What’s Going On Here?
Telecom giants British Telecom have found themselves in the midst of a scandal after it was revealed that its Italian division is being investigated for false accounting.
What Does This Mean?
On Tuesday, nearly £8 billion was wiped off the value of BT after they announced that financial irregularities at BT Italia were set to cost the company £530 million. BT Italia, the largest division of BT outside of the UK, is currently being investigated by Milan prosecutors, and several key employees of the division have handed in their resignation, including the head of BT Europe, Corada Sciolla.
As of yet, no employees have been subjected to criminal charges. However, the possibility of charges being brought may be increased depending on the result of the initial investigation.
Why Should Firms Care?
The legal and financial implications of this are massive. Not only is BT Italia and its employees facing criminal charges, but BT itself may see legal action from its own shareholders for potentially misleading them as to the extent of the scandal and the losses they might face.
Shareholder litigation specialists ‘Bentham Europe’ (essentially a business that sues companies on behalf of their investors) are in talks with BT shareholders over potentially taking legal action against the company. They are focusing on the fact that in October, the company declared that the misdealing would only result in losses of £145 million. In fact, this was a massive underestimate with the actual loss being recorded at £530 million!
The in-house legal department at BT will inevitably have their work cut out after recent events. It will be essential for the company to identify those responsible and deal with them as soon as possible to minimise further damage to the reputation of the company. BT are also looking to bring forward a review of their auditors (the individuals in charge of assessing a company’s financial records). They are trying to pin the blame on them for not spotting the financial irregularities at BT Italia sooner.
Although the scandal will inevitably have negative short-term consequences for the company, once those responsible are held accountable, BT’s reputation will bounce back.
Article written by Matthew L.
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