Tesco U.K. CFO Cleared in Accounting Case, Ending Trials

(Bloomberg) -- Tesco Plc’s former U.K. chief financial officer was acquitted of fraud charges Wednesday, drawing into question the prosecutor’s methods as a series of criminal investigations related to a four-year-old accounting scandal at the grocer failed to result in a single conviction.

Judge Deborah Taylor cleared Carl Rogberg at a hearing Wednesday, after the U.K. Serious Fraud Office effectively dropped the case. The decision follows the dismissal of similar accounting-related charges against Chris Bush, Tesco’s former U.K. chief executive officer, and John Scouler, ex-commercial director of the unit.

The case dates to a 2014 accounting scandal that wiped 2 billion pounds ($2.6 billion) off Tesco Plc’s market value. Tesco agreed to pay 214 million pounds to resolve regulatory probes.

The collapse of the criminal charges is a black eye for the SFO, which had pursued the case for years, including a dramatic mistrial a year ago triggered by Rogberg’s heart attack just before jury deliberations were scheduled to begin.

Rogberg’s health issues led prosecutors to drop him from the retrial of Scouler and Bush, which ended last month with a judge saying that the SFO had failed to prove that the two executives were aware of any fraudulent activity.

Deferred Prosecution

While the SFO pursued charges against the former executives, it entered into a deferred prosecution agreement with Tesco Stores Ltd., a subsidiary of the company. The agreement helped Tesco to put the ordeal in the past just as Chief Executive Officer Dave Lewis sought to overhaul the business. Without any individuals ultimately convicted, the case could potentially undermine the top U.K. fraud prosecutor’s ability to make similar financial settlements in the future.

In a statement in front of the courthouse after the hearing, Rogberg expressed relief that the trial was over and questioned the way the SFO had blindly followed Tesco’s approach.

"The circumstances were never properly investigated by Tesco from the outset," Rogberg said. "Truth and justice were abandoned for their commercial imperatives."

The SFO released the full terms of the DPA with Tesco a few hours after the hearing concluded.

Tesco “dishonestly created a false account of its financial position by overstating its profits,” SFO Director Lisa Osofsky said in a statement. “The DPA clearly outlines the extent of this criminal conduct for which the company has accepted full responsibility.”

Tesco issued a written statement that noted the DPA was separately approved by a senior High Court judge, Brian Leveson, as being in the interests of justice.

"Since 2014, we have fundamentally transformed our business, and Tesco today is a very different company," the statement said.

Tesco agreed to pay 214 million pounds to solve various regulatory probes into the accounting issue. It agreed to pay 129 million pounds under the agreement with the SFO and 85 million pounds to compensate investors under a separate settlement with the Financial Conduct Authority.

Serious Issues

Deferred prosecution agreements were introduced in the U.K. in February 2014, months before the Tesco scandal broke. The outcome of the Tesco case may serve as a difficult precedent for future uses of the method.

"It’s very embarrassing for Tesco and the SFO where they’ve given a DPA to a corporate, but not been able to convict the individuals," said Katie Wheatley, joint head of the crime team at Bindmans LLP. "The impact of everyone being acquitted could be the SFO may ultimately alter their stance on the times they would enter into those agreements."

A statement of facts in respect of the agreement says that Rogberg, Bush and Tesco director John Scouler were aware of and dishonestly perpetuated the misstatement of the company’s profits, thereby falsifying or concurring in the falsification of accounts or records made or an accounting purpose.

‘Ironic’

Richard Sallybanks, partner at BCL Solicitors, who represented Scouler said it was ironic that on the day the SFO was ultimately unsuccessful in its prosecution of individuals, the terms of the DPA can enter the public domain.

"Serious issues can be raised as to the fairness of the DPA process," Sallybanks said in an emailed statement. "The problem with DPAs for this type of offence is when their terms label people as guilty when they are not. Those people have no right of redress."

While the individuals alleged to be responsible were cleared, the effort was still laudable, according to Susan Hawley, the policy director for London-based Corruption Watch, an independent group which closely monitors corporate crime case.

"The SFO did absolutely the right thing in trying to prosecute individuals -- corporate crime is never immaculately conceived," Hawley said in an email. "And it’s time for serious consideration of the need for a specialized economic crime court where civil options can be considered where a criminal case fails."

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