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Why Markus Jooste can still smile for the cameras

Any court resolution is light years away.

South African advisory firm PwC, which has undoubtedly put its finest forensic accountants to work unravelling the Steinhoff mess, missed its December deadline to produce its comprehensive report and is keeping the world waiting.

The forensic report must now be submitted by February. The investigation is being carried out across different jurisdictions, which adds further layers of complexity resulting from different languages, accounting standards and laws. Sadly, only an overview of the report will be published. The full report will be legally privileged, and is to be used in pending legal proceedings.

The group’s audited financial statements for 2017 and 2018 will be published in April, and the 2017 and 2018 financial statements for Steinhoff Investment Holdings Ltd will only be released thereafter.

Over the holidays I read Bad Blood: Secrets and Lies in a Silicon Valley Startup by John Carreyrou. It details the rise and spectacular fall of Elizabeth Holmes, the founder of Theranos in the US.

Bad blood

Scratching the surface, I can discern some similarities between former Steinhoff CEO Markus Jooste and Holmes – two powerful personalities, reliance on a combination of bullying and charisma, and empty promises of greater wealth to investors. Both ex-CEOs are synonymous with the companies they steered, even though they are no longer at the helm. While Theranos surfed a wave of complete fabrication and lies, Steinhoff went on an aggressive acquisitive campaign which plumped up its results and boosted its share price.

Both the Theranos and Steinhoff implosions indicate that a board of directors of heavyweights does not necessarily amount to any substance.

The Theranos scandal also highlights how long the court processes can take, no matter how strong the evidence is. And in the Steinhoff matter – the concrete evidence may still have to surface. Piercing the corporate veil in an article and referring to a buddy as a ‘related party’ may not pass muster in a court of law.

Theranos was based on a fraud. Holmes claimed that Theranos could run a gamut of tests on a speck of blood, except it couldn’t, and didn’t. Over a period of some 15 years doctors, patients, medical insurance companies and investors were defrauded. Millions of lives were put at risk because the blood tests were not accurate.

Over those 15 years, Holmes managed to privately raise close on one billion dollars for research and operational costs. Private funding allowed Theranos to escape scrutiny by not having to publicly disclose audited financial statements. She was lauded as the youngest self-made female billionaire.

Swept up by her intense passion for her vision and her powers of persuasion, Holmes never ran short of famous men to sit on the board, nor investors. Detractors were silenced by a powerful firm of lawyers. The few employees who raised questions or concerns were immediately fired and marched off the company’s premises, and coerced into signing non-disclosure agreements.

False and misleading

Holmes compellingly promoted Theranos’s supposed technological and operational capabilities in presentations and in the media, backed by spreadsheets promising spectacular future sales. Investors, influenced by these false and misleading statements, made electronic wire transfers for the purpose of investing money in Theranos.

For many years, Holmes managed to escape inspection by the US Food and Drug Administration (FDA).

The foundations of Theranos were rocked in 2015 when the Wall Street Journal found that the majority of blood samples taken by Theranos were analysed by medical laboratories owned by other firms. It also debunked Theranos’s assertion that it only required a drop of blood, as the tests necessitated vials of blood to be drawn from patients.

It is unlikely that Holmes set out to defraud investors when she founded her company in 2003. When Theranos started unravelling in 2014, it attracted the attention of powerful US enforcement agencies – the FDA Office of Criminal Investigations, the FBI, and the US Postal Inspection Service. Investigations into Theranos as well as Holmes and chief operating officer Ramesh Balwani commenced.

The Securities and Exchange Commission (SEC) brought civil charges early in 2018. Theranos and Holmes settled without admitting to wrongdoing, but Balwani is defending.

Following that, the Department of Justice charged Holmes and Balwani with conspiracy to commit wire fraud. They were alleged “to have perpetrated multi-million dollar schemes to defraud investors, doctors, and patients”. 

A Federal Grand Jury indicted the pair in June 2018. However, an indictment “merely alleges that crimes have been committed, and the defendants are presumed innocent until proven guilty beyond a reasonable doubt”.

Wire fraud includes direct communications, marketing materials, and statements to the media that are used to defraud potential investors. The US Postal Inspection Service can investigate any crime (including complex fraud cases), where the mail, telephone, or internet is used to further a scheme.

Enjoying life

The indictment is the first step, and Holmes and Balwani still have to be convicted of the alleged crimes. If convicted, they could face a maximum sentence of 20 years in prison, as well as heavy fines. But that is in the future – they are no doubt currently enjoying life without a care in the world.

