Tannenbaum sagaInside the murky world of Tannenbaum |
Victims reveal how he lured them.
(Bloomberg) Johannesburg-based opera singer June Kraus said she thought the $1.5m she inherited from her mother and entrusted with Barry Tannenbaum was earning as much as 3% a week from his savvy investing in Aids drugs.
Kraus, a quinquagenarian, and dozens of celebrities like her, can now be included among the hundreds of people who lost their fortunes to Bernard Madoff, the convicted swindler, Allen Stanford, the jailed Texas financier accused of fraud, and Tannenbaum, the one-time pillar of the South African pharmaceutical industry who hasn't lived in his hometown for two years. About 400 people, including the former chief executive officer of South Africa's second-largest grocery chain, allegedly lost about R2bn, convinced that Tannenbaum would safeguard their ever-growing assets.
"I've never seen anything like this," said Shirish Kalian, a attorney and a court-appointed trustee of Tannenbaum's estate, which has been frozen in South Africa.
"There is lots of information coming through. People are coming forward and telling us privately what has been happening."
Tannenbaum, 43, says he's no Madoff.
"Your attempt to compare me with Madoff isn't only odious, but is blatantly and patently incorrect without any factual foundation and sensationalist," Tannenbaum said in a July 8 e-mail.
Promised gains
In a country where about 75% of those over 20 haven't finished high school, Tannenbaum's investors were among South Africa's top earners. About 10% of the population of 49m people received more than half of household income in 2006, with the average annual income estimated at R74 589, according to the national statistical agency.
Kraus said she invested more than 150 times that with Tannenbaum.
Investors, including Kraus, say they were enticed by promised gains of at least 15% every 12 weeks for providing funds to purchase raw materials that were to be sold to drugmakers.
"I thought we were helping provide antiretroviral drugs to people with Aids in South Africa," Kraus said in an interview at a mall in Bryanston. And, she said she liked the interest rates, in her case 18% to 23% every six to seven weeks. "Then I got in touch with this lawyer, and he said to me, ‘It's a scam.'"
Jewish investors
Unlike Madoff, who is serving a 150-year prison term in Butner, North Carolina, after pleading guilty in a $65bn fraud, and Stanford, who is in jail in Conroe, Texas, awaiting trial in connection with a $7bn loss, no charges have been filed against Tannenbaum, who now lives in Sydney. His South African accounts and some accounts in Australia are frozen, he said in a June 23 e-mail.
Just as Madoff, who founded New York-based Bernard L Madoff Investment Securities LLC, was known in the money- management world, Tannenbaum was a familiar name in South Africa's pharmaceutical world because of his family's three- generations of history in the industry. As with Madoff, much of the money that went into Tannenbaum's companies came from the Jewish community, including from Norman Lowenthal, former chairman of the nation's stock exchange.
What all the cases have in common are investors who forgot there is a direct relationship between risks and returns, said Hendrik du Toit, London-based CEO of Investec Asset Management, which oversees about $50bn for clients.
‘No proof'
They highlight "the naivety of investors who were prepared to back, with vast amounts of their savings, an almost entirely unknown entity, in an investment offering ludicrously high returns, without any comprehension of how those returns were to be justified and without any form of operational due diligence," said Du Toit, who has followed the Tannenbaum situation but isn't involved.
South African regulators say they are unsure yet what happened. "We're just going to say we're investigating allegations of fraud," said Themba Hlengani, a spokesman for the taskforce of five South African agencies that are investigating Tannenbaum.
Some of the allegations are "drivel," Tannenbaum said in a June 13 statement from Sydney.
There's "no proof that I have committed fraud," said Tannenbaum, whose grandfather co-founded Adcock Ingram Holdings, South Africa's largest over-the- counter drug company. "I state categorically that I am not sitting with millions."
Hedge funds
One Tannenbaum investor, Barwa Real Estate, Qatar's second-largest property developer, said June 18 that it loaned money to Tannenbaum's Frankel Enterprises and is now "vigorously pursuing" repayment. Tannenbaum was quoted in a June 5 affidavit given in Australia as saying Barwa documents were "altered or fabricated by me", the Financial Mail on July 1.
The changes were made "with the intention of diverting or retaining funds" owed to Barwa, the magazine quoted the affidavit as saying. Barwa is seeking $31.2m it loaned to two Tannenbaum companies, the Financial Mail reported.
Tannenbaum, in an e-mail, wouldn't comment on the Barwa affidavit. Tamer Mohamed Khedr, Barwa's acting president for financial services, also declined to comment.
Those claiming losses range from Barwa and South African executives to London-based hedge fund managers and investors in New York's Staten Island, said Warren Goldblatt, who heads Specialised Services Group, a Johannesburg-based private investigation company hired by one of the investors.
