Regulators are turning up the heat on Markus Jooste

The regulatory hits just keep on coming for Markus Jooste. A month after the FSCA fined him R20 million for contravening the Financial Markets Act (FMA), the JSE this week barred him from holding the post of a director or officer of a listed company for 20 years, saying he failed to fulfil his duties and responsibilities as Steinhoff’s chief executive with the necessary due care and skill.

Read: FSCA has another go at fining Markus Jooste

The exchange also imposed two fines totalling R15m on Jooste, but enforcement of the fines will have to wait for the outcome of a reconsideration application before the Financial Services Tribunal (FST).

The reasons for the JSE’s sanctioning of Jooste are similar to those that resulted in the bourse last year fining former Steinhoff chief financial officer Ben la Grange R2m and barring him from acting as a director for 10 years.

Read: JSE fines former Steinhoff CFO a total of R2 million

Jooste does not agree with the JSE’s findings and sanctions.

On 14 December 2022, he applied to the FST for an order suspending the sanctions and for the sanctions to be reconsidered. The JSE opposed Jooste’s suspension and reconsideration applications.

On 10 January, the tribunal’s deputy chairperson, Judge Louis Harms, dismissed the suspension application, but granted the reconsideration application in respect of the fines.

Each of the fines the JSE imposed on Jooste was R7.5m, which is the maximum financial penalty the exchange is permitted to impose in terms of the FMA.

One was for financial statements that did not comply with the International Financial Reporting Standards (IRFS) and the JSE’s Listings Requirements. The other was for what the JSE called a fictitious transaction that falsely inflated Steinhoff’s income by R376m. (Details of the JSE’s findings in respect of these contraventions are provided below.)

Steinhoff lost more than 90% of its market value – amounting to about R200 billion – after auditors Deloitte refused to sign off on its financial statements and Jooste abruptly resigned in December 2017.

Forensic investigators from PwC later confirmed that €6.5bn in fictitious or irregular income had been recorded at Steinhoff between 2009 and 2016, making it South Africa’s largest known corporate fraud.

Is more to come?

The JSE’s sanctioning of Jooste comes five years after Steinhoff’s near collapse. It is the exchange’s third censure – and the second of a director – related to the accounting fraud at the company.

In October 2020, the JSE imposed a public censure and fines of R13.5m against Steinhoff because of its transgressions of the Listings Requirements.

The JSE’s latest action may not be the end of Jooste’s legal woes.

Steinhoff is waiting for a court date in its bid to recoup R850m from Jooste. The company has launched a civil case to claw back the money paid in salaries, bonuses and other incentives to its former chief executive.

Bloomberg has reported that Jooste – along with other former Steinhoff executives – will go on trial in Germany this year for accounting fraud.

News24 quoted Sasfin Securities chief global equities strategist David Shapiro as saying it has taken the regulators so long to sanction Jooste because it was a complex case with multiple threads.

“I think what has happened [is that] it has been very difficult for all these organisations [such as the JSE] to impose penalties against him, and to challenge him, and to bring him to order, because the issues around Jooste are so complex and they couldn’t get full details of the investigations.”

Shapiro said the move by the JSE was as a step in the right direction and probably foreshadowed further legal cases, both criminal and civil, that would likely be brought against Jooste in the coming years.

“Sooner or later, we are going to see some of the big cases against him [Jooste]. He is going to be spending a lot of time now fighting off cases and defending himself,” Shapiro was quoted as saying.

According to News24, Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said the JSE would have been compelled to follow protocol and conduct its investigation, and that fining and disqualifying Jooste from holding a directorship were obvious actions to take.

He said these actions were “probably the least of Markus’ worries”.

Treurnicht said Jooste would “most likely oppose these steps and use delay tactics for as long as it takes”.

‘There was no actual transaction’

The JSE’s findings in respect of the fictitious transaction were as follows:

• Steinhoff at Work was a subsidiary of Steinhoff Investment Holdings whose ultimate holding company was Steinhoff.
• 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.
• In mid-November 2016, Jooste created a handwritten document indicating that Steinhoff at Work was entitled to receive pro rata contributions of €23.5m from the TG Group.
• “There was no actual transaction nor any legitimate commercial reason that supported the information or calculations contained in the handwritten document.”
• Jooste gave the handwritten document to La Grange, to generate a false invoice to the TG Group for the contributions to be received by Steinhoff at Work. La Grange instructed others to process the invoice.
• “As there was no actual transaction to support the invoice, the invoice issued by Steinhoff at Work, as well as the accounting records generated as a result thereof, were false.”
• Other Steinhoff representatives created various documents and gave instructions for money 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 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 result of this fictitious transaction was that 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.
• The Steinhoff Group therefore had to restate its financial statements to rectify the incorrect income previously recorded. 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.

Incidentally, the handwritten document was used by South African Reserve Bank as one of the pieces of evidence to convince a court to grant an order, in October 2022, to attach assets worth more than R1.4bn belonging to Jooste, his wife and his family trust.

Read: Did grey-listing threat hasten Sarb to act against Markus Jooste?

According to the JSE, Jooste breached the Listings Requirements in the following respects:

• He failed to exercise the highest standards of care in his direct involvement in the design and implementation of the fictitious Steinhoff at Work transaction.
• He knew, or ought to have known, that inclusion of the fictitious income in respect of the transaction would inflate the income recorded in Steinhoff’s consolidated financial statements and contribute to the 2016 financial results being materially incorrect, false and misleading.
• He knew, or ought to have known, that the Steinhoff at Work transaction was irregular and fictitious, and he failed to ensure that full, equal and timeous public disclosure was made to all holders of securities and the public at large regarding the fictitious transaction and its unlawful and irregular inclusion in Steinhoff’s consolidated financial statements.

Misleading financial statements

The second fine of R7.5m was a result of the JSE’s finding that Steinhoff’s consolidated financial statements for the 2015 and prior financial periods and for the 15 months to 30 September 2016 did not comply with the IFRS and the Listings Requirements and were materially incorrect, false and misleading.

The JSE said Jooste’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 as at 1 July 2015.

“Mr Jooste was the highest-ranking executive in the company and bore ultimate responsibility for the decisions and actions of management. Mr Jooste 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 Jooste’s actions directly resulted and/or contributed to Steinhoff breaching the Listings Requirements,” the JSE said.