wow, the BFM thing... interesting... let's discuss the scheme for better understanding for all:

Genneva has 60,000 purchasers (customers who are entitled to the 1-2% hibah/discount/gift/interest/returns) and a total of RM3 billion of 'investments'/'24k gold sales and purchase agreements'?

i took a calculator and tried to estimate how much gold RM3 billion will buy (which Genneva has to purchase physically and give to their 60,000 purchasers... eventually)...

... and that is 17,230kg of 99.9% gold. RM3 billion is more than half of Bank Negara's total gold reserves for the country...

The guy on BFM said a trading company can make 10%-20% return a month, and hence they can easily give 2% as hibah to purchasers. If all the company does is continue selling gold at premium prices, and then giving rebates back every month, that's fine. Indeed, the company is making 20% profits!

But the deadly clause is the guarantee of buyback at purchase price, which means the 20% profits cannot be pocketed by the company, as they need to be returned back to the purchaser in full. If so, then where else does the company go to make the profits to keep paying all these rebates?

1. How does a company manage to stock up so much physical gold in liabilities, to be paid out to 60,000 gold purchasers as per sales & purchase contract?
2. How does a company manage RM3 billion in turnaround without any trace or record in any local or global markets out there?

I just read Investlah forum's discussion and found 2 loopholes:


1. Genneva sells at a premium vs open market rate, and only offers to buy back at a discount. Unless gold price goes up a lot in the contract period, you lose. Gold price goes down, you lose even more.
2. Genneva has an escape clause. If you don't sell back, the contract expires, and you're stuck with the overpriced gold.

If these are the actual contract terms, I really have no idea how they managed to get 65,000 people to buy such overpriced gold... OMG

I opened a random youtube of Genneva supporter (I think it was #3) where the consultant was clarifying the hibah - reporter asked if hibah is paid out in 3 months time, and consultant said, "no no it's not fixed... it depends... on market conditions, etc."

I think I just found loophole #3. even the hibah is fudgy.

Depends whether the turnover is monthly, annual, or cumulative since its Samudera/1st raid days few years back... :-)

Genneva Malaysia Sdn Bhd does not in any manner, directly or indirectly, at present or in future gives an undertaking or guarantee the repurchase of the gold products sold to its purchasers (no buy back guarantee).

Lesson 1 - The company can wind up any time:
A sdn bhd company can wind up and close shop at any time, and not have to pay off its debts, obligations and liabilities beyond what is recoverable from the company (properties, furniture, kitchen sink, bank account balances, even gold bars). It's easy to close down a company, and even start a new one doing the same scheme all over again, as demonstrated many times here.

Lesson 2 - no guarantee means buyer beware:
If there was a written guarantee to buy back at sell price, then it's a matter of time before Lesson 1, but most people take the risk because they've played it so many times over the past 20 years (MLM, etc), and they know the only rule of the game is to get in early, make enough money so that when it burns you still come out nett positive (by pocketing money from those victims who joined in later and get burned).

If there is no written guarantee, and you buy because of sweet talk and promises, then you paid for an expensive lesson. The trick is always to give what was verbally promised to just enough people to gather those confidence votes and word-of-mouth reassurances.

Lesson 3 - understand your product and market:
Physical gold traders operate like physical money changers, not forex nor stock brokers, whereby they profit by a spread, not by commission. If the price never change, and you just keep buying and selling, you eventually end up with nothing.

If a gold trader says you can buy and sell unlimited times with them at the same exact price with no spread, and gives you some more money on top of that, then someone is seriously smoking ganja.

Lesson 4 - understand what you are paying for:
There is no law against selling overpriced stuff that is not a controlled price good like sugar. Willing buyer willing seller. If you bought overpriced gold, you will lose money selling it anywhere else at market price, so selling outside to break-even isn't even an option unless gold prices goes up 20% in just 6 months (and every 6 months). And then you only break-even...

Please find out for yourself just how often gold prices go up 20% in a 6-month timeframe. Only the ganja smoking gold trader is (hopefully) willing to voluntarily buy back your gold at above market prices, because he'd be making a big loss on that transaction.

For those who wanted to see the company founder and management team's faces, it's here:

http://www.slideshare.net/healerjune/genne...by-june-mendoza

Slides 48 to 55.

You may also want to see the evidence of misleading sales pitches in slides 56, 58 and 60.

ROTFL. Their printer must have broken down. Cannot print as many gold certificates (vouchers) in time.

Meaning they don't know. The consultant's job is to sell, sell, sell. If Genneva can always consistently generate enough profits from their RM750 million of cash (their 'profit' from selling RM3 billion worth of gold at 25% above market rate) in hand every single month, then the possibilities are:

1. they have access to a lot, a lot of very cheap gold at below market rates
2. their returns are not legal or ethnical, e.g. prostitution, human trafficking, money laundering, drug dealing, etc.

