Billions lost in SA's largest 'Ponzi' scheme?

Many South African and overseas investors will soon be realising what many of them have probably been dreading for a while now, namely that the Frankel Investment Scheme, into which billions were poured, is nothing more or less than a vehicle designed to defraud them. Whether this turns out to be a classic “Ponzi”, along the lines used by US fraudster and financier Bernard Madoff or is more of a multilevel pyramid scheme, only time will tell.

What will not be in dispute at this stage is that it is the largest single fraud scheme in South African history and will number among its many victims highly intelligent businessmen, professionals and analysts who in hindsight will know that they really should have known better.

“Here, [Barry] Tannenbaum persuaded people to invest in his companies — Frankel International and Frankel Chemicals — by offering prodigious returns of up to 216%/year. Investors, who typically heard about the scheme from ‘friends’, would transfer cash to Tannenbaum’s RMB Private Bank account, believing it would be used in a legitimate business, and they’d be paid back a few months later. It worked fine, until all payments stopped last month.

“Tannenbaum, whose father was one of the founding Adcock Ingram shareholders, punted his scheme as a legitimate business buying APIs (active pharmaceutical ingredients) from foreign countries, which he then on-sold to generic drug makers like Aspen, Adcock and Novartis to make antiretroviral drugs.

“Rather than the red tape involved with borrowing from banks, Tannenbaum said he would ‘borrow’ the funds to buy APIs from investors, who would be paid handsome returns for deals typically lasting a few months. It was a scheme which extended beyond SA’s borders, with Frankel having operations in Germany, Brazil, Australia and India.

“But the actual business was a fraud. The FM is in possession of many documents which show the largest ‘purchase orders’, meant to prove there was a pipeline of cash to repay investors, were forged (see ragout page 34). Also, auditors have confirmed the financial accounts of Tannenbaum’s companies had been ‘altered and falsified’.” (Financial Mail )

In order to get a full understanding of the scheme it is best that you click on Rob Rose’s article above and visit the SA Ponzi and Richmark Sentinel websites that will be covering this in detail in the coming days.

Warren Goldblatt, head of Specialised Services Group (SSG), the largest private law-enforcement agency in South Africa, which has been investigating this matter, expressed concern at the scale of the scheme and the many investors who are going to be coming up empty very soon.

In all, this one looks set to dwarf both Fidentia and Masterbond and brings home the necessity for the new policing unit to tackle organised crime.

It also underlines how important a role private security and law-enforcement agencies like SSG can be in solving crime.

If you are a victim or have any information do not hesitate to contact the relevant parties or the police if you are of the belief that you have been defrauded.