Karatbars Proves Its Business Model
These days, it is not going well for the success-spoiled Karatbars Group around the bustling boss Harald Seiz. The Federal Financial Supervisory Authority (BaFin) has prohibited the KaratBit Foundation from issuing KaratGoldCoins (KBC) in Germany. Hardly any less renowned, the German financial magazine “Handelsblatt” reported about these and other allegations. It also immediately painted a detailed portrait of Seiz – which was, admittedly, quite benevolent at times. And, as if this was not already bad enough, the accusations that some of Karatbars’ products and services are Ponzi or pyramid schemes aren’t getting any less. We took a closer look at the “gold company” and the individual points. What is the criticism all about and is it valid? After the remarkably open conversation that Seiz had with the two Handelsblatt journalists, the company offered us insight, as well. Additionally, Karatbars showed us some papers that didn’t play a role in public reporting so far.
Accusation Ponzi scheme
Time and again, it is being claimed that Karatbars is a Ponzi scheme, especially on anonymous online forums. The company ”Web Shield” was commissioned by Karatbars to make an assessment. This report, which we have access to, was created on November 11th, 2019-
This report certifies that Karatbars is not using an illegal business model / Ponzi scheme. The three-step investigation began at the end of August 2019. It scrutinized legal and reputation aspects. Additionally, a “Credit Card Scheme Compliance Review” was done, and transactions were examined.
Regarding the first point, Web Shield undertook a detailed investigation of partner contracts and distribution practices to identify potential legal issues or pointers to a Ponzi scheme. In addition, the team conducted a thorough reputation review of the merchant – with a focus on identifying negative signs such as official warnings, complaints, sanction lists, and adverse database entries.
“The review and analysis of the provided contracts and documents did not justify the assumption of a Ponzi scheme being in place. Further, it was unable to identify any illegal or criminal activity,” the report says.
The rules and regulations of the two most important credit card systems, Visa and MasterCard, were also not violated. Additionally, the report says that “no current or historical evidence for the sale of illegal or brand-damaging content was found”, and that there are “no signs of money or transaction laundering.”
The third phase of the investigation focused on reviewing the related transactions. Here, “the review of the transaction patterns showed that the assumption that illegal or brand-damaging transactions were being processed is unfounded.”
Karatbars declares BaFin-letter to be irrelevant
Another blow was the order of the BaFin to discontinue the sale of the KaratGoldCoins – a message that the agency even published on its website in short form on November 11th. It was faulted that the KaratBit Foundation, Belize, is issuing the “KaratGoldCoins” without permission in Germany and does not have a Payment Services Oversight Act (ZAG) license.
The authority demands discontinuation of KBC trading with German or Germany-based customers. In a statement to customers and business partners, Karatbars and CEO Harald Seiz clearly oppose the picture that BaFin is painting and the allegations involved. Because, from KaratBit’s point of view, a license is only necessary if one can change products into so-called “fiat money” (traditional currencies). However, this is not possible since the KBC can only be exchanged for gold or another product called CashGold.
KBC: Not a cryptocurrency but a utility token
Probably the strongest argument against the allegations of the BaFin from the perspective of Karatbars: The KaratGoldCoin is – despite similar technical functional mechanisms – not a classic cryptocurrency but a utility token. It has – as with other companies that issue coins – purely practical purposes that are directly related to the respective products and services. Karatbars emphasizes that it is not “e-money” at the moment. Interestingly enough, even the BaFin formulates this subtle difference in one of its publications – combined with the core message of not requiring permission for it.
“Utility tokens: In the case of pure utility tokens (app tokens, usage tokens, consumption tokens), the sole use for the purchase of a real economy service is in the foreground, not financial compensation. Utility tokens are not e-money when there is no third-party acceptance or when the token is only issued for other payment tokens, such as Bitcoin and Ether.
In the case of pure usage tokens, there is also a lot that speaks for the issuing not triggering permission requirements under the Banking Act (KWG), ZAG, or Investment Code (KAGB). Additionally, the classification as a financial instrument under the KWG regularly is not an option with such tokens, so that any trading-related services exclusively with these tokens on the secondary market do not entail any license requirements.
Pure use tokens, unlike virtual currencies, are also not designed as a means of payment and, therefore, do not qualify as units of account; Usually, they are not subject to the provisions of other financial instruments pursuant to §1 section 11 KWG. However, because of the many hybrid forms, meaning tokens that include both, the elements of a usage token and those of virtual currency or a security-like token, it often requires in-depth consideration.”
According to KaratBit, it is in correspondence with the BaFin to quickly dispel these misunderstandings. And, with regard to the Handelsblatt piece, Karatbars CEO Harald Seiz told us: “Regardless of its utility coin properties, the crypto coin KBC has never been sold to German customers, contractors, or distributors. It has always just been a free addition to other Karatbars products – a bonus. Karatbars, and other companies affiliated with the company, generally do not sell any products that require a prospectus. Therefore, we hope that these allegations will vanish and that the BaFin will revise its opinion and its presentation of the matter.”
BaFin refers to a fake website
However, there are more inconsistencies. The BaFin carried out its opinion in a 17-page official letter to the KaratBit Foundation. This letter culminates in a fee-based order to suspend all business with KBC. This paper is available to us.
BaFin used the website “www.karatgoldinternational.com” as the basis for its audit. This website is apparently a fake website and uses the names and brands of Karatbars. Karatbars has been taking legal steps against this website since August 2019; among other things, because false information was published on the website. This letter is also available to us.
Seiz has already announced that he will not be following the BaFin order in the Handelsblatt: “Nobody is able to transact a KBC.”
Further, Seiz has launched an information campaign for customers and distribution partners: “There is no reason to worry. We are on schedule with all of our projects. Someone wants to stop the success of Karatbars. They will not succeed!” Next week, a blockchain-based cell phone will be presented to the public; This will set new standards, it says in the mailing.