Serco settles landmark shareholder lawsuit

Serco has reached a settlement with institutional investors who sued the UK-listed outsourcing company over an overcharging scandal that led its share price to plummet.

Lawyers for both sides told a High Court judge in London on Tuesday that an agreement had been reached in the landmark case, one week after a trial began.

The closely watched case, which was the first of its kind in England to go to trial, comes as shareholder lawsuits pile up against other UK companies.

Law firm Fox Williams said last week that it was preparing a separate case against gambling group Entain following a criminal bribery investigation by UK authorities into its Turkish subsidiary, which ended in December with it accepting a £615mn penalty as part of a deferred prosecution agreement (DPA).

Entain, the owner of Ladbrokes, said it was not aware of any such claim being issued and would “defend any such action robustly”.

Glencore, Standard Chartered and Barclays are among the other London-listed companies facing legal action over share price drops.

Terms of the settlement in the Serco lawsuit were not disclosed. The company said the terms were “not material” for the group and reflected its confidence it would have won.

Allianz and Russell Investments were among the investors who brought the claim following a sharp drop in Serco’s share price. Lawyers acting for the claimants told the court that the company had been “cooking the books”.

Shares in Serco fell heavily after the UK government accused the company in 2013 of overcharging it on an offender electronic tagging contract by tens of millions of pounds, including billing it for those who had died or had left the country.

The shareholders claimed that senior individuals at the company “knew or were reckless as to Serco’s misconduct” and that the company had made “untrue or misleading” statements to the market.

The overcharging scandal led to an investigation by the Serious Fraud Office, which fined Serco £19.2mn plus costs in a 2019 DPA for three offences of fraud and two of false accounting committed between 2010 and 2013. The SFO’s prosecution of two former Serco executives collapsed during its 2021 jury trial, however.

“It was, colloquially speaking, cooking the books,” lawyers acting for the claimants said in written arguments for the recent civil trial.

But Serco, represented by Clifford Chance, argued in the case that there were “fundamental deficiencies” with the investors’ arguments.

These included that the individuals alleged to have known about the overcharging were not involved in the publication of Serco’s annual reports or other relevant published documents.

Serco said in a statement that it “confirms that it has settled the shareholder group action on satisfactory terms that are not material to the group.

“The terms of the settlement reflect Serco’s view that, upon completion of the trial that began on 10 June, it would most likely have successfully defended the claim.”

Morgan, Lewis & Bockius, the law firm that brought the case for the investors, said the claims were “fundamentally about shareholders reinforcing the importance of transparency and accountability as part of good corporate governance”.

“The settlement reached acknowledges these objectives for the claimant group without the need for further protracted and costly legal proceedings.”