Getting Started
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Dear Mr Syed,
This is my answer to you in Red.
By Syed Azauddin, Gombak, Selangor | letters@nstp.com.my0 comments
THE action of raiding Genneva Malaysia Sdn Bhd and other similar "gold trading companies" by the authorities at the beginning of this month is ostensibly laudable.
It will indeed serve as a lesson to individuals, who would like to establish similar "get-rich-quick" businesses, that such actions are always under "scrutiny" and will inevitably turn out to be a waste of effort.
Agreed, public should take caution against buying or investing in what most likely to be unsustainable 2 percent per month scheme.
However, the ensuing article "Do your legwork before buying that gold" (NST, Oct 23) while informative, leads to many questions by those who were involved in the "gold trading companies" now under investigation by Bank Negara Malaysia and other regulating authorities.
Indeed, the action against the companies, arising from such investigation, is a cause of much concern to investors, the companies' agents/consultants and staff.
It should be a major concern, it should be a major convern even before buying into this scheme.
BNM has been consistent in raiding and not allowing this kind of scheme to operate. Buyers/investors should have conducted their own assesement and not just believe what the consultants told them.
The high returns from these companies have enabled them to feed their families, supported their children in colleges and schools and earned them a decent living. The termination of such income was so abrupt that their lifes are now disrupted.
Sorry. But to rely on a 2 percent per month scheme for a steady income is highly risky. What were you doing before this existed?
You see the discruption by BNM to this scheme. But you do not think of when the scheme collapsed with a higher amount of public buyers and investors.
I believe you are more concern of yourself than the later investors, of course in terms of scheme collapsing there would be people who made a net profit and many who looses.
Quite a number are facing demands and pressures from financial institutions, including banks, to settle their personal loans which would otherwise have been serviced by the earnings from their investments.
The one who took personal loan, should have been deemed afford to pay the personal loan from their salary. The basis of taking a loan to buy something is affordability to pay for that purchase item and service the loan.
If in the case of taking loan purely to make additional profit because of the difference in percentage to the loan and the hiba, then like any other investments, it is making a higher risk when investing with a loan. This is risk is borned by the investor.
Indeed , the question "do your legwork before buying the gold" is a bit unfair, especially for investors in a company like Genneva Malaysia.
Nope. It is a fair statement. You want to take loan, use own money, 100k, 200k. You better do your legwork before signing the cheque. Thats the problem with these investors, can invest high amount, but no due dillegence.
This is considering the profile of most of the investors, and the length of time such "gold trading" companies had operated. Most of the investors were senior citizens or businessmen. These people are normally careful with their hard-earned savings and would not have invested in any company which they might have perceived as a "fly-by-night" company.
This is back again to no due diligence, on the part of the investors or buyers. These so called careful people most likely based their decision, on word of mouth, or reference by friends and families. His/her frens/uncle/cousin etc have received their hiba, so it is ok. This is their thinking. For your info, many ponzi companies can grow because of referrals and because of my fren/uncle/auntie/cousin gets their monthly payment. Not to mention the marketing by the consultants.
Genneva started operations in 2009 and has so far lived up to its obligations to its customers. Its launching was officiated in December 2010 by a former prime minister. In practically all instances, gold bars purchased by such customers were handed over to them in exchange for their cash invested in the companies.
Tun Dr M, is a proponent of gold purchase, he came to give a talk on gold in general. Buy and keep. Not specifically on the 2 percent per month scheme.
What about during these last few months, of the long waiting of the gold bars? And the holding period for the customers is not long and waiting period is long, whereby after received when wish to renew have to hand in to Genneva for the inspection. This is highly dubious and can give rise to the same gold bar being passed around to other investors. I do not see a reason, for the long waiting period between making a new contract, unless there is not enough gold for everyone.
Such credibility which it had developed among its customers, and the high hibah or Islamic-based interest rates it offered, and which were paid on time generally, did attract many investors.
Any initial scepticism they might have over such schemes disappeared particularly when the authorities remained relatively "silent" for more than two years.
The article mentions that "action can only be taken (by the authorities) when it has been established that an offence has been committed". Does it take that long for the authorities to establish "an offence"? Is it so difficult to start an investigative probe into the system? Did Genneva not submit periodical audited accounts to the authorities?
