Steinhoff fine: punishing the wrong people

Steinhoff misrepresented its accounts by literally billions of Euros. It was a scandal that rocked the market when it was uncovered in 2017, putting the Christo Wiese empire into a tailspin and sending shockwaves through the accounting profession.

Sentiment of entrepreneurs towards listed companies turned sour. If they couldn’t trust the Steinhoff financials, why should they trust the financials of the company offering them shares in return for buying their companies? Corporate financiers at the time weren’t thrilled with Steinhoff, I’ll tell you that much.

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The JSE is regarded as one of the best stock exchanges in the world, but an otherwise clean reputation took a severe knock from Steinhoff. It certainly doesn’t help that EOH also discovered widespread misstatements in its accounts, albeit on a much smaller scale than Steinhoff.

A drop in the ocean

The JSE has imposed a fine of R13.5m on Steinhoff as punishment for these horrors. This amount is so tiny that you would be forgiven for wondering why they even bothered. I guess it gives the JSE financials a welcome boost (you may not be aware that the JSE itself is a listed company!)

Worst of all, the fine punishes the shareholders of Steinhoff. They already lost out more than anyone else in this process, but now they face another knock.

Statutory maximum

The fine consists of R7.5m for incorrect, false and misleading statements. This is the maximum that can be imposed under the Financial Markets Act. There’s a further R6m for failing to disclose two asset disposals.

These fines are immaterial, but perhaps the JSE needed to impose them to avoid setting a judicial precedent. I’m no lawyer, but I suspect that the ability to leverage fines in future might have been hamstrung by a decision to show Steinhoff some amnesty.

The imposition of these fines concludes the JSE’s investigations into the company, but investigations into the senior execs who were in place at the time are ongoing.

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Steinhoff’s nightmares are far from over

The company is only worth R3.6bn, having lost 99% of its value since November 2017. Its survival is still not guaranteed, after the company confirmed a few months ago that it was staring down the barrel of around 90 lawsuits. Damages under these lawsuits exceeded R130bn – clearly a nonsense number that just a fraction of which would put Steinhoff into liquidation.

It’s a lawyer’s wet dream.

On top of this, the company itself isn’t profitable. The first half loss announced a couple of months ago was around R30bn and the company has over R150bn in debt.

I must disclaim that I haven’t bothered to try unravel the web of debts, because in my view Steinhoff is the furthest thing from investable, but I personally don’t see how this ends other than with a liquidation of Steinhoff and a distribution of the underlying investments to the most senior lenders.

The real issue, of course, is that the key protagonists in this alleged fraud aren’t in jail. They are sipping wine and enjoying the Cape’s finest meals, while investigations into them continue.

To say that the wheels of justice turn slowly would be an understatement.

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