The onerous task of untangling the Steinhoff web
Forum hopping and regulatory jurisdictions are making it difficult to pin down who was to blame
By the end of day two of the parliamentary review of the collapse of Steinhoff, one thing was clear: the forum shopping that resulted in the company being registered in Holland, having its primary listing in Frankfurt, a secondary listing in Johannesburg and its operational head office in Stellenbosch, was making it extremely difficult to work out precisely what had happened and who was to blame.
Tip-toeing through a variety of regulatory jurisdictions will also make it extremely difficult for any one regulator to pin down contraventions.
This may have been part of the reason for the forum shopping. That the implications for regulatory oversight did not set off alarm bells among South African shareholders may have something to do with their determination to be invested in an international company at almost any cost.South Africans will never know who those investors were. Unlike the South African Companies Act, the Dutch Companies Act does not allow for disclosure of shareholders and neither is it a requirement of the Frankfurt Stock Exchange.
If this were a South African company with a primary listing on the JSE, interested parties would be able to access the list of Steinhoff shareholders at the end of every month. A comparison of those monthly lists would have provided a valuable insight into what was going on ahead of the December implosion.
Over the coming months it is possible the investigations by the Financial Services Board will shed some light on some of the shareholders as they investigate allegations of insider trading during August 2017 and between September and December 5, 2017. That light is likely to shine beyond just Markus Jooste.
Another thing that was clear by the end of day two was that the South African regulators were totally mismatched in terms of financial firepower with the parties they were regulating.
It was a case of shotguns against a nuclear arsenal.
For the FSB, the Companies and Intellectual Property Commission (CIPC)and the Independent Regulatory Board for Auditors (IRBA), Steinhoff was just one of many of the cases currently being investigated by their extremely stretched staff.For Steinhoff there seemed to be unlimited resources to throw at their existential threat. Sixty investigators from one of the big four audit firms, PwC, the resources of a top legal firm as well as its external auditor, another one of the big four, Deloitte, are all on hand to ensure the long, drawn-out and complicated process best serves the company’s interests.
Despite the odds the South African regulators seem determined to put up a good fight.
Asogaren Chetty, head of governance, surveillance and enforcement at CIPC, described how as an “external company” Steinhoff is allowed to contract out of the obligations imposed by SA’s Companies Act. This means that since its transfer to Holland and Frankfurt at the end of 2015, CIPC doesn’t have jurisdiction.But, says Chetty, it quickly became apparent that the December 2017 implosion had its origins in an earlier period, a period when Steinhoff was a South African company.
Chetty reminded the parliamentarians that in a January 2 SENS announcement, Steinhoff referred to the falsification of accounts that predates the Frankfurt listing. And so at the end of January CIPC served the Steinhoff board with a hard-hitting compliance notice.The board, specifically Heather Sonn, Steve Booysen and Johan van Zyl, have until the end of July to identify the individuals involved in the falsification of accounting records and open a criminal case, “irrespective of geographical location”, against them. It must also institute civil action against the identified parties. As ANC MP Joan Fubbs said after Chetty’s comparatively short presentation: “That was short, sweet and quite lethal.”
That the origins of the problems date back to its “SA days” was reinforced by IRBA’s decision to extend its investigation all the way back to financial 2012. When asked to explain the extension, the IRBA’s director of standards, Imran Vanker, told the committees: “As we investigated it became apparent the matters we were looking into had their genesis in the period before 2015.”
Push for funding
There was no indication of how long their work would take. Perhaps in the hope they might speed up their traditional glacial pace, Yunus Carrim, head of the parliamentary finance committee, undertook to push for increased funding.
“We think your role is ever more important given what is happening in the auditing industry, you need more funding.”The FSB held out a little more hope for results in the coming months. Pushed for some detail, the FSB’s Alex Pascoe said they hoped one of the insider trading investigations would be completed within three to four months. That investigation is focused on a foreign account that sold Steinhoff shares during August 2017.
A second insider trading investigation, involving more than 60 trading accounts belonging to local and offshore entities, will take significantly longer. Two investigations into the making of false statements can only be finalised once Deloitte has completed its restatement of the accounts.
And so, by the end of day of the parliamentary hearing another thing was clear, parliament is playing a useful role in ensuring this complex process remains under the spotlight and does not get buried in the arcane world of self-serving auditors, lawyers and corporate executives.