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The Unravelling

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Wednesday, 29 November 2017

For the first time since the rumours started, Christo Wiese’s blood ran cold. Until then, he’d largely written it off, the scurrilous talk of fraud, the endless drivel. That day, it all changed. It was Wednesday – almost a week before Steinhoff International, a company that had been moulded into the swaggering bullyboy of international retail by its bulldog chief execu­tive, Markus Jooste, would announce its CEO was resigning amid an investigation.

At Wiese’s office in Parow, a beige industrial region of Cape Town marked by car-washes, food trucks and formless, characterless warehouses owned by the likes of Pepsi, the atmosphere was chilling quickly, in contrast to the languid early summer heat outside. Years before, Wiese, one of Africa’s three wealthiest men, had picked the unfashionable Parow as the head office for his clothing chain, Pep. It was a statement, as much as anything, of how in a business that sells T-shirts for as little as R44 and shoes for R79, Wiese wasn’t willing to pay a cent more for the sort of unnecessary high-rises of many of his peers. Back in 2016, a profile of Wiese reported Shoprite’s former boss Whitey Basson as describing him as “stingy”. “He’ll give me the nicest bottle of champagne as a present, and I’ll open it up, and I’ll see he forgot to take out the message. It’s a bottle from Lord So-and-so. He’s a re-gifter.”1 Basson, one of Wiese’s good friends, would rib him about it often. But it was a cultural thing about not wasting cash, Wiese would say. “If you’ve got a Persian carpet, don’t put it on the floor of your shop, because your customer will know that he is paying for it.” (It was, of course, totally different at Steinhoff, which was happy to blow a rumoured R60m to R80m on entertaining clients at the 2015 rugby World Cup in England.)

Wiese, with his gravelly, forthright manner, could also be intimidating. If your facts were slightly woolly, he’d cut right through your story in a heartbeat. This is perhaps why the bespectacled lawyers and twitchy accountants sitting in the boardroom of the third floor of the Pep HQ that summer’s day were so visibly tense, shifting uncomfortably, as they con­sidered how to break the awful news to him.

Joining Wiese in that boardroom that day was Dr Steve Booysen, the 55-year-old former accounting lecturer who, until a few years before, had been the CEO of South Africa’s largest commercial bank, Absa. Booysen, irredeemably unpretentious, was the banker who you sensed would always rather have been sitting on the stoep of his farm with a glass of pinotage. He was rapier smart, too, and had been one of the central architects of South Africa’s biggest deal at that stage, the 2005 purchase of Absa by British bank Barclays. Now he was chair of Steinhoff’s audit committee – a curse that would soon assume the level of a technicolour horror movie.

Also in the room was Dr Karsten Randt, a specialist in criminal law as it related to tax, who’d also once been a lecturer at the University of Osnabrück on the subject but who was now a partner at the German law firm Flick Gocke Schaumburg (FGS). For months, Randt’s company had been investi­gating claims that Steinhoff, and Jooste, might have broken the law, as police in the German town of Oldenburg believed. In three reports, FGS had found nothing wrong. It repeatedly said there were no sham transactions, as some believed, thereby entirely vindicating Jooste.

So, Wiese started the meeting: I believe you have a few things you need to discuss with me. I just want to make it clear, this discussion must be very frank and open. Don’t pull punches because we are now only days away from finalising Steinhoff’s year-end accounts. We can’t pussyfoot around now. What’s the problem?

Then, one of the auditors from Deloitte, one of the “big four” audit firms, which had been hired by Steinhoff to reassure the public that the accounts they published were accurate, stood up. Thank you for that, he said in his thick Dutch accent. (Since Steinhoff had shifted its head­quarters to Amsterdam a few years ago, the Dutch were everywhere in the company.) Then he dropped a bombshell: we have reason to believe that Steinhoff’s management have been defrauding the company for years. The balance sheet is highly inflated, and revenue has been significantly overstated.

The enormity of the words hit Wiese as if a wave of icy water had rolled up out of nowhere, and smacked into him.

He took a minute, then replied: Well, this comes as a huge shock, obviously. Why are you saying this? What do you know?

The Deloitte auditor handed him a document containing a list of Stein­hoff’s assets – about five items. These are the assets in terms of which we have concerns about their validity and the recoverability, he said. Or, to be blunt, Deloitte didn’t believe that the accounts they’d been given by Jooste’s executive team represented anything like the truth. We’re only willing to sign the accounts on two conditions: firstly, we need all the cash flow and accounting audit trails (and all the supporting documents), and secondly, we want Steinhoff to commission a forensic investigation.

