Bruce Whitfield: How crooks steal your future, again and again
- Whether you know it or not you have probably been a victim of massive fraud
- Corporate collapses affect your pension
- It’s happened time and again – and it will happen again.
- For more visit Business Insider.
Whether you know it or not, you have probably been a victim of the collapse of Steinhoff, EOH, Tongaat and a host of others in recent years.
FOMO is not just a thing that grips your mates on Facebook or Instagram; fund managers who are paid on short-term performance also hate being left behind. So when share prices start running, they have been known to stop asking important questions and go along for the ride – taking your pension fund, and your future, with them.
Turns out a globally diverse furniture retailer, like Steinhoff, and a IT company, like EOH, can have far more in common than first meets the eye. Both grew fast. Too fast. And the market rewarded them. Steinhoff was building a global empire with massive deals that came thick and fast over roughly the same period EOH was doing it, providing great cover for small syndicates in both to pillage your pension.
Both companies fell prey to a series of complex and calculated frauds carried out while the firms were in rapid expansion phases. It made the deceptions hard to identify because the news flow was dominated by the growth story. Investment markets love a ballsy entrepreneur and the media, so often accused of “only ever focussing on the negative”, can also get taken along for the ride. Investors, fearful of missing out on the rapid growth that seemingly has not end, leap in, and invariably the whole house of cards comes collapsing down.
For Steinhoff investors who didn’t get out of what was the JSE’s sixth biggest company, that meant losing 99% of their investment. Those with money in EOH, the market darling of 2013/14/15 when it was regularly feted for being one of the best performing shares on the market, have lost 92% of their capital.
We know enough about the Steinhoff fraud from an executive summary of a report by PWC to know that CEO Markus Jooste, who admitted in a Friday afternoon text to friends that he had made mistakes, seemingly masterminded the most complex financial scam in South African history.
See also: Steinhoff has just hit a new record low – it has now lost 99% of its value. These are the odds it will survive, according to a fund manager
But details are only just emerging about a series of alleged scams at EOH ,which has been subjected to an intensive and ongoing forensic investigation into corruption.
At the peak of its growth, EOH was buying up to 30 companies a year. Those smart enough to see what was happening knew that it was impossible to integrate that many companies into a conglomerate structure with any degree of attention to detail. It was during this process that two corrupt companies were picked up and an entire network of 270 firms, and thousands of investors, were compromised.
Forensic accountants are piecing together the story. So far it looks like there was a mixture of naked theft and opportunism, which created a fertile environment for a gang of 11 individuals inside its public-sector business to create a network of about 50 companies, set up to deliberately defraud the listed group. EOH was so busy doing the sexy acquisition stuff that it wasn’t paying attention to the boring detail of ensuring proper governance and controls, which could have prevented it from paying fictitious, vague invoices to companies set up just to milk the group of some R250 million of its R16 billion per year turnover
It was so well hidden that it took a whistleblower to point investigators to the fraud, enabling them to peel away at the layers of the onion and reveal and extraordinary organised crime racket deep inside a listed company that was once considered as a darling of the stock market.
Billions have been lost and critical lessons learned. But it’s probably happening again as we speak. As the economy turns and a country hungry for good news gets out of its funk, the bad guys will seek to take advantage and will find new an innovative ways of separating you from your money. And you won’t know about it till its too late.
Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.
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