Lawyers gorge on Ponzi cash

Still no money for Tannenbaum’s victims

LAWYERS and trustees meant to be recovering cash for victims of Barry Tannenbaum’s Ponzi scheme are instead gorging on cash they have collected from investors.

Accounts lodged in court show that of the R100-million collected so far from “winners”, investors who made money in Tannenbaum’s scheme, R53.8million was sucked up in legal and administration fees.

By contrast, hundreds of investors who ploughed an estimated R12.5-billion into the scheme, the country’s biggest scam, have yet to see a cent.

This is not the first time that liquidators and lawyers have drained money collected ostensibly for victims of a fraud.

In the case of Krion, a pyramid scheme that operated in Gauteng’s Vaal Triangle, lawyers and liquidators charged R74-million in fees, leaving only R10-million for investors to divide among themselves.

Tannenbaum, grandson of the founder of Adcock Ingram, duped some of the country’s business elite, including former Pick n Pay CEO Sean Summers and former JSE chairman Norman Lowenthal, into supposedly investing in components used to make Aids drugs. Instead, less than 0.05% of the money was used for this purpose.

This scheme collapsed in June 2009, when Tannenbaum could not pay new investors.

But because he is now hiding on Australia’s Gold Coast, the trustees have focused on dragging investors to court to recover what they were paid by Tannenbaum, which could then be shared later by all investors.

However, the accounts show that lawyers Brooks & Brand DUPED THE ELITE: Barry Tannenbaum have claimed R33-million from the estate, the trustees have charged fees of R9.87-million, and forensic investigators have levied fees of R11-million.

Investors, who have already been swindled by Tannenbaum, say these fees are iniquitous.

Cloete Murray, a lawyer who represents investor Anchor Props, which lost R9.1-million in the scheme, has lodged a formal objection to the hefty fees with the master of the high court.

“[These fees] represent 53.5% of the amount collected. This is a travesty, and should not be allowed,” he wrote.

Murray asked the master to tax the trustees’ fees and to refer the legal costs to the Law Society for proper taxation.

John Storey, a former investment banker who lost about R3million, said he was told by one of these lawyers that the Tannenbaum case “would be his retirement plan”.

“Lawyers’ fees are enormous, and even if there is still R40million or R50-million left, they will probably sit on it forever. We see this happen all the time. The same thing happened when [failed gold miner] Pamodzi was liquidated,” he said.

But lawyer Alec Brooks, who is representing the trustees, defended the fees.

“Defendants [who were asked to repay the estate] tried every trick in the book at a substantial cost to the estate,” said Brooks.

Brooks said the trustees had to travel to Australia, where Tannenbaum has lived since 2007, to cross-examine him in court. He said the trustees needed to obtain more than 87 000 pages of documents.

In the Australian court, Tannenbaum admitted that he blew R62.5-million of investors’ money on gambling, saying “you just get hooked on it, I suppose”.

Brooks argued that Tannenbaum’s admissions in Australia helped the trustees recover R35million from one of the winners in the estate and pushed down the tax claim on the estate from R747-million to R32.7-million.

The trustees lodged 120 court cases, largely against Tannenbaum’s investors, and hired topdollar legal counsel.

Dean Rees, a lawyer who acted as an agent of Tannenbaum’s to solicit investors, was last month ordered by the South Gauteng High Court to repay R159-million to the trustees.

Rees was last understood to be in Switzerland, so collecting this money will be a headache.

Though arrest warrants were issued for Tannenbaum and Rees, the National Prosecuting Authority has yet to request that either be extradited. Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.timeslive.co.za