Reserve Bank, Sars, NPA to investigate SA's biggest ponzi scheme

Reserve Bank, Sars, NPA to investigate SA's biggest ponzi scheme
Investors may have to repay dividends, liquidator to be appointed next week, Aspen denies claims made by Tannenbaum.

Nicky Smith, Renee Bonorchis, Moneyweb
14 June 2009 15:53

A South African court will next week appoint a liquidator for the local estate of Barry Tannenbaum, who is being accused of defrauding investors of as much as R15bn through a "ponzi scheme".

The Master of the High Court in Pretoria on Friday granted an application to appoint a liquidator, Ian Levitt, a lawyer for one of the investors, said. The liquidator will be appointed June 17, he added. Tannenbaum denies the allegations.

Also on Friday a special Task Team* comprising investigators from the Financial Intelligence Centre, the South African Revenue Service (Sars), the South African Reserve Bank, the South African Police Service's (SAPS) Serious Economic Offences Unit and the National Prosecuting Authority (NPA) was established.

The team will "look into allegations of possible fraud, money laundering, tax evasion and foreign exchange control violation against Barry Tannenbaum and associated entities" Sars said in a statement released Sunday.

"The NPA indicated that prosecutors from the Specialised Commercial Crime Unit will work closely with detectives from SAPS to evaluate evidence and to determine whether to prosecute any of the persons or entities involved in this scheme. The NPA's Asset Forfeiture Unit will also consider whether any assets can be frozen or forfeited as proceeds of unlawful activity," the Sars statement said.

Lost money
Losses tied to Tannenbaum may exceed the more than R1bn lost by Fidentia Asset Management, which was placed under administration in 2007 amid allegations the company stole client funds. Murdered South African mining magnate Brett Kebble's estate is being sued for R2bn by companies he used to run, saying he illegally sold assets.

Tannenbaum encouraged investors to put money in his companies, Frankel International and Frankel Chemicals, by offering "massive returns" on investments, according to a website started by Warren Goldblatt, an investigator hired by one of Tannenbaum's investors. Goldblatt says he uncovered the scheme. Tannenbaum now lives in Australia.

Tannenbaum's lawyer, Darryl Ackerman, on June 10 denied that his client was involved in fraud and declined further comment.

Investors including Sean Summers, the former chief executive officer of the nation's second-largest food retailer, Pick n Pay, say they have lost money.
Levitt's client, Christopher Leppan, on June 5 successfully applied to the South Gauteng High Court for the "provisional sequestration" of Tannenbaum's local assets after an investigation led by Goldblatt's Specialised Services Group, Levitt said.

Forged signatures, orders
Tannenbaum, grandson of one of Adcock Ingram's four founders, Hymie Tannenbaum, invited people to invest in financing the importation of pharmaceutical ingredients, providing guarantees that he had secured supply and procurement contracts with well-known drug makers, including Aspen Pharmacare, the largest generic drug company in southern hemisphere, according to Goldblatt.
"Aspen holds the largest value in my book," Tannenbaum wrote in an e-mail dated March 5 to James Patterson, a guarantor on a loan for Frankel International from Virgin Islands- registered Sudworth, according to information posted on Goldblatt's website.

Aspen, in a statement to South Africa's stock exchange on Friday, said it bought selected raw materials from Frankel and denied claims made by Tannenbaum that the company owed him R700m. Documents representing Aspen purchase orders were "fraudulently prepared using forged purchase order templates and forged signatures representing Aspen personnel".

Investors may have to repay dividends they received from Tannenbaum if they are found to be proceeds from crime, Goldblatt said in a telephone interview on Friday.
"We live in a society filled with greed," he added. "I wonder how many of those people brought in friends so they could get themselves out?"

Hendrik du Toit, the CEO of Investec Asset Management, which manages about $55bn, said South African regulators cannot be blamed for not picking up on the scheme.

"The regulator has done extremely well on the banks," he said. "These non-regulated schemes need to be avoided, period. Regulators will never cater for the protection of the very high net worth individuals - they ought to be able to look after themselves."

*The Task Team is appealing to all investors who had dealings with Tannenbaum and his associates to provide information that can assist investigators. Information can be provided on a confidential basis to the Task Team at the following email address: alberts@saps.org.za or in the form of a suspicious transaction report to the website of the FIC - www.fic.gov.za