Another Ponzi scheme? This time in South Africa
Allegations of a massive fraudulent investment scheme operated by a South African businessman are circulating. Forensic investigators have been hired to obtain evidence confirming that fraudulent means have been used to either inflate or falsify income and performance. Forensic accountants are also said to be examining the available financial transactions for indications as to the methods used to operate the fraud.
The businessman at the centre of the alleged fraud, South African Barry Tannenbaum, has been accused of defrauding dozens of investors in what would be the country’s largest corporate fraud. The funds missing have been estimated at around US$1.2 Billion. Mr. Tannenbaum has publicly denied any wrongdoing and has blamed the recent credit crunch for his company’s woes. Mr. Tannenbaum is currently residing in Sydney, Australia and has given brief interviews to the media there denying that he has taken part in any fraud.
However, some observers have noted the similarities between the woes affecting Mr. Tannenbaum and those which affected Ponzi schemes, such as the infamous Bernie Madoff. These similarities include:
- Track record - Mr. Tannenbaum has an esteemed background and reputation in business circles in South Africa and Australia
- Lineage - Mr. Tannenbaum’s father and grandfather were successful businessmen in their own right
- Returns - Mr. Tannenbaum had offered extremely lucrative returns to those people whom invested in his business – some reports claim annual returns of 200%
- International dimension- investors are reported to be located in South Africa, USA, UK, Australia & Germany
- Return squeeze – many investors report that they have ceased receiving returns from Mr. Tannenbaum and began to fear that they had lost their investment
- Fraudulent activity – allegations that Mr. Tannenbaum’s company had falsely claimed to have contracted sales with pharmaceutical companies to convince investors that the business was still functioning and funds were due soon
- Clientele – Mr Tannenbaum managed to solicit contributions from select and wealthy investors, some contributing millions of dollars to his scheme
- Opaqueness – Many investors now say they were unsure as to how exactly the scheme was meant to function and instead concentrated on the promise of high returns with little associated risk
- Feeders – a number of lawyers associated with Mr Tannenbaum have been described as inviting investors to place money in the fund whilst receiving a commission for each dollar contributed
Investors have now engaged lawyers in South Africa to attempt to salvage what funds are left via court actions. As with Bernie Madoff, government regulators such as the South African Reserve Bank has been wrong footed and has so far only confirmed that it has received complaints from investors and is looking into the matter.
The alleged Ponzi scheme came to light after another businessman, Christopher Leppan, applied to the Johannesburg High Court to have Mr. Tannenbaum declared bankrupt. Leppan related that he had been persuaded to invest in what was supposed to be a hugely profitable scheme devised by Mr Tannenbaum to finance the purchase and importation of raw materials required for the local pharmaceuticals industry. Mr Tannenbaum claimed he had advance orders from many of the major drug manufacturers so there was no risk to the investment. It was intimated that the drugs to be manufactured were anti-retroviral to deal with South Africa’s ballooning HIV infection rate.
However, Mr Leppan claimed that when he went to withdraw some of his funds the cheques drawn on Mr Tannenbaum’s personal bank account bounced. Mr Leppan soon learnt from the bank that Mr Tannenbaum had recently migrated to Australia and had closed the account.
Reports detail that Mr Leppan is just one of many wealthy South African businessmen [some say over two hundred] who contributed millions of dollars to the scheme. This would make it South Africa’s biggest ever Ponzi scheme. Forensic accountants and corporate investigators point to the funds mostly flowing overseas via a Hong Kong bank account.
Investors are now waiting to see what progress they can make via the courts to understand what has happened to their invested funds and what is the likelihood of having them returned. Meanwhile, forensic investigators, lawyers and forensic accountants will be poring over the accounts, invoices, purchase orders, bank statements, emails and other records to trace what happened and why.
Mr. Tannenbaum operated the scheme via his South African companies, Frankel International and Frankel Chemical Corp. Mr. Tannenbaum claimed in his promotional investment brochures that his father was a founder of South Africa’s No. 2 pharmaceuticals firm, Adcock Ingram. Adcock Ingram has indicated that it was Mr. Tannenbaum’s grandfather who was a founder.
Barry says:
Very Very Dissapointing
June 15th, 2009 at 7:23 pm
Chris Botha says:
Barry Tannenbaum moved to Australia like many successful South Africans. The market here is easier to work, people are not so suspicious. You can sell almost anything.
November 28th, 2009 at 3:22 pm