Though the list that Deloitte gave to Wiese was short, it was indisputably weighty: the total value of those questionable assets was no less than €6bn. Wiese stared at it. Firstly, Deloitte had red-flagged a bunch of properties that Steinhoff wanted to value at €1.2bn – properties it had acquired about five years before, when it bought the Austrian low-end supermarket chain Kika-Leiner for €452m.

Secondly, Deloitte was worried about several mist-encircled deals that had been taking place in Europe between Steinhoff and various obscure overseas companies, like Talgarth Capital (which was registered in the secretive tax haven of the British Virgin Islands). For one thing, these companies seemed to be run by people close to Jooste, yet the auditors and the board had never been told these were related parties – which would have required greater scrutiny.

Thirdly, the draft accounts included a $600m profit from a deal in the US, which Steinhoff’s American albatross, Mattress Firm, had supposedly done with mattress company Serta Simmons. Jooste had claimed the deal had been finalised, and the $600m should be included in Steinhoff’s revenue for the year – but the auditors doubted this. For one thing, they didn’t have a shred of documentary evidence for this.

Also, Deloitte was worried about a line in Steinhoff’s accounts in which Jooste had stated its cash and cash equivalents at a ludicrously high amount. The auditors worried that this cash number was being manipu­lated. (In Steinhoff’s 2016 audited results, the only item that didn’t have an explanatory note was its “cash and cash equivalents”.)

The auditors asked Wiese: Do you trust Markus?

Are you kidding? he replied. Let me tell you the history, said Wiese. I did a R62bn deal with him based on just a handshake in 2014. We agreed that Steinhoff would take over my company Pepkor, and we shook on it. You don’t do a R62bn deal based only on a handshake unless you trust some­one entirely.

Wiese stared at the list again. He was sceptical of the auditors’ con­clusion. Hang on a minute, he said. On the issue of the cash, explain to me what the problem is here. Cash is cash. Surely, you just ask the bank what’s in the bank account, and you’ll know how much cash Steinhoff has?

Well, yes, said Deloitte, but cash equivalents are something else entirely. This is because in Germany there is the concept of a wechsel, which is pretty much the equivalent of an IOU – a written debt obligation. The thing about a wechsel is, if you have such a promise from somebody who owes you money, you can claim it as a cash equivalent asset in your accounts. In other words, it makes it seem like you have more money, based on a promise.

This point was critical. In general, investors and the public need to know how much cash a company has as a buffer in case disaster strikes. And for analysts, the flow of cash is often the most fundamental element of a company’s accounts. After all, cash (which would include cash equiva­lents) is meant to be the one figure that even the smartest financial whizz can’t cheat. So, if you can manipulate this number in the accounts to create the illusion of money in the bank, it’s a masterstroke of a real conman.

But Wiese was just as dubious about Deloitte’s other conclusions. On the properties, he said, surely that’s just as easily resolved? Either those Kika-Leiner properties are worth €400m, or they’re worth €1.2bn. How hard can it be to resolve that? And those properties, he pointed out, had been externally valued by an outside valuer. He told them how, just two weeks before, one of Germany’s largest banks had come to Steinhoff with a plan to fold all the properties that belonged to Steinhoff and Shoprite (both companies in which, at that point, Wiese owned the largest individual share) into a massive fund, which would then be listed on international markets. And that German bank had apparently agreed with Jooste’s valu­a­tion of the properties. But either way, he said, it can’t be too difficult to agree on the valuations.

Wiese looked at the auditors: All these five items you’ve got here, weren’t they all in the accounts in 2016, when you, Deloitte, signed them off? All except the $600m Serta Simmons deal, which is new. The thing is, Deloitte agreed on these points last year; so why are you raising them as obstacles this time round, demanding a forensic investigation? Does this mean last year’s accounts, which you signed, are wrong?

Deloitte’s auditors replied: Well, yes – probably.

At this point, FGS’s Karsten Randt chimed in: You don’t need another forensic – we’ve done all the work. Here’s our forensic report, he said, pointing to the bound volumes on the table from FGS.

We can’t use that, said Deloitte. We don’t think you’re properly inde­pendent of Markus Jooste’s management team, so we can’t make use of your report.

Randt was incensed: How can that be? We’ve never worked for Stein­hoff before this. We’re a highly regarded professional firm.

Yes, the Deloitte auditors replied, but you’re in “defence mode”.

Wiese chimed in: But nobody has been charged for anything. How can you say that FGS are in “defence mode” when nobody has been charged?

Technically, this was true. Two years previously, in December 2015, police in the sleepy town of Oldenburg had raided Steinhoff’s offices in Europe, as well as the offices of its founder, Bruno Steinhoff. They’d sus­pected tax fraud. Then for months – nothing. Until in late August 2017, a German publication called Manager Magazin had published an article, impeccably sourced, that said the German prosecutors had zeroed in on Jooste and a few others as the main suspects in a probe into allegations of accounting fraud. Steinhoff hotly denied these “allegations of dishonesty”. It said that “no evidence exists” that Jooste, or anyone else, had done anything wrong.

