The day Markus Jooste’s bubble burst

[Nat Quinn]

The day Markus Jooste’s bubble burst

When the accounting irregularities at Steinhoff came to light on 5 December 2017, then-CEO Markus Jooste’s life fell apart, along with the company once valued at over R240 billion.

The retail empire came tumbling down on the evening of 5 December 2017 when Steinhoff CEO Jooste announced that he would step down from his position with immediate effect.

The Steinhoff board simultaneously announced that the company had become aware of “accounting irregularities requiring further investigation”.

The company appointed PwC to conduct an independent investigation into the alleged irregularities that Deloitte had originally identified.

When Steinhoff collapsed in December 2017, retail giant and billionaire Christo Wiese was the company’s chairman and its single largest shareholder, with a stake of 20%. He lost around R70 billion following the share price collapse.

In a Q&A session at BizNews’ sixth conference, Wiese recalled the collapse of Steinhoff and his last interactions with Jooste.

Businessman Christo Wiese

Wiese was asked about the final days at Steinhoff and how he discovered the company was committing widespread fraud.

He said a board meeting was scheduled for Monday, 4 December 2017, and Dr Steve Booysen, chairman of the audit committee, had been dealing with the auditors. Wiese said he was not aware of anything yet.

On the Wednesday before the Monday, Booysen told Wiese that the auditors wanted to have a word with him as chairman.

“I said, ‘Look, I want to make one thing clear. There must be nothing held back. You must be very candid’,” Wiese told the auditors.

“This one auditor got up, and he said, ‘Well, I just want to tell you that the management has been defrauding the company for more than a decade’.”

Wiese was shocked and asked the auditors why they had signed off on the company’s financial statements without saying anything about the fraud.

The auditor then gave Wiese a piece of paper with a list of six issues on which they had serious questions and said that they needed to get to the bottom of it as soon as possible.

“I said, ‘But all these points are related to the accounts from the previous year. You are the same guys who signed off those accounts’.”

“Yes, but we’ve got new information now,” the auditor responded. One of the listed issues dealt with the cash and near-cash equivalents on the balance sheet, particularly the bills of exchange, and the auditors demanded documents to prove this item was real.

“Well, let’s call in Jooste now,” Wiese recalled himself saying.

“Until then, the auditors insisted they could not sign off the accounts without a forensic investigation. This is just days before the accounts were due to be public, so it would be disastrous if this news got out,” he said.

“I called in Jooste and said, ‘Look, let’s talk frankly. These people are accusing you of being a fraudster’.”

Jooste asked on what grounds they had accused him of being a fraudster. Wiese told him to explain the issue regarding the cash or cash equivalents on the balance sheet.

Wiese said Jooste spoke for 20 minutes on this one issue and managed to convince the auditors not to conduct a forensic investigation provided he gave them some documents. Both Wiese and Jooste expressed their relief.

The next day, Thursday, 30 November, Wiese received a phone call from the auditors. “They said, ‘We’re very sorry, but we have looked at it, and we must now insist on a forensic investigation’.”

Jooste had made arrangements to fly to Germany that Friday and told Wiese that he would get all the documents the auditors needed to sign off on Steinhoff’s financial statements.

The CEO would then return on Monday, 4 December, and present the documents before the board meeting.

“By that time, it became clear that there was no way that we were going to get the accounts signed off even if he brought all the documents on Monday.”

Thus, Wiese and the Steinhoff board appointed PwC as forensic auditors, and on Monday, Jooste returned to South Africa for the board meeting on the company plane.

“At, I think, 9:42 am or 8:42 am, he left a voice mail on my telephone, which obviously I got the lawyers to transcribe,” Wiese recalled.

The message read, “Christo, I just landed. I’m on my way home to have a shower. I’ve got Schreiber (Steinhoff’s former finance chief) and all the documents required. I’ve got it all with me. You can get the two teams of auditors together, and we will clear everything up.”

At 17:00 that afternoon, Jooste sent a lawyer to Wiese. Before he came, the lawyer phoned Wiese. “Christo, are you at the office? I am on my way to you with a message.”

“Then, I knew,” Wiese said. He came to the office and said, “Jooste is threatening suicide and blah blah blah. He has offered his resignation, but you must decide whether you accept it.”

The next morning, Wiese called the board together and explained what had happened. “My suggestion was that we do not accept his resignation. I would call him back to the office and help the people sort the mess out because he knows where the bodies are buried.”

Wiese phoned Jooste and asked him to come back to help the board clean up the mess and try to save Steinhoff. Jooste said he would be there in two or three hours.

“That was the last I ever heard from him,” Wiese said. Jooste never returned to Steinhoff’s offices.

In retrospect, if Jooste had come back and helped sort the problem out, the company could have been saved, Wiese said.

“The company had wonderful assets, mainly the assets that I sold to the company, and they were worth somewhere in the region of R150 billion. So, the R60 billion or whatever the fraud amount was, we could have dealt with the banks, and the company would have been saved.”

“But, from Jooste’s perspective, he would have gone to jail.”

SOURCE:The day Markus Jooste’s bubble burst – Daily Investor

[Author]

Posts