KUALA LUMPUR: The liabilities of Genneva Malaysia Sdn Bhd, which ran a multi-billion ringgit gold trading operations with more than 50,000 customers, exceeded 10 times its assets.

Investigations by the authorities also revealed that over 8,000 customers of Genneva Malaysia who have paid for gold amounting to more than 4,000kg have yet to receive the precious product.

In a joint statement yesterday, the authoritiessaid documents revealed that RM80 million was owed to customers who have surrendered their gold to the company but yet to receive their cash reimbursement.

“The company has liabilities exceeding 10 times its assets. The actual operation of the company, namely, selling gold at about 20% to 25% higher than the market price, paying returns of about 2% to 3% per month to customers and buying back the gold from customers at the initial purchase price has not been a sustainable venture,” the statement read.

In an unprecedented action, four regulatory authorities raided Genneva Malaysia and three other gold trading companies in October. The four are Bank Negara Malaysia, The Royal Malaysian Police, the Domestic Trade, Cooperatives and Consumerism Ministry and the Companies Commission of Malaysia (CCM).

Under the scheme operated by the gold trading companies, customers are sold gold at a price which was about 25% higher than the market price. In return, the customers are given returns of between 2% and 3% per month which works out to returns of between 24% and 36% per annum .

The physical gold purchased can be sold back to the companies based on a pre-agreed set of conditions and after a few months, a process that is described as redemption.
The customers can also opt to retain the gold or sell it to a third party.

The statement added that the cash flow for the company to sustain its operations has relied heavily on monies collected from new customers. Genneva Malaysia’s business model is based on the syariah principal of Al-Bai, or sale and purchase.

Genneva Malaysia in its defence has stated that it never guaranteed any returns to the customers nor a promise to buy back the gold.

The various enforcement agencies also acknowledged that they had received numerous appeals from the affected customers of Genneva Malaysia for the release of the frozen monies amounting to RM99.8 million and seized gold totalling 126kg.

“Such monies and gold are required for the investigations and will only be dealt with at the direction of the courts. Further information will be provided as the investigation progresses. Every effort is being made to expedite the investigations to facilitate an early conclusion of the matter,” the statement said.

In total, 147.2kg of gold had been seized from Genneva Malaysia and three other gold trading companies, while monies in bank accounts and cash amounted to RM101.92 million. The three other companies involved are Worldwide Far East Bhd, Pageantry Gold Bhd and Caesar Gold Sdn Bhd.

Of the four companies involved, Genneva Malaysia had grabbed the biggest headlines; it has also received the unwavering support of its customers. The company is also considered “big” because prominent people, such as former prime minister Tun Dr Mahathir Mohamad, had been the guest of honour at its events.

When the company was raided in October, many of its customers had cried foul, putting the blame on the authorities for closing a company that had been giving them good returns.

Customers had even established a Genneva Malaysia Supporters Facebook page, which has turned into an active outlet for Genneva Malaysia’s clients’ stories and complaints concerning the raid .

Genneva Malaysia claims to have more than 50,000 customers and RM3 billion in turnover. Its chairman is Tengku Muhaini Sultan Ahmad Shah, the Sultan of Pahang’s daughter.

The customers were also peeved at the authorities for not giving a clear reason why Genneva Malaysia was raided, although the company had been on Bank Negara’s Financial Consumer Alert list since July 13.

Yet, in an earlier statement, the authorities said the companies in question had failed to maintain accurate records and failed to file them with the CCM for the last few years.

The authorities also noted that a number of investors had paid for their gold but had yet to receive them prior to the raids. The waiting period for some had been as long as five months.

This article first appeared in The Edge Financial Daily, on Dec 4, 2012.