Evidently, however, Deloitte had become skittish. This angered Wiese, as Steinhoff was meant to publish its full-year accounts for the year to September the very next week – but Deloitte was now refusing to sign the financials until they were “comfortable”.

Wiese turned on the auditors: Have you discussed any of these issues with Markus?

The Deloitte auditors shook their head. (In reality, Deloitte had been asking Jooste for the documents numerous times in the previous few weeks. But he bluntly ignored them.)

Wiese told Deloitte: So why are you coming here and asking me, a guy who’s only been the chairman for a year, about all this? Let’s just get Markus in to clear it all up. It’s an easy thing – let’s fix it. So, Wiese picked up his iPhone, and summoned Jooste, who was in Stellenbosch.

Jooste sounded impatient, hot-tempered and cranky: But I’ve given Deloitte all the bloody information, he said. I gave them a memory stick with many gigabytes of information. And I’ve given it to them plenty of times.

OK, said Wiese, well then, can you just come over here and speak to them about it. They’ve got a list of documents they say they haven’t been given and they’re demanding a forensic.

Jooste grumbled, but he climbed in his car and drove to Pepkor’s office in Parow to “tell them what’s what”. About forty minutes later, he walked into the boardroom and met a wall of solemn accountants and lawyers, alongside Wiese and Booysen.

Wiese said to him: Markus, I want to tell you, we’re all talking very frankly here, and you must now respond equally frankly. Here are the allegations we’ve got. I want you to respond to each of these in turn, because to me it seems very simple.

Jooste, characteristically smooth and ice-calm, didn’t blink. No problem, I understand it totally, he said. Do you guys honestly think I don’t know how a wechsel works? he asked. It’s all above board. You guys are panicking for nothing.

Calmly, and without raising his voice, Jooste gave a compelling expla­nation for each of the five points. He named people, he gave dates, he mentioned the specific documents that demonstrated how it was all just one big unnecessary mix-up. Simple, he said.

To which Deloitte replied: OK, fine. But, look, we just need those docu­ments, to substantiate what you’ve just said.

Jooste fixed the auditors with his penetrating brown eyes and icy tone: it’s absolutely no problem – I’m pretty sure I’ve already given all of them to you, but to make you lot calmer, I’ll go and get them, he said. I’ll get them again.

Then the Deloitte auditors asked if they could have some privacy to consult among themselves. They went to the room next door and for over an hour were locked in intense deliberations. An impatient Jooste, mean­while, had climbed in his car and driven back to Stellenbosch.

Finally, the auditors emerged. We have good news, they announced. We’re happy to say we’re putting our requirement for a forensic investi­gation on ice and, instead, we’ll focus on getting the accounts out the next week.

Wiese remembers their demeanour flipping 180 degrees from a few hours earlier. They were less edgy, less braced for confrontation. Jooste’s magic and well-reputed charm, it seemed, had worked on Deloitte.

Well, said Wiese, that’s a helluva relief. He phoned Jooste and told him that all that needed to happen was that he must get the documents to give to Deloitte. Fingers crossed, he said, we can still get Steinhoff’s year-end accounts out within a week.

Jooste seemed mighty relieved. Thank God, he told Wiese.

The crisis, Wiese believed, had passed. The accounts would be signed off, once Markus had gone through the formality of fetching the documents that proved his case. Dark phrases like “accounting fraud” wouldn’t be uttered again in his Parow office.

Thursday, 30 November 2017

The next day, just after midday, Wiese got another call from Deloitte. We’re very sorry, they said, but we’ve reconsidered. For us to sign off the accounts, we will need that forensic investigation, as well as all the documents we asked for.

This upset Wiese. He knew that the odds of getting Steinhoff’s audit finished in time so as to release the accounts the following week had just been torpedoed. There was no way that, even if they received the docu­ments, they could work through them within a few days.

So tell me, what information did you get between yesterday and today that made you decide you now need the forensic again? he asked. This just isn’t good enough. Come talk to me, face to face, he demanded.

So, the auditors hauled themselves off to Steinhoff’s office in Stellen­bosch. Here they got a hostile reception from Wiese. But Deloitte explained that when they got back to their office, and went through what they needed from Jooste, the list was far more extensive than they’d realised. Code red, again. With that, Wiese summoned Steinhoff’s top brass to an urgent meeting, including Jooste and Booysen, and told them of Deloitte’s latest demand.

It was at this meeting that Jooste floated a convenient theory for the first time: that Deloitte were “biased” because they’d been representing one of Steinhoff’s sworn enemies in Austria, Andreas Seifert. Seifert had poisoned them, Jooste suggested. To understand his argument, you’ll need some background.

