There's getting rich...
Easy.
Staying rich? Much
more difficult.
Markus Jooste was one of the best
accountants ever in this country.
He knew exactly how traditional
accounting should work.
And he knew the loopholes.
I believe that he's
enriched himself
with hundreds of millions
of euros, if not billions.
Theft must be theft. There's no
"irregularity". We need retribution.
But he was so good and so clever
that you've got to be pretty
skilled to be able to uncover that.
Shockwaves in
corporate South Africa.
There were accounting
irregularities...
accounting irregularities...
Insider trading...
and possible tax fraud.
The South Africa retail giant lost
billions from its market value
on the JSE and in Frankfurt.
Dark days lie ahead for Steinhoff
and its CEO, Markus Jooste.
Investors want answers.
Jooste will also most likely
face criminal charges.
I never lied about the
activities of the company
as the allegation was made. Obviously
they're pointing fingers at me.
December 2015, it's
the end of the year.
Steinhoff decides it's going to list
in Frankfurt on the stock exchange.
But days before it lists,
the German police pitch up at Steinhoff's
headquarters, European headquarters,
and raid the company.
They mutter darkly about
accounting irregularities.
They mutter darkly
about things like fraud.
There suddenly came police, and
some other people here in my office.
And they ask me, “What have
you done? What are you doing?”
And I had nothing to
do with these things
because the Rhein Finanz side
was all on the side of Markus.
But Markus Jooste was very
quickly able to convince everyone
that it was nothing more
than a wild goose chase.
Markus told me, “Bruno,
that is a big lie.
This is not true. This is not
that, and that. Believe in me.”
So that it was, and
I believed in him.
And the police here did find nothing
against Markus. Nothing, nothing.
Markus's story was that there
was a former business partner...
who had set the whole thing up,
who'd got the tax authorities
to raid their offices to embarrass
Steinhoff ahead of their listing.
Markus Jooste had done various deals
with somebody called Andreas Seifert.
They were both retailers in
Europe, and they both had designs
on controlling Europe's
retail scene to some extent.
But then there'd been a massive fallout
between the two of them over a deal.
And Seifert had begun whispering that
things might not be what they seemed
to the German prosecutors, which
led to this German investigation.
Here was our entrepreneurial
champion who's conquering the world.
Why shouldn't he be
telling us the truth?
He worked in the tax
office in South Africa.
He understands how tax works.
Despite the criminal
investigation
and the fact that they'd been raided,
they go ahead with the listing.
Steinhoff's entire board and CEO
Markus Jooste are meant to be there
in Germany for the
listing in Frankfurt.
It'll be the biggest listing in the
Frankfurt Stock Exchange that year.
It has massive fanfare,
the entire stock exchange is
decked out in Steinhoff banners.
The board is there, it's
gonna be a big deal.
Markus Jooste was due to go to
Frankfurt for the listing of Steinhoff
and he claims he has a bad
back and can't make the trip.
That just doesn't fly. This is a guy who
used to spend his life on aeroplanes.
The Markus I knew would've
had a neck brace on...
and arrived at the listing
to take his plaudits.
Why did he not go if
he was so certain?
And he told everybody that
there was nothing to this.
It must show you that
he must've been nervous
that perhaps he'd go
there and get arrested.
It should've been
a warning flag.
So without Markus, Bruno Steinhoff stands
there in Frankfurt and rings the bell.
And signals Steinhoff's time as
a listed company in Frankfurt.
This was the moment they'd been
working for, for 60, 70 years.
After a lengthy wait, Steinhoff went
public on Frankfurt's DAX today,
but not without the controversy
of a tax raid beforehand.
Joining me now on the line is the
CEO of Steinhoff, Markus Jooste.
Hi, Giulietta, thank you.
-Markus, what about
the tax investigation?
The first question is, "Why did you only
tell the markets on the 4th of December
if the investigation took
place on the 26th of November?"
Well, they apparently arrived at
one of our German subsidiaries
in the north of
Germany last Friday.
And we, on Tuesday, had a video
conference with our lawyers.
But they don't have any
concrete things to mention.
And purely out of
transparency, on Thursday,
we decided to make a short announcement
so that it's out in the markets,
that we didn't spoil a nice day
like today, which it didn't do.
Yes, but there was some
suggestion on Friday
that it should've been
communicated sooner...
But that's by people
that's got no knowledge
of the matter, Giulietta.
So, I'm very happy, and the whole board
is, that we followed the right procedure
and we announced it
when it was appropriate
and know what we can announce.
I mean, you can't announce something
if you don't know what it's about.
When that raid happened, the
board of Steinhoff appointed
one of the largest forensic
investigating firms in Germany
to interrogate every one
of the allegations made.
They still gave me a report, and
the board, that it's all nonsense.
Jooste's version is the truth.
How did the lawyers
get it so wrong?
Again, the Jooste black magic...
It's the only explanation.
Because these people had never
done business with Steinhoff.
There was no relationship.
A very highly regarded firm of
forensic investigators in Germany.
I made a lot of inquiries to
Steinhoff, "What happened?"
I think every single financial journalist
who was covering Steinhoff, also did so.
I've been a journalist
for 25 years.
And Steinhoff was one of the big
stories I've covered over the years.
My name is Ryk van Niekerk.
We'll talk about the auditing
profession in the country.
