The runaway Ponzi scheme ‘mastermind’ holed up on the Gold Coast

In 1972, work begun to turn 182 hectares of tidal Gold Coast wetlands north of the Southport Broadwater Parklands into a canal-lined residential subdivision.

Real estate developer Neil McCowan and advertising agent John Garnsey christened the new suburb “Runaway Bay”, promoting the area as a tranquil escape.

Take a stroll along the Runaway Bay marina today with its views of the Surfers Paradise Manhattan-esque skyline and bobbing yachts at berth and you might pass Barry Deon Tannenbaum, now a resident of the palm tree-lined suburb and the alleged operator of South Africa’s biggest Ponzi scheme.

When Tannenbaum’s name last appeared in the Australian press more than three years ago he was a resident of Runaway Bay, having fled the South African Jewish enclave of St Ives in Sydney when news of the scheme broke. Wikipedia lists, as Runaway Bay’s only notable resident: “Alleged Ponzi scheme mastermind Barry Tannenbaum”.

In June 2009, The Sydney Morning Herald ran the front-page story: “Exposed: the Sydney man accused of a $1.5 billion scam”. But in the last three years, hardly a word about Tannenbaum has made it into the mainstream Australian media, despite new damning revelations in South Africa.

A failed attempt by the South African trustees of Tannenbaum’s bankrupt estate to take control of his Australian assets in the Queensland Federal Court in August last year also passed without mention, despite the judge noting that “substantial funds sourced from South Africa were transferred to Australian entities controlled by [Tannenbaum] and his wife”. These funds allegedly were stolen from hundreds of investors (some lost all their savings) and squandered by Tannebaum before he fled South Africa.

Ponzi ‘mastermind‘

The moniker “mastermind” (which Tannenbaum denies) is given by none other than the South African Revenue Service in recently leaked documents published on finance website MoneyWeb. The documents reveal he owes nearly $80 million in taxes, interest and penalties as part of undeclared income earned when he allegedly perpetrated one of the biggest corporate frauds in South African history.

According to SARS, Tannenbaum under-declared his income between 2004 and 2009 by 444 million rand ($47 million) and now owes 747 million rand ($79 million) in tax, penalties and interest. By investigating Tannenbaum’s 26 bank accounts, SARS discovered inflows of 3.91 billion rand ($415 million), of which 3.05 billion rand ($324 million) was paid out to “investors” and “agents” in the scheme. Over this five-year period Tannenbaum paid tax of just 142,000 rand ($15,000).

The money in these bank accounts is only a fraction of a purported 15 billion rand ($1.5 billion) accrued through an alleged Ponzi scheme that drew in 378 investors in the close-knit South African Jewish community by encouraging them to invest in Frankel International (of which Tannenbaum was the sole trustee), which traded under the name Eurochemicals.

Investors were enticed with offers of very high returns by allegedly forged purchase orders to supply the active ingredients for anti-retroviral drugs (used in the treatment of HIV and AIDS) to drug company Aspen Pharmacare – this in a country with one of the highest HIV infection rates in the world. One purchase order was said to be for 700 million rand ($74 million) – denied outright by Aspen.

Adding credibility to the scheme were two things: firstly, the Tannenbaums were a well-known, wealthy and respected Jewish family in South Africa; secondly, they have a deep connection to the local pharmaceutical industry – Barry Tannenbaum’s grandfather Hyme was the founder of South Africa’s largest over-the-counter pharmaceutical company, Adcock Ingram, now owned by Tiger Brands.

The Tannenbaums sold their stake in the business in 1978. Frankel Chemicals was subsequently founded in 1983 as an intermediary in the supply chain of drug compounds.

Between 2004 and 2009, Barry Tannenbaum, as director of Frankel, is said to have engaged the services of a number of high-profile businessmen in South Africa as “agents” – the original investors in the scheme and at the top of the pyramid – to sell the idea to other investors that they could more than double their money by making short-term (eight to 12 weeks) advances for the purpose of enabling the purchase and importation into South Africa of pharmaceutical ingredients.

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