The South African task force is reported to be considering freezing or confiscating Mr Tannenbaum\’s assets. He is reported to have lured hundreds of investors with the promise of monthly returns of 11.5pc linked to pharmaceutical imports in an alleged fraud reported to be worth as much as $1.2bn.
Investors were told that Frankel Chemicals traded Active Pharmaceutical Ingredients (API) on a \”continuous global basis\”. Frankel, it was claimed, were \”the exclusive agents for the distribution of API material for many overseas multi-national prime pharmaceutical manufacturers\”. A number of major drug companies have denied the claims.
11.5% a month, eh?
It\’s possible to make such returns of course. Charles Ponzi\’s original scheme did indeed have high returns (something to do with postage stamps I think). The problem is in scaling up: as basic economic theory would have it, if there\’s an opportunity to make such excess profits then everyone piles in and those profits get competed away.
That\’s making the assumption that it wasn\’t a scam right from the start of course.
Mr. Ponzi spotted that it was possible to buy stamps at below their face value by buying international postage warrants. He only did this a few times before realising that the enormous amount of faff involved in arranging for the purchases of such warrants overseas and the difficulty in realising the value of the stamps once purchased made the whole idea impractical, although theoretically profitable. But, by that point, he had excited the investor interest that led him down the slippery slope to fraud.