A huge 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, with the money of newly recruited investors being 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.
Indications are that the huge fraud will outstrip Fidentia and other scams by billions of rands.
Among those involved in the scheme are:
- 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.
- Johannesburg attorneys Dean Rees and Darryl Leigh, who have made millions of rands from signing up investors.
Rees and Tannenbaum are blaming each other for the scheme, each claiming that he was duped by the other.
Leigh is refusing to comment "at this stage".
Tannenbaum's lawyer said in an interview, before flying to Australia yesterday to see Tannenbaum, that "I categorically deny that Barry Tannenbaum is involved in a fraudulent Ponzi scheme or has committed any fraud". He added: "I am unable to tell you whether he may have been an unwitting or unwilling participant".
But Rees, who flew into South Africa last week to speak to more than 200 investors, said in a telephone interview from Switzerland that he and Leigh had both been duped by Tannenbaum.
Rees provided a copy of an e-mail he received from Tannenbaum on May 6, which starts off by saying: "Dear Dean, I can no longer put off bringing you into the loop in regard to the South African book debt. Dean, the reality is that the book debt of Frankel Chemicals cannot survive scrutiny on the basis of what has been represented."
He continued to tell Rees: "You cannot allow an audit into Frankel SA's books..."
All three, however, are living in luxury - Tannenbaum in an upmarket suburb in Sydney, Rees in Switzerland and Leigh in South Africa. All are understood to have multiple homes.
Rees was until recently living with his family in the luxury Palace Hotel outside Lausanne, Switzerland, while he renovated a R70 million house he bought in the surrounding Swiss canton.
The cost of an ordinary double room at the Palace is about R4 000 a night.
At the investors meeting in Johannesburg last week, he claimed he was a white knight who would help investors recover their money.
In the interview, Rees said that he had earned money believing that it was based on a sound, legitimate business structure. "Tannenbaum has destroyed lives," said Rees.
Leigh and Rees drive Lamborghinis and Ferraris, while Rees also owns a property in southern France.
Rees first made public headlines in 2000 when he was part of the legal team that defended convicted fraudster Sibusiso Radebe.
Radebe ran the illegal, multimillion-rand Miracle 2000 pyramid scheme, which he used to cheat 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 said a group of companies - both local and foreign, controlled by Tannenbaum - imported chemicals on behalf of numerous pharmaceutical companies, including listed firm 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 importation of
chemicals which, among other things, were required as the building blocks for antiretroviral medicines for the treatment of HIV/Aids.
Investors were told that banks were not approached to
finance the deals because the banks moved too slowly in
lending short-term cash.
Forged documents were used to convince investors that
their money was secure.
Rees and Leigh were apparently earning up to 12 percent
on each deal they signed up.
Frankel Chemicals has been claiming falsely that it has been awarded the contract to procure antiretroviral (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 is indebted to Frankel in the amount of R700m; 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 says the factual situation is that:
- Aspen currently purchases selected active pharmaceutical ingredients directly from Frankel; and
- Frankel is listed as an agent of Aspen for the supply
of other chemicals, but Aspen actually deals with the suppliers of the chemicals on a direct indent basis.
Aspen became aware of the fraud when a Cape Town
businessman was approached by Tannenbaum to help recruit investors.
The businessman checked the authenticity of the Aspen
orders and found that they were forged, setting off the
alarm bells.