The reclusive Seifert, a cantankerous 62-year-old Austrian businessman who refuses to allow any photographs taken of him, is perhaps more to be thanked for blowing apart Jooste’s apparent mythmaking than anyone else.2 The story is that in the 1970s Seifert and his brother Richard took the struggling XXXLutz, a small regional furniture company in Austria, and turned it into a pan-continental powerhouse, the second-largest chain in Europe. As it happened, Seifert’s quest for lebensraum coincided with Steinhoff’s expansion into Europe, too, and initially Jooste and Seifert got on fabulously. Then in 2007, Steinhoff bought 50% of the German discount chain Poco from its founder, Peter Pohlmann, a chain which has 123 stores and which clocked up €1.6bn in sales in 2017. Jooste and Seifert were so keen to work together – to take on Europe’s largest furniture company, Ikea – that they began scheming of ways to make this happen.

But the problems began in 2014 when Seifert bought the other 50% of Poco – and the battle for control took a poisonous turn. Within months, Steinhoff and Seifert were jousting publicly, both claiming they’d found various “breaches” that entitled them to boot out the other partner and take full control of Poco. Remarkably, Jooste behaved as if Steinhoff already had full control of Poco, going so far as to claim 100% of the chain’s assets in its accounts in 2015. An outraged Seifert approached prosecutors in Germany to investigate Jooste.3 And in doing so, Seifert threw open Pandora’s box.

Reports in Manager Magazin in August 2017 said that when Seifert was questioned in July 2016 by police inspectors at Osnabruck in the course of the Steinhoff investigation, he was asked to explain certain documents containing his signature. They included a contract from 2012, in which he promised a company close to Steinhoff “exclusive use of his brand Möbelix in Europe”.4 Seifert’s response was: “I have never seen these papers and did not sign them.”

It was all starting to look rather serious: allegations of forgery, self-dealing, accounting fraud. It’s the kind of thing that tends to make auditors wake up sweating at four in the morning.

So, back to that day in November 2017 at Steinhoff’s Stellenbosch HQ. Jooste’s argument was that since Deloitte’s Austrian office had acted as advisers to Seifert in his court battle with Steinhoff, the audit firm was “biased against us”. Deloitte’s independence has been compromised, Jooste said, so maybe we need to get rid of Deloitte anyway, and find new auditors. Wiese hadn’t known about this Seifert link, so he called Deloitte to ask them. And it turned out that Deloitte’s Dutch auditors had no clue about the link either, given that it was Deloitte’s Austrian office that had worked for Seifert.

Either way, Steve Booysen argued, we can’t get rid of Deloitte at this stage. He told Markus: If we get rid of Deloitte, there’s a good chance we won’t be able to find any new auditors to replace them. And even if a new auditor does accept the job, they’ll have to start from scratch and there will have to be full disclosure of what happened with Deloitte. Which means they’ll probably ask for a forensic investigation, too.

But at this stage Deloitte wasn’t budging: We still need a forensic audit, they said, as a non-negotiable starting point. So Wiese called another of the large audit firms, PwC, and asked if they’d be willing to perform the forensic audit that Deloitte wanted.

Nonetheless, Jooste had thrown enough dust into the air to shift the discussion from the “missing documents” to “auditing malpractice”. Stein­hoff’s board began debating whether they needed to fire Deloitte, given the “conflict of interest” over Seifert. It looked as if Jooste’s rabbit-and-hat trick had worked, at least as far as Steinhoff was concerned.

Friday, 1 December 2017

By now, the boardroom at Steinhoff’s offices in Stellenbosch had become a war room, where squadrons of lawyers and accountants had decamped. Neither Booysen, who lives in the picturesque farmland of Irene near Pretoria, nor the lawyers had any real idea when they’d be able to go home.

But Jooste had a plan. At about 5 pm, he picked up his car keys and said he planned to drive straight to the airport to catch a flight to Germany and retrieve all the documents that Deloitte needed. Also, he said, he’d organised to meet the American lawyers dealing with the $600m Serta Simmons deal in Germany. They’d give him all the documents that Deloitte wanted. Don’t panic: I’ll be back on Monday morning with everything we need.

This comforted the increasingly gun-shy Wiese: if Markus just fetched all those documents, the whole misunderstanding could be cleared up. Booysen was less certain. The former banker’s suspicion of Jooste had been growing over the previous few days. At this point, Booysen thought, I’ll believe it when I see it.

As for Wiese, he was still struggling to reconcile what was going on. At one point, when he was alone with Deloitte’s auditors, he turned to them and said: You can accuse Markus of many things, but you can’t accuse him of being stupid. If he did everything you say he did, he’d have to be bloody stupid.

