This was a comment made by Richard Chew on the Genneva Support group Facebook site which got deleted within a few minutes. I like to share his comment because I found that he explained the whole Scam very well.

"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."

Ahem...the buy-back is DISCRETIONARY AFAIK

QUOTE(Desvaro @ Oct 7 2012, 01:51 PM)
The one thing that gets to me the most is when they say:

PUT MONEY IN FD, BANK EARN SO MUCH, PAY YOU SO LITTLE. THEY TAKE YOUR MONEY TO PROFIT. quite true 

IN GENNEVA, WE ALL SHARE THE PROFITS 

I've said this before, but clearly they don't understand the difference in investing in debt and investing in equity. 

Wow, this guy keep name calling on BNM:-

---

Added on October 8, 2012, 11:35 amhe actually say Genneva is Robinhood.

So it means Genneva steal from downline and give to upline? Big fail this guy.

Yup he did, but I did not ask him either was it in boxes or not.

-------------

Sharing to the rest, here are some feedback in video (with faces):

http://www.youtube.com/playlist?list=PLR-g...5owSFf-fLTWu_Ii

NO NO! WE ARE NOIT INVESTMTING. ITS GOLD TRADING! 

nO SCAM!  PUT ME BEHIND BARS! 

IN THE LAST 5 YEARS GOLD HAS INCREASE BY 480%.....

just repost my earlier reply from BNM - gold trading is clearly not under their purview but illegal deposit taking is - all those so call consultants have been brain washed and convinced that they are only buying and selling

its very funny the way the CONsultant talk. Every word they take so serious and very very sensitive.

If we say consultant is agent, they quickly deny it.
Also the customer is not investor.

All this wording play is so obvious its a MLM + Gold + pyramid + ponzi + scam.

For now I think CONsultant is quite nervous. Some of the downline start to threaten the upline.

And also for person
UMNO become hero when money is involved. LOL. I think no need to pitied this type of CONsultant.

I also read this:-
Now upline start to pay their downline. Relationship between Genneva CONsultant and victim/customer/downline start to crumpled already under pressure. 

I have been following this thread because my spouse was approached regarding this 'incredible offer' about a month ago. Thanks to the arguments that were bandied about and a quick check of the BNM website, I advised my spouse not to take up any 'incredible offer'.
Now as events unfurl I would like to give my personal theory about all that I have observed, I came to this theory after reading some of the links given in this thread but I cannot be bothered to find those links so I apologise in advance:-

A group of gold businesses seeing the price of gold going higher and higher is suddenly worried about the profits/margins of their businesses. They come up with a new age business plan ...let our customers pay for the gold first. Set up association to oversee this new kind of business/industry then set up companies that would in effect get customers to hand in their cash [some of which languishing in banks earning very low returns or worse some cash lying under mattresses].
Approach some financial experts and explain the idea - financial expert[s] say "Brilliant, this is one way of getting previously uncirculating money into the system and be good for the local economy" [maybe he/she only thinking of 'money under the mattress' because educated people would understand that this was high risk and would not be affected..... after all it is taught in schools where he/she got his education overseas]
So the brilliant scheme unfolds....offer the opportunity of buying gold to customers at mark-up price and contract for 3 months. Offer a good interest/hibah to entice customers, make sure compliant with current rules and regulations. Then use mark up price to buy extra gold for use in family owned shops [thereby getting almost 'free gold'] as well as using the mark up to pay for operations cost.
All involved happy...Genneva probably did the best among all the other gold trading companies because they were more efficient and had the extra MLM approach to marketing [paying their salespersons with only commision rather that a basic salary that way no need for EPF and SOCSO payments - less paperwork and less hassle from authorities]
Because the hibah payments were regular activities and perhaps minimal questions were asked about the origins of money, other 'under the blanket' sources of money were attracted to the scheme and generated large cash flows OR maybe it was simply all the aunties and uncles withdrawing their life savings that activated tha 'money laundering act'.

Now I wonder if BNM are negotiating with the group of gold businesses to get them to underwrite all the debt generated by all the gold trading companies. Who knows, it may be a way to get the family owned businesses to share their profit margin with more of the rakyat....another new age business! Maybe those businesses could help pay back every ringgit loss and I hope none of our individual taxes are used to bail out these companies.

I am not a financial expert but that is my take on the situation.
We didn't take up the Genneva offer and feel really sorry for the individuals who have lost their life savings [still hopefully theoretical loss at the moment].
The islamic financial experts always go on and on about gold but they forget that dates were also used then as the valued item that was exchanged. What is wrong with having 'money' as the valued item of exchange provided it is controlled by ethical and learned people in the form of good regulations and enforcements.

http://www.facebook.com/photo.php?v=452595444781710

Pat Loo is here 

aiyoh, me slowpoke by few mins liao 

I also skeptical bout public gold 's gold purity.

do they even have a proper gold purity certification?

who the heck is pat lu? never heard of him, one of genneva extremist fanatics?

he probably lost tons of money.....

