Parliament keen to see Jooste in orange overalls as 8 execs implicated in Steinhoff fraud

LONDON — Frustrated by the lack of progress as far as the Hawks and the National Prosecuting Authority is concerned in the Steinhoff case, Parliament stepped in today and forced the new Steinhoff execs, to appear before the finance portfolio committee and release the names of those implicated in the PwC report into irregular transactions worth $7.4bn. There was a feeling among the MPs that fraud by whites is taken less seriously than irregularities by black people. Alec Hogg’s intel alluded to a dirty half dozen occupants of Markus Jooste’s 17th floor, but it turns out there were eight, four of those implicated sat somewhere overseas. The chair of the Finance Portfolio committee, Yunus Carrim would have none of the efforts by Steinhoff to suppress the names because of further investigations and European privacy laws, and made it clear he would like to see Jooste, described as the man walking around in Hermanus in his pyjama’s, to be put in orange overalls. He is not the only one who is keen on progress in the Steinhoff scandal. The Financial Sector Conduct Authority (FSCA) have summoned Steinhoff to provide them with the full report by PwC. – Linda van Tilburg

By Janice Kew and Loni Prinsloo

(Bloomberg) – Steinhoff International Holdings NV identified eight people, including former Chief Executive Officer Markus Jooste, as those allegedly behind questionable transactions that brought the global retailer to near-collapse.

The company’s executives were compelled by a South African parliamentary committee to release the names even as Chairwoman Heather Sonn and CEO Louis du Preez warned it could jeopardise investigations and break European privacy laws. The revelations come after a forensic probe by PwC uncovered €6.5bn ($7.4bn) of irregular transactions with eight firms from 2009 and 2017, according to a summarised report released Friday.

“We want the emphasis to be on prosecutions,” Sonn told lawmakers in Cape Town on Tuesday. According to parliament’s laws, any of its committees can force that information be provided, with the promise of immunity as long as no perjury is involved.

‘Precarious position’

The names are being released as the owner of Conforama in France and Mattress Firm in the US said it remains in a “precarious position.” Steinhoff is seeking to finalise agreements with creditors after revelations of accounting irregularities in December 2017 wiped out almost 95% of its value. An elite South African police unit known as the Hawks told lawmakers that one investigation into fraud is at an advanced stage, that the probe has been extended and its team “enhanced” so wrongdoers can be brought to justice.

Others named

  • Siegmar Schmidt, a former Steinhoff Europe director;
  • Dirk Schreiber, a German national and Steinhoff’s ex-head of finance in Europe;
  • George Alan Evans, a director of Geneva-based Campion Capital SA;
  • Ben la Grange; Steinhoff’s ex-chief financial officer;
  • Stehan Grobler, Steinhoff’s ex-company secretary;
  • Davide Romano and Jean-Noel Pasquier, who are also listed as being part of Campion Capital.

Jooste’s mobile phone went straight to voicemail when called for comment, and he didn’t immediately respond to a text message. Schmidt’s phone rang without being answered and he didn’t immediately respond to a text message. La Grange didn’t answer his phone or respond to a text message, nor did Schreiber or Grobler.

A person who answered the phone at a company where Evans, Romano and Pasquier are listed as directors said Evans and Romano are out of the office. Emails sent to Romano and Evans weren’t immediately replied to. An automated reply from Pasquier said he is out of the office until March 25 and referred queries to Romano.

Heavy going

With about 100 auditors at PwC having laboured on the report for well over a year, the company said it plans to dig deeper into the accounting misdeeds as it seeks to prepare its 2017 and 2018 audited earnings, due next month.

The Hawks were chastised by Yunus Carrim, the chairman of parliament’s oversight committee on finance, for taking so long to investigate the matter. Lieutenant General Godfrey Lebeya said that the unit is taking it seriously and that having the names of those alleged to be involved will help the probe.

Jooste in September told South African lawmakers that the origin of the company’s woes related to protracted dispute with a former partner. He also said he wasn’t aware of the financial irregularities reported by the company the day he quit. Instead, he blamed Deloitte LLP for wanting an additional probe into allegations of financial mismanagement in Europe just days before the retailer was due to report 2017 financials.

The company’s stock declined 3.2% as of 2:30pm in Frankfurt, paring gains this year to about 15 percent.

Steinhoff briefing to Parliament

Contents

The Steinhoff delegation here today
  • Heather Sonn (chairperson of the supervisory board)
  • Louis du Preez (management board; chief executive)
Forensic investigation
Mandate
  • Report
  • What happened
  • Financial
  • Accounting
  • Responsible
Regulators
Forensic investigation
  • Lessons learnt
  • Next steps
  • Conclusion

Forensic investigation – mandate

PwC appointed in December 2017

Investigate potential accounting irregularities, non-compliance with laws and regulations, impacting financial statements

Scope – analyse and investigate:

  1. potential accounting irregularities, non-compliance,
  2. concerns raised,
  3. other issues

Investigation overseen by Supervisory Board committee comprising only new appointees

Unrestricted scope and unhindered process

  • Initial phase
  • Phase 1

Substantial and complex investigation; extensive documentation; numerous countries; multiple workstreams