The perception, because of what
happened during state capture,
and what happened at Steinhoff,
what happened at Tongaat,
what happened at EOH...
It's tainted the whole industry.
It's not the media's role to go and look
at financial statements and find fraud.
The key role of media is to expose
it and try and inform people,
stakeholders, shareholders, pension funds
and that and the like, of what happened.
But in general, I think people
believed what Steinhoff was saying.
The media believed what
Steinhoff was saying.
The feedback was, “Listen,
there's nothing wrong.
The Germans are fishing."
And I think maybe that was
taken on face value too easily.
We as South Africans said, "Not our
Markus. They must have it wrong."
I think it was a little bit
like, you know, this was our guy.
And Markus was flying the flag
for South Africa in many ways.
Remember, the deal that he did with
Pepkor was the biggest ever deal
on the Johannesburg
Stock Exchange.
This was a guy who was sh**ting
the lights out everywhere.
And we wanted to
believe it, I think.
And if the analysis that was
done made it easier to believe,
then... he had us
all on his side.
I believed Steinhoff
was a great company.
I liked the fact that
they produced stuff.
And I read a lot of analyst reports which
analysed Steinhoff and recommended a buy.
I know several of the board that
served at that time personally.
You know, Johan Van Zyl did
phenomenal work at Sanlam.
Steve Booysen likewise at Absa.
Theunie Lategan, also. Very,
very highly regarded individuals.
And there was no reason to doubt
the financial statement out which
was really, really impressive.
So yes, I invested. Luckily I
got out before the implosion.
Not because I doubted the future
of the company, for another reason.
I thought it was one of the best companies
in the country, hence the investment.
So, why did you
sell your shares?
I used the money to put
a deposit on a house.
And I'm very glad I did.
Look, I think if you
analyse country by country
and you analyse business
sector by business sector,
and you look at the different
segments within each business sector,
you're gonna get very
different answers.
So that's why, you know, Godfrey, I'm
not a fan of macroeconomic statements
because they can
be very misleading.
When we looked at the
problem of Steinhoff,
they there were
basically at two levels.
There was lack of diversity
at the board level,
but also at the exco.
Because remember, the way
the companies are run,
the board is mainly
there to guide.
The people who are running the
company on a daily basis are the exco,
the executive committee,
which is the CEO, CFO...
So maybe let's start
with the board.
So, when there's no
diversity at the board...
what tends to happen is that
the people then start to almost
become a member of the chairperson.
And if they're coming from
the same either race, culture,
gender...
They're likely not to question
anything that the chairperson does.
So that then creates a problem, because
then people start to think the same way.
The same with the exco.
That's why we will always say,
"Let's bring different people.
They're bringing different perspective,
you'll be able to see things differently.
They'll be able to show the impact
of what you are doing on others,
because when we are running a company,
a company's a corporate citizen.
The reason we've got organisations
like the Black Business Council
is mainly because of our past.
Remember, certain races were excluded by
law from participating in the economy.
Some of us could not even
do mathematics at school.
So, the Black Business Council is trying
to put pressure, and lobby, and advocate
for the excluded majority
to be in the economy.
To play a meaningful
role in the economy.
We still have less than 5% of the
economy owned by black people.
We've got the majority of the
CEOs of the JSE-listed companies
are still 65% white males.
So those are the issues we are
trying to bring to the fore.
There was not one board
meeting that I attended
in which the struggles of
cashflow, of profitability...
of the difficulties that
the group was experiencing,
wasn't mentioned, wasn't
discussed, wasn't on the agenda.
They were building loss-making
businesses upon loss-making businesses,
and there wasn't a core
that was profitable
other than some of the
Steinhoff operations in Germany.
It did seem like...
you know, building a bit of
pie in the sky, in a sense.
Building a smoke and
mirrors kind of empire.
It appeared to me
as if this urgency,
almost a rush, you
know, to acquire
was more about being
seen to be successful
rather than actually
being successful.
Every problem that any
of the business units had
was left to the
accountants to resolve.
Obviously you would try and fix
the problem through manufacturing
and having a profitable unit, but
ultimately it was left to the accountants
to do a smoke and mirrors,
you know, to set out a...
a profitable situation when
you're actually making a loss.
How those things were
done, we were not sure.
The auditors were mainly
working out of Stellenbosch.
That connections into
the auditing firms
of classmates that emerged
out of Stellenbosch.
And that was part of the
reason, in my mind at least,
why we were able
to float so long.
Throughout the latter part of his
career, he must've been scared
that somebody would
find out about this,
and yet he brazened it out.
He had this way of
looking in your eyes
and lying directly, straight.
We were all taught, well, you
know, if somebody's shifty
and look down to the
left or the right,
then you must know that
they're not telling the truth.
But when somebody looks at you
in your face and has an open face
and an "aw, shucks" way of
addressing things, you believe them.
He's got a binary
mind, as far as I know.
When I engaged with him, it was never...
There was very little grey area.
He was always black or white.
There were just two things
he was interested in.
And the one was his business,
Steinhoff, which he was at for 28 years.
And the other one
was horse racing.
He was very lucky early on to get
involved in a very good horse.
He turned into a champion racehorse and
then latterly a champion sire as well.
This is The Conglomerate and
he's our 2016 Durban July winner.
He raced in the silks
of Markus Jooste.
The Conglomerate
sweeps into the lead!
The Conglomerate in
front, and will win!
