Steinhoff execs accused of using 'sophisticated washing machine' to create fake €1bn profit

Steinhoff grandees Ben la Grange and Stéhan Grobler, along with their late boss Markus Jooste, have been accused by the state of forming a conspiracy to pump the disgraced retailer full of fake profits. This "systematic and organised" fraud was allegedly cooked up to trigger tens of millions of rands in payouts via bonuses and lucrative share incentive deals.The details of the charges are set out in the South African National Prosecuting Authority&#039;s first indictment in a criminal case linked to Steinhoff. The indictment was finally submitted to court some six and a half years after Jooste abruptly resigned from the retailer at the first signs of what would become the country&#039;s largest private sector fraud.Prosecutors argue that the three worked with "common purpose" to defraud the retailer for their personal benefit. To do so, they are alleged to have falsified Steinhoff&#039;s financial records for years to make it seem far more profitable than it was.La Grange, who served as Steinhoff&#039;s chief financial officer under Jooste between 2013 and 2017, was arrested and appeared in court in Pretoria last Wednesday. Grobler, who worked at Steinhoff for nearly two decades — rising to become its head of legal affairs — handed himself over to the police back in March. The two are facing a raft of criminal charges, including fraud, racketeering and corruption, which could put them behind bars for years if found guilty. They are out on bail of R150 000 and have had their passports confiscated. Both have denied the charges against them. Earlier this week, La Grange said he intended to plead not guilty to all the charges. Grobler, meanwhile, said back in March he was "confident" he would be able to clear his name.MastermindThe third and arguably most important member of the group was Jooste, who died by suicide in Hermanus in March, a day before he was set to hand himself over to the police. While Jooste is no longer an accused in the case, his name appears throughout the state&#039;s indictment. The state makes it clear it believes him to be the mastermind, with La Grange and Grobler working under his &#039;guidance&#039;. The state&#039;s indictment shows it intends to argue that the accused cooked Steinhoff&#039;s books in a calculated and complex fraud scheme to squeeze millions out of the retailer in bonuses, salaries and stock options. They received hundreds of thousands of shares as part of equity incentive schemes linked to the company&#039;s performance. The better the company did, the more shares were unlocked.The shares, in turn, paid out handsome dividends. In 2015, for example, Steinhoff’s board declared a cash dividend of 165 cents per share. It is the state&#039;s case that, as false profits flowed upwards from subsidiary companies into Steinhoff&#039;s ultimate holding company, the value of shares rose.In late 2017, shortly before Jooste resigned and the company&#039;s share price fell off a cliff, both La Grange and Grobler had Steinhoff share portfolios worth well over R100 million. The value of their shares paled in comparison to Jooste&#039;s, however, who held a whopping R4.2 billion in company stock.The house of cards they are alleged to have built collapsed in late 2017 when auditors, for the first time, refused to sign off on Steinhoff’s financials. A &#039;sophisticated washing machine&#039; To tie the three together, prosecutors will argue they worked with a "common purpose" to defraud the company."At all times relevant to this indictment, a common purpose existed between the accused to commit the crimes," it said. The state is, however, hazy about how the conspiracy was formed.It has singled out the TG Group, an &#039;external buying group&#039; linked to Steinhoff, as the cornerstone on which it intends to prove its case. Buying groups, which are fairly common in the furniture industry in Germany, are set up to help retailers get discounts from suppliers by banding together. The TG Group has already been covered extensively in the press. In its 2019 annual report, Steinhoff itself concluded it was a sham. "TG did not, in fact, negotiate or collect contributions from third parties on behalf of the group," it said.According to prosecutors, the three used the group – which was ostensibly independent — as a type of black hole to magic false profits for Steinhoff. They allege that two Steinhoff subsidiaries made loans to companies in the TG Group. The buying group then paid money back into Steinhoff via fictitious invoices. The result was that money was created from nothing."The effect was to enable the financial position and profits of the Steinhoff group to be falsely exaggerated," the indictment read. "The loans would be treated as assets of the group, while the payment of fictitious invoices would be treated as revenue of the group unmatched by any costs."Between 2014 and 2016, this "sophisticated washing machine" is said to have generated "entirely illusory profits" of over €1 billion—about R21 billion at today&#039;s exchange rates. Sharp contrastThat La Grange is now being accused of being part of the buying group fraud is in sharp contrast to the testimony he gave before Parliament six years ago. The former CFO testified in 2018 that he only became aware of allegations of wrongdoing shortly before Jooste resigned in late 2017. La Grange blamed the then-CEO for not sharing information with him. He told parliamentarians he was unaware of the true purpose of the TG Group – as he and colleagues had been led to believe that it would negotiate with suppliers to source goods. "This buying group now seems to look as if it is non-existent, and it was funded with loans from Steinhoff," he added at the time.In addition to the TG Group fraud, prosecutors have accused Jooste, Grobler and La Grange of lying about business dealings with BNP Paribas, a major French bank. They are alleged to have created false documents to show that the bank had entered into a "joint consumer finance project" with the retailer. This fraud, they say, netted millions of euros in false profits.La Grange and Grobler are set to appear in court again in early October.- News24

Steinhoff execs accused of using 'sophisticated washing machine' to create fake €1bn profit

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