This part is important for BNM. They can not come in too early. BECAUSE once they come in, then the asset would be frozen. Also a complicated ponzi based scheme, may not be that obvious early on if it is a ponzi. Nope, Genneva has missed their account submission, and their current records are a mess. I am not surprise.
Moreover, the modus operandi of the company was well-publicised and it was relatively easy for the authorities to probe. Also, at the time of the authorities acted against the firm, it had over 60,000 clients, who were are always available for the authorities to question at any time.
MO was there, but the actual scheme of a ponzi based scheme can be a complicated scheme. At the earlier stages, where other buyers money may not yet be used to pay back the later buyers.
The clients themselves even if interviewed would not know the internal workings of the Genneva.
The company has set up agencies and branches almost everywhere in Malaysia and had also established similar operations in the Philippines, China and the Middle East, and they were all well-exposed for the relevant authorities to "scrutinise" at any time.
Ponzi based scheme can operate in many countries, nothing new here.
You forget Singapore. Where in Singapore the scheme was collapsing, most likely the growth is not there because of less population.
The authorities, therefore, could and should have acted earlier. Prompt action would definitely have saved the agony now experienced by the investors who had their life savings injected into the scheme "freezed" by the authorities.
BNM should have acted earlier, but BNM did give warnings and put it on the alert list. But I am sure, it was not enough time for the buyers to redeem their gold. Probably can Never be enough time for All buyers, since the next batch of buyers is needed to pay the current holders of gold for the buy back.
It was alleged that "such companies operate schemes that were not sustainable". Raiding a company that is thought to be "not sustainable" seems to be a bit over-zealous.
Nope. IT IS NOT OVERZEALOUS. What it means here it is ponzi based. Not sustainable means it Can Not keep giving 2 percent per month, and still offer the buy back for all the buyers for the overprice gold purchase.
There are many other companies especially small and medium-sized enterprises (SMEs) which are by all accounts not sustainable and would have rightfully been subjected to similar raids.
What are you comparing with? SMEs do not take money from public and do not make ponzi based scheme. And if they do, they would be raided of course. Your closes comparison would be a MLM company, but MLM company you come in as a agent/distributor/etc and you earn based on your sales, which is legal and clear.
These companies, most likely than not, were heavily in debt with the banks and other lending institutions, including unauthorised money lenders or Ah Long.
On the same principle, raiding them and curbing their activities may serve as a more effective deterrent to would-be entrepreneurs to be more prudent when starting businesses. Indeed, such action would have less impact on the public than raiding the relatively long-established, multi-million ringgit enterprises like Genneva.
Few years and you call it long established. GM incorporated in 2010, G Gold in 2009 which got raided, which clearly had the option of letting G Gold keep the gold for higher monthly return, clearly illegal.
Yet, history has shown these SMEs were never raided, nor will they be likely be raided at anytime in the future. Some politicians have stated that Genneva and the other gold trading companies were not sustainable because their "liabilities are higher than their assets".
But isn't this a phenomenon experienced by some legitimate companies like Genneva whose businesses are fast expanding? And if this is not "safe for investors", as deemed by the authorities, did the authorities not see the signs and the "frightening" trends from the audited business reports submitted to them by the companies all these while, and subsequently served "warnings" to the companies concerned?
If such "warnings" had been given, would the raids be necessary? Or were the raids due to the companies not "adhering to the warnings given"? Did these companies commit other offences like avoiding the payment of taxes on their income?
Raid is necessary, because unsustainable 2 percent per month company is not allowed. What you you want it to grow to 200k buyers and collapsed izzit??
Can't the modus operandi of Genneva Malaysia be regarded instead as a "revolutionary" business system where gold bars are held by investors in exchange for cash to the companies and vice versa, and both benefits from such exchange?
IT IS NOT revolutionary. What so revolutionary, of 2 percent per month scheme, where buyers pay 20-25 percent more than market retail gold bullion price and the delivery of gold and redeeming is not immediate. AND when redeem have to wait until next round of buyers to buy the over priced gold. I say this because GM has not got the money to pay 1st before selling to another buyer.
GM say their price is 5 percent more than retail is comparing with small 1/10 ounce gold from Poh Kong is highly deceiving.
