Tesco bosses ‘fiddled the books to save their jobs’

Three former Tesco executives cooked the books to inflate the supermarket’s profits by £263 million in an attempt to save their multi-million-pound jobs, a court heard.

Christopher Bush, 51, who was managing director of Tesco UK, Carl Rogberg, 50, former UK finance director, and John Scouler, 49, ex-UK food commercial director conspired to declare income from deals with suppliers too early, it is claimed.

They had all been set unreachable targets – but knew they could be fired if they missed them, Southwark Crown Court heard.

When the alleged fraud was revealed, the black hole in Tesco accounts wiped more than £2 billion off the company’s market value and caused the retailer’s shares to plummet almost 12 per cent in one morning.

It plunged the grocer into the biggest crisis in its near-100-year history and sent shockwaves through the stock market.

Eight senior members of staff were suspended after an Serious Fraud Office investigation.

The three bosses appeared in the open-doored dock at Southwark Crown Court where they face allegations of abusing their senior positions and hiding the supermarket’s true financial position.

Bush, Rogberg and Scouler are said to have kept false records massively boosting the supermarket’s profits between February and September 2014.

They deliberately failing to correct inaccurately inflated income figures which were then published.

Prosecutor Sasha Wass QC told jurors it was ‘not possible to know precisely what motivated the three defendants’ to ‘cook the books’.

But she added:‘Of course, all of these defendants would have been motivated to keep their jobs in difficult times,’ she added.

The court heard Bush was paid £3million, Scouler pocketed £1.5million and Rogberg was remunerated more than £1million in 2014 when the overstatement was made.

Ms Wass explained that Tesco would ‘change senior personnel’ in challenging trading times if they failed to meet targets.

The defendants would have had therefore have had ‘a very personal interest’ in the company’s financial position looking healthier than it really was, the court was told.

Their trial, which is expected to last at least three months, finally opened today (Fri) following a series of delays.

‘This case concerns what is often referred to as white collar crime and it concerns fraud and false accounting carried out by senior managers working for the Tesco supermarket chain,’ Miss Wass said.

‘On 22 September 2014, so three years ago now, Tesco Plc made a public announcement to the stock market and the announcement said that Tesco’s had previously overstated its expected profits by approximately £250million.

‘The prosecution case is that the board of Tesco had been forced to make this correction to the market as it had discovered that a public statement of expected profit made only three weeks earlier had grossly inflated Tesco’s expected profits.

‘So, there are two statements, and the prosecution case is that the first statement, the one that had been corrected was wrong and it was made as a result of fraud and false accounting organised and sanctioned by the three defendants who are in your charge.

‘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 shockwaves to run through the stock market.

‘Not only did Tesco’s shares fall by nearly 12 per cent – dropping over £2billion off the total share value – but the but the credibility of Tesco itself and indeed of the stock market had been undermined.’

Ms Wass told jurors they could be sure the second statement reflected the supermarket’s true financial position because ‘Tesco would not make such a damaging announcement unless it was indeed true’.

Jurors heard their task would be to determine whether the overstatement of Tesco’s profits was ‘the result of dishonest manipulation and fraud’, how it came about, who knew about it and who was responsible.

‘Prosecution witnesses will tell you that a number of people within the Tesco organisation were involved in the false presentation of figures which ultimately misled the stock market,’ continued the prosecutor.

‘The presentation of these false figures was in order to meet profit targets set by Tesco.

‘And those involved in the producing of false figures included people in relatively subordinate positions.

‘But these three defendants on trial in this case are not the foot soldiers who misconducted themselves.

‘The defendants in this case are the generals in positions of trust and paid huge compensation packages in order to safeguard the financial health of Tesco.’

Rogberg, the financial director at the time, earned £385,000 in salary and benefit in addition to £636,000 in various share schemes.

