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The Financial Sector Conduct Authority (FSCA) has fined former Steinhoff CEO Markus Jooste and three close associates a total of R241m for insider trading-related breaches ahead of the dramatic collapse of the company’s share price in late 2017.
According to the FCSA, Jooste will pay an administrative penalty of R161,568,068 plus interest for his ‘tipper’ role in the much-publicised saga for having sent a ‘warning SMS’ to four individuals and encouraging them to dispose of their Steinhoff shares. Three of the four recipients acted on his warning and sold their Steinhoff shares.
The FSCA ordered the individuals to “pay back their ill-gotten benefit” for the losses they had avoided, in accordance with the legal principle of disgorgement.
The authority also held Jooste – the tipper – to be jointly and severally liable with those he had warned, and therefore enabled, their “ill-gotten gains”.
“Additionally, for penalty purposes, the tipper may also be liable to pay an amount not exceeding three times the gains made by those he tipped, an additional amount of up to R1 million, and cost of the investigation and interest,” the FSCA said.
Jooste’s penalty also includes an amount of R1m for disclosing inside information and encouraging Jaap du Toit to sell his Steinhoff shares. However, Du Toit did not act on Jooste’s SMS warning.
Jooste’s R161,568,068 penalty includes a multiple of three times the losses avoided by his warning SMSs, as well as amounts he is held jointly liable with with two recipients.
Other recipients of Jooste’s prompt included Dr Gerhardus Diedericks Burger who sold his entire Steinhoff holding held by two family trusts. The FSCA imposed a penalty of R3,002,630 on Burger, representing twice the loss he avoided by selling his shares.
Jooste’s chauffeur at the time, Marthinus Swiegelaar, was fined R18,328, but was held jointly responsible with his former employer for this amount. The FSCA said Swiegelaar was the most cooperative of the SMS recipients and the fine represented the loss he would have suffered if he had not sold his shares.
A penalty of R115,867,122 was also imposed on Ocsan Investment Enterprises (Pty) Limited, a company controlled by a long-time associate of Jooste, the late Ockie Oosthuizen, who sold his Steinhoff shares on 30 November 2017. The FSCA accused Oosthuizen of misleading the authority during its investigations and was held solely liable for R77,244,748 and jointly liable with Jooste for the remaining R38,622,374.
The FSCA also held that Jooste is solely liable for R122,927,366 of the total R16, 568,068 penalty and jointly liable for the difference – R38,622,374 with Oscan and R18,328 with Swiegelaar. Jooste was also ordered to pay interest on the penalty.
Bloomberg report on Markus Jooste fine:
By Janice Kew and Loni Prinsloo
(Bloomberg) — Steinhoff International Holdings NV former Chief Executive Officer Markus Jooste has been fined more than R162million ($9.9 million) by a South African regulator for insider trading ahead of the retailer’s near collapse almost three years ago.
Jooste sent a text message to four people warning them to sell their stock in the company in the days before it reported accounting irregularities in December 2017, the Financial Sector Conduct Authority said in a statement Friday. Three of them acted on the advice and have been penalised smaller amounts.
Steinhoff shares went on to lose more than 90% of their value after the then-owner of Pep stores across Africa and Mattress Firm in the U.S. said its auditors wouldn’t sign off on financial statements, leaving the company battling for survival. Jooste quit the same day, and was later accused by the company of being one of eight individuals linked to questionable transactions. He and the retailer are involved in several probes and lawsuits by investors trying to recoup their losses.
“That’s probably the most expensive SMS sent in South Africa’s history,” said Brandon Topham, the FSCA’s divisional executive for investigations and enforcement. “The moral of the story for the public is even if you don’t trade and you just provide information, you can still be liable for a pretty serious administrative penalty.”
Jooste didn’t immediately respond to a call and message to his mobile phone, though the FSCA said he did appear before the regulator and has denied wrongdoing. The ex-CEO’s lawyer, Callie Albertyn, confirmed Jooste received notification from the regulator on Thursday, and that they are considering their response, including a potential appeal.
The recipients of the text messages included Gerhardus Diedericks Burger, a doctor friend of Jooste’s, and former South African rugby player Ockie Oosthuizen, who died in December. Marthinus Swiegelaar, Jooste’s chauffeur at the time, and businessmen Jaap du Toit make up the quartet. Du Toit was not fined after the FSCA found he did not act on the information.
Jooste’s text to friends before the scandal broke were first reported by Bloomberg News in October 2018. He sent them after becoming aware of Steinhoff’s likely implosion on Nov. 30 2017, according to the FSCA. At the time, Steinhoff was in discussions with Deloitte LLP about the viability of its accounts.
The ex-CEO has since kept a low profile, barring one public appearance before South African lawmakers to explain his role in the collapse. He is solely liable for 123 million rand of the fine, though holds joint responsibility for further penalties handed down to beneficiaries of the text messages. He will also be charged for the regulator’s costs and interest.
While the FSCA is “80% done with its insider investigation,” the regulator is still probing at least four other people’s accounts, Topham said. The regulator is likely to also bring criminal charges against Jooste, which the police would then need to decide whether to pursue.
Jooste may face further penalties as the FSCA examines other key directors or officials who were knowingly party to certain transactions, he said. That case should be concluded by April.
Under new CEO Louis du Preez, Steinhoff has been battling to survive. The company, which was fined by the FSCA last year, has renegotiated debt with lenders and sold multiple assets to shore up the balance sheet, but still has to resolve legal action including by its former billionaire Chairman Christo Wiese.
Burger didn’t immediately respond to requests for comment sent to his mobile phone. Oscan, a company that was controlled by Oosthuizen and got the biggest fine after Jooste, did not respond to an emailed request for comment.
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