The German financial regulator BaFin has issued a cease-and-desist order against Karatbit Foundation, shortly after South African regulators also acted against the crypto company.
Karatbars International GmbH issues the supposedly gold-backed KaratGold Coin, previously known as KaratBankCoin (KBC). The token, which currently runs on the Ethereum blockchain, is trading on nearly 30 exchanges, including Yobit, BitForex and Bibox.
According to the Guardian report, Karatbars rolled out a cryptocurrency product in Cape Town this summer, offering Lamborghinis and luxury watches to its most eager clients. The company also offered online purchases of “cryptonyzed gold” tokens to future affiliates, providing them with a commission to register other members in return.
According to the BaFin’s cease-and-desist order, Karatbars will have to “wind up [its] electronic money business” in Germany, the watchdog said. Previously, South Africa’s Financial Sector Conduct Authority (FSCA) also acted against the German company, advising clients against investments promoted by Karatbars.
Regulators in the Netherlands, Canada and Namibia have also issued warnings against Karatbars.
The KaratGold Coin is issued by the Karatbit Foundation, which also acts as the administrator of the Karatbank ecosystem, as seen in the KaratBank Coin white paper, which characterizes the organization as “unregulated”.
In the meantime, Karatbars has denied allegations from the German business newspaper Handelsblatt in a Facebook post, published by the founder Harald Konstantin Seiz on Tuesday.
Seiz said that the German finance watchdog is wrong about acting against the company, saying the order was based on a scam website not related to his company. He added that the Karatbit Foundation falls outside the watchdog’s jurisdiction as German investors were prevented from engaging in the ICO.
“We are completely transparent, we have nothing to hide, if there are unanswered questions, we will clarify them, of course, we fully cooperate with the relevant authorities and are very anxious to clear up any misunderstandings as fast as possible interested,” Seiz wrote in the post.
Seiz described KaratGold Coin as a utility token which means it is “not subject to prospectus” requirements under BaFin rules and particular interpretations of European Banking Authority guidance. “Karatbars and its products have never damaged a customer or partner,” Seiz said.
Karatbars also stated that German clients and sales partners were never sold the KBC token, claiming it was just “a free bonus gift that came with other Karatbars products”.
Handelsblatt, a leading German-language business newspaper, reported that the Karatbit Foundation has been ordered to give back investor funds of $100 million, which is the same figure raised in a 2018 initial coin offering (ICO).
An investigation by the newspaper raised doubts regarding other claims made by the firm. The company named the Madagascar gold mine that allegedly promised the constancy of its currency as Fort Dauphin. However, miningdataonline.com – a website that provides data on mines and advanced exploration projects – reports that the only mine on Madagascar with that name contains only titanium and zircon.
Karatbars and its CEO Harald Seiz are also being prosecuted by a Swiss academic who says that the German company plagiarised a report she issued concerning the contents of a group of copper mines in Chile.