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Wednesday, December 05, 2012

Genneva- The Ugly Truth


“I believe strongly that we must come up with a real solution to help them get back their money. We hope the authorities will take strong action against the perpetrators,” said Datuk Khairun Aseh is the public complaints bureau chief of Umno Youth.

  
Datuk Khairun Aseh made the above statement when he offered free legal assistance to the customers of gold investment company Genneva. This was reported in the Star newspaper today.

I couldn’t agree with him more on the point of taking strong action against the perpetrators. The big question is: what is a real solution to help the investors get back their money?

The Star had reported on Monday, December 3 that Genneva sustained considerable losses in 2012 and it had liabilities exceeding 10 times its assets, according to the enforcement agencies. To wit:
"Seized documentation has revealed that more than 8,000 customers of the company who have paid for gold have yet to receive their gold amounting to more than 4,000kg.

"In addition, the records also show that there are customers who have surrendered their gold to the company but have yet to receive their cash reimbursement that amount to more than RM80mil," they said.

The agencies had received numerous appeals from affected parties in respect of Genneva Malaysia, for the release of monies frozen (RM99.8mil) and gold seized (126kg) secured as evidence of suspected offences.
 Assuming a simplistic case that Genneva’s outstanding liabilities comprise only of customers who have yet to receive their gold amounting to exactly 4,000 kg and cash reimbursement amounting to exactly RM80 million AND Genneva’s assets in hand comprises only of monies frozen of RM99.8 million and gold seized of 126 kg.



Based on this simplistic scenario, the real solution could be that all those claims can be settled with a distribution of 15 sen for every ringgit claimed (Example: If your claim is RM10,000, you accept RM1,500). (Note: The authority reported that the liabilities actually exceed the assets by more than 10 times. As such, the final settlement will not exceed 10 sen for every ringgit claimed.)

Would the investors/customers accept this settlement, which involved a write-off of 85 sen for every ringgit claimed? Not now because the investors are only beginning to go through the Cycle of Grief (see the diagram below). They have probably passed the stage of Anger. They will journey through the stage of Depression & Detachment and when they arrive at the stage of Dialog & Bargaining, a deal can be arrived at. That will probably be 2-3 years down the road. While many of us are not personally affected by this sad case, we can empathize with the suffering of these investors. So, I agree with Datuk Khairun's call for a heavy punishment against the directors & senior managers of Genneva but I would urge him not to hold out a simplistic promise of a quick resolution to this problem.


Diagram: The Cycle of Grief (Source: www.extension.umn.edu)

The question on everyone's mind is simply this: Why did the authority allow this problem to fester for so long?

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