Karatbars International made headlines this week in South Africa, after having been flagged by the financial regulator the Financial Sector Conduct Authority (FSCA). Whenever the company appears in the media, there seems to be a negative perception about it. The company and its clients, however, will stand by it no matter what.

History

Karatbars International GmbH has been around since 2011. It has its head office in Stuttgart, Germany specialising in gold products. These products, according to a company brochure are sourced from two gold mines in Guinea and Madagascar. As of 2018, the company has diversified its portfolio into cryptocurrencies.

Vision

The company uses the same rhetoric as proponents of personal gold ownership. Since the current financial system is flawed and all money is based on good faith there is no underlying asset backing our currencies. The US and consequently the rest of the world officially left the gold standard behind in 1976. If the current system collapses, then it claims gold can be used as a replacement reserve currency. By hedging against a failing system, people should invest in gold.

Products

The main products that Karatbars sells are 1 gram gold bars that are the size of a credit card as well as CashGold, which is a paper type currency with embedded 0.1 gram gold nuggets. They claim these products are easy to exchange and being in small quantities are perfect for transactions. It is a known fact that gold is a good investment in times of economic uncertainty. The company taps into this sentiment.

 

Every Good Vision Needs A Leader

Enter Harald Seiz. His official title is fashioned as Dr. h.c. Harald K. Seiz. He claims this honorary doctorate was awarded to him by the Federal Association for Economic Development and Foreign Trade (BWA) although no proof exists. As CEO of the company, his vision is to make life better for everyone and to secure financial freedom and relief from debt. There are lots of promotional videos of him produced by the company and it lends itself to crafting an image of the company and lending it legitimacy. He also has his own Wikipedia page and has written 5 books, two of which are available on Amazon.

Prices

At the time of writing, the spot price of gold is € 42.83 per gram. By comparison, the 1 gram Karatbars card costs €67.00. At this price, it makes it 56% more expensive than buying it directly. The production costs involved in making the cards will push the price up, but this in itself cannot make the actual gold increase in value.

Affiliate Programme

Here is where the waters start getting murky. Customers are invited to create a free account to join the affiliate programme. This is advertised as a business opportunity to sell Karatbars and gain commissions. The structure and payouts are reminiscent of a multi-level marketing (MLM) company. Selling expensive products and earning low commissions makes it very hard to succeed. If this doesn’t work out for the customer they can always join the next premium rank.

The company offers different paid packages to get customers to build a team of affiliates. There are different bonus levels based on the package that they purchase. The packages also include different amounts of cryptocurrency.

Karatbars Bronze Package

  • 1 x 0.1 g CashGold banknote
  • 1 x  Bronze pin, 
  • Image brochures, gold brochures, K exchange brochures, branding cards brochures, a presentation and the compensation plan. 

Karatbars Silver Package

  • In addition to the Bronze package, the silver package contains a 1 g classic Karatbars card.

Karatbars Gold Package

  • In addition to the silver package, you get 2 X 1g gold cards.

VIP Package

  • The VIP package is meant to be a “business in a box” solution. It contains all of the previously listed items in the other packages and 3 x 1g gold cards.

Gold mine in Madagascar

One of the mines claimed by the company is a joint venture on the island of Fort Dauphin in Madagascar. According to the mining website, Mining Data Online, there is a mine on this island but it is listed to the Rio Tinto Group and mines only titanium and zircon. Furthermore, the claims about this mine in the company’s whitepaper were plagiarised from a Swiss author’s report on another copper mine owned by Antofagasta.

Regulator warnings and legal action

In 2016 a Canadian court ruled in favour of regulator Autorité des marchés financiers (AMF). Karatbars was banned from promoting the company and operating inside of Canada and also fined.

In 2019 there is an ongoing investigation into a division of the company, called the KaratCoin Bank which operates out of Florida. The Florida Office of Financial Regulation (OFR) has reacted claiming “Karatbars is not licenced as a bank with the OFR.”

Closer to home, in May 2019 the Bank of Namibia also declared Karatbars to be a pyramid scheme and outlawed in the country.

The biggest blow was rendered on its home turf by the Federal Financial Supervisory Authority (BaFin). In a November 11 press release, BaFin, the German Federal Financial Supervisory Authority announced that it had issued a cease and desist order for the KaratBit foundation to immediately stop its operations in Germany.

Soon after this announcement, the South African FSCA issued their warning to the public that Karatbars is not authorised in terms of the South African FAIS Act to render any financial advice and intermediary services.

Conclusion

The company has made many big claims regarding its assets and future prospects, many of which are hard to verify. Historically, a lot of MLM companies that have branched into the cryptocurrency space have been less than successful for anyone but the founders. I would not recommend this company or invest in any of its products.

*As always, do your own due diligence. This is not financial advice.