Steinhoff: Crime and no punishment
SA’s worst accounting scandal: will anyone ever take the fall for causing Steinhoff’s dramatic collapse?
When Steinhoff chair Heather Sonn told a joint sitting of three parliamentary committees at the end of January that the company had reported former CEO Markus Jooste to the Hawks, a frisson of excitement ran through the parliamentary precinct.
At last it seemed corporate SA was intent on moving fast to call one of its own to account. Five months later, it’s difficult not to suspect Sonn was merely hoping to calm the righteous anger of the parliamentarians.
The clamour for someone to be held accountable for the R188bn wiped off Steinhoff’s share price since December 6 escalated this week, after the company released horrifying (unaudited) financials for the six months to March.
This revealed how €12.8bn had been written off the value of the company’s assets, as well as dramatic restatements of its financials.
This time last year, Steinhoff said it clocked up operating profit of €885m for the half-year to March 2017. Now it says it should have reported an operating loss of €168m for that period — a €1bn swing.
For the six months to March 2018, the operating loss was put at €381m.
At least, Steinhoff now has some numbers on the immense loss in value from SA’s worst accounting scandal yet, that has affected the super rich (such as Christo Wiese and GT Ferreira) and not-so-rich (hundreds of thousands of ordinary savers).
Asked about it this week, Ferreira, who has lodged an estimated €100m demand with Steinhoff over the amount he lost, seems shocked by the extent of the wreckage.
He acknowledges that nothing has been proven against Jooste.
The former banker says the half-year results seem appropriately conservative when it comes to the stratospheric write-downs.
"As [former US defence secretary Donald] Rumsfeld might have said, they have dealt with the known knowns.
"What I’m worried about are the unknown unknowns," he says.
Equally, former Steinhoff chair Wiese told radio station 702 that the extent of the write-offs was "mind-boggling".
However, there’s now a chilling possibility that after tens of millions spent on legal fees, no-one will be found guilty. If that sounds inconceivable, recall the indignation around the African Bank collapse. Four years on and nobody has been found guilty of bringing that bank to its knees.
With Steinhoff it might be different. Not just because the scale is so much bigger but because the number of entities looking for retribution is larger.
Regulators are keeping a close eye on what’s happening. The companies & intellectual property commission is demanding monthly updates on the company’s position, while the Financial Sector Conduct Authority (previously the Financial Services Board) is probing two cases of possible insider trading.
The Independent Regulatory Board for Auditors is investigating Deloitte for signing off Steinhoff accounts for 2013, 2014 and 2015. It tells the FM that it is waiting to see restated figures for the year to September 2017.
These will be compared with the figures that were published, as well as Deloitte’s audit files, to determine whether the right audit standards were applied.
This week the Reserve Bank did not respond to a request for an update on its investigation into possible breach of exchange controls.
Parliament’s involvement could be a game changer.
The breadth of its involvement is unprecedented and, given the enormous scope for point-scoring, parliamentarians are unlikely to accept that no-one is guilty.
The company’s report was submitted to the Hawks in late January by Steve Booysen, chair of Steinhoff’s audit committee, in terms of section 34 of the Prevention & Combating of Corrupt Practices Act. It contained three sweeping allegations against Jooste but no specific details.
Piet Delport, professor of law at Pretoria University, tells the FM Steinhoff’s report to the Hawks seems intended to protect the board from liability, rather than spark action by the authorities.
"If a person in authority knows about a fraud involving R100,000 or more, they must disclose it," says Delport. "They’ve given the Hawks nothing. They should have laid a charge with an affidavit and prima facie evidence."
Booysen had previously indicated he suspected something was amiss back in September 2017.
Delport does not think angry investors should automatically expect the courts to find Jooste, or anyone associated with the huge loss of value, guilty of fraud. The burden of proof is overwhelming, mainly because of the requirement to prove someone had the intention to commit fraud.
Even the fact that €10bn disappeared from the March 2017 balance sheets disclosed in the just-released interim results to end-March 2018 doesn’t mean a fraud conviction is a slam-dunk.
Delport, who agrees it’s unlikely that one person alone could be responsible for the financial manipulation, contends that while there’s evidence of negligence, it doesn’t necessarily extend to fraud. "If I, for my company, pay R200 for a car that might only be worth R100, that’s negligence, not fraud," says Delport.
However, if one could prove Jooste or his accomplices knowingly inflated values to dupe investors, that would count as fraud.
Perhaps the best hope for monetary retribution may lie with the Dutch shareholder association VEB, which has launched a class action against Steinhoff and Deloitte.
Armand Kersten, VEB’s head of European Relations, says it has written to Steinhoff this week querying how it could argue that it is still a "going concern" even while it is selling off assets for below their true value.
Kersten acknowledges the class action could take years.
Until then there is little sign of anyone being held to account for the largest destruction of value yet recorded on the JSE. SA’s Institute of Chartered Accountants appears so unconvinced by the evidence it hasn’t thought it necessary to suspend Jooste’s membership.