The FSCA has imposed a penalty of R475 million on former Steinhoff chief executive Markus Jooste for making or publishing false, misleading, or deceptive statements about Steinhoff International Holdings Limited and Steinhoff International Holdings.
During a media roundtable hosted by the FSCA today, Alex Pascoe, who heads the Authority’s market abuse investigation team, said that the huge fine – which includes a R10m contribution to reimburse the FSCA for reasonable costs incurred during the investigation – was the largest the FSCA has imposed on an individual.
The penalty is payable to the FSCA on or before 19 April. However, Jooste has the right to appeal to the Financial Services Tribunal (FST) for a reconsidered of the decision.
Pascoe said the FSCA is expecting a long-road of litigation and a Stalingrad strategy [appealing every unfavourable ruling and employing all available means to delay proceedings] from Jooste.
“He will definitely appeal this to the Tribunal. And if he’s not successful at the Tribunal, he will take us on review to the High Court. He has already indicated he’s going to take us to the Constitutional Court and, possibly, [it] will land up at the SCA [Supreme Court of Appeal] as well. So, we are expecting him not to immediately pay the penalty,” he said.
False, misleading, or deceptive statements
At the centre of the FSCA’s investigation were the two companies’ annual financial statements and annual reports for the 2014 to 2016 financial years and for the 2017 half-year.
According to the FSCA, the investigation found that Jooste and Dirk Schreiber, Steinhoff’s former European finance chief, made or published false, misleading, or deceptive statements about the two companies “which they knew, or ought reasonably to have known, were false, misleading, or deceptive”.
Such publication included the omission of material facts, the FSCA said. This was a contravention of section 81(1)(a) and (b) of the Financial Markets Act (FMA).
“The Steinhoff International securities were listed on the Johannesburg Stock Exchange and the Frankfurt Stock Exchange during this period. Section 81(1)(a) of the FMA prohibits a person from, directly or indirectly, making or publishing any false or misleading or deceptive statement,” the FSCA said.
The FMA also prohibits the promise or forecast in respect of any material fact regarding the past or future performance of a company that has listed securities on a regulated market, and which the person knows, or ought reasonably to know at the time and in light of the circumstances in which it is published, is false, misleading, or deceptive.
Section 81(1)(b) of the FMA similarly prohibits such a publication if, for the reason of the omission of a material fact, the statement, promise, or forecast is rendered false, misleading, or deceptive.
Unathi Kamlana, the Commissioner of the FSCA, said these contraventions meant that during the affected periods, the published financial statements failed in material respects to provide useful information to investors, lenders, and other creditors, thereby concealing the true financial position of Steinhoff International.
“This conduct essentially meant that investors based their assessment of Steinhoff’s International financial prospects on false, incomplete, or misleading information, which resulted in material destruction of values estimated to run in the hundreds of billions of rand in losses, including losses suffered by some various pension funds,” said Kamlana.
Leniency agreement
The FSCA said that because of the extent of Schreiber’s co-operation with the investigation, a leniency agreement had been entered with him.
In terms of the Financial Sector Regulation Act, the FSCA may, “in exchange for a person’s co-operation in an investigation or in proceedings related to conduct that contravenes or may contravene that law, enter into a leniency agreement with a person in respect of the conduct”.
In terms of the leniency agreement, the FSCA, despite finding that Schreiber contravened section 81(1)(a) and (b) of the FMA, will not impose an administrative penalty on him.
Pascoe was quick to point out that it was an agreement, not a deal.
“This was a strategic position. He was sitting in Europe. Europe contributed over 90% of the revenues to Steinhoff International. The office in Europe was very small, and obviously this is where the fraud was actually happening. Now we entered into the lenience agreement, because, as I said, it was a strategic position.”
Pascoe said Schreiber had to attend to terms and conditions.
“Depending on the terms, if he had performed and it was decided that he had carried out all the conditions, we would agree to the leniency agreement. So, there was absolutely no deal. It was only decided yesterday that we have accepted the leniency agreement,” he said.
Show me the money
In the meantime, the FSCA is still waiting for Jooste to make good on the reduced fine of R20m, plus interest, which was imposed on him in December 2022 for insider trading.
The original fine of R162m, also for FMA contraventions, was set aside by the FST in December 2021.
The FST dismissed Jooste’s second reconsideration application against the reduced fine in October last year.
Read: FSCA welcomes decision to uphold revised R20m fine on Markus Jooste
According to Pascoe, the FSCA had been informed that Jooste is taking the Tribunal’s decision on review to the High Court. Jooste has until 26 March to file the application.
An appeal or reconsideration application suspends payment of a fine.
But when the bill comes due, will Jooste be able to pay?
During the Tribunal proceedings, counsel for Jooste argued that the FSCA had not given sufficient weight to his current circumstances. It said the Tribunal should consider that Jooste was last employed in December 2017, when he resigned from Steinhoff, and he has not earned an income since.
Gerhard van Deventer, the FSCA’s executive for enforcement, told the media conference that, according to the law, if administrative penalties are not paid, it’s not the same as a criminal penalty.
“Then the FSCA is entitled to utilise civil recovery, civil execution, and to actually recover the fine or it becomes a debt owing to the FSCA. So, the FSCA will obviously take those steps,” he said.
The South African Reserve Bank has frozen Jooste’s assets.
Criminal investigation
Despite an ongoing joint probe by the National Prosecuting Authority (NPA) and the Hawks, Jooste is yet to face criminal charges in South Africa.
He was set to go on trial in Germany in April last year but failed to show up. News24 reported that Jooste’s German lawyer told the judge that an agreement with the South African authorities meant his client could not leave South Africa. Two months later, a regional court in Oldenburg issued a warrant of arrest against Jooste.
Pascoe said the FSCA will be opening a criminal case regarding the contraventions of section 81(1)(a) and (b) and will liaise with the NPA in this regard.
“We believe it will be added to the [NPA’s] bigger fraud investigation. And so, once they are ready to prosecute, we believe it’s going to be added to their case.”
He said, should the NPA decide to go that route, it could ultimately mean an additional penalty of R50m or 10 years’ imprisonment or both in a criminal case.
Click here to view the FSCA administrative penalty order issued against Jooste.
Click here to view the FSCA administrative penalty order issued against Schreiber.