Actually non-destructive method can be done with Ultrasound. You know the machine to look at baby?

Genneva International will sound nicer

Drill also check for CONsistency gua. If wanna check for 100% purity, I guess the only way is to melt the gold and purify again and see how many
impurity inside the gold. 

All public gold products have assayer certification. So it is assured of the purity. Unless fake assayer signature lor.
Btw, this is sort of off topic. Hehe

A Gold Ponzi of Mass Deception?

August 13, 2011 − by Pat Lu − in Featured Gold News − 2 Comments


There is nothing so secure as holding actual physical gold. You should also have the serial numbers of the bars you own so you do know you indeed actually own some gold.


A Ponzi scheme one tends to associate with back street traders of dubious reputation and an unprofessional con man out for a quick buck.

But only recently Adrian Douglas from the Gold Anti Trust Association (GATA) confirmed in testimony to the U.S. Commodity Futures Trading Commission (CFTC) that the London Bullion Market Association is operating a massive fractional reserve gold market which he refers to as a Ponzi scheme.

This has also been confirmed by Jeffry Christian of the CPM Group who noted that the London “physical market” is actually trading a hundred times more paper gold than there is physical metal to back those trades.

One might wonder how the LBMA can sell gold bullion that they do not actually have in their vaults.

This is done through the allocated and non allocated account system.

In an allocated account, an investor will have specific bars of gold specifically assigned to him and when the gold bars are purchased the investor will be given the serial numbers. That investor has full title to that gold bullion and the dealer acts as a custodian, holding the gold on behalf of the client. The LMBA describes allocated accounts as”


“These accounts are opened when a customer requires metal to be physically segregated and needs a detailed list of weights and assays. The client has full title to the metal in the account, with the dealer holding it on the client’s behalf as a custodian.”

An allocated account is where the investor has on deposit with a financial institution specific bars of gold or silver that are segregated for him and he is given their serial numbers. This gold and silver can be audited and the customer can have confidence that his investment is safe insofar as it really exists, is being stored on his behalf, and he has title to it.

With an unallocated account, however, the situation is vastly different. The gold or silver is held by the bullion bank but not identified by serial number. So when a client buys unallocated gold they do not get allocated bars of gold. If, for example, two customers each buy 200 ounces of gold they could together be assigned one 400 ounce London Good Delivery (LGD) gold bar. So each client is not assigned a specific gold bar but a real bar is held ‘on their behalf.’

The LBMA description of unallocated precious metal accounts states:


“Unallocated accounts. This is an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest, and most commonly used method of holding metal. The units of these accounts are one fine ounce of gold and one ounce of silver based upon a .995 LGD (London Good Delivery) gold bar and a .999 fine LGD silver bar respectively.”

One would think, therefore, that if 20,000 unallocated account holders collectively bought 200 tonnes of gold, there would naturally BE 200 tonnes of gold resting in the vaults.

However, The LMBA definition of unallocated also goes on to state:


“Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties.”

“Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.”

So, as Adrian Douglas of GATA correctly points out, “The balance on the account is a measure of “indebtedness between the two parties.” In other words the account balance is an IOU for bullion. It is NOT really a “method of holding metal” as first described by the LBMA. No, the unallocated account is backed by the general stock of the bullion dealer — and that may be, as Jeffrey Christian has confirmed, only one
physical ounce for every hundred ounces that have been sold in unallocated accounts.”

Importantly, it also states that “The client is an unsecured creditor.” If 10 tonnes of gold are bought for 10 clients with allocated accounts, those ten clients are secured, but if the accounts are unallocated, then they are unsecured and there is no guarantee whatsoever that there is gold to cover that clients holding. Otherwise why describe them as unsecured. This opens the door to operating a fractional-reserve basis and, while that might be acceptable for currency, it is certainly not acceptable for gold being held in trust for clients.

Unallocated accounts are not then, “the most convenient, cheapest, and most commonly used method of holding metal.” Rather, they are an unsecured way of holding an IOU for gold or silver bullion. Just a paper promise.

Indeed, an unallocated account holder is really just lending money to the bank at a negative interest rate, as the customer is the one that is paying the fees for the privilege of lending the bank money. The only real connection between gold and the ‘loan’ is that the loans are index-linked to the price of gold bullion.

The message is then, there is nothing so secure as holding actual physical gold and if one has to have gold held for one, ensure it is an allocated account and have the attendant security that goes with that gold. You should also have the serial numbers of the bars you own so you do know you indeed actually own some gold. – Source: GoldPrice™.org