In a media briefing on Wednesday, (the day before Markus Jooste is believed to have committed suicide), Alex Pascoe, the head of market abuse at the Financial Sector Conduct Authority (FSCA), said a criminal case involving the contravention of sections 81A and B of the Financial Markets Act (FMA) would be added to a much bigger National Prosecuting Authority (NPA) fraud investigation now under way.

“We are obviously going to inform the JSE of our findings, as well as the South African Reserve Bank and other regulators such as Irba [Independent Regulatory Board for Auditors] and Saica [South African Institute of Chartered Accountants],” he said.

Read more in Daily Maverick: FSCA slaps Steinhoff’s Markus Jooste with R475m penalty, criminal case loading

When questioned about how likely it was that the FSCA would ever see the administrative penalty paid, Pascoe said the fine would become a debt to the FSCA if unpaid, and the FSCA was entitled to take steps such as civil execution to recover the fine.

Read more in Daily Maverick: Le Roux, Mbikiwa, Trengove: NPA’s A-team was ready to charge Markus Jooste

Regarding Steinhoff’s former European finance chief, Dirk Schreiber,  Pascoe said the leniency agreement Schreiber received had very strict terms and conditions to which he had to adhere. Given that Jooste had previously appealed and succeeded in reducing an FSCA insider trading fine from R161.6-million to R20-million, the FSCA was sure that he would appeal against the R475-million fine as well, in an attempt to reduce the quantum.

‘Litigation stalling strategies’

Pascoe said Jooste had, in fact, already indicated that he intended to take the matter to the Constitutional Court. “We are expecting him not to immediately pay the penalty and we are expecting a long road of litigation stalling strategies,” he said.

Regarding the extent of the FSCA investigation of the actual numbers that were misrepresented, Pascoe said examining every line item on the income statement and balance sheet would have taken “many, many years”. 

“We really focused on certain elements of the [restated financials] such as cash and cash equivalents; and goodwill. Our investigation covered about R38-billion worth of restatements where we gathered enough evidence to support our report of the contravention of the FMA,” he said.

The FSCA investigation showed how the false income reported had an impact on the cost of sales, which resulted in higher profitability, and affected cash and cash equivalents, restatements and goodwill. 

The FSCA had intended to open a criminal case for contravening sections 81A and B of the Financial Markets Act, regarding the publication of false and misleading statements in the financial results.

“We believe this will be added to the bigger fraud investigation that the NPA is currently investigating. The penalty for a Financial Markets Act criminal case would be R50-million or 10 years’ imprisonment or both,” Pascoe said on Wednesday.

Addressing the quantum of the R475-million administrative fine, FSCA Commissioner Unathi Kamlana said that one of the challenges faced by the tribunal was that fines had to be proportional, reasonable and fair.

“We think that this amount takes into account what is prescribed in the law,” he said, adding that the administrative penalty would not be the only punishment for fraud.

“There is also the criminal matter that is being handled by law enforcement agencies. It’s important to look at [the consequences] in total and not just what the FSCA does,” he said. DM

A guide to the Steinhoff scandal

• Steinhoff’s share price plunged in December 2017 when its CEO Markus Jooste abruptly resigned after auditors flagged accounting irregularities in its financial documents.
• Jooste appeared before Parliament where he insisted there had been no accounting irregularities at Steinhoff.
• In October 2020, the FSCA imposed a penalty of R161.6-million on Jooste for breaching the Financial Markets Act. The fine was later reduced to R20-million.
• The SARB received a court order to attach assets valued at about R1,4-billion, including Lanzerac Wine Estate in Stellenbosch and the Jooste family’s Silver Oak Trust.
• The SARB also attached the assets of Jooste’s girlfriend Berdine Odendaal, totalling about R25-million, including properties in Val de Vie, Paarl.
• German authorities issued an arrest warrant when Jooste didn’t show up to stand trial on charges of accounting fraud.
• Earlier this month, the FSCA hit Jooste with a R475-million fine.
• The NPA was preparing criminal charges against Jooste.