He then picked up an injury
so when they were looking for
a home for him after racing
I was lucky enough to be considered,
and yeah, so I've had him ever since.
He's got a bit of a fan club. People like
to have their pictures taken with him
and pat him and stuff,
and he enjoys that.
"And National emblem has hit
the front down the inside,
National Emblem the leader.
National Emblem is
digging down deep.
Teal is coming with final coast on the
outside but National Emblem has won it."
My first horse was a horse
called National Emblem
which we bought in 1991 and you know,
he went on to win nine Grade 1s.
Markus bought into National
Emblem, who turned out to be
the best horse in the
country, but not just that.
He also turned out to be one of
the best stallions in the country.
So he made an enormous amount of money on
that investment on his very first horse.
That's luck. It's like
winning the lottery.
So that really made you hooked.
And today, how many horses
in training do you have?
The standard answer to
that is, "Too many!"
It was reported at one point that he
had around 350 horses in training.
That's a lot of money, so
nobody has unlimited money.
And I guess he was also
in a time in his life
where business was going well and
he had a lot of disposable income.
From a business point of view, it
gives you a lot of social cachet,
it gives you access to a lot
of high-net-worth individuals.
He said to me that he always admired
people like Harry Oppenheimer,
Laurie Jaffee.
People who had lots of money
and lots of racehorses,
and they would
win all the races.
There's no question that he
got intense, intense enjoyment
out of becoming the
country's leading owner.
I mean, if we look
at a personality type
that would conform to
an antisocial model
or a psychopathic model, there
is an attraction to thrills.
Risk-taking is a big part
of that. So physiologically,
individuals who are
antisocial or psychopathic
have a high threshold
for arousal,
so they need that much more
than the average person.
So that world would've been
characterized by a lot of those elements.
So the thrill, the gamble, the,
you know, win or loss stakes.
And it might've been
very exciting to him.
Let's move to Europe.
I believe you spend quite a lot
of time there for your business...
Is that's more in
Germany, France... Where?
Yeah, look, where I work on a
daily basis, we're in 32 countries.
So, I mean, I'm all over the
European Union for my day to day job,
so obviously I find it very difficult
to attend racing in South Africa.
I mostly have to watch
it on DVDs afterwards
because I'm not that internet...
I'm too old, you know.
I'm past that stage where you can
still understand the internet but...
Yes, so I mean, to attend racing in Europe
is something that I would like to do.
So we decided about three
years ago to expand.
I've been involved in horse
racing for a long time,
or was involved in horse racing.
I sobered up and decided,
you know, there's no easier way of
losing money than feeding something
that eats while you sleep.
In 2005, I was voted onto
the Racing Association.
And when I arrived on the board,
I boxed a lot with Markus.
Mr Jooste was very enthusiastic.
But when he started
getting more involved
with the administrative side of
things and got onto the various boards
and then started making
some fairly big changes
to things in how
things were run...
the question marks started
getting a little bit bigger
and people got a little
more vocal about it.
Markus, well done, a couple
of runners in the race.
Great to have you in the winner's box.
You must be very proud of this filly.
Yeah. I don't get often
the chance to come.
So today I just had a
good feeling for the day.
I think that Markus was
a little bit affronted
by not being universally loved and
accepted by what he was doing in racing.
He invested heavily.
He became the champion owner in South
Africa through sheer weight of investment.
He instilled his people into
positions of power in horse racing.
For him, this was a
way of, I suppose,
stoking his ego and
achieving some dreams
that would just have been
dreams as he was growing up.
One can understand that a lot of people
felt that he had captured the industry,
because he very much applied
his business principle
of owning the entire
production line.
So, he really was involved
in every single aspect of it.
The one thing I can say about Markus
is that he was just always on the go.
So it was almost difficult to
keep up with him in many senses.
So he'd be in and he'd be out,
he'd be here, he'd be there.
Markus had a nickname by
the name of "The Seagull".
And the nickname kind of
emerged out of an incident
that happened at one of
the Cape Town factories.
One Friday night,
Markus was there...
and we had all stayed late.
And then about nine or ten that
night, we got an SMS to say
we've got to be back at work on
the Saturday morning at 8 o'clock.
We then pitched up at
8 o'clock the morning,
only to be confronted by a very
aggressive and angry Markus
who basically read
us the riot act.
That kind of became then
a buzz amongst the staff
to say that "The Seagull"
flew in and shat all over us.
What we do find with bullies
is that they've often
been bullied themselves.
It's very much about being superior,
dominant, the top of the food chain.
Those kinds of behaviours
are usually linked to someone who is
very invested in power and status,
but also interpersonally
manipulative
and has a total disregard for individuals
that they don't have any use for.
So, for example, someone that was
lower down in this in the hierarchy
needed to be
humiliated and shamed
in order to maintain power and
control and reinforce his authority.
But someone that he needed
to gain power or status from
would be charmed in a
very convincing way.
I spoke to Christo Wiese. I said,
"You know what? He's a bully."
He's like, "Yeah, but, china, all the
guys that run my companies are bullies."
Your position when you
got involved in Steinhoff
gave you greater insight than
most people into his character.
Yeah, we went on a few...
five or six sh**ting
trips together.
Now, you know, that's when
you really get to know people,
when you're out there, just a bunch of
guys on a sh**ting trip and, you know,
lots of drinks and
chatting and... gossiping.
