German Regulator Orders ‘KaratGold Coin’ Issuer to Cease Operations

The hammer is coming down again on the Karatbars ecosystem as German and South African regulators have taken separate actions over sales of a purportedly gold-backed cryptocurrency.

Germany’s Financial Supervisory Authority (BaFin) disclosed Monday that it had issued a cease-and-desist order against Karatbit Foundation on Oct. 21 for issuing its KaratGold Coin without necessary licensing in the country. 

Also Monday, South Africa’s Financial Sector Conduct Authority (FSCA) warned consumers to avoid investments offered by Karatbars International GmbH, a German firm that promotes the allegedly gold-backed KaratGold Coin.

Under the BaFin order, the foundation must “wind up [its] electronic money business” in Germany, the regulator said. 

BaFin did not respond to requests for comment by press time.

Run on the ethereum blockchain, the KaratGold Coin (KBC) is listed on about 30 exchanges such as Yobit, with a second token, KaratBank Coin (KCB), yet to launch.

The Belize-based Karatbit Foundation is the issuer of the KaratBank Coin and manager of the Karatbank ecosystem, according to the KaratBank Coin white paper, which describes the entity as “unregulated.”

Map of the un-launched KaratCoinBank ecosystem image via KaratBank Coin’s white paper

Karatbars International did not respond to questions by press time.

Karatbars shoots back

Meanwhile, Karatbars International has denied accusations leveled in German business publication Handlesblatt, according to a company Facebook posting Tuesday and a story published Wednesday by The Guardian.

Handlesblatt reported Monday that the Karatbit Foundation is under orders to return investor funds amounting to $100 million, equivalent to the amount raised in a 2018 initial coin offering (ICO). 

Harald Seiz, CEO of Karatbars, further said in the Facebook post that the German finance regulator is mistaken in its order against the firm, basing its actions on a scam website not associated with his firm. He further claimed that the Karatbit Foundation lies outside the regulator’s jurisdiction as German investors were barred from partaking 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 said in the post.

Seiz also said KaratGold Coin (KBC) is a utility token and therefore “not subject to prospectus” requirements under BaFin regulations and certain interpretations of European Banking Authority guidance.

“Karatbars and its products have never damaged a customer or partner,” he said.

Regulatory run-ins

The FSCA said Karatbar International has solicited South African investors via messaging platform WhatsApp to purchase unspecified investments without holding the necessary authority to operate in the country.

The warnings from South Africa and Germany come a month after CoinDesk reported on a Florida financial regulator’s inquiries into Karatbars International. 

As stated in that earlier report, although Karatbars has promoted a supposedly licensed “cryptocurrency bank” in Miami,  the Florida Office of Financial Regulation has stated that Karatbars is not licensed as a bank with the regulator.

Karatbars was also the subject of a recent consumer warning from Nambia and a prior warning in 2014 from the Netherlands.

UPDATE (15, November 22:10 UTC): An earlier version of this story contained outdated information. HitBTC used to list KaratGold Coin, but it recently delisted the cryptocurrency.

BaFin image via Shutterstock