The auditors replied: No, Christo, you’re wrong. If he did all of this stuff, then he’d have to be bloody smart.

Earlier that day, Wiese and Booysen also called in Ben la Grange, Stein­hoff’s young, ultra-slick chief financial officer. They showed him Deloitte’s five points.

Ben, what do you think of this? Can it be true?

La Grange flipped through the list, and shook his head. Look, I have no idea about this stuff, but I can’t see how it can be true. You’ll have to ask Markus.

Christo replied: But Ben, if it is true, how could you not know about these things?

Ben replied: Well, I’ve always trusted Markus’s bona fides. Markus is the CEO of the European business, after all, and I trust what he tells me. There’s no reason to doubt him. It was a reasonable enough answer, Wiese and Booysen believed.

PwC called Wiese back: We’ve assembled a big team to make the forensic investigation happen, and we can do it quickly. Go ahead, said Wiese.

This was also good news. It made Wiese believe that, despite new land­mines exploding every few hours, maybe Steinhoff could still put out audited financials within a few days after all. So, he climbed into his Lexus SUV, and headed home for the weekend.

Sunday, 3 December 2017

Wiese hadn’t slept particularly well. He woke up early and called Jooste in Germany.

How’s it going? he asked. Have you gathered everything we need?

It’s going great, Markus replied. I’ve already met the Americans and I’m gathering all the documents together too. It’s all under control – I’m getting ready to fly home tonight, and I’ll see you Monday morning. We’ll sort this all out, he said.

Conspicuously, however, Jooste hadn’t told Wiese why he was really in Germany in the first place. The truth is, he didn’t fly there to “sort out the Deloitte problems”, as he’d implied. Rather, he’d been invited to the 80th birthday party of Steinhoff’s founder, Bruno Steinhoff, in Westerstede, on that Saturday night. Jooste had even been asked to give a speech at the party – one in which, when he stood up, he emphasised to Bruno’s guests just how fundamental the value of trust had been in building up this mighty retail conglomerate over the previous five decades. It was an odd thing not to mention such an occasion.

As it turned out, the Serta Simmons officials did actually meet Jooste in Germany that weekend – but they just never got round to discussing the $600m deal.

At midday, back in South Africa, Wiese and Booysen met with PwC for the first time to figure out what would be needed in the forensic investigation. Then Wiese convened an urgent meeting of Steinhoff’s supervisory board for later that night. The sticking point was whether, at this point, Steinhoff should issue “unaudited” accounts that next Wednesday, December 6th, given that Deloitte wouldn’t sign them off. Many, including Wiese, reckoned this was the best thing to do. Others, like Booysen, argued this wasn’t the right way to go. What happens if we published unaudited results and they change dramatically after the audit, Booysen argued – it’ll ruin the board’s credibility. Rather, let’s wait and see what Markus can give us when he arrives back tomorrow.

Not everyone agreed. Booysen, for one, didn’t believe that putting out unaudited results was the right way to go. What happens if those unaudited results change dramatically, he said – it’ll ruin the board’s credibility. Rather, let’s wait and see what Markus can give us when he arrives back tomorrow.

Monday, 4 December 2017

At 8.40 am, Jooste left a message on Wiese’s mobile phone. Christo, I’ve landed from Germany, and I’ve got all the documents that Deloitte needs. Dirk Schreiber is with me too. I’m just going home for a shower, so you can line up all the auditors. I’ll see you at the Steinhoff office at 11 am. (Dirk Schreiber, a dour East German, was the finance chief of Steinhoff Europe at the time, and a critical cog in Jooste’s machinery.)

At which, Wiese summoned the auditors, the lawyers and the rest of the crisis committee to the war room. And then they waited.

An hour later, at 9.48 am, Steve Booysen got an SMS in Afrikaans from Jooste. Steve, I’m just finalising the last two documents, but I think you’ll appreciate that, given the seriousness of the allegations, I’ll have to take legal advice. It was in that instant that the shot went off inside Booysen’s head, when weeks of woolly concerns coalesced into certainty. He put the phone down, and looked at his colleagues, the veteran accounting guru Len Konar and the former banker Theunie Lategan. He’s getting legal advice, Booysen told them. We all know what that means. You don’t get legal advice if you’ve done nothing wrong. Over the next few hours, Booysen got a number of other SMS’s from Jooste, saying he was on his way, he was just putting together the files, he was sorting out the documents. But these messages were all in English – a sign he’d probably crafted them with his lawyer.

Elsewhere in that office, Wiese was waiting, still hoping that Jooste would come through. But 11 am came and went; so did 12 pm and 1 pm, with no word from Jooste. Perhaps Jooste was simply still organising all the documents at home, thought Wiese. By his reckoning, there certainly were enough documents for him to need to order them.

