A high court application for the liquidation of a company involved in a Ponzi-type scheme allegedly headed by Barry Tannenbaum, has been withdrawn, Business Report wrote on Wednesday.

The application for the liquidation of Suscito Investments, which was responsible for the administration of investments in the scheme, was withdrawn after a settlement between two investors and the company.

The North Gauteng High Court application was brought by Vaughan Anton Prost and Johan Frederick Stegman, both Pretoria-based directors of Promac Paints.

Prost invested R500 000 in the scheme through attorney Dean Rees, who secured funds for Tannenbaum.

Tannenbaum allegedly raised significant amounts of money from investors who believed their money was going to be used as bridging finance to buy pharmaceutical ingredients to be sold to companies like Aspen and Adcock Ingram.

Some of the pharmaceutical companies had since said the letters presented by Tannenbaum as proof of his business with them, were forged.

Prost said in an affidavit that Promac invested R1-million on behalf of one of its clients, and that Rees asked him to refer investors to him.

Prost said Doggered Investments, a company owned by Madmacks Trust and/or Rees, who was the sole director, was the holding company of Suscito Investments.

Suscito facilitated investments into Frankel Chemicals, one of Tannenbaum's companies.

Prost said Rees told him of an investment opportunity "at very lucrative rates", but the identity of the borrower was not disclosed at the time.

It turned out to be Suscito Investments and Rees acted as the firm's agent.

He said 18 percent commission was payable on their investments, which began on 23 October and ended on 15 December.

They both reinvested the commission. Suscito was liable for the amounts they had invested, which were now due, but was unable to pay this debt.

Prost was told that debtor Aspen had not been paid by the government, which had caused cash flow problems for Suscito.

Prost alleged Suscito had been involved in a fraudulent scheme and wanted the law to protect creditors.

Rees said in an affidavit that he did not accept Prost's assertion that they were unaware they were investing in Tannenbaum's scheme.

He had returned to South Africa with his wife to deal with the effect of "misrepresentations" made by Tannenbaum.

Rees said he suspected the true purpose of the liquidation application was to use solvency legislation to get information on the company for investors.

Business Report said the terms of the settlement were not known.

In a Ponzi, or pyramid scheme, investors were promised very high returns.

The people running the scheme do not invest in anything, but keep the money for themselves. They pay old investors from new investments they manage to solicit to keep up the appearance of legitimacy, but eventually they run out of new investors, or stop paying out, and the scheme collapses, which means the latest investors lose all their money.

The SA Revenue Services is part of a team tracking the electronic movement of money invested in Tannenbaum's business as part of a wider investigation.

Sapa