What’s next for Genneva Malaysia?

AS the multi-agency probe on Genneva Malaysia Sdn Bhd and three other gold investment companies proceeds, the authorities are increasingly specific about what they're looking into and what they have found.

Source from (The Star Online): http://biz.thestar.com.my/news/story.asp?file=/2012/10/13/business/12167213&sec=business
Published: October 14, 2012

On Oct 1, after the police, Bank Negara, the Domestic Trade, Cooperatives and Consumerism Ministry and the Companies Commission of Malaysia carried out joint raids on several premises of Genneva Malaysia and on the homes of its directors, the press release only said these actions were for “suspected offences under the laws administered by the respective enforcement agencies”.

Four days later, the agencies listed the suspected offences as illegal deposit taking, money laundering, tax evasion and avoidance, false description (including misrepresentations), appointment of agents without licence, and failure to lodge statutory documents.

The agencies issued another statement on Monday, apparently to explain that the assets and accounts seized and frozen following the raids on the four companies “are preserved for the purpose of facilitating investigation into the suspected offences and to protect the interest of the investors”.

There was also some tweaking of the suspected offences. The statement doesn't mention failure to lodge statutory documents. Instead of “false description including misrepresentations”, it's now “misrepresentation including false description”.

The latest update at the time of writing, issued on Wednesday, shows that there has been significant progress since Oct 1.

For one thing, the Attorney-General's Chambers, the department headed by the Government's principal legal adviser, has joined the enforcement action against Genneva Malaysia and the three other companies (Pageantry Gold Bhd, Caesar Gold Sdn Bhd and Worldwide Far East Bhd).
Judging from Wednesday's joint statement, the Domestic Trade, Cooperatives and Consumerism Ministry and the Companies Commission are no longer part of the probe.

However, the involvement of the Attorney-General's Chambers probably means that the Government is already evaluating the possibility of going to court as the next step.

It's also telling that the statement describes the four companies that have been raided as being “suspected of operating illegal investment schemes using gold”.

It's the first time that the authorities have been explicit about their belief that the money that these companies collect from customers is not channeled towards licensed investments activities.

“Based on surveillance and examination conducted on these companies, it has been discovered that these companies are operating schemes that are believed to be not sustainable to provide the promised high monthly returns, nor would they be able to provide the buy-back guarantee of gold,” the agencies said in their joint statement on Wednesday.

“Such schemes are not sustainable because the returns promised are not funded through gold trading, but from the monies invested into such schemes. The investigations have also revealed that the amount of assets and monies held by these companies do not commensurate with the amount collected from their investors.

“Prior to the joint raids, it has been noticed that these companies have delayed in returning gold or money to the investors within the stipulated time as promised. Such signs are early warning indications prior to the collapse of such schemes that would result in significant losses to investors.”
Given what the police, Bank Negara and the Attorney-General's Chambers have said to date, it's hard to imagine Genneva Malaysia going back to business as usual.

That's a horrifying thought for its customers and consultants, said to number in the tens of thousands.
Many of them have been highly vocal and visible in expressing support for Genneva Malaysia and in appealing for the return of the money due to them.

Enforcement matter
The first of these two issues is an enforcement matter. After wrapping up their investigations, the agencies will decide whether there's any wrongdoing and if so, whether there's sufficient evidence to initiate prosecution.

That decision may come soon. The agencies have twice assured that they are “mobilising the necessary resources to expedite the investigations”. If Genneva Malaysia and its officers are dragged to court, it's up to them to contest the charges.
The consultants and customers will definitely be watching closely.

The second and more immediate issue the consultants and customers' anxiety that they may not get back their money will of course hinge on the conclusion of the Government's enforcement action.
Such uncertainty is stressful and painful, particularly for those who have at stake money that they simply can't afford to do without.

There's little solace for these people as long as they have no access to their funds handled by Genneva Malaysia. The freezing of assets and accounts is an unfortunate but necessary part of such investigations.

The next best thing is to know when, if ever, they'll be handed back the money. However, nobody can provide that information anytime soon.

Lessons from the past
Meanwhile, it may be useful to study the case of the Swisscash investment programme, an Internet-based scam that drew civil action by the Securities Commission (SC) in 2007. But before that, Swisscash-related websites had been flagged by the SC as unauthorised investment websites.

In September 2006, the SC and Bank Negara issued a joint press release to warn Malaysians against investing in the Swisscash programme, which claimed to have invested in equities, commodities and foreign exchange, and offered returns of up to 300% within 15 months of investment.

To stop the defendants from holding out as fund managers and investment advisers without a licence, the SC filed a civil suit in June 2007 against three Malaysians and four companies controlled by one of the three individuals.

The regulator also obtained a worldwide injunction to prevent the Swisscash operators from disposing their assets, and to compel them to disclose details of their assets, companies and bank accounts.

In September the following year, the SC obtained judgment against the defendants in the amount of US$83mil and such further amounts as may be traced for payment.

A November 2009 settlement between the SC and two Malaysian defendants paved the way for the compensation of Swisscash investors, using the eligibility and payment criteria and payment ratio approved by the Kuala Lumpur High Court.

These criteria were recommended by the SC and PricewaterhouseCoopers Advisory Services Sdn Bhd, the Administrator appointed by the SC to manage the restitution from a pool of funds amounting to RM32.7mil.

One criterion was whether the investor was actively involved in recruiting others, in which case he was considered as abetting the scheme. “Any investor who was also involved in the scheme as a recruiter or an upliner would not be eligible to claim his money back,” says the SC in its website.
The Administrator received 22,780 claims, totalling approximately RM188mil, from Malaysian and foreign investors.

According to the SC's Annual Report 2010, RM30.53mil was paid to 19,625 eligible claimants. The payout rate was 20 sen to the ringgit. By the end of 2010, the Administrator had effected restitution to 99.1% of the total eligible claims.

Considering these numbers, the Swisscash case is not exactly a source of comfort and optimism for the Genneva Malaysia consultants and customers. The SC's actions here show that it's a long, hard road towards getting back money albeit merely 20% of the original sum invested in a too-good-to-be-true scheme.

Swisscash ought to be a cautionary tale about the need to truly be sure about the transparency and regulatory aspects of an investment scheme. Sadly, not many people see it that way.
Those involved in Genneva Malaysia are likely to say their case is completely different. Let's hope they are right.

Executive editor Errol Oh wonders about Switzerland-linked names for investment schemes. Genneva reminds us of Geneva, Switzerland's international financial centre. As the SC noted in a court document for the Swisscash case, “Switzerland is world famous in financial matters and noted for its sophisticated financial standing and integrity”.