Earlier that morning, Steinhoff had put out an announcement saying it planned to release “unaudited results” that coming Wednesday, December 6th. It said this was because Deloitte had “not yet finalised their review of certain matters”.

By this stage, from the trading desks inside Joburg’s big banks to the money managers in Cape Town, investors had begun to smell blood. Some­thing was going awry in Steinhoff’s kitchen, they figured. It almost never happens that a company is forced to put out “unaudited” accounts. So, the panic selling began: the price of Steinhoff’s shares on Johannesburg’s stock exchange, the JSE, began to deflate. By the end of Monday, the stock had lost 9.9%, tumbling from R55.81 per share to R50.25. In round numbers, Steinhoff’s total value had dropped by R23.9bn that day, from R236bn.

Meanwhile, in Stellenbosch, Wiese was still clinging to hope, a little naively. He still believed “unaudited results” were the way to go. After all, Jooste had assured him that any “unaudited” accounts would still pretty much reflect the same reality as any “audited accounts” signed off later. Sure, it wasn’t ideal, he thought, but it wouldn’t be an utter disaster.

Finally, at 5 pm, one of the FGS lawyers called Wiese: Christo, are you at the office? he asked. Stay there. I’m on the way with “a message”. Then Wiese knew.

After about twenty minutes, the lawyer walked into Steinhoff’s offices, where he was greeted by dozens of unblinking eyes in the boardroom. The news he conveyed was sensational: Markus is at the wine farm Lanzerac, and he’s a mess. Unshaven, sobbing uncontrollably, Markus is tearing his hair out, saying he screwed up. The lawyer told Wiese: Markus has asked me to give you this message: he is offering his resignation, and you must decide whether to accept it. It’s up to you.

It was the ice-water-down-the-spine moment that Wiese had always feared. The worst-case scenario had come about, and there was no way round it. A board meeting was scheduled for the next morning. Wiese and Booysen prepared themselves to break the bad news.

Tuesday, 5 December 2017

That Tuesday morning, Bruno Steinhoff and his daughter Angela landed at Cape Town International Airport to attend the board meeting. On the way to Steinhoff’s offices, Wiese told them the whole story. They were shaken. Just three days before, they’d seen Markus in Germany, and he hadn’t breathed a word of how, back in South Africa, the company was burning.

The board meeting was to be held at Steinhoff’s headquarters in Stel­lenbosch, a sprawling university town about an hour from Cape Town. While some of South Africa’s most successful businessmen have gravi­tated towards the town, including Johann Rupert, GT Ferreira and Jannie Mouton, Steinhoff had become the dominant corporate presence in Stel­lenbosch. The town had been soaked in Steinhoff’s familiar burgundy colours, with the university’s cricket fields and the Danie Craven rugby field draped in Steinhoff branding.

As Steinhoff’s directors began to drift into the boardroom at De Wagen­weg Office Park, none of them, at that point, had any idea just how appalling the news really was. Heather Sonn, a feisty 45-year-old and the retailer’s youngest director, walked in and saw the solemn faces. She turned to Theunie Lategan and said in Afrikaans: “En nou? Wat gaan hier aan? Dit lyk soos ’n begrafnis.”

Lategan looked at her gravely. It pretty much is a funeral, he said.

* * *

Over the next few months, Sonn would play a vital role in trying to save the company. But on that day in December, she had no clue of what she was about to confront.

Wiese and Steve Booysen kicked off the board meeting by relating the entire story of the previous week, as well as Markus’s offer to resign. We have to make an important decision right now, Wiese said. But my feeling is that we should refuse to accept his resignation: after all, he’s the only guy who knows what happened here and what he did. We need him to help us fix it.

After two hours of haggling – not everyone thought it wise to keep a compromised CEO on the board – there was a broad consensus around the need to ask Jooste for help. So, Wiese stepped out of the meeting and called Jooste on his cellphone.

Where are you? Wiese asked.

I’m at my lawyer’s office in Cape Town, Jooste replied.

Wiese continued: Look, what you’d done, you’ve done. There’s no turning back on that. But at least come and help us sort out the mess so that Steinhoff can publish its accounts. Because, without its accounts, it may not even survive. Are you prepared to do that?

Jooste responded: Yes, I will. I’ll see you in two to three hours.

Jooste hung up – and that was the last time Wiese heard from him. Just as before, he didn’t arrive. This time, however, he didn’t even bother send­ing a message. Instead, he simply melted away into infamy. His final interaction with most of those directors was, appropriately, a lie.

