Former Steinhoff CEO Markus Jooste. (David Harrison/M&G)
The local criminal investigation into the Steinhoff scandal is still ongoing, authorities said on Wednesday, after former chief executive Markus Jooste failed in his bid to overturn the JSE’s decision to bar him from serving as director of a listed entity for the next two decades.
The sanction imposed by the JSE on Jooste for breaches committed in the biggest balance sheet scandal in South African corporate history also included two fines totalling R15 million.
Jooste applied to the Financial Services Tribunal in mid-December for an order for the suspension and reconsideration of the JSE’s decisions, which the stock exchange opposed.
On Tuesday, retired justice Louis Harms, the deputy chairperson of the Financial Services Tribunal, dismissed the suspension application with regard to the ban, but not with regard to the fines of R7.5 million each — the maximum penalty the JSE can impose.
This meant, the JSE said, that it could proceed to ban Jooste from serving as the director or officer of a listed company for a period of 20 years.
“The JSE will await the outcome of the reconsideration application in so far as the enforcement of the fine is concerned,” it said. “The JSE will continue to oppose the reconsideration application.”
The JSE’s decision to sanction Jooste for transgressions of listing requirements by Steinhoff International Holdings on his watch stem from the misrepresentation of the results of Steinhoff at Work, which would in turn vastly inflate the income of the Steinhoff Group.
Jooste in 2016 gave a handwritten note indicating that Steinhoff at Work would receive €23.5 million from the TG Group, which collected volume rebates for the Steinhoff Group and others, to Steinhoff chief financial officer Ben la Grange, though no such transaction had transpired.
La Grange was to create a false invoice for payment the subsidiary would receive.
The result was that Steinhoff at Work’s income for the period ending September 2016 was inflated by R376.6 million, which in turn falsely inflated the income of the Steinhoff Group. Steinhoff at Work’s operating profit of some R47 million should have been a loss of more than R329 million and this should have been reflected in Steinhoff‘s consolidated financial statements.
The JSE found Jooste him in breach of three general principles of its listing requirements.
First, he failed to exercise the highest standards of care in his “direct involvement in the design and implementation of the fictitious Steinhoff at Work Transaction”. Second, he knew, or ought to have known that the inclusion of the fictitious income from the transaction would inflate the income recorded in Steinhoff’s consolidated financial statements and result in those for 2016 being false and misleading.
Third, he knew, or ought to have known, that the transaction was fictitious and failed to ensure full, timeous disclosure to Steinhoff shareholders and the public at large of its improper inclusion in the group’s consolidated financial statements.
“Mr Jooste was the highest-ranking executive in the company and bore ultimate responsibility for the decisions and actions of management,” the JSE said.
“Mr Jooste ought to have known that due to the numerous accounting irregularities, Steinhoff’s previously published financial information failed to comply with IFRS [International Financial Reporting Standards] and was incorrect, false and misleading in material respects. Mr Jooste’s actions directly resulted and/or contributed to Steinhoff breaching the listings requirements”
The JSE in 2020 handed Steinhoff a R13.5 million fine.
Parmi Natesan, the chief executive of the Institute of Directors of South Africa, on Wednesday welcomed the steps taken by the JSE, saying it was in line with calls for business leaders to be held to account for their actions.
“Our country needs to see more consequences such as these for unethical behaviour,” Natesan said. “This sanction by the JSE is a step in the right direction, with further action likely to follow from other regulatory, law enforcement and professional bodies.”
A spokesperson for the Directorate for Priority Crime Investigation (the Hawks), Brigadier Nomthandazo Mbambo, confirmed that the long-running criminal investigation into the Steinhoff saga was still ongoing, hence it was unclear when a prosecutorial decision would follow.
Meanwhile German authorities have decided to charge Jooste with aiding and abetting balance sheet fraud. German state prosecutors have asked the Oldenburg regional court to set a trial date and expect that the case will get underway in early 2023.
Jooste was not named directly but identified as the 61-year-old former chief executive of Steinhoff International Holdings until 2017, and representative of Steinhoff Europe AG, based in Austria, and Steinhoff Europe Group Services GmbH, based in Westerwede in Lower Saxony.
The charges that will be brought to court in Oldenburg stem from sham transactions totalling €839 million that reflected as sales profits in the 2011 financial results of Steinhoff sister company Tau Enterprises and skewed the group’s consolidated balance sheets.
Steinhoff overstated its assets and profits by R105 billion.
The company’s share price plunged by more than 95% of its value in 2017 when the balance sheet irregularities came to light, erasing tens of billions of rands in shareholder value.
Jooste resigned on 5 December 2017. He has consistently denied any wrongdoing.
The South African Reserve Bank last October executed an ex-parte order to attach the assets of his assets, as well as those of his wife and La Grange. The preceding Reserve Bank investigation spanned four years and several jurisdictions.
[/membership]