The JSE has disqualified Steinhoff’s former chief financial officer, Ben la Grange, from acting as a company director for 10 years and fined him a total of R2 million.
La Grange served as CFO under the global retailer’s former chief executive, Markus Jooste.
After an investigation, the JSE said it has imposed two public censures and two R1m fines, along with La Grange’s immediate disqualification, because he failed to fulfil his duties with the necessary care and skill.
One of the fines related to a subsidiary of Steinhoff Investment Holdings, Steinhoff at Work. The JSE found that La Grange processed a handwritten invoice for €23.5m (about R376m at the time) handed to him by Jooste in 2016, which the JSE found was fictitious.
In a Sens statement on Friday, the JSE referred stakeholders to its announcement in October 2020, wherein it imposed a public censure and fines of R13.5m against Steinhoff as a result of its transgressions of the exchange’s Listings Requirements.
The JSE said it has concluded its investigation against La Grange in his capacity as the Steinhoff’s CFO at the time of these transgressions.
According to the JSE, Steinhoff joined a structure referred to as the “buying group” through its involvement with TG Group Holding SA and its subsidiary companies, whereby volume rebates were purported to be negotiated and collected by the TG Group for the Steinhoff group, as well as other third parties.
Fictitious transaction
In mid-November 2016, Jooste created a handwritten document indicating that the pro rata contributions that Steinhoff at Work would be entitled to receive from TG Group were €23.5 million, the JSE said.
“There was no actual transaction nor any legitimate commercial reason that supported the information or calculations contained in the handwritten document.”
It said Jooste gave this document to La Grange to generate an invoice to the TG Group for the contributions to be received by Steinhoff at Work.
La Grange instructed others to process the invoice that Jooste had given him, as well as the pro rata contributions in the Steinhoff at Work accounting records for the financial year ended 30 September 2016, the JSE said.
“As there was no actual transaction to support the invoice, the invoice issued by Steinhoff at Work was false. Thereafter, other Steinhoff representatives created various documents and gave instructions for monies to be transferred between Steinhoff Group bank accounts to create the impression that the pro rata contributions were actually paid to Steinhoff at Work by the TG Group and to be used as audit evidence for the Steinhoff at Work September 2016 audit.
“The contributions were never negotiated or collected by the TG Group, and TG Group did not pay for any of these contributions that had been accounted for as income by the Steinhoff Group,” the Sens announcement said.
As a result of the fictitious transaction, Steinhoff at Work’s income for the 15 months to the end of September 2016 was falsely inflated by R376 649 872, which, in turn, falsely inflated the income of the Steinhoff group, which was subsequently restated.
“Without this fictitious income, Steinhoff at Work’s stated operating profit of R47 545 585 should have been a loss of R329 104 287, and this loss should have been reflected in Steinhoff’s consolidated financial statements.”
The JSE said La Grange disclosed to the exchange that Jooste requested him “to bring to book income into the accounts of Steinhoff at Work which was, according to Mr Jooste, Steinhoff Group rebates procured by the TG Group”.
La Grange also disclosed that he procured the raising of the invoice, which was irregular because Steinhoff at Work was not entitled to a rebate, although he was not aware that the income was false at the time.
He acknowledged that he did not apply more scrutiny to evaluate the transaction and determine that the income was genuine, and that Steinhoff at Work was entitled to bring the income to book.
Breach of the Listings Requirements
The JSE found La Grange to be in breach of the following provisions of the Listings Requirements:
- General principle (v): He failed to exercise the highest standards of care in his direct involvement in the processing and implementation of the Steinhoff at Work Transaction, which was subsequently found to be fictitious.
- General principle (v): He ought to have known that inclusion of the income in respect of the Steinhoff at Work Transaction, which was subsequently found to be fictitious, would inflate the income recorded in Steinhoff’s consolidated financial statements and contributed to the 2016 financial results being incorrect, false and misleading in material respects.
Steinhoff’s previously published financial information for the 2016, 2015 and prior financial periods did not comply with International Financial Reporting Standards (IFRS) and was materially incorrect, false and misleading. This incorrect information was disseminated to shareholders, the JSE and the investing public.
The JSE found that La Grange’s actions and failure to comply with important provisions of the Listings Requirements were one of the causes of the publication and dissemination of material misstatements to the Steinhoff group’s 2016 consolidated financial statements and its statement of financial position at 1 July 2015.
“Mr La Grange held the highest-ranking financial position in the company and was directly responsible for managing the financial actions of Steinhoff, as well as the preparation and supervision of Steinhoff’s consolidated financial information. Mr La Grange ought to have known that due to the numerous accounting irregularities, Steinhoff’s previously published financial information failed to comply with IFRS and was incorrect, false and misleading in material respects. Mr La Grange’s actions directly resulted and/or contributed to Steinhoff breaching the Listings Requirements,” the JSE said.
Accordingly, the JSE found La Grange to be in breach of:
- Paragraph 8.62(b) of the Listings Requirements in respect of Steinhoff’s financial information for the 30 June 2015 and prior financial periods when Steinhoff had its primary listing on the JSE; and
- General principle (v) in respect of the financial information for the 15 months to 30 September 2016 when Steinhoff had a secondary listing on the JSE.
Reasons for the JSE’s decision
The JSE said the directors of issuers fulfil a critical role in ensuring that listed companies comply with the Listings Requirements.
“Issuers of securities listed on the JSE are only able to comply with the Listings Requirements if their directors take the appropriate actions to ensure that such issuers comply in all aspects with its provisions and to ensure that the financial information of listed companies are, in all aspects, valid and correct, and that it represents a fair and accurate exposition of the company’s financial information.”
For these reasons, the JSE imposed the following penalties on La Grange:
- A public censure and a fine of R1m for Steinhoff’s consolidated financial statements for the 2015 and prior financial periods and for the 15 months to 30 September 2016, which did not comply with the IFRS and were materially incorrect, false and misleading;
- A public censure and a fine of R1m for breaching the Listings Requirements in respect of the Steinhoff at Work transaction; and
- Immediate disqualification from holding the office of a director or an officer of a listed company for 10 years for failing to fulfil his duties and responsibilities as the CFO with the necessary due care and skill.
The JSE said that in arriving at its decision, it considered, among other factors, La Grange’s “constructive and unwavering co-operation with the JSE’s investigation and his full and frank engagement with the JSE where he provided various additional disclosures that assisted the JSE in its investigation against Steinhoff”.