Inside Steinhoff’s offices, the company’s 150-odd staff figured that something was up, given the number of earnest men in suits, with lever-arch files precariously balanced in their hands, half jogging in and out of the building. Then a message popped into some of their inboxes. It was from Markus Jooste. “Hi there. Firstly, I would like to apologise for all the bad publicity I caused the Steinhoff company the last couple of months,” it read. “Now I have caused the company further damage by not being able to finalise the year-end audited numbers, and I made some big mistakes and have now caused financial loss to many innocent people. It is time for me to move on and take the consequences of my behaviour like a man. Sorry that I have disappointed all of you and I never meant to cause any of you any harm. Please continue to live the Steinhoff dream and I must make it very clear none of Danie, Ben, Stehan and Mariza had anything to do with any of my mistakes. I enjoyed working with you and wish you all the best for the future. Best regards, Markus.”

The people he referred to formed his inner circle: Danie van der Merwe, Steinhoff’s chief operating officer; Ben la Grange, its finance director; Stehan Grobler, its group executive for finance; and Mariza Nel, the corporate services executive.

It’s unclear why Jooste sent that admission. Perhaps he was trying to pre-empt fingers being pointed at the others, or perhaps it was written for him by someone he trusted. Whatever the reason, at the Stellenbosch HQ, when it became clear that Jooste wasn’t coming, Steinhoff’s board prepared to tell the country what had happened.

At 8.44 pm in Germany, Steinhoff issued an announcement to the world bearing the grim headline: “Steinhoff announces investigation into account­ing irregularities and resignation of CEO”. It was just ten words, but it was to precipitate bloodshed across the stock market. In an abbreviated series of staccato sentences, Steinhoff declared stiffly that “new information has come to light today which relates to accounting irregularities requiring further investigation”. It added that Jooste “has today tendered his resig­nation with immediate effect and the Board has accepted the resignation”. The earlier promise of imminent financials had also been retracted. Instead, Steinhoff said, helplessly, that it would publish its full-year results “when it is in a position to do so”. Wiese would be acting as “executive chairman”, it said, and he would be assisted by Pepkor’s former chief executive, Pieter Erasmus.

As if to somehow mitigate the crushing blow, Steinhoff added that it still had “a number of high quality profitable businesses around the world”. It was parlous consolation.

Wednesday, 6 December 2017

As the stock market opened, the slaughter began. The reaction was car­niv­orous: Steinhoff’s share price went into freefall, cartwheeling 61% from R45.65 to R17.61 per share. Within 24 hours, R120bn in value had vanished, as traders at the banks flooded their Bloomberg screens with frantic “sell” orders. Most investors, even the veterans who’d been around during the Asian crisis of 1997, had never seen such a rapid loss in value. It is hard to imagine what a R120bn loss looks like: after all, this amount that went up in smoke in hours is roughly double the $4.4bn GDP that Swaziland makes in a year, and four times what Lesotho makes ($2bn).

Paul Theron, the sharp-tongued 51-year-old managing director of asset manager Vestact, remembers the carnage. “There was an immediate sense of horror, that maybe all those stories you’d heard for years about Markus’s shenanigans, which you’d discounted, might actually be true,” he said. “A lot of the guys were panicked, but trying to comfort themselves by saying the share price drop was too severe, and that Steinhoff was still worth R25 to R17 anyway. The truth was, nobody knew what to think.”5

For Theron, a trained engineer who launched South Africa’s first internet-based stockbroker called Tradek in 1996, the revelation undermined what he had hitherto considered a reliable instinct for detecting scoundrels. With a street fighter’s nose for trouble, Theron had once locked horns with an oleaginous rogue called Brett Kebble, who also happened to be the CEO of three large mining companies, years before. His instinct was that Kebble was hopelessly crooked. And he was right. Facing the prospect of his wide-scale larceny being exposed, Kebble hired hitmen to assassinate him on a bridge in Joburg in 2005. But with Jooste, Theron’s instinct may have failed him.

Theron says he’d been one of those who’d bought Jooste’s story, hook, line and sinker. “I was in the camp that believed that they had a world-class team of auditors behind them. I bought Jooste’s story and I was taken in. But then, I suppose, all of us were taken in to some extent,” he says.

Greg Davies, the head of private client trading at the small boutique investment company Cratos Capital, remembers the drumbeat of tension that morning when he got into his office in Joburg’s forested suburb of Dunkeld. “I’ve been in this game for more than two decades, and I’ve never seen anything like it. Everywhere, there was fear, anxiety and shock. It was the sort of emotional ride you have when you find out someone close to you has died. You can’t believe it can be true,” he says.6

The way it works on the stock market is that every day there is an “opening auction” of company shares, which sets the mood for the market. Stockbrokers put in orders for their clients, and make an assessment of the sort of price a stock is likely to trade for. Usually, it’s just a couple of percentage points away from the previous day’s price. But that morning, all bets were off when it came to Steinhoff’s shares.

