Three former Tesco executives knew that income was being wrongly recorded in the supermarket’s financial records in a scandal that led to £2bn being wiped off the supermarket’s total share value, a court was told today.
Carl Rogberg, 50, Chris Bush, 51, and John Scouler, 49, are alleged to have been involved in a “white collar crime” plot that sent “shock waves” through the stock market.
The supermarket’s former finance chief, managing director and food commercial head were investigated after Tesco was found to have inflated its profits in 2014.
The men are charged with fraud by abuse of position and false accounting from February to September 2014.
The defendants allegedly failed to correct inaccurately recorded income figures for the supermarket, which were published to auditors, other Tesco employees and the wider market.
Opening the trial at Southwark Crown Court, prosecutor Sasha Wass QC told the jury: “On 12 September 2014, Tesco plc made a public announcement to the stock market and the announcement said that Tesco has previously overestimated its profits by £250m.”
She said the board of Tesco had been “forced” to make this correction because a previous statement of expected profits made three weeks before had “grossly inflated Tesco’s expected profits”.
She added: “The prosecution case is that the second statement, which corrected the first statement, was the true one and, as you will hear, the second statement caused shock waves to run through the stock market.
“Not only did Tesco shares fall by nearly 12%, wiping over £2bn off the total share value, but the credibility of Tesco itself and indeed the credibility of the stock market had been undermined.”
Ms Wass said: “The prosecution case in a nutshell is that all three defendants were aware that income was being wrongly included in the financial records of the company, which were used to inform the stock market.
“Each of the defendants was aware that this would lead to the company looking financially healthier than it actually was and it would result in Tesco’s trading profits being overstated.
“This, say the prosecution, was clearly dishonest.”
Ms Wass said the case “boiled down in its essence” amounted to “cooking the books, or what lawyers called false accounting”.
She said employees in “relatively subordinate positions” had been involved in presenting the false figures in order to meet the profit targets set by Tesco.
But she said: “The three defendants who are on trial in this case are not the foot soldiers who misconducted themselves.
“The defendants in this case are the generals. Those who are in positions of trust and who were paid huge compensation packages in order to safeguard the financial health of Tesco.
“These defendants encouraged the manipulation of profits and indeed pressurised others working under their control to misconduct themselves in such a way that the stock market was ultimately misled.”
Ms Wass said those who objected to the practice within the organisation were bullied and forced to continue.
She said: “It is not merely the fact that the defendants were aware that this was going on.
“Each of these three defendants used their managerial authority and actively encouraged those working beneath them to falsify the figures and, when those subordinate employees objected, the subordinate employees were bullied or coerced into carrying on with this practice.”
The court heard that Rogberg, who was “directly responsible” for authorising the falsified figures, received a remuneration package of more than £1 million in 2014.
Bush, who was in charge of the performance and “integrity” of Tesco at the time, received nearly £3 million that year, and Scouler, who allegedly directed those beneath him to falsify income figures, received around £1.5 million.
Ms Wass said Tesco was operating in “challenging trading conditions” and “failure was not looked on kindly”.
“Each defendant would have had a very personal interest in keeping the share value of the company high, because a lot of their renumeration package included shares,” she said.
“And, of course, any failure to meet targets could have resulted in not only the share prices going down, but indeed the credit rating of the company being downgraded.”
Rogberg, of Chiselhampton, Oxfordshire, Bush, of Green End Road in High Wycombe, Buckinghamshire, and Scouler, of The Park, St Albans, Hertfordshire, all deny the charges.