Tesco shareholders who are suing themselves shows developing culture of litigation abuse

28th Apr 2015

Third party litigation funder Bentham Europe, a joint venture of Australian Bentham IMF, and U.S. hedge fund Elliott Management Co., which have combined assets of over USD30bn, seized the opportunity and is financing a collective claim against the Tesco.  They are recruiting claimants with a minimum of 10,000 shares (currently equivalent to a £2.49m holding), to join the collective action.

Separately, US law firm Scott & Scott have incorporated a vehicle in the UK, Tesco Shareholders Claims (TSC), to form a second class to pursue a shareholder suit against Tesco. TSC is set up for UK and European institutional investors, to be funded by Scott & Scott. This law firm has already started a similar claim in the US against Tesco.

Is this the right approach?

Nils Pratley, Financial Editor of the Guardian has highlighted three reasons Tesco shareholders should not pursue such an approach:

1. They are making a claim against themselves and some shareholders may benefit at the expense of other shareholders.

2. A “permanent destruction of value” will be difficult to prove. Today, the Tesco share value is 51% higher than it was at its low in December 2014 and 8% higher than it was before the announcement.

3. There are governing bodies responsible for taking action under such circumstances, including the Serious Fraud Office and the Financial Reporting Council.

Will litigation bring justice?

The evidence of litigation funders and lawyers keen to exploit a growing market, with support of shareholders in this instance, is an example of an increasingly litigious society.  The greatest beneficiaries will be the third party litigation funders, which can often take as much as 30% to 40% of the award.

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For additional information, review the report, “Economic Consequences: The Real Costs of U.S. Securities Class Action Litigation” by clicking here.