Gold-Backed Karatbars Ecosystem Under Regulatory Pressure

The Karatbars ecosystem is not facing the best of times as regulators in Germany and South Africa have both ordered that all sales of the supposedly gold-backed cryptocurrency be stopped.

On Monday, the Financial Supervisory Authority in Germany (BaFin) issued a cease-and-desist order towards the Karatbit Foundation. The decision that was taken on October 12 is based on the fact that the KaratGold Coin is issued without the licensing that is necessary in Germany.

On a separate note, the Financial Sector Conduct Authority in South Africa (FSCA), also on Monday, warned clients to abstain from investments provided by the German promoter of KaratGold Coin – Karatbars International GmbH.

Update: The FSCA has updated its stance on Karatbars. Read the story here.

As noted in the BaFin order, Karatbars has to “wind up [its] electronic money business” in the country. The regulator did not comment anything more by press time.

The KaratGold Coin (KBC) runs on ethereum and is listed on around 30 exchanges, including YoBit while a second KaratBank Coin (KCB) is expected to launch.

The KaratBank Coin is issued by the Karatbit Foundation, which is based in Belize, and is managing the Karatbank ecosystem. This information is clearly stated in the KaratBank Coin white paper, in which the entity is categorized as “unregulated”.

Karatbars’ answer

Via company Facebook post, Karatbars International disagreed with all accusations reported in German business publication Handlesblatt.

On Monday Handlesblett informed that the foundation received orders to restore $100 million of investor funds, which is the same sum their initial coin offering (ICO) raised in 2018.

CEO of Karatbars, Harald Seiz commented in a post that the order against the company is invalid and that the accusations are based on a scam website that has nothing to do with the actual company.

Furtnermore, Seiz noted that the foundation is actually out of BaFin’s jurisdiction as German investors were banned from taking part in the ICO in the first place. As the post reads:

“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.”

Seiz made it clear that KBC is a utility token and thus is “not subject to prospectus” conditions and interpretations of European Banking Authority counseling.

Seiz claims that “Karatbars and its products have never damaged a customer or partner” .

What are the arguments against KBC?

According to FSCA, Karatbar International did solicit African investors via WhatsApp in buying unspecified investments without any authority to operate in South Africa.

All these problems come just a month after the inquiries from the Florida financial regulator towards Karatbars International. Back then, the Florida Office of Financial Regulation announced that Karatbars is not licensed, despite being promoted as a licensed cryptocurrency bank in Miami.

Recently Karatbars received another consumer warning from Namibia and has a previous 2014 warning from the Netherlands.