Imagine I am a company, and I have 1kg gold bar, and I need cash to do my magic rain dance. I find you to buy my 1kg gold at RM200k (20k above market rate). Why would you? Because I promise you that in 3 months time, after my magic rain dance, I will buy back my gold (sounds like pawn shop) from you at RM200k. But then there is no benefit to you right? OK. Let me sweeten the deal, I will sell you at RM196k instead (I discount a bit la), but I will still buy back at RM200k. Some more, with RM196k to play with, every month I give you another RM4,000 out of my profits from my magic rain dance. At the end of the contract period, I take back my gold, thank you, and here's the RM200k I promised. You are RM12k richer in 3 months time only, because you gave me the cash I needed.

Sounds plausible? Perfectly 'legit' deposit taking high interest loan scheme?

But wait, why is Genneva sourcing for gold from around town? If I didn't have enough gold in the first place, then I have to take your money, use it to buy gold at market price, then use my 'profit' from selling it to you at a premium to do my magic rain dance. E.g., you were so happy with the RM12k, you introduced a friend to me, who also wants to buy my overpriced gold, same scheme. I say ok, sure. I only have 1kg gold, but now I am selling 2kg to 2 of you. For the 2nd kg, I actually took your RM196k, use it to buy 1kg gold from shops like 'Poh Kong' at RM180k, then give you your 1kg gold, and I am now left with RM16k cash in hand.

With that RM16k cash in hand, I have to do my magic rain dance 10 times harder and more vigoriously, because after each month, I have to still give you another RM4k.

That is the magic. My trade secret is that I can consistently generate profits of 25% month-on-month, i.e. 300% per annum, for you to pocket your RM4k a month, while breaking even for myself. If I also want to pocket RM4k for myself each month, then I have to consistently generate profits of 50% month-on-month, or 600% per annum.


Only scenarios 1 & 2 can give semi-guaranteed profits at that level, but we know it's not #1 because they are buying gold from suppliers to give to customers and complaining BNM don't allow anyone to sell gold to them.

What do you mean by 'join'?

Did Mahathir, Rosmah, other VIP ever say they are big time shareholders or investors, or even big-time gold purchasers? It is possible Mahathir bought a few gold bullions, and kept it in a safe somewhere, which is perfectly fine. There is nothing wrong with buying and selling gold products, but suddenly it transform into steady income stream every month... which can pay out commissions to consultants and hibah to buyers. That's different.

Afaik, Mahathir was invited to launch their gold bullion product, not scheme. All Mahathir talked about during the launch is his views on gold as a viable investment option, which is actually true. All we can tell from Rosmah's presence in the consultant appreciation gala is that she was invited to a glitzy dinner event as a VIP, one of a few hundred others around town, but not as an endorser of the company or product.

The bosses probably invited Mahathir to come share his views on gold as an investment option, and probably invited Rosmah to be the one giving out the awards that night, but people who see them at these events assume much.

In the best case scenario, the ending goes like this:

Genneva declares end of scheme. It has been fun, kthxbai.
All active contracts continue as per contract.
All Hibah continues to get paid.
All customers get their genuine 999.9 gold end of the day.

Ok what. Because, in the last round, Genneva will remind you that they have ended their gold trading business, and never guaranteed to buy back. Your gold will be worth lots more in the long term future anyway. Hold on to it. Keep it under your pillow, or display it in a glass case in your living room, or make some jewellery with it.

In the last round, Genneva still profits +25% from you, and giving you back 1.5% a month for a 3-month contract is peanuts. Genneva close shop with hundreds of millions in cash. Customers finally go home with their gold, and after several years perhaps the gold price will increase far more than 25%, and the customers too would have ended up with a tidy investment return.

Happy ending for everybody, no?

Off tangent - see attachment for a Wah Chan ad in The Star papers. They are offering a limited time promotion to buy your 999.9 gold for RM205 per gram, less 21% (about RM160).


Attached thumbnail(s)

Sorry did you just call me stupid? I thought flaming wasn't allowed in Lowyat.net. If you read my previous posts on Genneva you should know I don't think the best case scenario is going to happen, and more likely the company will just close shop and leave buyers will null and void S&P contracts. However, I just like to consider all possible scenarios. Alerr, suka-suka call people stupid... our society is crumbling in more ways than one...

http://www.youtube.com/watch?v=vN2WzQzxuoA

To me this is a good academic case study - 'was this a Ponzi scheme or just a simple scam?'
Another question often discussed is - 'what is the key differences between legal MLM and illegal Pyramid schemes?'

Ponzi schemes collapse when outgoing obligations exceed incoming deposits. In this case, the business model is much simpler. Company sells gold at 25-30% above market rate, and rebates 1.8-2.5% each month for a short period of time, e.g. 3 months (see bottom). That gives a handsome profit. When there are no longer any new buyers, existing buyers walk away with overpriced gold in their hands. Because this is what BNM sees on paper, it's caveat emptor but legal.

Obviously nobody would fall for such a cheap trick, so the company hires consultants on commission to sell the idea of passive income, by convincing people that as long as they keep buying and selling back every 3-6 months with no transaction costs (no spread, no fees, no commission), they get a lifetime of passive income paid monthly. Unethical sales tactics but very common. This lie was made convincing because the company actually allowed buybacks at original price for as long as the company could sustain it, even when the company was never obliged to. This loss-making 'blue ocean' strategy is Ponzi-like, with the intention of attracting as many gullible buyers as possible.

