Another ‘Madoff’ or ‘wild allegations’?

SYDNEY, Australia (JTA) — Allegations that one of their own had defrauded hundreds of investors of nearly $2 billion have rocked Sydney’s tight-knit Jewish community of expatriate South Africans.

Johannesburg-born Barry Tannenbaum, 43, is accused of masterminding the largest Ponzi scheme in South African corporate history, according to reports.

“People are in shock,” a South African Jewish expat told JTA. “It’s terrible. Shame on us; it’s an embarrassment.

“It’s like he’s our local Madoff,” the expat said, referring to New York’s Bernie Madoff, who allegedly defrauded investors out of some $60 billion.

Tannenbaum, who has lived on Sydney’s north shore for the past few years, denied the “wild allegations” as “conjecture and speculation.”

“Time will demonstrate that I have defrauded no one,” Tannenbaum said in a statement.

Top businessmen from South Africa, Australia and the United States are said to have been duped out of 15 billion rand, about $1.9 billion, in the elaborate pyramid scheme in which investors were promised annual returns as high as 200 percent from Tannenbaum’s company, Frankel Chemicals.

Tannenbaum and his associates allegedly wooed businessmen to invest in his company’s importing of pharmaceutical ingredients by offering proof of contracts with major drug manufacturers, including such giants as Adcock Ingram and Aspen. Adcock Ingram was founded by Tannenbaum’s grandfather Hymie.

But Aspen said in a statement last week to South Africa’s stock exchange that some of Tannenbaum’s documents were “fraudulently prepared using forged purchase order templates and forged signatures representing Aspen personnel.”

A task force of major law enforcement and financial agencies was established June 14 to investigate allegations including fraud, money laundering and tax evasion.

Lawyers received a temporary court order to seize Tannenbaum’s assets in South Africa, Reuters reported, and a judge on June 17 appointed several trustees to manage those assets. Lawyers in Australia are attempting to freeze his assets here. Tannenbaum has not been charged.

An agent who acted for Tannenbaum in South Africa, Dean Rees, was charged June 18 with fraud, according to an online report. The Independent cited attorney Ian Levitt, who is representing Christopher Leppan, a businessman who had dealings with Tannenbaum.

A Ponzi scheme is built by using money received from new investors to fund the returns pledged to earlier investors.

The alleged scam began to unravel earlier this month when Leppan asked Tannenbaum for his capital and interest of about 5 million rand — about $613,000 — and the check bounced. The bank told Leppan that Tannenbaum had closed the account, according to Noseweek, an investigative magazine in South Africa.

Among others who apparently were swindled are Mervyn Serebro, former head of the OK Bazaars chain; Norman Lowenthal, former chairman of the Johannesburg Stock Exchange; and Sean Summers, former chief executive officer of the supermarket chain Pick ‘n Pay.

The large South African Jewish expatriate community in Sydney was reeling following reports of the scam.

“People are angry and embarrassed and disappointed that a Jewish person is alleged to have taken other people, including Jews, for a ride,” said a well-connected South African-born Jew who spoke to JTA on condition of anonymity.

“The family were saints in Johannesburg. They were philanthropic, genteel, modest people.”

Tannenbaum had established connections in Sydney’s Jewish community. He recently joined Kehillat Masada, an Orthodox synagogue, president Cecil Zinn confirmed, and his two young children attended a Jewish school.

Tannenbaum is pictured on the Lubavitch.org Web site holding a Torah scroll he donated to a Chabad house in South Africa in 2006.

Lowenthal’s son Howard, who was among those allegedly swindled, told JTA, “They’ve always been a very fine family, a very well-respected family. There’s no doubt that they were philanthropic.

“It’s probably one of the reasons many people got involved in it. I’ve known Barry all my life. It’s a huge surprise. He was a very nice, humble guy.

“We are the lenders. We are waiting to find out [who’s responsible],” a clearly agitated Howard Lowenthal said by phone from South Africa.

Tannenbaum is under immense stress, a family friend in Sydney said.

“He has had death threats against him, he has a guard at his house 24/7, he’s had to take the kids out of school because of intimidation,” the friend said.

The curtains were drawn last week at Tannenbaum’s house and a security guard was visible, according to eyewitnesses.

Tannenbaum’s lawyer in Sydney, Derek Ziman, told JTA that his client was not the brains behind the alleged scam.

“I think Barry’s the victim,” he said. “He’s been an unwitting party to it.”

But Ziman would not categorically reject that Tannenbaum was absolutely innocent.

“I’m unable to say that at this stage because there’s so much work that needs to be done,” the attorney said.

Ziman said Rees and Darryl Leigh, another agent for Tannenbaum in South Africa, should be scrutinized.

“The spotlight should be on Rees, who we understand has a fleet of Ferraris, a house in Switzerland … and a house in Monaco,” Ziman said. “They [Rees and Leigh] have benefited apparently immensely from this at a time when Barry has not. Rees went out looking for people to finance the business and Barry says that the money, or the bulk of the money, went to him.”

Rees, prior to the report that he was charged with fraud, denied the claim.

“I was independently wealthy before this scheme arose due to property deals,” he told South Africa’s Financial Mail. “I personally put about 3 million rand [about $368,000) of my own cash into Frankel.”

Leigh has not been charged. He could not be reached for comment.