The Takeaway
- Florida regulators are investigating Karatbars, a German company that’s been promoting a token tied to a Miami “crypto bank” without any banking license in the state.
- Karatbars previously issued a cryptocurrency purportedly backed by gold, but CoinDesk has been unable to verify the existence of the mine the company says produced the gold.
- Before it entered the crypto space, Karatbars sold gold products online through an affiliate marketing system that regulators in three countries warned the public to avoid.
- CoinDesk interviewed three of Karatbars’ current “affiliates,” who said they passionately believe in the company and its tokens.
A German company that claimed to raise $100 million in a 2018 initial coin offering (ICO) is being investigated by Florida financial regulators, CoinDesk has learned.
In December 2019, Karatbars International GmbH announced plans to pursue its first token sale with another. While the 2018 token sale was selling a KaratBank Coin linked to a “cryptocurrency bank” in Miami this year for its allegedly gold-backed KaratGold Coin (KBC).
The statement about a cryptocurrency bank with the Florida Office of Financial Regulation (OFR) seems to have landed the company in hot water.
“Karatbars is not approved with the OFR as a bank,” said CoinDesk’s communications director of the company, Katie Norris. “The OFR has an open investigation, and so that’s all the information I can provide at this moment.” Karatbars International GmbH did not respond to the requests for comment from CoinDesk. When we hear back, we’ll update the article.
The investigation into Florida is not the first time that Karatbars has been subject to regulatory scrutiny. The company was founded by German businessman Harald Seiz in 2011, who still operates it.
Shortly before Karatbars ‘ first token sale in 2014, Quebec’s Financial Markets Regulator issued a warning to investors to “be vigilant” about the company that offered prospective “affiliates” internet-based purchases of gold. Karatbars gave these buyers a fee to sign up to other affiliates.
Similar public alerts have been provided by regulators in the Netherlands and Namibia, with the latter labeling Karatbars a form of multi-level advertising and the latter going so far as to label it a pyramid scheme.
First Token
Given this history, the first token of Karatbars, KBC, trades on more than 30 exchanges including HitBTC and Yobit and has been supported by John McAfee’s likes on Twitter.
The coin, running on the ethereum blockchain, was distributed in April 2018 through an ICO, reportedly raising $100 million. According to CoinMarketCap, which estimates the current global market capitalization of KBC at $92,642,798, the token has traded at fractions of a penny since the summer of 2018.
Karatbars ‘ earlier business affiliate marketing approach applied to the token problem, and affiliates interviewed by CoinDesk said much of their purchasing operation took place on the company’s own website. Maybe that’s why the coins tend to stay on the public ledger. KBC’s first transaction took place in November 2018, months after the ICO, with 20.9 million tokens already residing in 42 wallets, according to the blockchain information explorer platform Etherscan.
Karatbars says the gold backing KBC had been mined in Madagascar from Fort Dauphin. But CoinDesk was unable to independently verify that there was such a mine, or that there was one in Karatbars ‘ state.
In an email sent by a third-party investigator to CoinDesk, officials at the Mines Chamber in Madagascar said:
“We regret to inform you that there is no Fort Dauphin gold mine in Madagascar and Karatbars does not hold a mining permit in Madagascar.”
CoinDesk has reached out directly to the relevant authorities in Madagascar and will update the article if we receive more clarity on the matter.
When asked about his posts promoting the company, McAfee told CoinDesk:
“I believe that coins linked to a standard of value will be the foundation of the entire crypto movement. A safe haven without having to exit the crypto world into the world of fiat currencies.”
‘I believe in it’
KBC may be easy to dismiss, but in the venture many have seen opportunities.
Florida resident Taylor Richey, a long-standing gold bug and former partner of KBC, launched his own start-up to promote a point-of-sale network for KBC, called Karatstars Labs, after his factory job was laid off. Two retailers (one being his own online store, though) have agreed to accept the tokens as payment for their products so far, Richey said.
“I think I’ve decided to make my own profession, a company, to build a business to bring value to this ecosystem,” said Richey. “In 2018, when[ Karatbars] swung from a gold business to crypto, they became the number one seller of gold bullion in the world with the support of their affiliate program.” (Senior managers at three different organizations on the gold bullion market told CoinDesk that it would be difficult or impossible to prove such a claim.)
Three KBC owners interviewed by CoinDesk claimed on several occasions that Karatbars ran the world’s largest ICO (a name that likely belongs to Block. One’s $4.1 billion sale for the EOS blockchain), praised the controlled state of the alleged crypto bank in Miami and listed alleged endorsements by parties as diverse as the Vatican to the Real Madrid soccer team, none of which replied to the question. But at a Karatbars event in Amsterdam, legendary footballer Roberto Carlos appeared on stage.
Furthermore, the confidence of the owners in this business was reinforced by real products–swag and small pieces of gold–that members frequently earned as part of their rewards program. These related products are also advertised on sites such as CoinTelegraph and VC News Network, a Reuters partner, such as a “coming” Karatbars-friendly smartphone.
One American KBC partner, Andrea LaRosa, broke down in tears when telling CoinDesk how the gold incentives finally offered her financial freedom at the end of 2018, following years of struggle with a number of bootstrapped businesses. After all, she said, her pieces of real gold were shipped by the agency.
“It’s focused on how many deals you can pick up. In your company, how many transactions are made, “LaRosa said. “I was influenced by other leaders and received so much support. There’s nothing they want from here. They’re here to help, really. I love the task of Dr. Seiz to help people get out of debt. “(Affiliates and press releases also refer to Karatbars founder Seiz as a doctor. CoinDesk was unable to verify any such qualifications independently.)
Crypto Gateways
Many of these token owners, like LaRosa, came to KBC through the Bitcoin community, not through conventional gold bug circles such as Richley, who told CoinDesk that he was doing enough work to avoid other ICOs.
LaRosa also owns a bit of bitcoin and ether herself, despite moving most of her holdings to KBC.
“Nothing really helps Bitcoin. Yet our KBC is funded by silver, and our resources fund the[ KaratBank Coin], “she said of her reasoning. “The two coins will finally be combined and put together.”
Likewise, Jose Buco, a Philippine-American refugee and KBC partner, plans to travel back to his homeland to preach the Karatgold gospel in the near future. He told CoinDesk that he began by investing $32,000 in the 2018 crypto products of this company, assets that he said are now considered worth $41,000 in public metrics and exchanges.
He recently returned from the Netherlands, where in August hundreds of Karatbars affiliates gathered to celebrate their “bridge to cryptocurrency from the financial system,” as Buco put it.
Like the other owners interviewed by CoinDesk, before choosing to choose KBC, Buco studied Karatbars and Bitcoin itself. He said his tangible evidence came from social media and community events as someone who felt underserved by the traditional financial system, including people with whom he developed personal relationships.
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