This posting has nothing to do with insurance but nevertheless is on personal investing and finance matters.
The Genneva Gold raid
On the 1st of October 2012, Genneva Gold was raided by both the authorities in Malaysia and Singapore for suspected (or allegedly for) offences in connection to illegal deposit taking, money laundering, tax evasion and avoidance, false description (misrepresentations), appointment of agents without licence, and failing to lodge statutory documents. Nothing actually have came out the raid and investigation as yet..
Genneva….Caesar Gold….Pageantry Gold….Worldwide Far East….Suddenly they were thrust into limelight. Was Bank Negara Malaysia’s raid on gold investment firms a case of killing goose that lays the golden eggs, or to merely protect interest of investors? Or was BNM acting on tip off by just a handful of disgruntled and ‘jealous’ clients who may or may not have malicious intent?
The Genneva Support FB group?
Over the Genneva Support Group on Facebook there was a comment made by one Richard Chew (which may not be his real name) who had made attempts to explain the so-called scam and the flaws concerning Genneva’s business modus operandi. Unfortunately, the comment was deleted within a few minutes but I have managed to retrieve them from a personal investment and finance blog: Genneva gold scam blog?
I like to share his comment so that everyone can have an insight of the authority’s rationale behind the Genneve Gold raid or whether ultimately whether these were the reasons behind the raid. However, I cannot guarantee this is the truth but nevertheless some comments worth reading….
The said comments go like these (but I need to tweak them so that those comments remained fair comments and not an emphasis of facts):
“I can understand all the frustration that is being aired here. And it appears Genneva has been delivering what they promised but forced to freeze their activities. However let me explain my view on the technical flaw in this scheme that warrants BNM to take such drastic action. My intention of giving my view is to help enlighten and hopefully will help many here to ask the right questions and direct it to the right party.”
“In any trading there must be willing buyer & seller for a transaction to take place at a price agreeable by both parties. The seller will profit from the transaction and the buyer will receive the goods / service. Very clear cut exchange.However in this scheme, technically the seller does not ‘realized’ his or her profit yet from the transaction because there is a contractual obligation that a monthly ‘gift’ of 2-3% is given to the buyer and the buyer has the option to sell back the gold at the original purchase price. In this respect, the seller’s obligations to the buyer becomes a Liability to the seller. To put it in another words, it is the buyer that will receive the profits rather than the seller in this transaction scheme.Therefore technically this transaction scheme cannot be deemed as trading because the seller doesn’t profit from the goods sold. If it is not trading then where does this lead to?”
“My next statement may sound absurd and may anger many of you here but please bear with me. My intention is to explain so we can have better judgement & help understand why Bank Negara has to step in and take drastic measures. I am saying this scheme is not exactly trading (in the legal sense) because it is more incline to a money lending business, which must be regulated under our Malaysia or Singapore law. Yes, I just said it; this Genneva scheme (on its surface) displayed elements of a money lending scheme – whether it was misrepresented as some gold trading scheme is up to you readers to gauge.”
“How can this be?”
“You may say there is a sales & purchase agreement and with physical gold being transacted, then how could there be money lending activities? If it is money lending scheme then who is lending to who? In this scheme, you are the lender. Genneva is the borrower. You bear the financial risk, in return Genneva pays you the monthly interest as we know it as Hibah (if Shariah principles are taken into account). At the end of the loan contract, Genneva returns the money to you. During the contract, you keep the gold bar as your collateral if in any event Genneva fails to pay; you don’t loose the full amount lent to Genneva. If the deal is purely buy & sell with no contractual obligation; then it is clear cut trading because seller profits and buyer keep the goods. But if there is a contractual obligations for monthly interest & buy back then it is surely some elements of money lending, where the gold bar serves as the collateral; the lender profits and the borrower bears the liability.”
“This issuance of collateral gold bar is somewhat similar to companies issuing bonds to raise fund from the public. Bonds are meticulously regulated by Securities Commission & Bank Negara because it has to be secured against the company assets such as properties and etc.”
“The problem with Genneva is that they are not regulated and when they have more buyers (lenders) they are actually increasing the liabilities of the company while profit is not realised yet. For a typical trading company, the more customers; the more goods trade out, the more profits realised. Clear cut profit realisation. For example RM 1 billion of gold sold would generate certain amount of profit based on the profit margin. However in the case of Genneva’s scheme, the more gold sold the more liability it creates for the company because of the obligations to buy back and pay the monthly gift. Therefore, Bank Negara has to step in to ensure things are in order and to prevent it to get out of control. A small complaint would suffice to fuel the urgency for drastic action. It is harsh but necessary.”
Dear readers, whether these pointers stated within the comments eventually turn out to be the real reasons for the raid or any eventual closure….we leave this to your good judgement. Do note this is a matter of opinion….
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