Interviewed 22 current or former directors / officers

Positive and constructive cooperation between PwC, Steinhoff and the regulators

Constant interaction to ensure appropriate remedial steps can be taken at the right time

Forensic investigation – report

PwC completed the investigation and delivered the report to Steinhoff last week

  • 14 months of work
  • Excess of 3 000 pages
  • >4 000 documents as annexures
  • Findings
  • Subject to legal privilege, confidential
  • Is not an audit – Deloitte (external auditor) granted access
  • Focused on accounting irregularities; not legal advice or opinions

An overview of the findings, released by Steinhoff on 15 March 2019, ensures that the legally privileged nature of the report is not undermined and its position in the various pending legal and other proceedings, including the recovery proceedings to be instituted by Steinhoff, is not jeopardised

Forensic investigation – what happened

Key findings from the investigation

Income and asset values were overstated

“A small group of Steinhoff Group former executives and other non Steinhoff executives, led by a senior management executive, structured and implemented various transactions over a number of years which had the result of substantially inflating the profit and asset values of the Steinhoff Group over an extended period.”

The major relevant transactions were grouped into four categories:

  1. Profit and asset creation: >€6 billion income from fictitious and / or irregular transactions
  2. Asset overstatement and reclassification: to eliminate receivables
  3. Asset and entity support: increased rentals / royalties to justify asset valuations
  4. Contributions: reallocating the profits within the group

Forensic investigation – Financial

Financial impact of key findings
  • Income was overstated through fictitious and / or irregular transactions totaling more than €6 billion
  • Resulting impairments to asset values increase the accounting impact on Steinhoff equity
  • 2018 Interim Results, released on 29 June 2018, indicated a €11 billion write-down of total equity as at 31 March 2017
  • The complexity of the investigation delayed the release of the 2017 and 2018 financial results
  • Working with Deloitte to finalise the 2017 and 2018 consolidated financial statements; taking into
    account the findings from the forensic investigation
  • The cumulative effect of all prior year restatements will be disclosed in the 2017 Annual Report. More
    specifically, the restated 2016 income statement, balance sheet, cash flow and notes will be
    included as comparative numbers in that report as well as an opening balance sheet for 2016 with a
    reconciliation of the impact of the total prior year adjustments on the opening retained income
    balance at 1 July 2015
  • The forensic findings may influence the nature of the audit opinions

Forensic investigation – Accounting

Key findings for the restatements to the financial accounts

Income and asset values are being restated

The restatements have been grouped into five categories (for the financial statements):

  1. Intangible asset transactions
  2. Accounting for group or related entities
  3. Contributions and ‘cash equivalents’
  4. Property transactions; and
  5. Share transactions and consequential effects

If the total impact on group equity is materially different from that disclosed in 2018 Interim Results –
the market will immediately be informed

Forensic investigation – ResponsibilityIndividuals implicated

A small group of Steinhoff Group executives together with a small number of other persons

  • “The PwC investigation found a pattern of communication which shows the senior management executive instructing a small number of other Steinhoff executives to execute those instructions, often with the assistance of a small number of persons not employed by the Steinhoff Group.”

It identifies three principal groups of corporate entities that were counterparties to the Steinhoff Group:

  • The Campion / Fulcrum Group
  • The Talgarth Group
  • The TG Group

Other corporate entities have also been identified together with a finding that there was a practice of using similar entity names and changing company names resulting in confusion between entities

The legal and/or beneficial ownership is, in some cases, currently unknown to the Steinhoff Group

Regulators

  • Regular engagement and co-operation with various regulators
  • CIPC: Compliance notice received. Continuing to co-operate.
  • FSCA: Co-operating, subject to secrecy provisions.
  • The Hawks: Co-operating.
  • NPA: No outstanding requests for information.
  • National Director of Public Prosecutions: Interacted with senior member.
  • JSE / BaFin / AFM: Engaging pro-actively.
  • SA Reserve Bank: Co-operating.
  • Asset Forfeiture Unit: Co-operating with two different branches.

Forensic investigation – Lessons learnt

Remedial measures

Steinhoff is developing a remedial plan following on from the findings of the investigations.

The intention of the remedial plan is to enhance the governance within the Group.

Appoint a Chief Compliance and Risk Officer.

Focus of the plan:

  • Governance
  • Remediation of accounting irregularities, non-compliance with laws and regulations and misappropriations
  • Analysis and assessment of the investigation

Boards’ resolved to pursue claims against responsible parties.

Forensic investigation – next steps

  • Continue to consider the contents of the PwC Report, and:
  • Transactions treated appropriately in preparation of Group financial statements
  • Pursuit of recovery of losses incurred and damages suffered
  • Full assistance and co-operation with any criminal investigation / regulators
  • Finalisation and implementation of remedial plan
  • Consider options in litigation against the Group
  • Review findings and finalise scope of Phase 2 investigation

Conclusion

  • The PwC investigation is complete and those responsible will be held accountable
  • The findings will be taken into account in the financial results
  • Steinhoff has developed an initial project plan to address shortcomings identified
  • Steinhoff is communicating with and cooperating fully with regulators
  • The Steinhoff Group remains in a precarious position
  • Regular communication is being provided to the public on developments