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Beware of Gold scams - Genneva and Gold Label Pte Ltd

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Old 04-09-2011, 11:34 AM
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Default Beware of Gold scams - Genneva and Gold Label Pte Ltd

(Article Source: Business Times – 19 Feb 2011)
Golden fleece
Two companies that offered gold investment schemes are currently under investigation by the authorities.
By Genevieve Cua
IN THE last few months, netizens and investors have puzzled over a number of so- called gold investment schemes that aim to pay you regular returns. Are they scams? Gold, after all, does not pay any income, so how are the firms able to pay out as much as 24 per cent per annum?
Two firms with such schemes have been put on the Monetary Authority of Singapore’s (MAS) Investor Alert list. The latest on the list is Genneva Pte Ltd.

Late last year, The Gold Label Pte Ltd was put on the list. The company has filed to wind up its operations, reportedly due to cash flow problems. MAS’ Investor Alert list reflects persons who are unregulated, and ‘may have been wrongly perceived as being licensed or authorised by MAS’.
There are similarities in The Gold Label and Genneva. They appear to be Malaysian in origin, or at least have Malaysian directors. Both were investigated by Bank Negara on suspicions of illegal deposit taking and money laundering.
Genneva Sdn Bhd was investigated in 2009. Three of its directors – who are also directors in the Singapore company – will stand trial in April in Kuala Lumpur on charges of alleged money laundering.
Bank Negara’s investigation of The Gold Label started last year, and is ongoing, based on information on Bank Negara’s website.
What exactly is the firms’ investment proposition? Information on The Gold Label isn’t widely available; its Singapore website has been taken down. The firms straddle a fine line between investment and a retail business.
Genneva, for example, has a police licence that enables it to sell second-hand jewellery, gold, and white gold. The fact that customers take home physical gold in the form of bars or coins suggests that the firm isn’t taking a deposit or acting as investment manager.
Here’s how the scheme appears to work: Customers buy gold from Genneva at a fairly substantial premium to the market of about 22 to 25 per cent. This is based on a comparison of prices quoted by Genneva of roughly $75 to $76.50 per gram against the price quoted by UOB and other retail gold dealers of roughly $61.

Genneva tells customers that it sells the gold to them at a so-called ‘discount’ of between 1.5 and 2 per cent. It extends an option to customers: it will buy back the gold after 30 to 36 days or after 90 days depending on the scheme, at the original full purchase price. Those who exercise this get to keep the ‘discount’ of 1.5 to 2 per cent.
Customers may rollover the purchase, and hence they could potentially pocket as much as 18 to 24 per cent a year, from an asset that actually doesn’t pay any yield.
How is this done? Genneva has declined to answer questions for now, citing the pending court case in Malaysia. It adds in an e-mail that it expects a ‘positive outcome’ from the court case.
There are a number of aspects that should cause scepticism. First, the firm illustrates its buyback option on its website in a rather disingenuous fashion. It says customers buy gold at a ‘discounted market price’.
But the truth is customers buy gold at a sizeable premium to the market. The firm also does not explain what it does with the premium that it pockets. Presumably commissions are paid to the sales people.
Its website says it has a ‘proprietary trading platform’ which enables it to ‘adopt an active hedging and leveraging strategy’ that makes the buy-back option possible.
On whether the scheme is Ponzi in nature, The firm’s Malaysian counterpart told a Malaysian paper in 2009 that it is ‘obvious’ that it is not a Ponzi scheme.

What is likely to transpire is that the firm takes the 22 to 25 per cent premium that it gets from customers’ purchases, and after paying off costs and commissions, it could buy and sell options on gold, through which it hedges its exposure.

As long as the gold price rises or is steady, it can continue, and even thrive, as it sources for gold at substantially lower prices on the open market. If gold however drops on a sustained basis, it could face a cash crunch if investors rush to sell back their gold in substantial numbers. This is because it is obligated to buy back the gold from clients at a high price.
Those who enter the scheme are likely to be enamoured of the so-called return, but they face two major risks – price and counterparty risk. As long as gold rises enough to cover their cost, they could sell their Genneva gold in the open market. Over the last year, gold has risen some 26 per cent, based on spot prices.

If gold falls substantially, however, the counterparty risk becomes a material one, as you can recover your cost only if Genneva stays solvent. Those who roll over their purchases must reckon that the potential return far outweighs the risk of loss. Genneva agents tell investors that the worst loss they may suffer is about 20 to 22 per cent, roughly the premium they have paid.