When the company has as many gullible buyers as they can afford, they can happily pull the plug and legally refuse to buyback any more of their gold.

If you want to plot a chart for best time to pull the plug:
The company had 3,000 buyers in 2009, which grew exponentially to 65,000 now. In the company scoreboard, it can sustain a nett positive profit from your transaction for 12-15 months (basically initial profit of 30%, then slowly deducting 1-3% until we break-even). In the scoreboard, the company has made obvious losses for the early birds, having paid them back several times more than they have profited. Nevertheless, that strategy have helped them attract another 50k or so late-comers, for which the company is still nett positive.

If you see it as a simple Excel tabulation of nett position of company vs. each individual buyer:
Buyer 1, in for 36 months - company in nett loss (paid 36 months worth of hibah)
Buyer 2, in for 35 months - company in nett loss.
Buyer 3, in for 34 months - company in nett loss.
Buyer 100, in for 24 months - company in nett loss.
Buyer 1000, in for 15 months - company at break-even.
Buyer 1001, in for 15 months - company at break-even.
Buyer 10,000, in for 12 months - company still at nett profit.
Buyer 20,000, in for 9 months - company still at nett profit.
Buyer 30,000, in for 6 months - company still at nett profit.
Buyer 40,000, in for 3 months - company still at nett profit.
Buyer 50,000, in for 2 months - company still at nett profit.
Buyer 60,000, in for 1 month - company still at nett profit.

Indeed, the early birds have actually profited much from the scheme, at the expense of gullible late-comers. The final trick is when and how to end the scheme. Imagine if the scheme is ended now, unlike most Ponzi schemes, the company can easily walk away with handsome profit. (I know in actual fact BNM says that Genneva doesn't have the capacity to pay back all the buyers, but that is why this is a case study of future scenarios operating the same scheme.)

I am more interested to find out whether this was technically a Ponzi. Genneva aside, if any company can technically and theoretically be able to deliver physical goods to every single buyer, and then close shop with profits, is it still a Ponzi scheme? Yes, 80-90% of the buyers are caught with a nett loss, but that is because of their own gullibility in legally and voluntarily buying expensive gold.

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

Oh yes btw, below is an example of gold buyback at RM221 per gram, after 3 months.


And below is another example of gold buyback at RM184 per gram. Same buyback form, different S&P dates.

The illustration was to build a basic financial model. We ignored other operating costs, but also ignored the additional revenues by making good use of the cash instead of letting it idle away.

Now we can look at some other factors:
-Assume hibah is 1.5%, commission is 0.5%
-Assume staff size is minimal, and consultants pay their own operating costs
-Assume rental is fixed overhead, which quickly becomes negligible, same for paper, phones, petrol, etc.
-How much the management team pay themselves is anyone's guess...

In the final curtain call, with a RM3 billion turnover, the company stands to make a gross profit of close to RM1bil.

The question is whether this is a Ponzi if the company is in good financial standing when it closes shop. My own conclusion is yes IF this scheme is only profitable when there is sufficient explosive growth in transaction volume (total turnover) to offset earlier, smaller losses, which is indeed a billion dollar bet. This assumes the company did not generate revenue from the cash in hand.

It's not a Ponzi if the company generates just enough external returns to stay afloat until final curtain call, e.g. money laundering, stock market manipulation, whatever.

But here are further questions from this case study:
1. Is it illegal to sell overpriced gold?
2. Is it illegal to hire salespeople to convince people to buy overpriced gold?
3. Is it illegal to give discounts off the overpriced gold?
4. Is it illegal to voluntarily buy back overpriced gold?

The BNM audit finding was to tell the company that they cannot guarantee buybacks, so the company happily obliged, telling the world "we don't guarantee buybacks", and yet people still continued buying. That is a successful brainwash and there is no basis to charge the company.

There is nothing like a very large herd of gullible people who are willing to be legally fleeced.

Usually in a Ponzi, the con takes the money and runs. It is somewhat possible in this scenario that the con is able to honor the (written) contract to the end, and still walk off with profits.

Agree it's still illegal deposit taking in a way.

I hope Malaysians learn from this lesson. I have this feeling the next 'big thing' people are going to talk is not 'gold' but 'travel', e.g. World Ventures.

Write to The Star, NST and the online news portals. People should know about how some con artists are still trying to con with fake sob stories. (or were they trolling?)

People in Malaysia are very familiar with mlm, Ponzi, whatever schemes out there. They all know exactly how to draw people in and make money out of it. The smart and experienced ones know that you just get in, make your profit, then get out. It's only greed and the compulsion for gambling (just one more time, just one more), that keeps some of them stuck till it blows up..

Each time they dump in money they know it's a gamble, but what they are gambling on is how much longer it can last. When BNM noticed that the company has started giving excuses and delaying payments and delivery, you know the time is near. Smart people would have pulled out then, and the more and more people who do so, the faster it unwinds.

If Genneva is a pure gold trader, that wouldn't happen, right? People give cash, Genneva give gold. People give RM3b cash, Genneva give RM3b 'worth' of gold. It doesn't work like a bank.