On the 1st of October 2012, Genneva Gold raided by both the authorities in Malaysia and Singapore for suspected offences including illegal deposit taking, money laundering, tax evasion and avoidance, false description (misrepresentations), appointment of agents without licence, and failing to lodge statutory documents.
Soon after, there are a lot of comments and denial by Genneva Gold customers & consultants (agents), and they start to blame the authorities. They are even set up Genneva Support Group on Facebook. In the group, there was a comment made by Richard Chew who clearly explained the scam and the flaw on Genneva business. Unfortunately, the comment was deleted within a few minutes.
I like to share his comment so that everyone understands the reason why Genneve Gold is indeed a scam. Read on his comments below,
“I can understand all the frustration that is being aired here. And it appears Genneva has been deliverying 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 enlightened 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 do not ‘realized’ its 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 purchased price. In this aspect, 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 us understand why Bank Negara has to step in and take drastic measure.
I am saying this scheme is not trading because it is more inclined to money lending business which must be regulated under our Malaysia law. Yes, I just said it; this Genneva scheme is basically a money lending scheme misrepresented as gold trading scheme.
How can this be? You may say there is a sales purchase agreement and gold transacted then how can this be money lending? If its 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. 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 the 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 curlt 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 money lending, the gold serves as the collateral; the lender profits and the borrower bears the liability.
This issuance of collateral gold 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 realized yet.
For a typical trading company, the more customers; the more goods trade out, the more profits realized. Clear cut profit realization. For example RM 1 billion of gold sold would generate certain amount of profit based on the profit margin.
However 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 had 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 neccesary.”