The story behind the biggest fraud ever committed in SA

Barry Tannenbaum is now an Uber driver in Runaway Bay on Australia’s Gold Coast, according to News24.  From 2005 to 2009 however, he constructed the biggest-ever con in SA history.  Every CA(SA) should learn the lessons provided in The Grand Scam, an excellent book by Rob Rose.

The pitch

Tannenbaum, whose grandfather started Adcock-Ingram, a well-known pharmaceutical company, weaved the following story to investors.  He owned a company, Frankel Chemicals, that supplied raw materials to pharmaceutical companies like Aspen.  Aspen (and others) had recently won large tenders to supply antiretrorival medicines to the SA government and therefore needed large amounts of raw materials.  Frankel needed some funds to purchase these and sell them to the likes of Aspen for a massive profit.  If you provided Frankel with finance for 90 days, you would earn interest of 15-30%.

Why do you need my money, why not go to the bank?  “Banks have loads of paperwork and are nervous to fund imports from places like China and India.  Besides, I am making so much money, I can afford to share it around with a small group of friends.”

Why did the scam work?

  1. Secrecy.  Every investor was told that they were part of a small inner circle and that they shouldn’t tell anyone else about the scheme.  That meant that it was able to stay undercover for a longer period of time.
  2. Cheques were delivered.  Investors had cheques delivered to them, which made it seem like the scheme was working.  They were however strongly encouraged to “roll-over” the amounts into new deals so as to earn even more.  Simply put, the scheme “worked”, and that allowed word to spread quickly.
  3. Greed.  Investors were very keen to earn such high interest amounts.  Some also liked the fact that Tannenbaum would pay into international accounts, thereby getting money out of SA, illegally avoiding capital controls.  Others also never declared income to SARS, which was also illegal.
  4. New investors kept joining.  In order for a Ponzi scheme to succeed, it is crucial that new members are recruited.  This is where Tannenbaum made use of agents who earned a commission for every amount raised.  Two SA lawyers, Dean Rees and Darryl Leigh, were particularly close to the action and made a fortune signing on individuals.

When did it stop working? 

The financial crisis in 2009 meant that risk was on everyone’s mind again.  Investors didn’t want to roll-over their funds anymore, asked for their money back and as a result the scheme quickly ran out of cash.  By this stage however, Tannenbaum was living in Australia, and has never come back to face the accusations against him.

Why did he do it?

The book reveals that Tannenbaum spent a fortune, over R60m, on gambling websites during the period.  It appears that a large motivating factor was the need to fund his gambling addiction.

Lessons for a CA(SA)

  1. If it sounds “too good to be true”, there is a problem.  Massive interest rates, seemingly no risk – these were all signs of a con.
  2. Secrecy and haste are red flags.  If you are getting told that this is a deal just for the select few and that secrecy is of utmost importance, be wary.  If you must act soon, or miss out, that is another clue.
  3. Don’t blindly follow business heroes.  Tannenbaum was able to convince some business legends from SA (i.e. the Pick n Pay CEO at the time, a former head of the JSE and the founder of OK Bazaars).  These names were dropped into conversations with potential investors and influenced many to trust the scheme.  Do your own investment process, don’t blindly trust others.
  4. Liquidation is a mess.  All the people who were paid funds in the last 6 months of the scheme had to repay them, even if they had lost money overall.  They also had to pay tax, even though they returned the cash, and also hire lawyers to represent them.  In total, the liquidators kept over 50% of all the funds they recovered in order to pay their fees (R53m and counting).  One liquidator apparently said that this was their “retirement plan”.  It came across as grossly unfair that whilst Tannenbaum chills in Oz, those left behind in SA were targeted.
  5. Forgery is not that difficult.  Invoices, the annual financial statements and debtors book – they all were forged using excel, scissors and a photocopier.  It is not as hard as you’d imagine.  It will be found out eventually, but it allowed the con to continue for longer than it should have.
  6. Don’t do it.  Tannenbaum might have “got away with it” but has he really?  Many family members want nothing to do with him, he can never return to SA, his “investors” feel betrayed – what do his wife and kids think?  Acting without integrity becomes a slippery slope that ends in a dark place.  Don’t go there.



Paul Maughan

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