Ex-Tesco Executives Win Dismissal of Accounting-Scandal Case

(Bloomberg) -- Two former Tesco Plc officials won the dismissal of criminal fraud charges relating to a 2014 accounting scandal that prompted a boardroom house-cleaning and an overhaul of the U.K. grocer’s supplier relations.

A judge dismissed the charges against Chris Bush, Tesco’s former U.K. chief executive officer, and John Scouler, ex-commercial director of the unit, halfway through a retrial in London. The charges were tossed out last week, but couldn’t be reported while prosecutors from the Serious Fraud Office unsuccessfully tried to get an appeals court to overturn the decision.

Ex-Tesco Executives Win Dismissal of Accounting-Scandal Case

The case was triggered by a discovery that the retailer had overstated income by 246 million pounds ($313 million), which wiped 2 billion pounds off the company’s market value. Tesco agreed to pay 214 million pounds last year to resolve regulatory probes into the accounting scandal.

Judge John Royce told the London jury that the prosecution failed to prove that the two executives were aware of any fraudulent activity that may have taken place. A Tesco accountant who looked through the numbers testified that he himself didn’t know about the fraud, Royce said.

"The real weakness was this question of proving knowledge," Royce said Thursday. "If he, the gatekeeper, the qualified accountant did not know, how could it be safely asserted that the defendants knew? You would’ve had to be sure that they knew."

The first trial was halted in February days before the jury was scheduled to begin deliberations. A third defendant, former U.K. Chief Financial Officer Carl Rogberg, was severed from the current case and the SFO could still make a decision to proceed with charges against him.

Ex-Tesco Executives Win Dismissal of Accounting-Scandal Case

Prosecutors failure to substantiate the allegations could be seen an embarrassment for the company, which embarked on a sweeping overhaul after the accounting issues came to light. CEO Dave Lewis, who took over at Tesco in 2014 after the case burst into the open, described a report he was shown after joining as “a way of operating which I had never seen.” The CEO testified at both trials.

Bush said that the judge’s decision ended a “four-year ordeal” while his lawyer criticized the SFO.

“The trial judge heard from thirty witnesses and considered thousands of pages of written evidence; he reached the firm conclusion that there was no case for the defendants to answer,” said Ross Dixon, a partner at Hickman and Rose in London. “Quite how the SFO managed to so fundamentally misunderstand the effect of its own evidence demands an answer.”

Scouler’s lawyer, Richard Sallybanks of BCL Solicitors, called the verdict a “very significant defeat for the SFO.” Tesco declined to comment after the ruling.

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