But there was nothing that he
did that appeared to upset me.
He was always very
courteous towards me.
As he was with
Bruno Steinhoff...
Very courteous, very correct.
But my impression was that it was very
difficult for people to challenge him.
I think Markus Jooste was too
crass. I think he was too gruff.
So allegedly, the fact that Markus Jooste
did have a mistress in Berdine Odendaal
wasn't too much of a secret.
And I think that's a function of the fact
that when you fly as high as Jooste did,
when you have the resources, or the
access to resources, that Jooste did...
You know, having a mistress is
part and parcel of the deal.
And when those stories started
coming out, it was obviously held up
as an example of how Markus Jooste
conducted his personal affairs,
And how that could've played
into his professional life.
I don't want to sound like a goody
two shoes, but that's a no-no.
I mean, for a CEO
to have an affair
known to his
subordinates, is a no-no.
I fired at least two senior
executives because of that.
Because you lose the trust of
the people that report to you.
If he could lie to his wife...
of 40 odd years every day,
why wouldn't he lie to me?
- Yeah, for sure.
- You know that can't be tolerated.
Tracks I will forgive...
A footpath I don't forgive.
If the guy jumps the fence
once or twice, yeah, you can...
But when he starts an affair, he goes
to the same address all the time,
you've got to be very careful.
I find that hard to believe that,
you know, the existence of a mistress
would prevent you from
investing billions in a company
which would return you a
couple of billion rand.
But it just added to the
story of Markus Jooste.
You know, this beautiful
blonde polo player
set up at the Val de Vie
Polo Estate in Franschhoek...
And then flying around
on a Jooste-sponsored jet
attending polo tournaments in
Plettenberg Bay and being set up
in a very exclusive apartment
in Bantry Bay in Cape Town.
Berdine Odendaal was certainly a
feature of Markus Jooste's life,
and a very public feature.
His wife, apparently, was
very much aware of that.
And that's the way of the
billionaire, I suppose.
Private jets, polo clubs
and blonde girlfriends.
This is kind of everything
that is wrong with our society.
We have two worlds you know,
we have the one of the 1%,
those who are accumulating
wealth at enormous rates.
And there's enough studies and
research now for us to know
this is a trend that has been
carrying on since the 1980s
where wealth has been accumulated at
the top of the pyramid more and more.
And those people at the top of the pyramid
had become disengaged from society,
disconnected from the
reality of people's lives.
I guess for Markus it was that
he became used to the money.
He didn't have that
kind of money initially.
And so, as he got all
this money, it became...
something that corrupted
him as a person.
Stellenbosch, as a university town, is
actually quite a humble non-flashy town.
The, let's call it, the old money
and the old hands in Stellenbosch
always spoke about
the "inkommers",
people that are coming in.
And having lived here for 35
years, or close to 35 years,
I'm still regarded as an
"inkommer", an in-comer.
And obviously, when you
arrive with the sort of noise
that Steinhoff and the
Joostes arrived here,
that was clearly "the new money
has arrived in Stellenbosch".
And that obviously, it ruffles
the feathers, it upsets people.
And that's when the whole
sort of, let's call it
the jostling between the old
money and the new money started.
Clearly there's legitimate new money
and then there is fraudulent new money.
Old money certainly doesn't shimmer,
whereas new money in Stellenbosch
kind of hurts your
eyes sometimes.
There is a house where the owner
installed Perspex garage gates
so the people can see the
Maybach 1 and the Maybach 2
resting in the garage.
But what motivates that?
I don't know. It's
certainly not philanthropy.
You know, Jooste is not known for
ploughing money into community projects
like Johan Rupert,
for example, is,
who spends a billion rand of his own money
every year in various upliftment projects.
You know, that's not Jooste.
Jooste wanted to sponsor the
South African Sevens rugby team
so he went out and bought it.
Jooste wanted to sponsor the Stellenbosch
University Rugby Club's rugby team.
So he went out and did it.
Whatever he wanted, he bought.
But in all of this,
I think certainly those in the
orbit of old money in Stellenbosch,
were quite reviled by the
way, in which Jooste...
announced his arrival in town,
and then proceeded to flaunt his
wealth and his company's wealth.
For a multi-millionaire
Braam van Huyssteen is a
back to basics sort of guy.
And that was the philosophy he
applied to his business, Tekkie Town,
which he started with
one store and R20 000.
We started out with one shop in Mossel
Bay and ended up with 400 stores.
He also created a
R100 million trust
for emergencies for his staff.
Tekkie Town was a
fast-growing business,
a cash-generating
business, debt-free.
I mean, who doesn't want to
be part of that business?
One afternoon Braam called me and
he said, "Here's an idea for you."
He said, "I had a
conversation with Markus
about a parcel of
businesses within Steinhoff.
They said, "Why don't you come
and run this parcel of businesses
with your business methodology?
It seemed to us at the time
like a very, very nice,
engaging challenge.
We were very excited,
but it was, in hindsight,
a foreign culture for us.
You know, if you spend any
time with us in George,
you'll see that most days
we wear shorts and slops
and it was a strange cultural
fit, but we were excited.
It seemed ultraprofessional.
It seemed like a really good
opportunity to extend our skills.
Steinhoff had already bought
Pepkor from Christo Wiese
for $5.7 billion,
making Wiese the biggest Steinhoff
shareholder, and its chairman.