Both scandals have highlighted that not all technological visions will turn into the next big thing, expanding overseas is not always a winner, and picking a share because of the fear of missing out on the next big thing could be a costly mistake.

Successfully investigating a case of white collar crime requires a large team of expert forensic investigators, and can take many years to unravel before it eventually gets to court. Looking back over the years, South Africa does not have a track record of speedy prosecutions in financial fraud.

Steinhoff crashed at the end of 2017. The PwC forensic report can only produce findings, which may be used in any prosecution. We will have to rely on the Hawks to launch an investigation and see what the Financial Sector Conduct Authority discovers in terms of any insider trading.

Read: FSCA probes seven accounts for Steinhoff insider trading

There is currently a vacuum of information. It is highly unlikely that any court dates have been set for the near future, hence, any court resolution is light years away. It is not surprising that Jooste can still smile for the camera.

The wheels of justice can only start turning when they have traction.

* Barbara Curson holds shares in Steinhoff.

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Because no one who has lost money has punched his teeth out yet?

now that you mention it, his teeth do have a “punch me in” vibe

The slimeball should be locked up until the investigation is completed and charges preferred. There is something wrong with the system when this scum lives off the fat of the land while investors suffer

Me thinks that the investors are similar to Tannenbaum’s victims … and don’t want to admit to being misled.

Getting money from the European central bank. To achieve that is reasons enough to smile. PWC search time extension must have come to this barrier known as quantitative easing. Fresh printed money is given only to the trusted an faithful. Bonded in secret organizations like Bilderberg. Covered by, if needed, NATO. This powerhouse protect his members.

Should I get the tin hats out?

Or possibly you should take a serious look into bilderberg!!!
Ignorance is bliss!

The headline is misleading and the article contains nothing new about Steinhoff. In fact, the article should have been called “I read a book during the holiday called Bad Blood: Secrets and Lies in a Silicon Valley Startup”.

Exactly.

I’ve read Bad Blood and the author obviously wanted all of us to know that too. Theranos was a complete scam. No working products and completely made up. Again, this is not Steinhoff. There is simply bad deals stretching many years, laden with debt. But, there are cash flows and profitable units. Key difference.

Ten bagger.

Happy new year to misalignment of headline and the story and may we all see less of this as the year progresses.

Maybe makes a nice analogy: Steinhoff traded on “headlines” while nobody (except Jooste) knew the “story” – another misalignment:).

Steinhoff is far closer to Enron than any Silicon Valley startup.

THeir auditors should also be disbarred in the same way as Arthur Andersen was.

Fact.

Why do people put “Fact” after a falsehood?

Arthur Anderson were not debarred. They simply lost all their clients (in much the same way KPMG have in SA).

Much later, the courts found them to be innocent, but it was too late.

The body of the content in reply to the headline must be: Jooste can smile for the cameras because as in the Bad blood scandal, it takes many years before prosecution and hence Jooste can enjoy the good life for a while before he eventually gets his dough nut punctured in pollsmoor.

Jooste knows that everybody else knows he is and always was a crook, and THAT is worse than an actual court finding for a short man syndrome ego like his.

The really nervous guys are his former beste maatjies, especially the ones that benefited from insider trading but still bask in anonymity. Will Jooste sing for mercy?

Exactly! The former chairman included. Jooste merely executed the chairman’s strategies that served him well for more than 30 years. They underestimated the tenacity of German regulators.

This is a STEINHOFF fraud not merely a Jooste fraud. Jooste was the kingpin but others were party to the “dirty deeds”.

ALL Steinhoff directors and non execs, including new CEO, need to answer.

The PWC Report will be “manipulated” and see court action been taken directly against PWC to have the original Report revealed.

In principle the PWC Report belongs to every shareholder.

He can smile because he is a sociopath and doesn’t believe he has done anything wrong. Perhaps insanity will be his defense when the time comes!

He has been well coached and he will play the Zuma/Porritt strategy of delay to perfection. By the time the matter gets to court, if ever, all the key witnesses will have disappeared or will suffer from memory loss. The underlings will be the fall guys and will wilt under intense cross examination. Jooste will be portrayed as the victim. Crime, especially white collar crime, pays handsomely in SA and I doubt that Mr Jooste will ever lose much sleep over his ability to enjoy the fruits of his ill gotten gains. The punch in the teeth may be the best option..

Having to rely on the Hawks is even more depressing; don’t they have severe capacity limitations?

With the release of the PwC report at the end of February, is it worth taking a small punt on the share?

Yes, if you have illegitimately obtained money that you need to get rid of…

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