Former Steinhoff CEO Markus Jooste. (David Harrison/M&G)
The Financial Sector Conduct Authority (FSCA) has fined former Steinhoff chief executive Markus Jooste R475 million after finding he crooked the books to the tune of at least R38 billion of the alleged more than R155 billion in restated equity, costing shareholders and pensioners billions of rands in misplaced investments.
According to the FSCA, the “administrative penalty” is the largest ever imposed on a single individual in living memory.
Steinhoff International’s former European finance chief, Dirk Schreiber, entered into a “leniency agreement” for his cooperation during the investigation and managed to avoid a financial penalty, the authority said.
Schreiber, who was convicted of accounting violations and aiding credit fraud related to the scandal heard in a German court last year, is serving a 2.5-year prison sentence along with former director Siegmar Schmidt. Jooste was charged but failed to show up in court. He also has an outstanding R20 million FSCA fine after appealing the findings of an earlier investigation.
Announcing the outcomes of the lengthy inquiry at a media briefing on Wednesday, FSCA commissioner Unathi Kamlana said the authority’s “thorough investigation” had found that Jooste and Schreiber “made or published false, misleading, or deceptive statements about Steinhoff International Holdings Limited and Steinhoff International Holdings”.
“These are statements of which they knew or ought reasonably to have known that they were false, misleading or deceptive, including the omission of material facts,” Kamlana said.
He said the investigation found that this conduct had contravened section 81(1)(a) and (b) of the Financial Markets Act pertaining to the publication of financial statements for the 2014 to 2016 financial years and the 2017 half year period while the entities were listed on the Johannesburg Stock Exchange and the Frankfurt Stock Exchange.
“Of particular importance to us as the FSCA as the regulatory authority responsible for the efficiency and integrity of financial markets, is that these contraventions meant that the financial statements which were published, failed in material respect, to provide useful information to investors, to lenders and other creditors and thereby concealing the true financial position of Steinhoff International,” he said.
“This conduct essentially meant that investors based their assessment of Steinhoff International’s financial prospects on false incomplete or misleading information which resulted in material destruction of value, estimated to run in the hundreds of billions of rand in losses, including losses, suffered by some various pension funds.”
Kamlana said the behaviour of the executives was “wholly unacceptable” and it detracted from the required standard of due diligence of care and ethical conduct.
“It was self-serving and dishonest and negatively affected the reputation and transparency of our regulated markets,” he said.
Kamlana said the authority had considered Jooste’s “limited” assistance during the investigation in imposing the fine, which had to be commensurate with the misconduct involved, as well as his previous alleged contraventions of financial sector laws and the impact on the financial system and stability.
“In imposing the financial penalty on Mr Jooste we took into account the egregious nature of the misconduct, the need for a deterrence of similar behaviour and the amount of losses suffered by the market and the nature, duration and seriousness of the conduct,” he said.
The penalty is payable to the FSCA on or before 19 April 2024. It includes a contribution of R10 million to reimburse the authority for costs incurred in connection with the investigation, and interest at the rate of 11.75%.
Kamlana said that although the investigation found that Schreiber had contravened section 81 of the Financial Markets Act, it had entered into a leniency agreement with him for his cooperation during the investigation, and had not levied a financial penalty against him.
He said the investigation had been “complex” and had run into hundreds of pages, including interviews with investors and people in other parts of the world due to the securities listed abroad.
FSCA leader of the directorate of the market abuse investigation team, Alex Pascoe, said the extent of the dishonesty and manipulation of the financial results of Steinhof
International and how its financial position was reported “meant that its financial publications did not fairly represent its financial position, the results of its operations and its cash flows”.
“They were false, deceptive and misleading. False operating profits were disguised as receivables which were, in fact, not recoverable. The false irrecoverable assets, reflected as cash and cash equivalents in the financial results, meant that the corresponding equity of Steinhoff International was overstated,” Pascoe said.
Pascoe said the authority had found evidence that equity had been overstated by at least R38 billion, but it would have taken “many years or decades” to focus on every transaction to prove it had been restated by the alleged more than R155 billion.
He said he expected Jooste to appeal to the Financial Sector Tribunal as he had appealed previous decisions.
“If he’s not successful at the tribunal he will take us to the high court and he has indicated that he will take us to the constitutional court,” he said.
“So, we are expecting him not to immediately pay the penalty and we are expecting a long road of litigation, Stalingrad Strategy, with regards to Mr Jooste.”
He said the matter would be referred for a further criminal investigation to the Directorate for Priority Crimes Investigations (the Hawks) and the National Prosecuting Authority. The FSCA would also advise the JSE and financial sector professional bodies such as the South African Institute of Chartered Accountants of its findings.
He said the “material misstatements” led to existing and potential investors, lenders and other creditors having false or misleading information with which to assess the prospects for future net cash inflows “and consequently overvaluing Steinhoff International’s performance and/or the recoverability of their investment or loan”.
In September 2019, the FSCA imposed an administrative penalty of R1.5 billion on Steinhoff International. Upon application made by the company, the FSCA remitted the penalty to R53 million in terms of section 173 of the Financial Sector Regulation Act.
The penalty was paid before Steinhoff International became a new private Dutch holding company at the end of 2023.
The FSCA said the findings relating to Jooste and Schreiber had been made as part of an ongoing investigation and that it is “continuing with further investigations into similar contraventions of the FMA by other individuals”.