Harmony’s 11-year probe not a good sign for Steinhoff cases

The recent record-setting R30m fine slapped on Harmony Gold by the financial sector watchdog for an 11-year old contravention of laws governing financial markets will discourage hopes of a speedy resolution to regulatory action at Steinhoff, where the Financial Sector Conduct Authority (FSCA) is investigating allegations of insider trading and market manipulation.

Harmony, which was the world ’ s fifth-largest gold producer and was listed on five stock exchanges, including the New York Stock Exchange, was slapped with the record fine for releasing false and misleading information in April 2007.

On April 25 2007 the company reported a headline profit of 58c a share for the three months to end-March 2007 instead of a headline loss as a result of the flawed implementation of a new computerised accounting system, which failed to pick up R250m of costs.

It did not provide any details behind the accounting blunders. The revision meant the company had reported a headline loss in 14 of the previous 17 quarters.

At the weekend Harmony’s finance director, Frank Abbott, said the company is pleased the matter is finally over. “I don’t know why it took so long, it was quite complicated. We thought it had been forgotten but then it came out of the woods again.” He said that during the investigation the group supplied the regulator with over 60,000 pages of documents.

The board launched an investigation in mid-July 2007, when it became aware of the error and on August 6 2007 it issued a Sens announcement informing shareholders that the previous results had been overstated.

The FSCA, whose job is to protect consumers and enhance the integrity of the markets, is investigating two cases of possible insider trading in Steinhoff shares during November and December 2017.

During that time the Steinhoff board was in critical discussions with the company’s auditors about the pending release of results; former CEO Markus Jooste quit; the company said it had uncovered accounting irregularities; and the share price lost 92% of its value, destroying more than R200bn of shareholder wealth in a matter of weeks.

The regulator is also investigating two cases of possible misleading reporting by Steinhoff. These relate to information it released in 2015, 2016 and 2017 as well as a December 2017 release.

In comparison with the Harmony issue, where no deliberate dishonesty was suspected or found, the Steinhoff issues will take much longer to resolve.

The R30m fine recently levied on Harmony is the largest imposed by the FSCA and brings the total penalties imposed by the financial markets regulator since 1999 to R138m.

The second-largest penalty was a R24m fine imposed on Deutsche Bank in 2004 for insider trading in Datatec shares during 2000.