Gold trading firm taken to court by customer

Source: The Business Times
Author: Genevieve Cua
25/9/2012

[SINGAPORE] Genneva Pte Ltd, a gold trading company offering a "buyback" scheme, appears to be in hot water.

At least one customer has recently won an interlocutory judgment against it in the Subordinate Court, pending an assessment of damages. It remains to be seen, however, whether she will recover her claim of about $190,000. Genneva failed to respond to the writ of summons or to contest the case.
The plaintiff, Lee Bee Ghok, is represented by Goh Kok Yeow of De Souza Lim & Goh.
A second writ of summons has also been filed in the Subordinate Court claiming a total sum of roughly $86,000.

A number of other customers are also looking into launching a lawsuit against the firm for its alleged failure to honour its part of the agreement to buy back gold. One group of about 60 customers, representing a total of roughly $10 million in gold purchases, is understood to be consulting lawyers.
Genneva is on the Monetary Authority of Singapore's Investor Alert list of unlicensed entities. Its scheme basically sells gold to customers at a hefty premium of 20-30 per cent. Customers, however, are told that they enjoy a "discount" of about 2 per cent off the headline price.

They are given the option to sell back the gold after a pre-agreed term of one month or three months. The gold can be sold back at the headline price and customers get to pocket the so-called discount. Assuming monthly rollovers, this could mean a return of as much as 24 per cent a year.
Genneva's website lists a price of $96 per gram as at August. This is the equivalent of about $96,000 per kilobar of gold. UOB, which offers gold investment services, sells gold to the public at about $74,500 per kilobar.

Sources said that the firm had also offered a "safekeeping receipt" (SKR) scheme some years ago, where the customer does not take delivery of physical gold. The gold is held by the company for safekeeping, and customers can exercise the option to withdraw via a "sellback".
Genneva director Leow Wee Khong could not be reached. Calls and e-mail to the company were not answered.

More recently, a source said, customers were marketed a scheme similar to SKR, but under a contract linked to a Malaysian company.

BT understands that in the last few months, customers have not been able to sell back their gold. Agents are also owed commissions for up to six or seven months. Customers that BT spoke with managed to make at least one rollover, earning 2 per cent, after which some invested yet more money.

Spot gold price touched a high of US$1,888 per ounce last year. It is now trading at US$1,759.
Customers who bought from Genneva are in a bind because of the high premium paid. Those BT spoke with paid between $91,000 and $93,000 per kilobar. UOB will buy back from the public at about $69,400 based on yesterday's indicative prices.

Some customers are believed to have filed police reports. A police spokesman said: "It is inappropriate to comment on police investigations, if any."

Based on Genneva's latest available filings, 2009 revenue came to $236 million. Assets totalled $67 million and liabilities, $68 million. Paid-up capital came to $500,000. The company was registered in 2008 with four directors, three of whom are Malaysian.

The three Malaysians - Marcus Yee Yuen Seng, Ng Poh Weng and Chin Wai Leong - are also directors of Genneva Sdn Bhd. They are being sued by Bank Negara in Malaysia for alleged illegal deposit taking and alleged offences under anti-money laundering laws. The case is ongoing.

In Singapore, there are four apparently related Genneva companies registered as businesses. Apart from Genneva Pte Ltd, there is also Genneva Remittance, set up ostensibly for remittance services, and Genneva Syariah, described as gold bullion traders and dealers.

In March, Genneva World Pte Ltd was registered also for gold trading. It has six Singaporean directors, one of whom is Mr Leow, the Genneva director.

Customers are concerned that assets of Genneva are being transferred to Genneva World, which is expected to trade on a similar business model. Sources say that some customers have been invited to transfer their contracts to Genneva World, but they are asked to keep 30 per cent of their gold holding with the company.

Genneva's model appears to fall into a grey regulatory area. Because there is typically a physical purchase of gold, the company is not classified as an investment adviser. The so-called discount that customers are extended is also not described as a yield or return.

Meanwhile, on its website, the MAS warns against schemes that dangle high returns, citing gold buyback schemes. It urges customers to question how the returns are generated, and whether the operators are regulated.