Ben la Grange, the former finance director of Steinhoff, appeared to be a whisker away from becoming a state witness against his former boss Markus Jooste. Then Jooste, due to finally face criminal charges six years after Steinhoff cratered, shot himself on the cliff paths of Hermanus in March, and the bid to prosecute South Africa’s defining corporate fraud changed trajectory overnight.
Last week La Grange, 49, appeared for the first time in Pretoria’s Specialised Commercial Crimes Court, charged alongside Steinhoff’s former legal head, Stéhan Grobler, with fraud, racketeering, corruption and financial markets infringements. He’ll feel that but for Jooste’s fatal decision in March, it could have all been so different.
“In early 2018, I was approached by the [police] to co-operate with the Hawks in the investigation into the affairs of Steinhoff as a potential state witness,” La Grange said in a 10-page affidavit he submitted to court. “Since that time I have given my full co-operation to the Hawks and the National Prosecuting Authority [NPA] and I have engaged with the prosecuting team on multiple occasions.”
La Grange said he’d done “everything in my power” for 5½ years to assist the forensic investigators at PwC and law enforcement authorities get to the bottom of it. “I do not foresee that the prosecution will deny the extensive engagements,” he said.
Indeed, it didn’t. Hawks detective Lt-Col Jacq Velloen, the lead investigator in the Steinhoff case, told the court he wouldn’t oppose bail for La Grange, which he duly got for R150,000.
“I confirm that there were various engagements between the investigators, NPA and [La Grange] but those engagements were unsuccessful and [he] was formally told he will not be treated as a state witness,” said Velloen.
La Grange was groomed for years to be the most high-profile Steinhoff executive to testify against Jooste. But the friendly chats with prosecutors ended after Jooste’s self-inflicted denouement.
The public, desperate for accountability for the country’s largest fraud, needed heads on a spike — and Jooste’s death left a giant empty spike. Grobler, who appeared on criminal charges on March 22, just a day after Jooste’s suicide, wasn’t going to be enough.
Last week, for the first time since Steinhoff crumbled on December 5 2017, erasing R230bn in stock value almost overnight, criminal investigators finally showed their hand.
The 75-page indictment handed to court — evidently designed to prosecute Jooste — revealed for the first time the strength of the state’s case. Until now, it hadn’t been clear the authorities had a handle on the most complex case of white-collar crime to be tried in South African courts.
It shows the criminal case is narrowly framed, focusing on three crucial years — 2014 to 2016 — when the con was at its height, involving R20.5bn.
The whole purpose of this high-stakes shell game was to dupe the auditors
This is only a sliver of the wider schlenter: forensic auditors at PwC found that the fraud goes back to at least 2009, with “fictitious and/or irregular transactions” amounting to €6.5bn (R106bn at the time).
But with more than six years since Steinhoff collapsed, perhaps the most blatant and easiest to prove sins are precisely what the state needs.
The indictment leans heavily on the mysterious TG Group, based in Switzerland and Austria, which turned out to be nothing more than a series of shell companies used by Jooste and five accomplices in Europe as a vessel to launder cash through Steinhoff.
“In the simplest terms, the TG Group fraud was based on fraudulent invoices apparently settled by the round-tripping of Steinhoff funds,” the indictment said. “This sophisticated washing machine generated entirely illusory profits of €1.04bn.”
It is notable, however, that none of those closest to that scam — Jooste, his former banker George Alan Evans, who would set up numerous shady deals for decades, and Steinhoff’s two former European heads, Siegmar Schmidt and Dirk Schreiber — were hauled before the Pretoria court.
Jooste was the kingpin, and the prosecutors would have loved to nail him. But Schmidt and Schreiber are both doing time in a German jail for the wider Steinhoff debacle — Schreiber serving 2½ years for accounting fraud, and Schmidt six years for tax evasion.
Nonetheless, the indictment lays bare the mechanics of one of the central swindles at the heart of Steinhoff.
The TG Group (run by Jooste’s accomplices) would first sign a contract to pay Steinhoff “rebates” supposedly negotiated with a “buying group” of suppliers in Europe. Steinhoff would send an invoice, allegedly drafted by Grobler, to the TG Group, which it would then pay, boosting Steinhoff’s profits and underpinning the narrative of profound growth.
The problem was that no such “rebates” had been negotiated, as these “buying groups” didn’t exist. The TG Group, the indictment said, were simply “shell companies that never carried on business and were simply utilised for the [fraud and] then liquidated.”
But if it was simply an empty shell, how did the TG Group find the money to pay Steinhoff for these invoices — a flow of cash needed to reassure auditors this was really happening?
To make it seem legitimate, Steinhoff “lent” €1bn to TG Group companies, and this would simply be recycled back into the retailer’s accounts. These loan agreements, signed by Schreiber, “were fraudulent and provided for so-called loans to shell companies which would never have been able to repay them if the loans had been real”.
