Now legal vultures swoop on BT over £530m black hole
BT is facing legal action over claims it misled investors about the scale of a £530m accounting scandal in its Italian business.
A trio of US law firms are preparing to file suits to recover losses suffered by BT investors after almost £8bn was wiped off the value of the telecoms giant yesterday.
It was a blow to BT’s army of almost one million small investors, who saw shares plunge by almost 21pc to a four-year low of 303p.
Markets were stunned by the group’s admission that ‘inappropriate behaviour’ had caused it to exaggerate profits in Italy for a number of years. The scandal first emerged last summer but yesterday the firm admitted to the stock market that the problems were ‘far greater than previously identified’.
The group said the scandal has forced it to write down the value of its Italian business by £530m, which was a much larger amount than its initial estimate of £145m.
The announcement – which was accompanied by a profits warning for this year and next – sparked a wave of panic selling. This has led US law firms Rosen, Block & Leviton and Goldberg to announce investigations into whether top-level staff violated federal security laws.
It centres over allegations that BT may have issued materially misleading business information to the investing public. BT declined to comment. Meanwhile, Milan prosecutors have opened an investigation into the Italian unit, according to Reuters. The impending legal action will add to BT’s costs and pile further pressure on its boss Gavin Patterson.
David Buik, a veteran City expert from stockbroker Panmure Gordon, described the scandal in Italy as ‘the tip of the iceberg’, which suggested wider problems with the management at BT – including its chief executive. He said: ‘Gavin Patterson will come under enormous pressure to deliver management change and give reassurance to shareholders. If he doesn’t, the buck stops at the top.’
The group said an independent probe into the scandal by KPMG had uncovered ‘ inappropriate behaviour’ in its Italian division, including ‘improper accounting practices’ and a ‘complex set of improper sales, purchase, factoring and leasing transactions’.
It confirmed a number of senior executives in Italy have been suspended. The head of BT Europe, Corrado Sciolla, is also set to quit.
In an effort to appease shareholders, BT’s remuneration committee will also examine bonus payments previously paid to leading directors, including Patterson, who collected £5.4m in pay and perks last year.
BT said: ‘The improper behaviour in our Italian business is an extremely serious matter, and we have taken steps to strengthen the financial processes and controls in that business.’