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."

You are absolutely right. For simpler calculation, let say the price of gold move sideways for 1 year and genneva is closed, who do you sell the gold bar to ? The buyer will take anywhere between 10-20% cut. That is another lost/risk. Even if it increase 20% in a year, you may gain nothing.
Another risk is what if the gold is not 100% genuine ? More risk/lost. Some took the gold for surface scratch test but this test cannot verify that the whole bar is genuine gold. To do a proper test, you need to cut the bar in two or drill it and genneva will not buy back the bar if it is scratched.
That is another risk isnt it ?

Just my two cents worth.

This post has been edited by terry8: Oct 6 2012, 11:28 AM

If he works for KPMG or McKenzie as part of the consultant team, he is not the one formulating the strategy. Rather he helps put together a strategy in powerpoint on behalf of the company.

I do not believe that a strategist and experience business consultant cannot see the glaring fault in the Genneva biz model. You only need Accounting 101.

I have worked for 2 MNCs (one in the top fortune top 50) and formulated strategies for them with actual P&L responsibility. Been in the business for 22 years. I do not dare to claim I know everything.

This kind of business model cannot go through phase 1 ie. feasibility study.

The "new age" generation these days seems to embark on the policy of "spend now pay later" and they think that this will also work in business.

It's sad because these CONsultants have caused many aunties and uncles to lose their life savings. These people who trusted these people who claim that they know everything. Its better they start thinking of how to help compensate these poor people rather than blaming Bank Negara instead of themselves.

It's sad .... that's all I can say.

If I am not mistaken, Genneva sponsored RM 100K for the Starwalk. I do not want to imply that they are manipulating their reporting but they should publish the professionally with experts explaining the flaws in the biz model of this company. Instead they are trying to please the investors and giving them false hope in many ways.

Even if BNM did not raid them, this whole thing will collapse one day. Problem is that instead of having 60K victims they might have 120 K or even 240 K victims.

In the US, the authorities have the right to take back all profits taken by the investors in the last 4 years and then they pool these money together with all the frozen assets and redistribute fairly to all investors. They did this with the Madoff scam and recovered quite a lot of money. Of course, in the end each investor got back only a potion of what they invested but it was better than nothing. Madoff has such a long prison sentence that it is equivalent to life imprisonment.

I hope that the authorities here can do the same and recover the earlier gains for the benefit of all the victims.

Also, those CONsultants should not be shouting too loud because they also can be charged. I wondered how many of them fully declared their "Hibah" in their personal income tax. In order for them to claim back what they have invested, they need to show the records (which are in the confiscated servers) and they still have to pay tax on these income even if it is an illegal operation - this is the Tax Evasion part.

I really feel very sad for the old folks who lost so much and will find it difficult to recover from this. On the other hand, I am irate with the CONsultants who want this to go because they want an easy life with little work.

I do not want to antagonise anybody but in order for them to recover they need to take a new turn. In order to take a new turn, they need to know the path they are going down is leading to the wrong direction.

It's really sad because I read many depended on this for their very meal on the table, for treatment etc. Letting this scheme continue is NOT the answer as it will only collapse with a BIGGER hole and many more victims.

They should shut this down earlier.

This post has been edited by terry8: Oct 6 2012, 02:49 PM

Let's pray for them that they will be able to recover from this ... seriously. It's tremendously stressful for them. Imagine if you and I lose our jobs today without notice and without compensation. It's very difficult and frightening.

They already bought the gold at 24% above market rate. If they can find a buyer for the gold (this wont be easy), they buyer will take anywhere between a 10-20% cut. So even with the gold they stand to lose between 34% - 44%. If the gold has gone up, they will lose less and if the gold has gone down, they will lose more. It's not good but at least they got something left. However, if the gold is tested not to be 99.99% then much more losses. So far people have only done a surface test, this will not guarantee the inside is 99.99%. A definite test will be to cut the bar in two or to drill thru it. I really hope these poor people will get back as much capital as possible.

This was deleted from their supporters website later. I hope that these people who have not received their gold bars to report because if BNM liquidate Genneva, they might get something back. If they want to protect the Genneva management, they can always state that they did not receive the gold bars due to the raid but I really truly advise them to report how much they have paid especially for those without the goldbars.

They ware being manipulated by people out there.

