This week marks the third anniversary since the Steinhoff bubble popped and, while it might not seem that way, the net is tightening around former CEO Markus Jooste. In recent weeks, excerpts of the PwC forensic report have silently trickled into the public domain, almost unnoticed. This in itself is significant — Steinhoff has guarded the full 7,000-page report as if it were an exclusive early Covid-19 vaccine.
But more than that, what those excerpts reveal is quietly devastating: previously undisclosed elements of SA’s largest fraud, which wiped R230bn off the market value of Steinhoff, hammering thousands of pension funds in the process.
Thanks to a summary of the PwC report and some journalistic sleuthing, we already know the broad brushstrokes. For example, over more than a decade, R106bn in "fictitious and/or irregular" profits were included in Steinhoff’s profits, and cash flows were manipulated through a systemic con, allegedly by Jooste and seven accomplices.
But there are intriguing new details in the full 56-page insider trading ruling by the regulator, the Financial Sector Conduct Authority (FSCA), against Jooste last month for tipping off four of his friends to sell their Steinhoff shares a week before the stock imploded.
FSCA investigations head Brandon Topham, says: "Part of what we included in our ruling comes from the PwC report, which contains evidence of misrepresentation which we are investigating." Topham says the FSCA is hoping to finalise the next leg of its investigation, into the wider fraud, by April.
So what’s new, you ask.
Perhaps most sensationally, there is confirmation of a rumour which circulated at the time of Steinhoff’s collapse that Jooste had tried to artificially boost the 2017 profits by $200m for a deal that never happened with one of the world’s largest mattress makers, Serta Simmons Bedding.
A fake $200m payment is about as blunt as sending a message to your friends telling them to sell their shares
The FSCA ruling spells out what happened in those heady days in November 2017 — a week before Steinhoff said on December 5 that it had detected "accounting irregularities" and that Jooste would resign "immediately".
The story is that at a meeting on November 27, Deloitte’s auditors told Steinhoff’s audit committee chair, Steve Booysen, that they were worried that since 2013, there had been "single items" pushed into the accounts at the last minute — either at the year-end or just after. It was a clear red flag for auditors. And these were immense numbers — €1.58bn between 2015 and 2017 — which had arrived in the nick of time, and magically ended up boosting Steinhoff’s profit.
"For 2017, the ‘late transactions’ included a $200m reimbursement by Serta Simmons of alleged marketing costs, and a 90% share of €642m [for] the sale of rights by GT Global [Trademarks]," the FSCA ruling says.
Deloitte’s Amsterdam office, which had received a tip-off earlier that year that Steinhoff’s accounts were about as legitimate as a R9 note, were understandably sceptical.
Things reached a head two days later, on November 29, when the auditors told chair Christo Wiese that Jooste had been defrauding shareholders for years. Don’t worry, said Jooste, I’ll get the evidence of the Serta Simmons deal. But, since it was all smoke and mirrors, he never could. So Deloitte refused to sign the accounts — and the dam broke.
"Serta Simmons never agreed to reimburse Mattress Firm or Steinhoff up to $250m for the rebranding of Mattress Firm stores, of which $200m was supposedly payable before the end of November 2017," the FSCA papers say.
Oh, and that €642m was an equally outlandish tale. Jooste had claimed this was Steinhoff’s 90% share of the profit from the "sale of the right to use the trade brand portfolio of Steinhoff in the US, Canada, Mexico and China".
These "rights" had theoretically been "sold" by a company called GT Global Trademarks. Only, there had been "no agreement" on this. In reality, GT Global Trademarks was secretly run by a group of insiders loyal to Jooste.
It was, as with much of Steinhoff, an elaborate fiction.
True, this sort of accounting sleight of hand had been happening for years. But in 2017, something changed that led to it becoming far more brazen. To imagine you could concoct a $200m payment from one of the word’s largest mattress companies, and get away with it, suggests a remarkable narcissism and arrogance.
But maybe there weren’t many options left. In 2016, Steinhoff had bought the largest mattress retailer in the US, Mattress Firm — but it turned out to be a dog. Jooste was desperate to mask this reality from investors, so Steinhoff began making secret "contributions" to Mattress Firm.
"The Mattress Firm figures included contributions from Steinhoff Europe reflected as income and which falsely created the impression that Mattress Firm was making a profit, while it was in fact suffering significant losses," the FSCA says. In 2017, for example, Steinhoff secretly "contributed" $162m to Mattress Firm. But when Deloitte asked Dirk Schreiber, the head of Steinhoff Europe, for these journal entries, it found that the payments "were not accompanied by acceptable accounting records".
Now, as much as large parts of the wider Steinhoff fraud were vastly complicated, a fake $200m payment most certainly isn’t. It’s about as blunt as sending a message to your friends telling them to sell their shares, with the warning: "Delete this SMS and don’t mention it to anyone."
This shows that unless criminal investigators get too greedy and try to pack charge sheets with every conceivable charge, it’s not too complex to unravel. Today, three years after Steinhoff’s collapse, and with a PwC forensics squad behind them, this excuse can’t hold much longer.
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