Institutional funds hit Tesco with £100m damages claim

BY Fraser Tennant

In a move set to send further shockwaves through the financial world, more than 125 institutional funds have filed a £100m claim for damages against Tesco PLC over alleged breaches of the Financial Services & Markets Act.

The aim of the legal action is to prove that Tesco made a series of misleading statements to the stock market – comments which (it is alleged) omitted pertinent information and resulted in investors making investment decisions based on erroneous data.

“The misstatement of profits leading to a dramatic collapse in the Tesco share price caused substantial damage to many shareholders who manage money for thousands of investors,” said Jeremy Marshall, chief investment officer at Bentham Europe, the litigation funder coordinating the claim for damages. “Investors have a right to rely on statements made by companies to ensure that they correctly allocate capital.”

 In October 2014, Tesco admitted to overstating its profits by £263m. Following the announcement, the retail giant posted a 92 percent fall in interim profits.

“Tesco has misstated its accounts, and in particular its treatment of payments from suppliers, to give the appearance of static trading margins,” said Sean Upson, a partner at Stewarts Law, which is leading the case against Tesco. “The reality was that those margins were falling.  Institutional investors were therefore misled when making investment decisions in respect of Tesco. This is precisely the type of wrongdoing which the Financial Services and Markets Act was designed to redress and therefore to prevent”.

Last month, the UK’s Serious Fraud Office charged three former Tesco executives – Christopher Bush, at one time Tesco’s UK managing director; Carl Rogberg, a former UK finance director; and John Scouler, who used to be Tesco’s UK commercial director for food – over the scandal, alleging that they acted dishonestly by giving false accounts of the commercial income earned by Tesco Stores as well as its financial position.

The men are scheduled to stand trial at Southwark Crown Court in September 2017. 

Jeremy Marshall concluded: “The (damages) claim will assert that Tesco’s misstatements are in clear breach of its obligations under the Financial Services & Markets Act and investors must be compensated.”

News: Institutional funds file 100 million pounds damages claim against Tesco

Volkswagen deal rubber stamped

BY Richard Summerfield

A US district judge in San Francisco has approved one of the biggest corporate settlements on record, stemming from the Volkswagen AG diesel emissions scandal which erupted last year. The company admitted last year that it had equipped its diesel powered vehicles with devices able to circumnavigate emissions testing, which allowed them to releases levels of pollutants far in excess of permitted levels.

Under the terms of the settlement, Volkswagen will offer drivers of 475,000 of the company’s diesel-powered vehicles with 2-litre engines the option of selling back their cars to Volkswagen or waiting for a government-approved fix which will allow the vehicles to remain in service. Consumers have until September 2018 to decide whether to accept the buyback offer. If Volkswagen does not repair or fix at least 85 percent of affected cars by June 2019, the company will incur further penalties. Nearly 340,000 owners of Volkswagen vehicles, including Beetles, Passats, and Audi A3s, have registered to take part in the settlement. About 3500 owners have opted out.

Volkswagen has had to allocate up to $10bn for consumers who wish to trade in their vehicles. Furthermore, Volkswagen’s customers will also receive an additional cash payment of between $5100 and $10,000 per person by way of an apology. The settlement deal also includes a $2.7bn contribution the company must make to an environmental trust over the three year period in order to offset the pollution caused by Volkswagen’s diesel vehicles. The company will also be required to invest $2bn in zero-emission vehicles over the next 10 years.

"Final approval of the 2.0L TDI settlement is an important milestone in our journey to making things right in the United States, and we appreciate the efforts of all parties involved in this process. Volkswagen is committed to ensuring that the program is now carried out as seamlessly as possible for our affected customers and has devoted significant resources and personnel to making their experience a positive one," said Hinrich J. Woebcken, president and CEO of Volkswagen Group of America, Inc., in a statement announcing the approval.

The court’s approva did not come as a surprise. Indeed, Judge Breyer, who presided over the hearing related to the settlement, had indicated over the summer that he would approve the deal. Both parties had been urged by the judge to settle the case in a timely fashion, noting that “intensive” negotiations would provide “benefits much sooner than if litigation were to continue” and reduce the prospect of “additional environmental damage".

News: U.S. judge approves $14.7 billion deal in VW diesel scandal

US diesel emissions scandal results in Volkswagen making $15.3bn settlement

BY Fraser Tennant

In a settlement which it undoubtedly hopes will draw a substantial line under the matter, German carmaker Volkswagen AG has agreed to pay $15.3bn to settle the charge that it cheated on its diesel emissions tests in the US – a scandal which has rocked the automotive industry to its very core.

Volkswagen’s settlement agreement – reached this week in conjunction with the United States Department of Justice (DOJ), the State of California and the US Federal Trade Commission (FTC) – also resolves the civil claims regarding Volkswagen and Audi 2.0L TDI diesel engine vehicles in the US made by private plaintiffs (represented by the Plaintiffs’ Steering Committee (PSC)).

The diesel emissions scandal first became public in September 2015 when Volkswagen acknowledged that it had deliberately misled officials by installing secret software (the so-called ‘defeat device’) to circumvent US emissions tests (thus allowing US vehicles to emit up to 40 times the legal limit for safe levels of pollution).

