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Return to: Home > News > Assurance and Accounting > News brief: Accounting scandals roundup of BT Group, Tesco, Morgan Stanley and Citigroup

News brief: Accounting scandals roundup of BT Group, Tesco, Morgan Stanley and Citigroup

A roundup of todays accounting scandals including the profits dip of BT, lawsuits and accelerated audit tender, Tesco's new lawsuit, and Morgan Stanley and Citigroup's huge fine from the SEC.

 

BT Group

BT Group profits have dropped in Q3 to £526m, from £832m, a hit related to the accounting scandal at its Italian business costing £530m instead of the expected £145m. Shares tumbled over 20% and knocked £8bn off its stock market value. The Financial Times reported that BT will now accelerate a review of its auditor, PwC, ending their 30 year relationship, which was due for tender in 2019.

The FTSE 100-listed firm has also been hit by at least two shareholder lawsuits in the USA from the scandal. The lawsuits accusing the British company and three top executives of security fraud were brought by individuals seeking class-action status. The New York case was brought on behalf of investors in ADRs, while the New Jersey case also covers other securities. Companies are frequently sued in the US after releasing negative news that investors say they did not expect.

The lawsuits accuse BT of having concealed or made misleading statements about the accounting practices in Italy, to inflate earnings and stock price. Both lawsuits seek unspecified damages.

 

Tesco

Tesco is facing a new lawsuit relating to an accounting scandal that followed an investigation by Deloitte in October 2014 that saw the retailer overstate profits by £263m.

Manning & Napier, a US investment management firm, is suing Tesco, claiming it lost $212m (£168m) due to their accounting irregularities in 2014, according to the Financial Times.

The lawsuit is separate to another ongoing case, where several shareholders are seeking to recoup losses. Tesco stated that it was aware of the legal action but declined to comment.

 

Morgan Stanley and Citigroup

Both banks, Morgan Stanley and Citigroup, were hit with an almost $3m fine over making false and misleading statements about a foreign exchange trading program they sold to investors known as CitiFX Alpha from August 2010 to July 2011.

The USA Securities and Exchange Commission (SEC) charged them both $2.96m each since discovering the trading program. Citigroup held a 49% ownership interest in Morgan Stanley at the time.

The investors were not informed that they could be placed into the program using more leverage than advertised and mark-ups would be charged on each trade, causing “significant losses” to investors. Neither bank admitted or denied the SEC’s claims, but both agreed to pay the fine, as well as a disgorgement of $624,458 and interest of $89,277, in total more than $5.9m.

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