MICHAEL MARCHANT: Steinhoff: in the dark, still
Crucial reports which contain detailed information about how the fraud took place and who is responsible are still not publicly available
Nearly three years after Steinhoff’s finances were exposed as a sham and the company lost nearly all its value overnight, it is offering shareholders and former partners a settlement agreement.
Facing legal claims for over R130bn, Steinhoff’s management is proposing a R16bn settlement, payable in a mixture of cash and Pepkor shares.
Yet crucial reports which contain detailed information about how the fraud took place and who is responsible are still not publicly available.
How can shareholders make an informed decision if they’re being kept in the dark?
The fact is, Steinhoff shareholders are the victims of one of SA’s largest corporate frauds. For at least a decade, it is alleged, key executives and managers led by former CEO Markus Jooste engaged in self-dealing transactions to enrich themselves at the expense of the company. They covered their tracks by lying about the company’s profits.
At the core of the scandal were the absentee auditors under whose watch this took place. Steinhoff’s long-standing auditor, Deloitte, failed to report a gaping hole in the company’s balance sheet until it finally raised the alarm in 2017.
From large institutional investors like the Public Investment Corp, which lost the R21bn it invested on behalf of the Government Employees Pension Fund, to smaller individuals saving for retirement, shareholders have endured catastrophic losses.
It is thus no surprise that shareholders, along with some of Steinhoff’s creditors and former business partners, have brought over 90 lawsuits against the firm in SA, Germany and the Netherlands.
Steinhoff’s answer to the R130bn in legal claims is this settlement agreement. Without it, the company says, liquidation is inevitable.
At least one shareholder has indicated his support for the deal: plutocrat Christo Wiese, Steinhoff’s former chair. Under the deal, he’ll get nearly R8bn in cash and Pepkor shares. Ironically, Wiese had sold Pepkor to Steinhoff in 2014.
But there’s a catch. Steinhoff is pressing shareholders to agree to the settlement when they do not have all the information.
Steinhoff is pressing shareholders to agree to the settlement when they do not have all the information
After a decade of being defrauded, shareholders have the right to know exactly what happened that led to the firm’s collapse and who is responsible. Yet they, and the public, have been denied this right.
The first major report that is being kept secret is the PwC forensic report delivered to Steinhoff’s board in March 2019. According to an 11-page "overview" released by Steinhoff, it reveals misrepresentation and fraud by executives and management. But the full 3,000-page PwC report remains hidden. The public does not know precisely who was identified as having a role in the fraud, nor what the findings were when it came to Deloitte.
Steinhoff justifies the secrecy on the basis of "legal privilege", arguing that the PwC report was obtained with possible litigation in mind.
But what about shareholders having all the facts? What about the public interest in finding out who is responsible for one of SA’s largest financial crimes?
If Steinhoff did obtain the report for possible litigation, it has certainly been slow to pursue its claims against those responsible.
And something else that casts doubt on the "legal privilege" argument is that in March 2019, African Rainbow Capital’s Johan van Zyl told CNBC he’d seen the report, which revealed "fraud on a massive scale".
As Van Zyl ceased to act on the Steinhoff board in April 2018, he presumably had access to the report a year later as a member of the public. Why should he have access to this, while shareholders do not?
But the PwC report is not the only thing shareholders are being denied access to.
At the end of May, Steinhoff’s 2019 audited financial statements were released. The new auditor, Mazars, issued a qualified opinion on several grounds.
In particular, Mazars said there were still not audited financial statements for the 2017 and 2018 financial years — the years before and after news of the fraud broke.
It means Steinhoff’s shareholders are being kept in the dark while being told the settlement is the best they can hope for. No doubt Deloitte will be all too happy to see a deal go through and questions about its complicity dissipate.
But where does this leave investors and pensioners, who carry the burden of unchecked corporate greed?
In the announcement of the settlement, Steinhoff advises shareholders to get legal and financial advice before making a decision. But if the company truly wants shareholders to make an informed choice, it can start by releasing the information it is hiding.
- Marchant is a researcher at Open Secrets
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