Davies says: “The computerised trading system gives you an ‘indicated price’ of what you can expect to buy or sell those shares for. That morning, the computers were saying the ‘indicative price’ was 10c. Now, that was totally crazy, because Steinhoff’s share price had ended the previous day at R45. So, it was clear this was serious.”

The price yo-yoed violently, before opening at about R20 – half the level of the previous night, but still many leagues better than the 10c Davies expected. On the trading desks, the phones hadn’t stopped ringing. Stut­tering clients were frantically trying to reach their brokers, almost too scared to ask how much they’d lost. Should we sell the rest now? Or wait for it to recover? How can this even be right?

Anchor Capital, a small investment house run by Peter Armitage, a barrel-chested former rugby player who still looks the part, immediately fired off a letter to all his clients. Anchor announced it had taken an “in-principle decision to exit our holdings” as “there are clearly more unknowns than known information”. “Fraud remains a distinct possibility,” he added. Armitage, a man who was famously born in a caravan park (well, the truth is, his family owned the caravan park), says the ordeal was “very painful and traumatic at the time”. “We’d had a fifteen-year history with the Steinhoff guys. I’d been overseas with them and I must have attended twenty results presentations. Afterwards, I’d often sit down with Markus and have a drink and talk about what was happening. So, at the time, in early December, we were actually quite excited about what we thought would happen with the company,”7 he says.

On the day the news broke, Anchor Capital had to make a knee-jerk call. Luckily, for Anchor, its exposure was only about R200m – which wasn’t in the league of the money managers who were in it for billions, like Coro­nation or Investec – so it was easier to dump the stock. “Over the previous few months, there’d been a number of shocks, like Brexit, so we knew we had to move fast,” says Armitage. “And one thing we do know is that when a CEO resigns with immediate effect before a company’s results are released, that means there’s a big, big problem.”

Many other investors froze. Greg Davies says that among many of the more brash analysts, there was a visceral sense of denial. The whole thing has been blown out of proportion, they said. Just wait, Steinhoff’s share price would soon be back at nearly R50, and the panic sellers would all look silly. “Many of us were laughing at Anchor Capital at the time, reckoning they were overreacting by selling everything. Well, it turns out they were far smarter than we were,” he says.

It was also a salutary lesson in how, despite the dogma that the best investors ought to strip out all emotion when making their decisions, the primordial reaction to seeing your savings vaporise is an instinctively emotional one. “It was unprecedented,” says Davies. “It’s hard to properly describe the shock you feel in that moment. So, I had to call those clients and explain what was happening. Most people had already heard it on the news, but I can tell you, those were tough calls to make.”

As Steinhoff melted away, a number of other companies on the stock exchange also began to bleed. Shares in PSG, the Stellenbosch-based investment company that had given birth to banking group Capitec and schools outfit Curro, tumbled 6.9% (wiping out R4.86bn). Steinhoff Africa Retail (STAR), which had split off from its parent company only three months before to hold Steinhoff’s African assets, plunged 22% (erasing R19.3bn). It was carnage that few stockbrokers had ever seen in their careers. “You have to realise just how rare this was,” says Armitage. “It really was a once-in-a-lifetime investment event. At the time, Steinhoff was in the top ten largest companies on the JSE, and for this to happen, you’d have to have an epic failure at so many levels.”

The inevitable comparison was with Enron, the Houston-based energy company that shot itself to pieces in 2001. Enron is the Olympic Gold of corporate fraud. Fuelled by the lip-smacking ambition of Ken Lay and Jeff Skilling, Enron had grown to become the third-largest electricity whole­saler across the US by the turn of the century. Investors drooled over it, journalists amplified the myth, and its executives were feted as all-conquering heroes who’d hit on a new formula that beat the market. Only, Enron’s accounts were a fiction. It had found a way to magic profit from its assets, and when it came time to reconcile its accounts, it would simply shift debts to another company which it didn’t show to investors. In other words, it lied about its assets. As one banker put it at the time, Enron were “black belts in structured finance”.8 Worse still, Enron’s auditor, Arthur Andersen, helped it deceive the world. When shards of reality began slicing through the myth, Andersen hired a shredding truck from a company called Shred-it to destroy the masses of evidence.

The similarities between Enron and Steinhoff were eerie. Both com­panies were in the top ten largest companies on their stock exchanges when they imploded. Both were led by bullying, egotistical CEOs whom nobody dared challenge, but who had created indecipherable companies in the shadows designed to present a rosy picture of what was going. And, as Wiese would later say, “both companies had audit problems that slipped past the auditors”.

“Consider the quantum of the fraud at Enron,” says Armitage. “In rand terms, Enron lost R693bn in its last year, $67bn, while Steinhoff at its peak was R350bn. This makes Steinhoff the largest corporate fraud, globally, of the last two decades.”

So, if that’s where it ended up, how did it get there?