesco has been cooperating fully with the SFO and will continue to do so,” the grocer said in a statement today. A spokeswoman for Tesco’s auditor, PricewaterhouseCoopers LLP, declined to comment on the matter.
Tesco shares rose 2.1 percent to 173.40 pence in London. The stock has dropped 25 percent since the overstatement was disclosed on Sept. 22.
Prosecutors and Regulators
The SFO, an independent government agency that investigates and prosecutes complex fraud, bribery and corruption cases, said it can’t provide additional details while the probe is under way. The FCA said in a separate statement that it dropped its review “following consultation with the SFO.”
The accounting regulator “will continue to gather information to determine whether the FRC should take its own regulatory action,” according to an e-mailed statement Wednesday.
Tesco is the latest high-profile British company to be investigated by the SFO. The prosecutor is also probing bribery allegations at Rolls-Royce Holdings Plc, and a 2008 fundraising effort by Barclays Plc involving Qatar.
The SFO is under pressure after a series of failed cases led some politicians to call for the agency to be merged with other investigators. In December, the agency dropped its bribery case against businessman Victor Dahdaleh five weeks into the trial, saying it had no realistic chance of winning a conviction. Property tycoons Robert and Vincent Tchenguiz won over 4.5 million pounds in July over illegal searches done in 2011 related to an Icelandic bank’s collapse.
“SFO investigations involving iconic British enterprises do not enhance our popularity,” SFO Director David Green said at a conference in Cambridge, England in September. “These corporates have real clout amongst politicians and in the City. Some use the media to influence and shape public opinion. Those facts alone underline the need for a visibly independent investigator and prosecutor.”
—With assistance from Tom Beardsworth in London.
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