From CompliNEWS | Financial Service Intelligence Watch
FSCA and Dirk Bernd Schreiber (false, misleading and deceptive financial statements)
Financial Sector Conduct Authority (FSCA)
The following matter was handed down by the Financial Sector Conduct Authority on 19 March 2024:
- Financial Sector Conduct Authority and Dirk Bernd Schreiber – Investigation number: 369a
Fast facts
Administrative penalty – Schreiber indirectly made and published false, misleading and deceptive financial statements regarding past performance of a company with listed securities on a regulated market, which he ought reasonably to have known were false, misleading and deceptive
Summary
Background
The FSCA conducted an investigation into alleged contraventions by Dirk Bernd Schreiber. He was the former Steinhoff European Chief of Finance, currently serving a three-year prison sentence in Germany. Schreiber indirectly made and published false, misleading and deceptive financial statements regarding past performance of Steinhoff International Holdings in their annual financial statements and reports from 2014 to 2016.
The issues
- Whether to impose an administrative penalty on Schreiber for his contraventions of the Financial Markets Act
- whether to enter into a leniency agreement with Schreiber under s 156 of the Financial Sector Regulation (FSR) Act.
Facts of the matter
The FSCA’s investigation found that Schreiber had indirectly published material facts that were false, misleading and deceptive, such as overstated operating profits, cash and cash equivalents and goodwill. He had created transactions with no economic substance that were used to inflate Steinhoff’s financial results and position. The FSCA also found that Schreiber had indirectly omitted to publish material facts required by the International Financial Reporting Standards rules that would have rendered the publications false, misleading and deceptive.
Findings
The FST considered:
- The markets place great importance and reliance on the overall integrity of financial statements and annual reports being prepared with due care and diligence and faithfully representing the economic phenomena
- Schreiber had co-operated with the investigation
- Schreiber’s conduct was serious and had a significant impact on the financial system
- Publishing the leniency agreement would not create an unjustifiable risk to his safety.
The FST held:
- Schreiber was aware of or should reasonably have known that the financial statements were false, misleading or deceptive
- The FSCA would not impose an administrative penalty on Schreiber
- A leniency agreement was an appropriate outcome in the circumstances
- Schreiber had the right to apply for reconsideration of the decision by the tribunal if he was aggrieved by it.
Conclusion and Order
The financial statements were deceptive in the extreme and misled the market into believing that Steinhoff was more profitable, cash positive and resourced than was the case. The FSCA decided to enter into a leniency agreement with Schreiber under s 156 of the Financial Sector Regulation Act.
The law
- Financial Markets Act 19 of 2012, ss 9, 81
- Financial Sector Regulation Act 9 of 2017, s 156.
Cases considered
- None