Then Steinhoff made an offer
to Braam for Tekkie Town.
The transaction
that was proposed
was that we would swap
our controlling share
of 57.5%, at the
time, in Tekkie Town
for 43.5 million
Steinhoff shares.
But what we didn't
know, what no one knew,
is that the Steinhoff share
price was grossly overvalued.
Did you perceive any red flags
that something might be
wrong with the business?
We really only had little over a
year within the Steinhoff structure,
and during that time...
nothing struck me as
anything being out of place.
Actually, quite the contrary.
I thought that what I perceived to
be their risk and audit measures
were more stringent to
those that we were used to.
Tekkie Town...
Tekkie Town is interesting because it's
an example of people who got swindled.
It wasn't just the big guys getting
nailed by the collapse of Steinhoff.
It was entrepreneurs
who'd created businesses
and ended up, you know, holding the
can while the company collapsed.
There's obviously a few territories in
Europe we are not yet on a global basis,
and we are looking in these
countries for a start.
But, you know, the
opportunities come to us.
We don't have to hunt them.
Markus Jooste convinced a number of
the big wheeler dealers in Stellenbosch
to buy into Steinhoff.
Institutions like Allan Gray, Coronation
and others who managed pension funds.
The PIC, the Public Investment
Corporation, for example,
is the institution that invests money
collected on behalf of all civil servants,
and they took a large chunk of money
and invested it in Steinhoff, too.
The PIC invested in Steinhoff
precisely because it presented
itself as a stable earner
and as close as you could get to being
a sure bet for growing the pension fund.
You can talk about whether the
PIC, the Public Investment Corp,
had done the right kind
of research beforehand
and they obviously hadn't
seen the crash coming,
but it ultimately meant that
people's pensions took a knock.
In 2016, Steinhoff began doing
some very conspicuous deals.
They'd gone into America and bought
this company called Mattress Firm
at double the price
they should've.
The Mattress Firm...
It's a big, big
business in the US.
It had financial problems,
and the price they offered was a
massive premium on the underlying value.
It raised a lot of eyebrows,
and it seemed like he wanted to
enter the US market at all costs.
And in many ways it
didn't make sense.
And at that stage the share price
actually started also to decline
from the highs it hit 2014/15,
and it steadily
declined from there.
This is what tipped off a number of
the more alert investors to the fact
that Steinhoff clearly wasn't pursuing
a rational investment philosophy.
But what is clear in retrospect is
that Steinhoff was trying to cover
the holes in its income
statement and its profit numbers
by doing all these crazy deals,
and create the perception
that it wasn't quite as frail as
it was and to justify the narrative
that Markus was putting out there,
of the company growing and expanding,
which wasn't happening in
a real operational sense.
It wasn't just Mattress
Firm in the US it bought,
they bought Poundland in the UK.
For hundreds of amazing gifts...
Mattress firm.
Home of the Sleep
Happy Guarantee.
- Only at Poundland, it's just over there.
- Just up there.
Let's go to Poundland.
He then tried to use Poundland
to sponsor the Epsom Hill.
The famous Epsom Hill where they
have the Epsom horse race every year.
And to some extent
it appears that
that was Markus Jooste's attempt to
thumb his nose at the establishment
and to say, "I'm the guy who represents
the most famous horse race in the world."
And he wasn't the outsider that he
might've been when he started out.
It seemed, in retrospect,
an ego-driven thing.
He'd moved on to
a different level.
Once he'd conquered South Africa,
he wanted to conquer the world.
With individuals such as this,
there's never satisfaction
having reached a certain level.
So it's almost as if the more
power and status and money you get,
the more you need.
The stakes almost get higher.
If you can get away with a lie
or a deception or manipulation
around people that are then more
powerful or have more status,
it provides a sense, a
greater sense, of superiority.
You know, as much as he was climbing
a ladder, what he would've needed
to get the same sense of
thrill and superiority
would've gotten
bigger and bigger.
And I think this massive
acquisition drive
made some people cautious because
the debt levels increased.
He issued a lot of shares
to pay for those companies.
And yeah, there were definitely some
eyebrows raised about the transaction.
But again, Markus Jooste was
one of the top dealmakers.
There's a saying in business...
that, you know, the "too
big to fail" kind of thing.
Now, that that's not something that
people just say, it's actually real.
If you have debt,
the worst thing you can do
is to have a little debt.
It's best to have a lot of debt.
You know, so that whoever's...
loaned you that money, is
invested in you in a big way.
And so they can't just pull the
plug, or can't just move on.
So, in many ways, that was a model
that Steinhoff had used as well.
Is to extend themselves
to such an extent
that people were so invested
in their operations,
that no one was prepared
to pull the plug.
Late in 2017, Manager
Magazin in Germany
published an article suggesting there may
be accounting irregularities at Steinhoff.
It is a very respected magazine.
The author was also very
respected, and we questioned it.
We actually spoke
to the journalist
to try and get a sense of
exactly what the issues were.
We approached Steinhoff,
and Steinhoff referred us back
to the legal opinion they had,
that, "Listen, there's
nothing to be worried about."
- Tax issues coming to the fore again.
- So let's get that on the table.
This is an old issue
that's been around for at least
18 months, that I can remember,
and I think Chairman Christo
Wiese, and rather eloquently,
referred to it as drivel, and I think
that neatly summarizes what it's about.
I don't think there's an awful lot of
substance or any substance to this at all.