Loans terminated
The estimated loss of R2bn by Finance Minister Pravin Gordhan represents the cash directly injected into Tannenbaum's companies by investors, and excludes promised returns, said Adrian Lackay, spokesman for the taskforce investigating the case.
"The task team is appealing to all investors who had been involved in dealings with Tannenbaum and his associates to provide information that can assist investigators," the agencies said in a statement.
Barwa, which in a statement in Doha said it terminated a loan agreement with Tannenbaum's companies, sued Dean Rees, a business associate of Tannenbaum's and a Johannesburg lawyer whom Kraus and other investors say was their main contact, according to a UK court filing.
"Everyone has been duped," Rees, who lives in Switzerland, said in a June 25 telephone interview. "So have I. In the fullness of time, any charges of fraud or any allegations made will be dismissed. I had no part in this."
Two Lamborghinis
In his affidavit filed in the Barwa case, Tannenbaum said documents were altered "with the active encouragement and full knowledge" of Rees, the Financial Mail reported. Rees hasn't responded to e-mails or phone calls seeking comment about the UK court case.
The assets of another Tannenbaum associate, Darryl Leigh, are frozen, said lawyer Ayoob Kaka, who sought the action on behalf of investor Christopher Leppan. The Johannesburg High Court acted on a request on July 9, preventing Leigh from disposing of his two Lamborghinis, two Mercedes-Benz cars and three properties, Kaka said. Leigh, reached at his home in the Johannesburg suburb of Morningside, declined to comment.
Tannenbaum told prospective investors his companies had contracts to sell ingredients to seven customers, including Africa's largest maker of AIDS drugs, Aspen Pharmacare, and annual revenue of $500m, according to an affidavit from Keith van der Spuy, who says he lost more than R17m.
‘Sucked in'
Van der Spuy said in an affidavit he was promised returns of 15% every eight to ten weeks, which he re-invested. In a later e-mail, he said he was initially so sceptical that he hired a private investigator to check it out.
"I started slowly and was sucked in," said Van der Spuy, 54, a Johannesburg businessman. "If one's due diligence is based on falsified documents, which match independent bank statements, one assumes things are OK. It's very easy after the fact to say investors were driven by greed."
Leppan, a Johannesburg businessman, said in an affidavit his initial scepticism was overcome, in part, when the list of investors he saw "contained the names of numerous well-known and astute businessmen," some of whom placed in excess of R30m with Tannenbaum. Leppan said he lost his investment of R2.9m and R2.7m of interest.
Sean Summers, 56, the former chief executive officer of Pick n Pay Stores, said he is among those who lost money. "I am an investor and have taken many investment decisions in my life, and this is one of the less fortunate ones," said Summers, who resigned in 2006 after 33 years with the Cape Town-based chain.
Prominent names
Among others who invested were Mervyn Serebro, former head of retailer OK Bazaars, and Lowenthal, the former chairman of the stock exchange, the Financial Mail reported on June 10.
It was in the late 1990s that Tannenbaum started to order pharmaceutical ingredients from outside South Africa, shipping and distributing them to a range of clients rather than just taking commissions on imports that went directly from supplier to customer, Tannenbaum said in a June 25 e-mail.
"The company still has the same agency agreements with most suppliers as it did 50 years ago," said Tannenbaum, who took over the family business from his father.
‘Horrendous robbery'
Documents showing Tannenbaum had contracts with Aspen Pharmacare were forged, Aspen said in a June 12 statement. Five days later the Reserve Bank said a fake letter from the Bank was used to instruct South Africa's First National Bank to release Tannenbaum's money to a Hong Kong lender.
Tannenbaum now lives in a two-story house at the end of a cul-de-sac in the affluent Sydney suburb of St. Ives. A security guard outside the house turned away Bloomberg News reporters on June 24. The offices of his Australian company, Frankel International, a 15-minute walk away, were empty the same day.
In an e-mail exchange, Tannenbaum said he and his family left South Africa in 2007 after a "horrendous robbery" at his home. Now without access to money, Tannenbaum said he is living from day to day with the "support of friends and family".
Kraus, the opera singer who promotes herself as the Diva in Africa, said she first met Tannenbaum in August 2007 at Pigalle, the restaurant in Johannesburg's banking district where a bottle of 1995 Vintage Dom Perignon Rose costs R6 750. That is equivalent to the average dinner bill for 25 people at a mid- range restaurant in the city.
New York roots
About 60 investors were there that night, she said, and they talked openly about their investments while the champagne flowed freely on Tannenbaum's tab.
Eighteen months later she tried to recover her investment, and the situation "smelt funny", said Kraus, who retains her New York accent 23 years after moving to South Africa. Rees, with whom she invested her $1.5m through an account he had in the Isle of Man, kept stalling, she said.
"This is my retirement money," Kraus said. "I was desperate. I had no money."
Kraus said she still has no idea where her money went.
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