South Africa's largest corporate fraud

JOHANNESBURG (Reuters) -- Hundreds of investors have been fleeced of up to 10 billion rand ($1.2 billion) in what could be South Africa's biggest corporate fraud, a private investigator and lawyer said on Thursday.

Barry Tannenbaum, a South African businessman living in Australia, lured investors with the promise of 200% annual returns linked to pharmaceutical imports, and forged AIDS drug orders to reassure funders when money started to dry up.

The scheme is still unraveling but lawyers and investigators believe hundreds of investors including top businessmen from South Africa, the United States, Germany and Australia, were involved, losing up to 10 billion rand.

The case looks set to rank as South Africa's biggest corporate fraud and has shocked the country's business community, known for its conservative approach to risk and investment.

Peter Winer, a lawyer representing several investors, said details were still unclear, but likened the fraud to the Ponzi scheme used by New York money manager Bernard Madoff to cheat thousands of investors of $65 billion over more than 20 years.

"It could have started as a legitimate company, but by the end there was nothing there," Winer, head of insolvency and corporate recovery at Werksmans Attorneys, told Reuters.

"There are billions of rands involved and we don't know for sure where the money is," he said.

A Ponzi scheme pays early investors returns from funds paid by later clients. Winer said it appeared as though Tannenbaum's scheme collapsed when investors demanded to be repaid and new funds could not be found.

Investigator Specialised Services Group (SSG), a private law enforcement agency hired by investors to look into Tannenbaum, said he told investors they were funding a pharmaceutical ingredient import business.

Tannenbaum sent Reuters an e-mail saying he would reply to questions about the allegations on Friday. Dean Rees, a lawyer and Tannenbaum associate whom SSG said was also involved, also did not return calls.

Tannenbaum operated through his Frankel International and Frankel Chemical Corp. companies, and states in brochures that his father was a founder of South Africa's No. 2 pharmaceuticals firm Adcock Ingram. Adcock says it was his grandfather.

Documents posted on the Internet by SSG include what they say are forged purchase orders from Africa's biggest generic drug maker, Aspen which Tannenbaum allegedly used to show investors that funds were coming soon.

Both Adcock and Aspen confirmed they had bought small amounts of supplies from Frankel, but said the purchase documents, including some involving life-prolonging anti-retroviral AIDS drugs, were fake.

"This was absolutely elaborate and was going on for about four years," SSG spokesman Warren Goldblatt said. "It's like in the case of Madoff, the wheels have just come off."

In April, the money suddenly stopped, and investors tried to recover their cash. Winer said Tannenbaum's South African estate had been sequestrated and authorities were probing the matter.

South Africa's Financial Mail said some of South Africa's top businessmen, including former Pick 'n Pay chief Sean Summers, had been duped.

Department of Trade and Industry, which is responsible for pyramid schemes, had no immediate comment, but said it would look into the matter. The police could not immediately comment.