This is frightening for the CONsultants but unfortunately true. Even income from illegal activities are taxable. Isn't that how they got Al Capone to prison ? It was not for his murders and illegal activities for his tax evasion on the income from all his illegal activities because they got his accountant.

They are 2 things we cannot avoid - they are death and taxes

I think those with goldbars should not sell now but wait for the outcome of the investigation. No point to rush and sell at a lost. The lost is already there so wait and see if you can salvage back a little more. However, for those who did not get their goldbars, please report to the police how much you invested so that in the event of a liquidation, you may get something back. If you want to protect the genneva company, you can always state that you believe you have not received the gold due to the raid. But if you dont report, you might lose everything.

i am very concerned for the old folks and retirees. I hope if the govt divide the money back to the investors, the CONsultants shud get their portion minus their commissions.

The Genneva Malaysia Supporters deleted all my comments even the one that advise them to appoint a separate lawyer from Genneva's lawyer to protect themselves ie the buyers.
I learnt a very important thing in this saga. Sometimes people like to live in darkness and do not want the light because the light will expose their misdeeds.
In the end the right will always be right and the wrong will always be wrong. As the Bible says " A good tree will bear good fruit and a bad tree will bear bad fruit. A good tree cannot bear bad fruit and neither a bad tree can bear good fruit"
I pray and hope that especially the older folks and single parents, those who really need their money will get back as much as possible of their capital. To those CONsultants who know deep in their hearts something is not right are part of those guilty of robbing these people.
Goodnight ..... I need to go back to all my work which is waiting and has been neglected these 2 days

---

Added on October 7, 2012, 2:33 amI am willing to take a guess that their bank account plus assets are less than their liabilities eg what they owe the investors

This post has been edited by terry8: Oct 7 2012, 02:33 AM

If you want to buy physical gold go to UOB bank - they don't charge a premium of 20%. Then use the 20% you saved to pay yourself 1.5% every month

I think the screws will really come off their wheels if and when their new Chairman resign. After she only came on board on Sept 2012 - less than 1 month. She cannot be responsible for all these things that has been happening for 4 - 5 years.

If I were her, I would resign and distant myself from them.

Yes there are tremendous blind support for them because the truth is too painful. Other people like me who try to explain politely and objectively have all their comments deleted. Now I am even blocked from posting on their page. Its up to them. They just want to stay in the dark corner and refuse to see the light.

---

Added on October 7, 2012, 2:19 pmAll those with Genneva gold please go to Royce Chuah and sell him your gold at the original price you bought. Please make sure he pays you in cash or bankdraft.

Royce - can you leave your telephone number for those who want to sell the gold to you ?


This post has been edited by terry8: Oct 7 2012, 02:19 PM

Some of these senior CONsultants were making Rm30-40k a month. Easiest thing to get them for initially is for tax evasion because I doubt all of them filed tax returns to the amount they have taken as commissions and also Hibah.

---

Added on October 7, 2012, 5:34 pmI think several of us should start a real support group called Genneva Malaysia victims Support Group where we can pool our resources together to find jobs maybe for those now without income and also those who need help in schooling. No point just talking about how wrong they were. This is more productive because telling people I told you do is also not helping because what's done is done

This post has been edited by terry8: Oct 7 2012, 05:36 PM

Ok let me try to explain clearly. When you buy gold from Genneva, when you pay RM 100K for gold that is worth RM 76 K ( a premium of RM 24K). If you bought the same amount of gold from UOB bank, it will only cost RM 76 K.
Normally in trading, in a buyer/seller transaction, the seller makes a profit from what he sells you and the buyer gets the goods or services (end of story). In Genneva case, the more they sell the more liabilities they have (they are not generating any profit) because they have to pay you the Hibah of 2 % per month and has a contract with you to buy back the gold at the price they sold you. Even if the price of gold goes up they loses because if the gold happen to go above the contract price, you wont sell back to them at that price. The more they sell, the more liabilities (future losses) they are accumulating

So where do they get the money to pay 2% Hibah to you (mind you 24% a year) plus consultant commission of 0.5% per month plus senior consultant of 0.3% per month ? The first year they use the premium that you have paid. Mind you the contracts are on 3 months or 6 months basis, so most people will continue to roll the contract with such lucrative interests. Of course if you get out within the year you do not risk anything but gained but how many people did not do that because of the nice huge interests - a few did but not many.


