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Ponzi aftershocks knock planned Madison fund
June 30, 2009
By Roy Cokayne
Investor jitters over the collapse of the investment scheme operated by Barry Tannenbaum has caused JSE-listed Madison Property Fund Managers to abandon the planned listing of its proposed Phoenix Global Investment Fund on the Bermuda Stock Exchange.
Mike Flax, an executive director at Madison, said yesterday that the collapse of Tannenbaum's Ponzi-type scheme had contributed to the disappointing subscriptions in the initial public offering (IPO) for investments in Phoenix.
Flax said news about Tannenbaum's scheme broke in the week when Madison was closing out subscriptions to the Phoenix fund, causing subscriptions to fall short of Madison's self-imposed minimum level.
"At one stage, it seemed that we would comfortably exceed the $200 million (R1.6 billion) target that we had set," he said. "The response from individuals with whom we had worked previously was particularly positive. However, at the eleventh hour two major institutions decided to withdraw."
Flax declined to identify the two institutions, but said they had planned to invest a combined $25m in the fund.
Phoenix had planned to list in Bermuda this month after raising funds from "wealthy sophisticated individuals", predominantly in South Africa.
South Africa was the primary source of funding for Tannenbaum's scheme, which drew a host of high-profile businessmen as investors.
Flax said subscriptions for about $50m were received for the Phoenix fund, but this was half of what it wanted to raise.
The fund's declared aim is to buy strategic stakes in listed property funds in the UK, Europe and Australia while these are valued at bargain-basement levels because of the global credit crunch.
Flax and his co-directors, who were participating personally in the IPO, were bitterly disappointed, he said, but they had not changed their view that excellent offshore listed property investment possibilities were still available.
"We could have taken investors' money for the fund in terms of the prospectus, but thought we would be doing investors a disservice. In the best interests of shareholders, we were mindful of the fact that capital raised would not have provided a significant enough asset base to fulfil the diversified strategy as communicated in the prospectus," he said.
"This was largely as a result of certain high-profile, though totally unrelated events that coincided with the Phoenix IPO close. These events created investor uncertainty and nervousness and contributed very significantly to the decision taken to cancel the listing."
The minimum subscription to the fund was $200 000, with May 27 the close-out date. Investors who did subscribe for shares are being reimbursed.
Flax said the listing had been abandoned because the opportunities would not last for another six months.
Madison would look at the possibility of property loan stock firm Redefine taking advantage of these opportunities.
Flax said about R2m in abortive costs had been incurred in the venture, which would be carried by Madison.
Madison's stock fell 0.3 percent to R5.98 yesterday.
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