But this is the second time that we have
heard from the German tax authorities
and the investigation.
So, where there's
smoke, there's fire?
- The problem, however...
- Are you concerned as a shareholder?
Not especially,
because we know that the Steinhoff Group
is big enough now not to cut any corners.
They are quite adventurous by nature,
but we generally are of the view
that this will kind of go away.
Management teams always
have an incentive
to boost their share price to
show higher and growing profits.
Their bonuses are
reliant on that.
And I think it was Warren Buffett
who said that a management team
who doesn't make the numbers, might
be tempted to make up the numbers.
I'm probably a sceptic at heart.
And I try to tell myself to
be sceptical but not cynical.
It's important to keep a
balance between those two.
So I'm a hedge fund manager.
I manage three hedge funds.
And what a hedge fund does
is it looks for shares
that the hedge fund manager thinks will
go up in price and it buys those shares.
But in addition to that,
a hedge fund seeks shares
that he thinks will fall in
price and shorts those shares.
And in that way, a hedge
fund tries to make money
both from rising share prices, as
well as from falling share prices.
In horse racing, people generally
bet on the horse they think will win.
However, you can also bet on
that horse losing the race.
Maybe you've learned something that
tells you the horse will struggle.
And if that horse comes
last, you'll win your bet.
This is similar
to short selling.
Maybe you have information that
the company's financial position
is not that healthy,
and that the share price will
fall when the news becomes public.
So you decide to take
a short position...
You borrow shares in the company
from a long-term investor
such as a pension
fund, for a small fee.
You then sell the shares
and convert it to cash.
Then you wait.
When the information hits the
media and the share price drops,
you buy back the shares at the lower
price and return them to the lender.
Your profit is the difference between the
price you sold and rebought the shares.
Short selling is completely legal and
a common practice all over the world.
One is almost more
of a detective
and you look for things
that, maybe, are overstated,
things that are seen as
being too good to be true.
There's a bit of a misconception
in the financial world
regarding what short sellers do.
Some people in the US, for instance,
call them un-American or unpatriotic.
Because they bet on failure,
but they are very important
participants in stock markets.
You can't just have an environment
where you are incentivised to buy,
because then you have an incentive
to also potentially overvalue assets.
Companies have two
types of assets...
Tangible assets such as
property and vehicles,
and intangible assets.
These are things like a
company's brands and goodwill.
These intangible assets
can be extremely valuable,
but the fair value has to be
assessed to ensure it's not inflated.
So when Steinhoff went on a spending
spree between 2004 and 2016,
its intangible assets ballooned
from around R5 billion
to over R250 billion,
largely because of their seven
most significant acquisitions.
Unitrans, HOMEstyle, ERM,
Conforama, Pepkor,
Poundland and Mattress Firm.
Steinhoff paid R135
billion for these assets.
But while they would seem to
make the company stronger,
they only had a tangible net
asset value of R2 billion...
Less than 2% of the value was therefore
underpinned by something physical,
which suggests the intangible
assets may have been inflated.
There was always the
feeling with Steinhoff
that you were either
a friend of Steinhoff,
and if you weren't a friend of Steinhoff
you were an enemy of Steinhoff.
If your name was not on the door, you'd
not get into the results presentation.
If you were not an analyst
friendly to the company,
you weren't invited to analyst
meetings with the company.
And if you are with them you
might get little hints of
if business was
going well or not.
And you would feel like you
were part of the boys club.
And if you weren't close to the
company and you weren't friendly,
and maybe your questions
were a bit more critical,
then you weren't
part of that club.
Did you consider
yourself one of the boys?
I wasn't one of the boys.
I wasn't part of the group
that maybe drank some drinks
after the results presentation.
So the first time I
saw some red flags
was every year the tax
rate was abnormally low.
Significantly lower than the
official tax rate in South Africa.
There was also some negative
media around Steinhoff.
There was a court case
where a judgment came out
regarding a forestry
transaction.
It was mentioned that the
executives of Steinhoff
were parties to
that transaction.
The executives made a lot of
money. That is a red flag.
I wanted to put this to the
company and hear their side.
So, I emailed Steinhoff and we set up
a meeting in Cape Town in Stellenbosch.
And I flew down one morning, had the
meeting around lunchtime, and flew back.
It took a whole day,
but it was important enough because of
the seriousness of what I had found.
And if what I found was correct,
it meant that the profitability of
Steinhoff was significantly overstated.
They gave very good answers, but
I still had a niggling worry,
even after the meeting,
where it just didn't fit well with
me, all the answers that they gave.
So, I decided because of those
red flags, to short the share.
There were too many things that they
were doing that were uncomfortable.
It wasn't generating cashflows.
So, they generate cash from the
operations, they take that cash,
spend it all in investments, whether to
replenish their existing infrastructure,
or buy other businesses.
The debts started building up.
The board independence
was non-existent.
So from outside it looked
like he could say this,
and the board would
be, like, "Okay."
I know it might not be the case,
but from outside that's how it felt.
Then there was a German regulator who
stepped in and said there were tax issues.
That also kind of said,
"Hey, maybe we're not wrong."
And that led us to
make a decision later
where we basically said, "Completely
sell out of this thing ."
It was, like, this thing...
We've never liked it,
and we keep getting the pressure, but
actually we shouldn't own this thing.
And we sold it completely. That
was 30th of September 2017.
