One of South Africa’s largest Ponzi schemes, estimated to be worth up to R10-billion, has been uncovered, reports said on Thursday.
The weekly Financial Mail, the Star and website moneyweb.co.za reported that this scheme could outstrip Fidentia and other scams by billions of rands.
It said some of South Africa’s wealthiest families seemed to have been targeted.
A website set up to provide details said the scheme was allegedly run by Barry Tannenbaum (43), grandson of Adcock Ingram founder Harold Tannenbaum.
According to the Financial Mail, Tannenbaum may have defrauded investors through his Frankel International and Frankel Chemical Corp companies.
Tannenbaum allegedly asked investors to put money in his companies, Frankel International and Frankel Chemicals, by offering returns of more than 200% a year, the magazine said.
How does a Ponzi scheme work?
The money of new investors was used to pay off initial investors.
The Star reported that estimates showed up to R10-billion could be at stake. One local investor placed as much as R100-million in the scheme.
The newspaper named those involved as Tannenbaum and Johannesburg attorneys Dean Rees and Darryl Leigh. It said Rees and Tannenbaum were both blaming each other for the scheme.
The website describes the Frankel investment scheme as operating as an importer and exporter of active pharmaceutical ingredients (API) to and from foreign countries.
”These ingredients are used by manufacturers of generic medicines and a large part of the APIs are used in the manufacturing of the antiretroviral drug prescribed to people who are exposed to or contracted HIV/Aids.”
The site added that Tannenbaum promoted his concept to investors ”claiming massive returns on investments”.
It alleges that he supported his proposition ”by showing prospects purchase orders from major pharmaceutical companies such as Adcock Ingram, Aspen and Novartis for the respective APIs valued in the many millions.”
Tannenbaum currently lives in Sydney, while Rees is in Switzerland.
Leigh told the Star that he could not comment ”at this stage”.
According to the Financial Mail, victims of the scheme included former Pick n Pay CEO Sean Summers.
”Summers is fortunate in that, while he is believed to have put more than R20-million into the scheme, he hasn’t lost everything,” the publication said.
Other victims included Allan Rock, a professional tennis coach, accountant Howard Lowenthal and broker Wayne Gadden, the Financial Mail said.
Uraj Tewary, a call centre administrator, was also a victim.
He took his wife’s pension money and any money that his family could get, and put it into the scheme.
”The problem is that my wife is due to have a baby any day now and I don’t even have money to pay the doctor,” Tewary told the Financial Mail.
The website describes a Ponzi scheme as a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned.
It usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent.
The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.
The system is destined to collapse because the earnings, if any, are less than the payments.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. — Sapa