Task team probes investors in Ponzi scheme

The special task team set up to investigate Barry Tannenbaum’s alleged pyramid scheme is not just focused on the Ponzi scheme itself—investors are also under scrutiny.

“We’re looking at both the investors and the structures that were invested in,” said South African Revenue Service (Sars) spokesperson Adrian Lackay. He said Sars would check to see whether investors paid tax on any dividends they received.
“They’ll be liable for any outstanding tax,” he said, adding that criminal charges could be laid if investors were found guilty of tax evasion.

But Lackay said the state would “find a different view” for those who came forward with information that would enhance the investigation. He said those who failed to come forward with information for fear of prosecution had already shown an “appetite for risk” when they got involved in the scheme. “Do you continue that appetite for risk by saying ‘I’ll try to resolve this on my own,’ and be caught out? Those are the options that are available.”

How does a Ponzi scheme work?

Barry Tannenbaum, grandson of Adcock Ingram founder Harold Tannenbaum, is said to be behind the scheme. Tannenbaum allegedly promised investors returns of more than 200% annually if they invested in his companies, Frankel International and Frankel Chemical Corp. Estimated to be worth $10-billion, Tannenbaum’s scheme could be the largest fraud case South Africa has ever seen.

A special task team, comprising investigators from the Financial Intelligence Centre, Sars, the South African Reserve Bank, the police’s serious economic offences unit and the National Prosecuting Authority (NPA) was set up to run the fraud investigation.

Lackay said the task team would look into where investors got the money they put into the scheme—whether this came from private savings or shareholders. It would look at whether dividends were declared and whether any of the Reserve Bank’s foreign regulations had been contravened in the process. “All those questions will be investigated in the probe.”

Concerning the current status of the investigation, Lackay said the main priority was to establish the facts. “We need to establish the extent of the information and allegations, what has a factual basis and what is valid.”

Contrary to media speculation on the type of legal action that would be pursued against Tannenbaum, NPA spokesperson Bulelwa Makeke said the specific details of the case had yet to be determined. “They’re waiting for investors to give more information so they can determine what kind of charges to lay.”

Lackay concurred, saying he could not speculate on whether criminal or civil charges would be laid against Tannenbaum further down the line. “It depends on what we find and on the complexity of the evidence that is uncovered.”

Read more about Frankel International

Faranaaz Parker

Faranaaz Parker

Faranaaz Parker is a reporter for the Mail & Guardian. She writes on everything from pop science to public health, and believes South Africa needs carbon taxes and more raging feminists. When she isn't instagramming pictures of her toddler or obsessively checking her Twitter, she plays third-person shooters on Xbox Live. Read more from Faranaaz Parker

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