For instance, in July 2014, Steinhoff lent €550m to one TG Group company, which was “utilised to pay the TG Group invoices, never serviced, never repaid” and was eventually written off, the indictment said.
The whole purpose of this high-stakes shell game was to dupe the auditors.
Prosecutors say this was achieved partly by having six different groups of auditors, none of whom could see the whole picture, and second, by furiously switching the “loans” between various arms of the Steinhoff group. As a final touch to cover his trail, Jooste used an arcane German instrument called “wechsels” — a kind of promissory note, like an IOU — which are treated like cash in accounting terms.
This was a masterstroke, because the one item in the financial statements which few people think can be manipulated is cash. And yet, Jooste used the wechsels to reclassify the loans “which could never be repaid, as liquid assets, shown in the [accounts] as cash”.
On June 30 2014, for instance, Steinhoff invoiced three TG Group companies €193m and immediately issued three wechsels supposedly due to be repaid three months later. As luck would have it, this was the last day of Steinhoff’s 2014 year-end, so it included these wechsels as cash in its financial statements.
A few weeks later, on July 21, the TG Group companies would actually settle the amounts due — thanks to a “loan” from another Steinhoff entity that same day.
The auditors fell for it, “unaware that the funds for this settlement had been provided” by a loan from Steinhoff. They weren’t alone: this well-disguised round-tripping duped the board, and the bankers, for years.
In the end, it was only because Deloitte’s office in the Netherlands had been tipped off that it was a scam that it refused to sign the 2017 accounts.
Jooste tried bullying Deloitte, even pretending to fly to Germany to get the documents to prove it was legitimate. But on December 5 2017, he realised the game was up and tearfully offered Christo Wiese, Steinhoff’s chair, his resignation.
Jooste’s empty presence is felt in almost every paragraph of that indictment. La Grange is mentioned only occasionally, while Grobler is accused of being “involved in the drafting of the contracts” stemming from the fictitious deals.
Near the end, the indictment raises one of Jooste’s most flagrant cons: a handwritten invoice he scrawled on a piece of paper while on an aircraft back to South Africa from Europe in November 2016, supposedly for €23.5m (R376.6m).
Jooste handed that invoice to La Grange and asked him to “process” it, saying it was due to Steinhoff by the TG Group as a “rebate” negotiated from one of the buying groups.
La Grange, trusting him, told Steinhoff’s financial managers to draw up an invoice, which was sent to the TG Group. Neatly, Jooste ensured that TG Sourcing fabricated the documents — and just like that, a R47m loss in the Steinhoff@Work division was magicked into a R329m profit.
Prosecutors argue that La Grange and Grobler “well knew” that invoice was “not based on a legitimate business transaction”.
Yet this isn’t what the JSE found in August 2022 when it fined La Grange R2m and barred him from being a director for 10 years. The JSE said La Grange was “not aware the income was false at the time”, but that he didn’t use “necessary due care and skill” in verifying this.
This is also what La Grange told parliament in August 2018. “I thought [these deals] involved valid third parties,” he said. “Now it seems these parties were in fact related to [Jooste].”
It remains to be seen whether prosecutors have more evidence to show that La Grange was actually in on this, or whether, as the JSE believed, he was hoodwinked.
Prosecutors say Grobler and La Grange, by virtue of their positions at the company, “knew or ought reasonably to have known” that Steinhoff’s accounts between 2014 and 2016 were “false, misleading or deceptive”.
“The truth is, the finance director is responsible for all the actions of the finance managers below him,” Zwelakhe Mnguni, chief investment officer of Benguela Global Fund Managers, tells the FM. “When it comes to Ben la Grange, the charges say that if he wasn’t directly involved, he may not have been doing his duty to the point that it amounted to aiding criminal activity.”
Mnguni says the picture is complicated by the culture at Steinhoff — a deeply hierarchal, mafia-like cult of personality built around Jooste, in which his word was law. La Grange, hired as a fresh-faced 29-year-old and promoted quickly, would have been eager to please.
“The hierarchy was definitely intense at Steinhoff,” says Mnguni. “La Grange’s intention might just have been to do his job, but if I’m the boss of the organisation and I tell someone ‘Let’s go kill someone’, and if that happens, well, then it becomes a problem.”
If La Grange had no intention to defraud Steinhoff, and saw no clear crime, it could come down to how diligently he performed his fiduciary role as CFO. And critically for other former Steinhoff top brass, if La Grange is now in the dock, this opens the door for others who may not have performed their oversight roles to be charged too.
It’s a considerable risk, especially given that the state needs to demonstrate consequence for South Africa’s largest fraud, in the absence of the one man who had all the answers.
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