SOUTH AFRICA: Barry Tannenbaum's Ponzi Scheme - Take care

Prof D N Erasmus
2009/10/30

Further to an earlier post, the Tannenbaum Ponzi scheme is in the news with government announcing that 800 investors from 7 countries are involved, and that the estates of Dean Rees and Barry Tannenbaum are being sequestrated to ensure some of the monies can be clawed back. A more ominous risk resides beneath all of this. SARS is actively conducting desk audits on all the big investors and apparently are finding that some of them have not kept their tax affairs up to date. With a SARS hungry for money, it can be anticipated that a number of David King styled investigations will take place. In addition many of these participants are actively co-operating with the authorities on a voluntary basis, not knowing that the information they are divulging may be used in a second onslaught against them, as opposed to getting the money back from the fraudsters. Co-operating the CORRECT way with the authorities is the clever way to do this. But what is that correct way? Many would have missed this perfectly legitimate trick...So what is the correct way? Now that would be giving away my intellectual property - so if you are interested in learning more - please contact me on daniel@dnerasmus.com As to whether or not you were an investor in the scheme? Think that through carefully as well. MY EARLIER POSTING So if you read the BUSREP.CO.ZA article by a journalist quoting hungry for money SARS, in your panic you may make the wrong classification choices on how to treat your investment (or not?) in the Ponzi-scam by Barry Tannenbaum. If you classify it as an investment, you may have participated in a broader unlawful transaction breaking every rulebook in the Banks Act. On the other hand...and wouldn't you like to know? A Special Report of the likely tax consequences on the Barry Tannenbaum Ponzi Scam is available to order - currently being researched and written. One copy for the first 5 subscribers is available for a charitable contribution of R50,00 to the SPCA. The stray dogs and cats need it! Everyone after that - the research and tax direction to help you get the taxman to pay for your mess, will cost you R950,00 per report. Cheap, considering your losses may come down by your marginal tax rate.

BUSREP.CO.ZA Article
Tax shock may await Tannenbaum's investors
June 18, 2009

By Roy Cokayne

Investors in the Ponzi-type investment scheme operated by Barry Tannenbaum, which allegedly fleeced billions of rands from about 400 people, could be in for a painful tax surprise even if they rolled over their investments and lost both their capital and profits.

Provided it was not an illicit scheme, the SA Revenue Service (Sars) would regard any profit from the investment as a dividend and therefore taxable, Sars spokesman Adrian Lackay said yesterday.

However, if it is proved to be an illicit scheme, participants might be forced to pay money they made to liquidators.

Lackay added that there might be a capital loss, but the profits were of a revenue nature and therefore taxable, stressing that a "normal pyramid scheme" was taxable.

Sars taxed the Krion Financial Services pyramid scheme, which raised about R1.5 billion from about 10 000 investors largely in the Vaal triangle before it was liquidated in July 2003.

Lackay said Sars' approach in the Krion scheme was that the orchestrators had no intention to repay all the money they raised and the purpose was to enrich themselves. The funds were not illicit and were therefore taxable in their hands.