Five years ago this week, the tectonic plates of South Africa’s corporate sector shifted irreversibly.
On December 6 2017, in a terse 245-word statement, Steinhoff — which owned powerhouse retail brands such as Pep, Joshua Doore and Incredible Connection — said “new information has come to light today which relates to accounting irregularities”. CEO Markus Jooste, it said, “today tendered his resignation with immediate effect”, adding primly that shareholders “are advised to exercise caution when dealing in the securities of the group”.
Instead of “caution”, the statement sparked a frenzy. Steinhoff’s stock plunged 61% from R45 to R17 within hours. Today, it is R1.69 — 96% lower than December 5 2017.
“I’ve been in this game for more than two decades, and I’ve never seen anything like it,” Greg Davies, who heads private client trading at Cratos Capital, told me shortly afterwards. “It’s hard to properly describe the shock you feel in that moment.”
In March 2019, forensic auditors PwC reported that the situation was far worse than anyone suspected: R106bn in “fictitious and/or irregular transactions” had been sluiced into Steinhoff’s accounts since 2009, while its assets were overvalued by $12bn.
And Jooste, it seems, was the mastermind of this grand larceny.
So that’s the history. But what no-one would have bet on is that, today, Steinhoff would still be alive. Six months after the collapse, one banker told Louis du Preez, now Steinhoff’s CEO: “You’re still here? I thought you guys would have folded.”
For good reason, too. No company laid low by a cancer that had metastasised to this extent has survived in any real sense: Enron, WorldCom, Wirecard, LeisureNet and Masterbond all collapsed.
Steinhoff survived, in part, due to luck. As Jean Pierre Verster, CEO of Protea Capital Management, told the FM, interest rates at the time were abnormally low and the group had strong businesses able to produce profit growth exceeding the interest rates payable on its immense €10bn debt.
Jooste hasn’t so much as been visited by the police here, even though he was charged in Germany last month
“Even though Steinhoff may be rated as junk, it ‘only’ has to pay interest of 10%,” he said earlier this year. “That’s high — but if you’ve got great businesses like Pepco and Pepkor that are able to produce profit growth of more than 10%, your funders may be inclined to give you more time.”
Equally, Du Preez argued that had it not been for the overseas hedge funds, which provided the cash to see Steinhoff through rocky times, it would have died. The mainstream banks, he says, didn’t have the appetite for this — which tells you something about why otherwise salvageable companies end up on the scrapheap.
But Steinhoff’s survival was also due to savvy navigation — most particularly, in settling R136bn in legal claims against it for R31bn.
This settlement has changed the game globally.
Institutional Shareholder Services, a London-based governance adviser, said in a report last month that “the Steinhoff global settlement becomes the largest [in a corporate class action] of all time outside North America”.
“The parties were able to reach a global resolution through a novel legal procedure involving restructuring proceedings in the Netherlands and South Africa ... Steinhoff becomes the first-ever investor settlement in South Africa and the only action [recently] to be resolved across multiple jurisdictions,” it pointed out.
It’s probably not the ideal area of global jurisprudence you’d want to be making headlines in, but given how the cards landed, it’s still a notable feat.
Prosecutions
Where South Africa has been far less successful, of course, is holding Jooste and his accomplices accountable. Globally, the country is far behind the curve. Consider, for example, that:
- This week, Wirecard’s former CEO Markus Braun is going on trial in Munich, less than 2½ years after the payments company went insolvent in June 2020. Braun was arrested that same month.
- After blood-testing company Theranos began falling apart in August 2016, founder Elizabeth Holmes was indicted on fraud charges within two years. The trial began in August 2021, and she was found guilty on four counts in January this year, and sentenced to 11 years in jail.
- Enron filed for bankruptcy in December 2001, and chair Kenneth Lay and CEO Jeffrey Skilling were charged with 11 counts of fraud and misleading statements 2½ years later, in July 2004. Both went on trial in January 2006, and by May that year, had been found guilty.
- Volkswagen was accused of rigging its diesel emissions data in September 2015, and by May 2018 CEO Martin Winterkorn had been charged in the US for fraud — though he has dodged extradition from Germany. But Volkswagen’s former compliance head, Oliver Schmidt, wasn’t so lucky — in 2017, he was arrested in Florida and sentenced to seven years in jail.
South Africa has a far more equivocal record. Tigon CEO Gary Porritt was arrested in December 2002, but two decades on, his trial hasn’t been completed. Nor has an extradition request even been lodged for Ponzi scheme mastermind Barry Tannenbaum, who fled to Australia in 2009.
There have been some successes, such as Regal Bank chair Jeff Levenstein, who served eight years for fraud in the Zonderwater Correctional Centre, and Fidentia’s J Arthur Brown who served seven years in the Voorberg prison.
Yet five years later, Jooste hasn’t so much as been visited by the police here, even though he was charged in Germany last month.
At some point, he’ll surely face prosecution in South Africa. But as each day ticks past, the perception becomes more entrenched that corporate crime is too complicated for our investigators.
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