FELICITY DUNCAN:  It's emerged this week that a number of very prominent business people, including former Pick n Pay CEO Sean Summers, have been taken for a R10bn ride in what people are saying is our Madoff scam. According to the Financial Mail, Barry Tannenbaum is accused of running a scheme that offered investors astronomical returns, but in reality used the money coming in from new clients to pay the existing clients - a classic Ponzi scheme. Tannenbaum's company, Frankel, pretended to be in the pharmaceutical business. In a minute we'll hear from Warren Goldblatt, the CEO of private law-enforcement agency Specialised Services Group. But first I want to ask David Shapiro - what do you make of this unfolding drama?

DAVID SHAPIRO: I can't believe that there are so many people out there, successful businessmen, who can actually fall for the returns that were promised. It's quite astounding that people can part with their money so easily. You know, if you've been in business, how hard it is to turn a rand - in other words, to buy something at one price and sell it at another. And yet they fell for these incredible returns. They must have known that there was something along the way.

FELICITY DUNCAN: Ja, you'd like to think they looked at their accounts and said, gee, 200% a year, that's a crazy return. Is it real?

DAVID SHAPIRO: Hedge fund managers get those kind of returns.

FELICITY DUNCAN: Those analysts are bit of a Ponzi scheme. Let's hear from Warren Goldblatt, the CEO of Specialised Services Group. My colleague, Julius Cobbett and I spoke to him a bit earlier.
FELICITY DUNCAN: Now, basically, let's just talk a bit about how this worked. We have Barry Tannenbaum, who has a bit of a background in pharmaceuticals, and he said he'd set up a company called Frankel, which is selling APIs [active pharmaceutical ingredients] to companies. So how did the fraud happen?

WARREN GOLDBLATT: Well, what he would do is ostensibly say to the prospective investor" "You assist me in funding these purchases of the APIs against free orders from the major drug manufacturing companies in South Africa, and for your investment we'll pay you out a dividend in relation to a period of time, whether 60 days or 90 days." And then the investors had the option to renew it - the type of interest rates or the returns that they were paying on investments were between 15 and 20% for 60 to 90 days.

FELICITY DUNCAN: OK, so very high returns. But in reality there weren't any contracts.

WARREN GOLDBLATT: Well, there may well have been in the beginning. This is still early days. This is the analogy I've given other journalists - that this is like a car that has just lost its wheels, and it's careering towards a barrier. So we don't know yet whether or not there was some kind of underlying business. We suspect there may well have been.

FELICITY DUNCAN: So there was perhaps a smaller underlying business, but then got inflated with fraudulent invoices, fraudulent deals.

WARREN GOLDBLATT: Well, I think they drank some Red Bull and gave it wings.

FELICITY DUNCAN: Warren how did you come to be involved with the saga?

WARREN GOLDBLATT: We were approached by a  client approximately a month ago. The client was concerned as they hadn't received any dividend payouts, and they wanted us to look into the scheme and see whether or not the scheme was legitimate. It didn't take us very long to work out that it wasn't. We looked into it and saw that there were some glaring holes in it, and we then had meetings with Dean Rees.

FELICITY DUNCAN: Now, Dean is involved, and we are not sure what kind of involvement he has in the thing. The article in the Financial Mail said he may be one of the kingpins of the deal.

WARREN GOLDBLATT: Well, he certainly was central to these operations. In our meetings that we had with Dean Rees he clearly indicated that he could prove that this was real, and requested us to sign a non-disclosure agreement, and on that basis he would provide proof that it was real. At the same meeting he advised us that he had concluded two trades in Hong Kong that had some fabulous value, and that the investors would soon be seeing money. He requested that we join his group of secure creditors, which my client declined at that particular time. Also, we were not prepared to sign the non-disclosure agreement as we really knew what we knew at that stage.

JULIUS COBBETT: Warren, what led you to believe that the scheme was fraudulent?

WARREN GOLDBLATT: Well, the initial telltale sign when we went through all the documents was that a company that had invoices with proof of deliveries from Aspen and the Adcock Ingram could discount them with any of the mainstream financial institutions at a much lesser rate. So that was the first telltale sign. We then did some confidential enquiries and found that that was not the case, that these fabulous amounts were not owed.

JULIUS COBBETT: Have you uncovered any evidence of fraud or misconduct by parties external to Frankel?

WARREN GOLDBLATT: The answer to that question - we are looking at it, and we are sure that that will come in the fullness of time.

JULIUS COBBETT: Do you think there might be any liability for the auditors?

WARREN GOLDBLATT: It's difficult to say. They clearly have put in what they call their "flaming red flag", and they certainly highlighted certain issues - but at the same time they seem to have given it a clean bill of health.

FELICITY DUNCAN: What kind of structures are there in South Africa to deal with is? Do you go to the Financial Services Board, or -?

WARREN GOLDBLATT: Well, essentially one has to try and work this out, because it could fall into organised crime's mandate because there was an element of money laundering. But there are certainly elements of fraud, and that would take it to commercial crime. But we have had discussions with the Reserve Bank and with the Financial Intelligence Centre as well. And we have reported the matter to Organised Crime.

FELICITY DUNCAN: There were reports that the Financial Intelligence Centre had already been given some warning that there was an atypical thing going on.

WARREN GOLDBLATT: Well, I have heard that from other journalists - that the Financial Intelligence Centre received a report as early as 2007.

FELICITY DUNCAN: But you are not sure for certain?

WARREN GOLDBLATT: No, we can't verify that. In any event, this thing has carried on till 2009, and only fallen apart in 2009. But investors face a similar problem that the Madoff investors faced - that the profits that they believe they were earning were not real profits. They were proceeds of crime taken from other prospective victims - you can't even call them investors any longer.

FELICITY DUNCAN: Why is it that these Ponzi schemes, because it's always the same thing - you give me R100 and I give you R120 back, and that R20 I got from another guy who gave me R100 - why do they sort of persist? They seem really tenacious.

WARREN GOLDBLATT: You know, this one ... large sums of money. I suppose it comes out of desperation at a point that you have to get invested. Then they rely on high-profile individuals whom they've got into the scheme as sort of examples - this person's prepared to invest in our scheme, you shouldn't be that concerned. When one looks at the documentation, it was elaborate in its presentation. You'd go a long way if you just looked at the documentation to find fault with it.

FELICITY DUNCAN: Warren Goldblatt is the head of the Specialised Services Group.

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