Effectively, Genneva has sold investors a put option along with gold, charging them a premium for it, and sweetening that by sharing some of that premium at the end of the contract period of a month or three months. As the put option writer, Genneva’s risk is potentially unlimited if it has not hedged its exposure.
Rollovers, by the way, incur price risk – that is, you re-purchase the gold at the price Genneva quotes you which is presumably pegged to the market price. If gold rises, as it has over the last year, you end up investing larger amounts.
So, who is Genneva? According to filings with Acra (Accounting and Corporate Regulatory Authority), it was registered as a business in 2008 dealing in gold bullion. It has an issued and paid-up capital of $500,000.
Three shareholders are Malaysian, and they are the same ones who will have to fight money laundering charges in Malaysian court. There is one Singapore shareholder. Attempts to contact him were unsuccessful as he was reportedly travelling or in meetings.

There are clearly more transparent ways to invest in gold, without dealing with a counterparty which could shutter its operations as The Gold Label did.

UOB offers a gold investment account, for instance, where you can hold physical gold and re-sell it to the bank. Those who need not buy physical gold but want a piece of its price action can get it through the SPDR Gold ETF. The latter is exchange listed and is easily traded through a broker.
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Old 04-09-2011, 11:52 AM
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Genneva Gold Investment

Written by JenHuei on June 22, 2010, 12:42 pm
Recently I was approached by an unexpected person about this gold investment opportunities offered by Genneva. The investment opportunity works this way:
  1. You buy gold (999.9) which is certified by PAMP with 1.5% – 2% discount from market rate.
  2. For example, current gold price at $70/g, you will need to pay $6895.00.
  3. You hold the gold bar (or coins) for 30 to 90days
  4. Once matured, You can sell back the gold to them at the same buying price before discount, which is $7000. Thus you earn 1.5% = $105.00 in 1 month.
  5. You can choose to buy the same gold again with the prevailing market price.
  6. Then after another 30days you sell again…
  7. This is a constant 1.5% profit gain and in the end of the year you will get a whopping 18% profit without much headache!!
  8. Sounds good.
  9. In case of the company goes down, you still holding the real gold as protection. (This is really a REAL gold, not fake one)
  10. Many people have been doing this and got their monthly 1.5% and their gold bar. Most of them become agent selling for them too.

1.5% monthly profit, you got the physical gold bar as protection, you can also join them as agent to sell and get commission. Sounds so good! But usually when this good thing happens, I will always hesitate and wanted to do more research. However, there is not much review or opinion on the internet regarding this company. Mainly because it’s a relatively new company (started in 2008 or 2009), and only active in Singapore, Malaysia or ASEAN countries… Thus, pretty hard for me to really know that this is a real deal or not, safe or not.I even contacted their main office and requested to talk to their director to understand how they actually earn profit consistently. From what I think, if a company can’t make sustainable profit, it’s unsafe. Further more 18% per year is a huge amount. Not many company can achieve such a great annual growth. Until I discussed with my friend KT, he showed me a fact regarding this… This cleared my doubt. This is what my friend told me:
Here is how they operate:
  1. They usually buy the gold from UOB bullion based on spot price and sell you at 20%-24% markup price
  2. They paid their sales agent commission 1.5% for selling this program every time you renew monthly. A total of 18% a year.
  3. They promised to buy from you 100% based on your last selling price and pay you 2% 30 days later (but refuse to write down in black and white invoice for 2% as payment but as rebate as discount)
  4. The business is usually registered in Malaysia or a Condo address in Singapore with website full of spelling errors and no detailed mention of founders or their management team.
How on earth can one business generate: 24% (Investor) +18% (Commission, excluding their operation cost) / 20% (Markup) = 210% Return of Capital on year to year basis?
And when you ask how can they generate such awesome return annually to pay off the investors which is FAR BETTER than Warren Buffett, they will tell it is a secret because the bank will never tell you what they invest or do with the money anyway kinda cock and bull story.
In short, this is a Money Game (some called it Ponzi) where it is likely that they used the new investors to pay the old investor. In the beginning, everyone get paid as long as the people come in doves. At first, you buy little, then as you get paid, you increase your buying with the “rebate” and you asked your friends and relatives to join because you want them to have financial freedom.The card will collapse eventually and lots of people who join later will all get burn badly including relationships. And if anyone warn them, they will accused them as naysayer or people with negative thoughts. They operate like a cult. I have seen many such program in the past. The latest is Sunshine Empire. The Gold is real and it is a smoke screen to mask the money game behind the scheme in this case.
Technically, this is not a “Gold” Investment Scheme, this is a game where you give 20% of your money unsecured to a unknown company and your loss will be greater when the gold price CRASHED!
Exercise Independent Thinking! You have been warned.
Well, again. In this world there is no such things as nothing for something. You have to give before you can take. Do NOT be greed and know your direction clearly. Step by step and in the end you will reach your goal to financial freedom.
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