A massive international investment fraud, which has targeted some of South Africa's wealthiest families, is fast unravelling with estimates that up to R10-billion could be at stake. Also targeted have been vulnerable elderly people who now face destitution.
The fraud is a Ponzi scheme similar to that structured by jailed New York fraudster Bernie Madoff http://en.wikipedia.org/wiki/Madoff with the money of new investors used to pay off initial investors.
One local investor has placed as much as R100-million in the scheme, with an estimated R1bn coming from local sources.
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| Fig 1. Ponzi Scheme |
Indications are that the massive fraud will outstrip Fidentia and other scams by billions of rands.
Among those involved in the scheme are:
- Barry Tannenbaum http://mg.co.za/person/barry-tannenbaum who is currently living in Sydney, Australia. Tannenbaum is the son of Harold Tannenbaum, who founded pharmaceutical company Adcock Ingram. Tannenbaum is the controlling shareholder and sole director of the company Eurochemicals, trading as Frankel Chemicals, in whose name most of the investments were taken; and;
- Joburg attorney Darryl Leigh has made millions of rands from signing up investors.
Tannenbaum and Leigh are both blaming each other for the scheme, each claiming that they were duped by the other. Leigh is refusing to comment "at this stage".
Tannenbaum's lawyer said in an interview on Wednesday, before flying to Australia to see Tannenbaum, that "I categorically deny that Barry Tannenbaum is involved in a fraudulent Ponzi scheme, or has committed any fraud.
"I am unable to tell you whether he may have been an unwitting or unwilling participant."
Leigh who flew into South Africa last week to speak to more than 200 investors, said in a telephone interview from Switzerland that he had been duped by Tannenbaum.
He provided a copy of an email he received from Tannebaum on May 6, which starts off by saying: "I can no longer put off bringing you into the loop in regard to the South African book debt. The reality is that the book debt of Frankel Chemicals cannot survive scrutiny on the basis of what has been represented.", He continued, "You cannot allow an audit into Frankel SA's books."
Both, however, are living in luxury, Tannenbaum in an upmarket suburb in Sydney and Leigh in South Africa. both are understood to have multiple homes.
One of the participants was until recently living with his family in the luxury Palace Hotel outside Lausanne while he renovated a R70m house he bought in the surrounding Swiss canton.
At the meeting in Joburg last week, Leigh claimed he was a white knight who would help investors recover their money. In the interview, Leigh says that he had earned money believing that it was based on a sound, legitimate business structure.
"Tannenbaum has destroyed lives," said one observer to the affair.
Leigh drives around in a Lamborghini and Ferrari, whilst it is not known if he also owns a property in southern France. The cost of an ordinary double room at the Palace is about R4 000 a night.
Leigh first made public headlines in 2000 when he was part of the legal team that defended convicted fraudster Sibusio Radebe, who ran the multimillion-rand illegal Miracle 2000 pyramid scheme which cheated thousands of people living in townships out of their savings. The Frankel Chemicals scheme has been operating for five years.
The solicitation of investor money was based on fraudulent claims and documents that a group of companies both local and foreign, controlled by Tannenbaum, imported chemicals on behalf of numerous pharmaceutical companies, including listed company Aspen Pharmacare Holdings.
Investors were told that they would receive a return of between 15 and 20 percent over three months. Their money would be used to finance the import of chemicals which, among other things, were required as the building blocks for antiretroviral medicines for the treatment of HIV and Aids.
Investors were told that banks were not being approached to finance the deals because they (the banks) moved too slowly in lending short-term cash.
Forged documents were used to convince investors that their money was secure.
Leigh was apparently earning up to 12 percent on each deal he signed up.
Frankel Chemicals has falsely been claiming that it "has been awarded the contract to procure Anti-Retroviral (ARV) ingredients for Aspen Pharmaceuticals Ltd in South Africa to combat the spread of HIV/Aids".
Further false claims that were made:
- The contract was awarded based on the good merits and relations Frankel had with Aspen;
- Aspen was indebted to Frankel to the amount of R700-million; and
- Stephen Saad, the chief executive officer of Aspen, had verbally confirmed "payment terms" with Frankel for the payment of the sum of R700m;
- Pieter van der Sandt, general legal counsel for Aspen Pharmacare, said the factual situation was that:
- Aspen currently purchased selected active pharmaceutical ingredients directly from Frankel;
- Frankel was listed as an agent of Aspen for the supply of other chemicals, but Aspen dealt directly with the suppliers of the chemicals on a direct indent basis;
- There was no money due, owing or payable by Aspen to Frankel or any of its affiliates;
- Aspen purchased the majority of its active pharmaceutical ingredients required in the manufacture of antiretrovirals from other third party suppliers, and;
- Aspen is in possession of a number of forged documents that Frankel Chemicals presented to investors. These include forged purchase orders to the value of R160m and R8.5m as well as a letter purportedly signed by a senior executive of Aspen confirming that "the amount of R140 058 169.26 will be paid to the nominated account, ANZ Bank Australia, on approximately 18 May 2009".
Aspen became aware of the fraud when a Cape Town businessman was approached by Tannenbaum to recruit investors. The businessman checked the authenticity of the Aspen orders and found that they were forged, setting off alarm bells.
An approximate R500m that raised was placed in his lawyers' trust account, and then paid into Tannenbaum's bank accounts at RMB Private Bank and Investec it is not known what happened to the money after that.
No one knows the full extent of the scam, with estimates varying wildly from about R3-billion up to about R10bn and it is also not known where any remaining money is being held.
Significant sums of money were also raised internationally, for example, The Mercury has information that Qatar-based company Barwa Properties has invested more than R250m in the scheme.
Frankel Chemicals also had representatives raising money in Canada and the Europe.
