Johannesburg - Investors duped by the Ponzi scheme allegedly run by Barry Tannenbaum were driven by greed, a Johannesburg attorney said on Thursday.
Paul Winer of Werksmans, who represents some of the scheme's victims, said investors had been motivated by the high returns they were promised.
"They were earning what you can't get from any other investment," he said.
Another factor was that once the high calibre of investors in the scheme became known, others were easily persuaded that Tannenbaum's companies were good ones in which to invest.
"If you're told that Mr X, a well-known and respected businessman has invested in the scheme, other potential investors
then think it has to be a good investment."
Earlier, the Financial Mail and several other publications reported that Tannenbaum, a South African now supposedly living in
Australia, had lured investors to put money into his companies - Frankel International and Frankel Chemical Corp.
He allegedly promised returns of over 200 percent from what was really a Ponzi scheme.
Investors were under the impression Frankel Chemicals supplied pharmaceutical ingredients to major manufacturers in South Africa.
Frankel compiled a prospectus, explaining how the group owns a "pseudo monopoly" in the industry.
"Frankel Chemicals have been awarded the contracts to procure the anti-retroviral ("ARV") ingredients for Aspen Pharmaceuticals Ltd in South Africa to combat the spread of HIV/Aids. This business was awarded based on the good relations Frankel has with this customer," is one example of many of the claims Frankel made.
Winer said if "big names" were involved in an investment scheme, others thinking of putting money into the scheme neglected to perform due diligence studies.
Asked what finally exposed the scheme, Winer said the global and then the local recession played a large part.
"What usually happens is if there's a sudden turnaround in the economy, people who have invested money need to withdraw it for other things or obligations," he said.
"So you find that while people are withdrawing money, its hard to attract new investors whose cash has dried up to pay off the old investors."
Winer noted that investors had also become nervous when the Ponzi scheme run by Wall Street veteran Bernard Madoff was exposed.
On the whereabouts of Tannenbaum, Winer said there had been "a lot of speculation".
He said it wasn't certain whether or not Tannenbaum would return to SA. It wasn't even certain that he was presently in Australia.
Winer said Tannenbaum's companies may have started out as legitimate concerns.
"Many of these Ponzi schemes do - and then you get private investment and there's expansion and it all takes on a momentum of
its own."
According to the Financial Mail, victims of the scheme include former Pick n Pay CEO Sean Summers as well as Allan Rock, a
professional tennis coach, accountant Howard Lowenthal and broker Wayne Gadden.
- Fin24.com