It looked like Steinhoff
had become a house of cards.
It was just a question of time before
this whole thing came tumbling down.
The auditors in Europe,
Deloitte, gets an anonymous box
with tons of evidence of
things that made auditors,
who are generally quite a
conservative and careful profession,
made the auditors particularly wary
of signing off Steinhoff's accounts.
At this point Deloitte's
a little nervous anyway
because Steinhoff had just
been raided by the police.
They've been assured by Christo Wiese
and the company that all was above board.
But the anonymous package makes them
think that there's a lot going on.
It now seems that what was
in the package was evidence
that was contained in the
criminal investigation in Germany.
Deloitte says, "We're not going to
sign off on the financial accounts
until we've seen more evidence
that these deals are kosher."
The results for the year to December
had to be signed and published
by December 2017.
And Markus Jooste has
been avoiding Deloitte,
hasn't given them the
documents they want.
Steve Booysen,
chair of the audit committee, says,
"What do are you doing, Markus?
Just give them the evidence,
let's get this done."
He, at the time, doesn't
think there's anything wrong.
But Deloitte is adamant, "We're not
gonna sign off on the financials
until there's a
forensic investigation.
The auditors say
to Christo Wiese,
"Do you know that your management has
been defrauding the company for years?"
And Christo says, "That's
just not possible."
I said, "But you guys are crazy.
What are you talking about?"
And they gave me their six points
that they queried, and I looked at it.
I said, "But you signed off
on all these points last year,
and for the previous 15 years.
Where does this come from?"
So he calls Markus in,
and Markus says, "This is just
the auditors being paranoid.
I've given them all the information.
Just relax. It's not like that."
I said, "These people say
you are a fraud and a crook."
And he said, "On what basis?"
I said, "Well, you
know, these six points."
He gave the auditors
such an explanation
in half an hour,
that they changed
their entire tone.
And he said he's
going to Germany,
he will return on Monday,
and he will satisfy them.
He will clear everything up.
What does that
indicate about him?
Obviously, he is a very, very smart
operator, and with nerves of steel.
How do you do this for 15 years?
And you have to get through
all these gatekeepers.
Markus disappeared off to
Germany over the weekend,
ostensibly to "get the
files", to give to Deloitte.
As it turned out, he was going to
Bruno Steinhoff's 80th birthday
to give a speech.
Did you know what was
happening back in South Africa?
I knew nothing. Nix.
At my party here in Westerstede
Markus said 12 o'clock
he has to leave because he was
sleeping in a hotel in Bremen
to fly the next morning from Bremen
to Frankfurt for business reasons.
I did not... I did not
have a smell, nothing. No.
That was the last time
that I saw Markus.
It would be crippling for someone
for whom lying was a problem,
or who had a sense that they were
hurting other people by telling that lie.
But if you have someone who has
a poorly developed conscience
who sees people as a means
to a self-serving end...
So if you have
someone like that,
then the lie would be
experienced in a different way.
It, first of all, wouldn't feel like a lie
because there'd be sort of a justification
or a rationale for for
the deceptive behaviours.
And I think for someone
who feels omnipotent,
they see themselves
as almost untouchable.
Which are all sort
of smoke and mirrors
which are trying to guard against
feeling actually deeply inadequate.
But they would actually not
anticipate getting caught.
And sometimes the idea
that they might get caught,
or there's a possibility of getting
caught, would feel quite exciting.
At that stage
it was clear to me that the
auditors were never going to be able
to sign off the accounts
without a forensic
investigation.
And over that weekend, I
then communicated with PWC
and asked them to do a
forensic investigation,
which I advised Jooste of
while he was in Germany.
He knew it.
He comes back on the Monday.
He says to Christo Wiese,
"Gather everyone together,
I'll meet you in the boardroom.
I've got all the documents,
see you in an hour.
I'm just gonna go home
and have a shower."
They wait. The auditors
wait, the lawyers wait.
The audit committee
waits. The board waits...
Nothing. In the end,
he just never arrives.
Steve Booysen gets a message from
Markus Jooste, in Afrikaans, saying,
"I'm just I'm just chatting
to my lawyer. No problem."
And then he begins to
get messages in English.
And he thinks, "Oh no, Markus only ever
communicated with me in Afrikaans."
This is a sign the
lawyers have written this.
And he realizes that there might
actually be veracity in the claims that
that this was actually a giant
fraud, and they begin to panic.
And at 5 o'clock,
he sent a lawyer
who phoned me and said, "Christo,
are you still at the office?"
I said, "Yes."
He said, "Well, I want to come and see you
with a message from Jooste." Then I knew.
The message was, "He's
offering his resignation."
It's up to me to accept it.
I phoned him and I said to him, "Look,
you can mitigate whatever you've done
by coming back to the office...
not resign, and help
people sort out the mess."
And he said, "I'll see you
in two to three hours."
Never saw him again. Never heard
from him again, to this day.
- That's the last time you spoke to him?
- Last time I spoke to him.
That night, a couple
of hours later,
Steinhoff realizes
it has no option.
So they put the notice out
in Germany late at night,
and on the JSE in
Johannesburg the next morning.
And that's when all
hell breaks loose.
There was this red
headline over the screen,
"Markus Jooste
resigns immediately."
"Steinhoff not to issue
their financial statements."
So that is what I saw early morning,
before the market even opened.