One wonders what actually prompted the authorities to take the drastic action of raiding the gold trading companies? Is it because of complaints received by Bank Negara from dissatisfied clients or staff of the companies concerned, or by financial institutions which found their funds from deposits of their customers unhealthily dwindling due to unexpected large withdrawals by their customers to be switched to these gold trading companies, which promised higher returns?
No unsustainable high monthly return allowed. Get it. It will not work. Up until now, where is the so called business plan that provides the income.
BNM has been doing this for many many years. Raiding and freezing these kind of schemes.
However, records have shown that this phenomenon should not have been a concern for Bank Negara. Last year, banks operating in Malaysia saw their pre-tax profits rising by 14.2 per cent to RM26.2 billion. Their return on equity -- a measure of how well banks use their customers' money to generate more money -- rose by 17.4 per cent as compared with 16.6 per cent the previous year.
But how much do depositors in these banks benefit in all these very rosy picture of their banks' profitability? In truth, depositors hardly benefit.
The interest these depositors earn from fixed deposits seldom rise above five per cent per annum, irrespective of how much they put in and how long they keep their funds in the banks. Such a pittance in earnings for depositors have been going on for decades!
Excuse me, but bank deposit rates ties to BNM interest rates. You want 10 -20 percent deposit interest then expect a higher rate for loan. You want to earn from bank profits, buy their shares.
It is, therefore, no wonder when a company like Genneva Malaysia comes along and promises at least 20 per cent rate of return per annum, that people have no hesitation to invest in them.
I am sure they are some hesitation, but buyers do not think of the fundamentals, the doubts that they have were easily countered by the consultants.
Indeed, the authorities are right when they stated that investors should realise the risks before they invest, and should, therefore, be prepared to accept the consequences if their investments fail.
However, the reality is that there are already investments made into these companies, and which involved millions of ringgit by thousands of investors.
If and when these gold trading companies are found guilty of any offence arising from the investigations, it may be appropriate for their directors or the management to be penalised or punished. The companies, if still allowed to operate, must be forced to change their business model.
So, just let it be huge and 200k buyers, and then collapsed izzit? It is ok, if you have gotten out in time?
GM operate like Poh Kong, buy and keep. Do you still want to buy like an investor?
Your suggestion if found guilty then directors penalized. But please remember the freezing part is to prevent more and more buyers get into this unsustainable scheme. Yes.. Unsustainable.
For reasons given above, the investors are just victims and should not be penalised, whatever the outcome of the investigations. They have committed no offence, nor are they responsible for any shortcomings of the companies.
True. The buyers and investors are victims. They are victims to the scheme, victims to GM. You only blame BNM now, because they came in before it collapses. If BNM come in after the scheme collapse like Singapore, then it would be a different story, would it not. But better now then later.
Here are my reasons.
1) Buyers pay more than 20-25 percent from RETAIL gold bullion price compare with 1 ounce gold sold by UOB or maybank. GM is deceiving by saying 5 percent difference, which is comparing to small 1/10 ounce gold
2) GM does not have the cash to pay you to redeem the gold, another buyer has to come in and buy the overpriced gold.
3) Waiting time for the gold is big risk.
4) Throughout history, the company that provides high monthly returns are those unsustanaible schemes. I seriously doubt that GM would be the 1st in the world company to give the 2 percent to Everyone, and manage to redeem all the gold. Meaning for each and every investor make a net profit.
I have suggestion for you, if you are so adamant in your unsustainable scheme, where you think is unjust to raid, and should be allowed to operate. Why don’t all of you who think alike, group together and get into these scheme, and stay away from hardworking people who do not see that is not sustainable. Meaning the scheme revolves around all you risk takers who think that pyramid style scheme is ok. Stay away from buyers, pensioners who have no idea that is it pyramid based. But you cant, can you? You want them to feed into your income.
What is the ratio for sustainability? For every gold that buyers buy, how many more have to be sold to give profit to the 1st buyer. Ratio 1 to 2? 1 to 4? 1 to 5? Let say 1 to 5 ratio. So for every 20k buyers, need 100k buyers for the 1st 20k, and for every 60k buyers need 300k buyers. Is this what you are asking for BNM allowed to operate? Sorry buy NO.
This post has been edited by Dan01: Nov 17 2012, 12:26 AM
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Nov 16 2012, 02:49 PM
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