Also part of the Volkswagen settlement is an agreement by the carmaker to buy back vehicles from affected consumers, as well as to provide funding that could profoundly benefit the creators of cleaner technologies (this includes a $2.7bn environmental remediation fund and the investment of $2bn to promote the use of zero emissions).

Furthermore, Volkswagen has also agreed with the attorneys general of 44 US states, the District of Columbia and Puerto Rico to resolve existing and potential state consumer protection claims in a settlement valued at approximately $603m.

“We take our commitment to make things right very seriously and believe these agreements are a significant step forward,” said Matthias Müller, chief executive officer of Volkswagen AG. “We appreciate the constructive engagement of all the parties, and are very grateful to our customers for their continued patience as the settlement approval process moves ahead.

“We know that we still have a great deal of work to do to earn back the trust of the American people. We are focused on resolving the outstanding issues and building a better company that can shape the future of integrated, sustainable mobility for our customers.”

Despite the settlement, the process represents only a partial resolution for Volkswagen, as the carmaker continues to face a criminal investigation which may result in company executives being held accountable for the wrongdoing related to its diesel emissions testing.

News: Volkswagen Agrees to $15 Billion Diesel-Cheating Settlement

Fifth column risks rise - EY

BY Richard Summerfield

Cyber breaches and the threat posed by malicious insiders are two of the biggest risks driving investment in global forensic data analytics (FDA), according a new report from EY.

EY's 2016 global forensic data analytics survey, ‘Shifting into high gear: mitigating risks and demonstrating returns’, notes that insider threats  in particular offer the biggest risk to organisations becoming a victim of fraud, corruption or data loss. The most prominent forms of inside threat, according to respondents, include malicious insiders stealing, manipulating or destroying data.

The survey questioned 665 executives globally across a wide range of industries including the financial services, life sciences, manufacturing and power and utilities sectors. From the available data, it is clear that concerns around cyber security are helping to crystalise opinions across industry boundaries; indeed, companies are turning to FDA to try to counteract cyber threats.

Companies have been spurred into action by increasing activity among cyber criminals as well as aggressive regulatory pressure. Rising demands from both governmental bodies and the general public is driving much of the investment in FDA, notes EY. Forty-three percent of respondents claimed regulatory pressure was one of the main driving forces behind their FDA investment, second only to the burgeoning threat posed by cyber crime.

Of those executives surveyed, 44 percent reported an increasing level of concern over “bribery and corruption risk” while 62 percent noted an increasing concern over  “cyber breach or insider threat”.

Given the recent spate of major, headline grabbing cyber attacks, it is little surprise that breaches are weighing heavily on executive minds the world over. As companies take steps to protect their physical and digital assets from internal and external threats, the FDA will continue to play an important role in helping them navigate such risks. Given the size of the fines and sanctions imposed on companies and individuals in recent years, c-suites are understandably concerned about regulatory enforcement around cyber risk.

With the c-suite increasingly worried about the threat of cyber risk and malicious internal actors

Many companies have been pouring considerable resources into bolstering their FDA efforts in recent years. Spend is expected to continue throughout 2016. In 2014, 64 percent of those surveyed believed that their investment in FDA was adequate, while in the latest survey only 55 percent felt the same. Furthermore, three out of five respondents said they intend to increase their FDA spend over the next two years.

Report: Shifting into high gear: mitigating risks and demonstrating returns

UK regulators get “tougher” on financial wrongdoers

BY Fraser Tennant

UK regulators are “getting tougher on financial crime” by issuing increasingly stringent penalties to wrongdoers, according to new analysis published this week by EY.

EY’s Investigations Index reveals that, over the past two years, the punishments handed out by the UK’s regulatory bodies – the Financial Conduct Authority (FCA), the Serious Fraud Office (SFO), the Competitions and Markets Authority (CMA) and the Office of Fair Trading (OFT) – saw fines soar by 271 percent (with £2.45bn issued in the past two years) and prison sentences increase 124 percent. Company directors also face an average prison sentence of four years or more.

Additional findings in the EY study include: (i) 58 percent of cases investigated by the SFO resulted in prison sentences; (ii) 56 percent of cases investigated  by the FCA resulted in fines; (iii) of the 82 cases investigated by the FCA over the course of two years, 25 were against individuals; (iv) of those 25 cases, 36 percent resulted in prison sentences; (v) 10 percent of all cases dealt with individuals or firms committing fraud; and (vi) of the 125 cases investigated by the CMA and OFT in the past two years, 119 were due to a proposed or completed merger or acquisition.

“UK regulators are getting tougher on financial crime," said John Smart, head of EY’s UK Fraud Investigation & Dispute Services team. “In the wake of recent corporate scandals and growing political pressure, there seems to be a greater focus by the regulators to pursue cases that may once have been considered ‘too difficult’, to ensure those responsible for wrongdoing are held to account.”

Despite the tougher stance, the Index did find that the average prison sentence has decreased by 40 percent over the past two years, from 87 months to 52 months.

Nevertheless, Mr Smart believes that the Index findings should also serve as a warning to companies, to review their processes on a regular basis, stating that the top reasons for fines, namely systems failings, business misconduct and misleading information, were all factors that could have been avoided by having stronger control processes to identify and resolve any corporate blind spots.

The EY Index examined 231 cases (which took place between 1 October 2013 and 30 September 2015) involving fines and criminal prosecutions against business and individuals.

News: U.K. Regulatory Fines Soar Amid Crackdown on Financial Crime