Original subtitles

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.

[Alec Hogg] But he was so good and so clever

that you've got to be pretty skilled to be able to uncover that.

[reporter1] shockwaves in corporate South Africa.

There were accounting irregularities...

[reporter2] accounting irregularities...

[reporter 3] Insider trading...

and possible tax fraud.

The South Africa retail giant lost billions from its market value

on the JSE and in Frankfurt.

[reporter4] Dark days lie ahead for Steinhoff and its CEO, Markus Jooste.

[reporter5] Investors want answers.

[reporter6] Jooste will also most likely face criminal charges.

[Markus Jooste] 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.

[sirens wailing]

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.

[Rob Rose] 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.

[Rob Rose] 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.

[pop music playing]

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.

[Markus Jooste] Hi, Giulietta, thank you.

- Markus, what about the tax investigation? - [Markus Jooste chuckles]

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?"

[Markus Jooste] 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.

[Giulietta Talevi] Yes, but there was some suggestion on Friday

that it should've been communicated sooner...

[Markus Jooste] 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...

[chuckles]

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 shooting 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.

[director] So, why did you sell your shares?

I used the money to put a deposit on a house. [chuckles]

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.

[Christopher Rutledge] 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.

[sports commentator1] The Conglomerate sweeps into the lead!

The Conglomerate in front, and will win!

[Robyn Louw] 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.

[sports commentator2] "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.

[Dr Giada Del Fabbro] 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.

[Robyn Louw] 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.

[interviewer] 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.

[Markus Jooste] 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.

[Dr Giada Del Fabbro] 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 shooting 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 shooting 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.

[Derek Watts] 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.

[Derek Watts] He also created a R100 million trust

for emergencies for his staff.

[Landezwa Dulaze] 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.

[Derek Watts] 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.

[director] 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.

[Rob Rose] 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.

[clock strikes]

[telephone ringing]

[man1] For hundreds of amazing gifts...

[dial tone]

[doorbell rings]

[man2] Mattress firm.

Home of the Sleep Happy Guarantee.

♪ You've got an uncle In the furniture business ♪

- 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.

[Alec Hogg] 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.

[Ryk van Niekerk] 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.

[Ryk van Niekerk] 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.

[Jean Pierre Verster] 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.

[bell ringing]

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.

[Jean Pierre Verster] 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.

[Jean Pierre Verster] 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.

[director] 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.

[Zwelakhe Mnguni] 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 (Steinhoff shares)."

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.

[Rob Rose] 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.

[Rob Rose] 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.

[Christo Wiese] 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.

[Rob Rose] 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.

[Rob Rose] 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.

[Jean Pierre Verster] 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. [laughs]

[Bernard Jooste] 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.

[telephones ringing]

[Alec Hogg] 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 bomb goes off, the share price collapses.

[reporter1] 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.

[Rob Rose] 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.

[Jean Pierre Verster] 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...

[man3] "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."

[Bernard Mostert] 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.

[Rob Rose] 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.

[Rob Rose] 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.