UK managing director Bush, who was ‘ultimately responsible for the profits of Tesco at the time the false statement was made to the stock market’, earned a salary of £788,000 and pocketed more than £2million in share schemes.

Scouler, the UK commercial director at the time of the statement took home wages of £537,000 in addition to share schemes worth a further £886,000.

Ms Wass told the court that the executives ’encouraged those working beneath them to falsify the figures’.

Those who objected were then ‘bullied or coerced into carrying on with this process’.

Jurors heard Tesco was once ‘a great British success story’ before an announcement in April 2013 revealed a first fall in profits for almost 20 years due to competition from other retailers among other reasons.

In response, the CEO and executive committee set financial targets which ‘could not be met,’ Miss Wass said.

This prompted the introduction of a dishonest system in which profits would be recorded early.

Those profits either ‘did not belong in that year’ or ‘did not exist at all’, the court heard.

The court heard the trio ‘encouraged the manipulation of profits and indeed pressurised others working under their control to misconduct themselves’.

Bush, of Green End Road, Radnage, High Wycombe, Rogberg, of Church Farm, Chiselhampton, Oxford and Scouler, of The Park, St Albans, Hertfordshire, all deny fraud and false accounting.

The trial continues.

mfl

ends

MEMO

Prosecutor: Sasha Wass QC.

Christopher Bush, 51 (16/12/65) from High Wycombe – former managing director Tesco UK. Represented by Adrian Darbishire QC.

Carl Rogberg, 50 (19/1/67) from Oxford – former finance director Tesco UK. Represented by Nicholas Purnell QC.

John Scouler 49 (12/06/68) from St. Albans – former Commercial director for food. Represented by Ian Winter QC.

Charges:

One count of fraud contrary to section 1 of the Fraud Act 2006.

Carl Rogberg, Chris Bush and John Scouler between 21st February 2014 and 23rd September 2014 abused their positions as senior employees of Tesco PLC and Tesco Stores Ltd, in which they were expected to safeguard or not act against the financial interest of Tesco PLC and/or Tesco Stores Ltd, their shareholders, creditors, investors and potential investors, dishonestly and intending to make a gain for themselves, or to cause loss to another or to expose another to a risk of loss, concealed the fact that the financial assets of Tesco PLC and/or Tesco Stores Ltd included improperly recognized income and/or failed to correct the fact that the forecasts, margins and accounts did not reflect the true financial position of Tesco PLC and Tesco Stores Ltd because they included and were based upon improperly recognized income in breach of section 1 and 4 of the Fraud Act 2006, including by:

i. Requiring that targets and/or margins which were calculated on a false basis be met;

ii. Concealing the true financial position from the auditors;

iii. Concealing the true financial position from other persons employed by Tesco PLC and/or Tesco Stores Ltd;

iv. Inputting or allowing to be inputted, or failing to correct commercial income figures which gave a false account of the commercial income earned onto the digital accounting records of Tesco Stores Ltd to feed into the accounts of Tesco PLC;

v. Permitting or failing to correct the interim statutory accounts which gave a false account of the commercial income earned by Tesco Stores Ltd and the financial position of Tesco PLC; and

vi. Failing to act promptly to correct or cause to be corrected the figures published to the market on 29 August 2014.

Count 2.

False Accounting contrary to section 17 of the Theft Act 1968.

Carl Rogberg, Chris Bush and John Scouler between the 21st of February 2014 and the 23rd day of September 2014 dishonestly falsified or concurred in the falsification of an account or any record made or required for any accounting purpose, namely the digital accounting records of Tesco Stores Ltd and Tesco PLC and draft statutory interim accounts for Tesco PLC by the inputting of and/or reliance upon commercial income figures which gave a false account of the commercial income earned by Tesco Stores Ltd and a false account of the financial position of Tesco PLC and/or Tesco Stores Ltd with a view to making a gain for themselves or another, or causing loss to another contrary to section 17 of the Theft Act 1968.

ENDS MEMO