Was I surprised? Yes.
Because you don't think
that a company of that size
and of that repute,
can crash so quickly.
I could not believe it.
There's no way this guy that
I'd known for 15 years...
There's just no way that...
he's done what he
appears to have done.
I wasn't surprised.
I'd been waiting patiently to hear
news that something was amiss,
because it was clear
to me that, you know,
the pieces of the puzzle
didn't fit together.
The extent of it...
surprised me.
But the fact that, you
know, it happened, didn't.
I actually celebrated,
I won't lie.
And I said, you know,
"Finally we're gonna be paid
for all the pain that we've
been taking, and the pressure."
So, I did celebrate.
I got the SMS from Markus
that he's resigning,
and I still replied
something to the effect of,
"No man, you're not
going anywhere."
So on that doomsday I actually
exchanged an SMS with him.
And I said, "What a disaster. I
cannot believe what was happening."
So I was actually, at the time,
didn't know that he was the...
the devious mind and
the culprit behind it.
Markus's way of operating
was quite unique.
Always on the 3310 or the 3210,
or whatever it was called.
Only using SMSes,
very seldom email.
He never used WhatsApps and
never sort of put hand to paper.
I basically said,
"What a stuff up."
He came back to me, says,
"I can only apologise for what's
going on. Again, sorry, Thys."
At the time you thought he was
just an innocent victim of this?
I mean, the question is why
didn't I know immediately?
And it was a time of turmoil.
I mean, I was still unsure
exactly what his part in it was.
I'd been working the phones,
as one does as a journalist.
And got hold of people
very, very close to him.
And they had no clue
what was going on.
And that was a bit of a giveaway that
this was not just a misunderstanding,
but that this was
very, very serious.
In investment houses across
the country, and the world...
The b*mb goes off, the
share price collapses.
The Steinhoff debacle has sent
shockwaves in corporate South Africa.
Steinhoff shares have
fallen by more than 60%
at the Johannesburg
Stock Exchange
after the SA-based
global retailer
was found embroiled in
accounting irregularities.
R200 billion or so was wiped
off the stock exchange.
The investment analysts I know,
the traders I've spoken to,
said there was panic in the markets
like they haven't seen before.
People scrambling to get out of
Steinhoff, scrambling to sell their shares
as billions in value just,
essentially, vanished.
It was like that
slow motion car crash
to see the share price fall
so much in a single day,
such a large company.
It was sort of surreal
to see it happen.
Even though I had concerns
and I had the idea
that something could be
seriously wrong with Steinhoff,
I was still very surprised at the extent
of the share price fall on that day.
And during the course of the morning a
report was released by a group that...
almost no one had ever heard
of before, called Viceroy.
And they came out with
this report on Steinhoff
that detailed a lot of the
findings that I also found,
and it was put very
nicely in a report
that was released, also
the morning of the seventh.
It wasn't a reason for the
precipitous fall in the share price,
because it came out quite a bit after
9 o'clock, after the market had opened.
But it very nicely explained
what the size of the hole on
the balance sheet might be.
This week, Steinhoff said it could
not publish its full year results
because its auditor, Deloitte,
refused to sign off on them.
When the audit firm was probed about why
it did not put ink to paper, it said...
"Due to our client
confidentiality obligations
as well as the ongoing investigations,
we are unable to comment at this time.
All questions should be referred to
Steinhoff International Holdings."
Auditors do not...
refuse to sign off statements, especially
not for a big company like Steinhoff.
And when they didn't,
then I think it hit home
"Listen, maybe something really,
really sinister is going on."
Quite emotionally turbulent to realize
that you'd been conned by this person.
Yeah. I think Christo Wiese said
it was a bolt out of the blue.
Yeah, I mean, it's
more than that, Rob.
It's more than that, because I've
been in the investment world.
People look up to you.
You have a reputation, but when
you realize that you've been conned
and you've been conned in a big
way and conned by an insider,
someone that that you
know where he lives.
And that, I think, is
what's so upsetting.
Apparently Markus said to his
wife, "Give this five years.
By then it'll have blown over, and
then we can move on with our lives."
I am on holiday in Buffalo Bay
just down the coast
from George, and...
I have all these very
senior Steinhoff guys
phoning me in disillusionment about
the fact that they've lost wealth.
And that, "How could this have
happened?" and, "What happened?" etc.
You know, I just said to people,
"Come visit me. I'm here in
Buffalo Bay, come visit me."
And every day we had these...
big luxury cars pull in there,
and I have grown men
sitting crying on my couch
and not understanding what
the future holds for anyone.
I said, "I just hope no
one commits suicide."
And then what I started doing was, I
actually created a schedule for myself
on which I checked
in with people.
And when did you realize that Markus
had created this false picture?
That took a long time.
Because I did not,
I could not believe,
what people told me about
Markus and about the company.
This was overnight.
I could not believe.
I did not know what is
true, what is not true.
And we had to help the
company to survive.
So the board is now
in panic stations.
They make Christo Wiese
the executive chairman,
to run the companies of Steinhoff
until they figure out what to do.
Why did so many people seem
to not see the red flags?
And the reason is very simple.
This company was massively successful
where it mattered on the numbers.
I mean, the share
price up until 2017,
in a five year period grew 300%.
The numbers were spectacular.
People who weren't
invested in Steinhoff
were considered to be idiots
and considered to be fools.
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