So the following year, they will take the money from the new investors to pay you because your premium for the gold has been used up in the 1st year. So as long as there are many new investors, the company will not collapse (a typical Ponzi Scheme ). Most of these Ponzi schemes run between 3-5 years before collapse because there are not enough new money from the new investors to pay existing investors. The Madoff scheme ran for more than 10 years because he only promised a 10% constant return.

So eventually when the house is about to collapse, the directors will take whatever funds and gold in the company and run. This already happen before with some of the common directors in Genneva Malaysia Sdn Bhd. There is an ongoing court case against these same directors in a company called Genneva Sdn Bhd (sound familiar ?) where these directors are accused of taking out RM 47 million from the company and putting it into their personal accounts.

So where else is your risk. Remember in the 3 or 6 months contract, you dont get your gold immediately after you paid. Sometimes you get it one month later. So you are holding the gold for less than a few months and you need to sell it back to roll the contract for another period. If the directors abscond during this time, your gold is gone with them.

Also, no one has done a test on the gold by cutting the gold into 2 to ensure the inside is also 99.99% gold. People have only done the surface test because Genneva will not buy back the gold if you scratched it so who will dare to do the destructive test.

Let's say you are more fortunate and have your gold with you when they close the company. Remember your gold is worth 24% less than its actual value (of course it is worth more if gold prices goes up but its rare that they go up 24% or more within 3 to 6 months). To sell to a buyer outside Genneva, the buyer outside will take a 10% - 20% cut so you lose another 10% to 20% (you lose more if the inside is not gold).


If you want to invest in physical gold bar, go and buy from UOB bank and you can also sell back to them anytime.

The scheme will collapse eventually as they are generating liabilities year after year. Worst in this case because those same directors are already accused in court to have taken out RM 47 million into their own accounts with the former company named Genneva Sdn Bhd.

Bank Negara is acting before the company totally collapse and they have to do so otherwise instead of 60,000 victims you might have 120,000 victims. If you ask my opinion, they acted a little late.

In the raid in Genneva Singapore, they found no cash and no gold bars. All the customers have lost everything.

I hope this is clear to you now.

---

Added on October 7, 2012, 9:17 pmI wonder who are the "lucky" ones on the list. How inside is your inside information ?

This post has been edited by terry8: Oct 7 2012, 09:17 PM

Of course they can freeze the accounts. This is to protect the investors from these directors taking the money away or transferring the funds to their relatives.

I do not know about Malaysia but US laws allow the appointed Trustee to take back dividends paid out in the last 4 years and all these money recovered from the investors will be pooled together with the asset left before dividing it back amoung the investors. It take a long time as they need to track who were paid and who invested.

It will take years to recover the paid off dividends and also to track who are the investors and how much they invested before they can divide the funds. These things can take 3-4 years depending how big the volume is.

I think they also need to wait for the court to declare a criminal activity before they can do this. It will be faster if the directors plead guilty as in Madoff's case. Even that took about 4 years to recover the funds especially the dividends which were paid out in the beginning. I dont know about Malaysian law whether they will chase down the dividends paid in the beginning of the scheme.

In any case, it will take sometime.

This post has been edited by terry8: Oct 7 2012, 10:19 PM

I have nothing to do with Genneva. In fact I am very irrate with the CONsultants for facilitating the cheating of those poor aunties and uncles who may stand to lose everything. I truly believe that BNM should take actions against those senior CONsultants.

I was hoping your inside information is correct.

The buyer dont lose because even if the gold price go down Genneva will buy back from you at your original buying price. This is what attracts the people to buy from them. Guaranteed capital with high interest.

The problem is the company is accumulating losses but they are taking in lots of money from new investors. So when the time comes when it becomes unsustainable, they will run with the money and gold so those who have not receive the gold bar will lose everything and those with the gold bars will lose anywhere between 34 to 50% because they lost the guarantee to sell to Genneva and the outside buyer will take a cut of anywhere between 10 - 20% provided the gold is also genuine inside.

It's a Ponzi scheme

It is ver very high interest - 24% per year (not including the 9.6% a year they also have to pay the CONsultants and senior CONsultants) The problem is the company will not be able to sustain this kind of interest payment and they will run with people's money eventually. Even the world's best investor and richest investor who actually physically buys and sells companies, Warren Buffet can only achieve 15-20% returns a year.