Reason for the prohibition of the fraudulent Gemcue (or Gmcu) scheme and its various proxies, including Mact, FNDK, AbrdnX, and others. [Part 2]

Reason for the prohibition of the fraudulent Gemcue (or Gmcu) scheme and its various proxies, including Mact, FNDK, AbrdnX, and others. [Part 2]

1. Ribā in the Form of a Risk-Free Loan with a Promise of Profit

The money that is claimed to be "invested" in GMCU is guaranteed by GMCU to be withdrawable at any moment. This is a typical lender-borrower agreement; by definition, it is a loan contract. Any profit from such a contract is ribā.

2. Ribawi nature in the commissions provided by the pyramid scheme

We have already explained how the pyramid scheme works in GMCU (see) and the ruling on pyramid and Ponzi schemes (see). In the previous point, above, we showed you how the first contract in this "investment" is a loan. Therefore, subsequent members who join through you are all lenders, and you receive a permanent commission based on the fact that you are providing these loans and ensuring they are not withdrawn (as if the original "investment" is withdrawn, you are not liable for these commissions). Any loan contract that stipulates additional returns is ribā.

3. Lack of transparency and evidence for actual trade results in a high probability that daily profits are Ribā rather than profits from actual Muḍārabah investments, especially due to the pyramid scheme in place.

A Muḍārabah investment is essentially an investment where the investor (A) provides the finance, and (B) carries out the work. The profit gained from the work is distributed under a pre-defined agreement. With GMCU, a Muḍārabah investment occurs when the investor provides the sales authority to GMCU via their bot to conduct sales in the markets. This investment and the resulting profit can be generated four times daily for basic users. Each of these is a Muḍārabah contract, which ends when the profit is divided. GMCU acts as the Muḍārib, while the Rabb Al-Māl is the investor. They have a pre-agreement that dictates that every time profit is generated, it will be shared evenly.

However, does an actual sale take place on the part of the Muḍārib? Is the "profit" provided by the Muḍārib an incentive to promote a pyramid scheme or not? This is unclear, and it is highly probable that the stated profit is derived from a pyramid scheme rather than from any actual market trading.

GMCU claims that "automatic grid" sales via bots are executed by simply pressing a button, and no specifics or details of these sales or transaction IDs are verifiable.

There are a number of reasons for us to believe that the scheme provides "profit" through a pyramid scheme rather than through any actual transactions.

1. A 2% profit rate per day in such a crypto trade is impossible according to experts. (2% daily for a year is approximately 137,641%.)

2. Users have pointed out that when the app shows the exchange of certain pairs of cryptos being done, the market values for the day indicate that the rate was impossible. Thus the profit recieved was questionable to have come from the transaction alone.

3. The app displays transactions occurring, while the (semi-shared) wallet, as shown in the app, does not necessarily reflect any change in its values.

4. There is substantial effort put into promoting the pyramid scheme along with promises of luxurious gifts.

Thus, it is highly likely that an actual Muḍārabah contract occurs merely by pressing the button and claiming bot operation in the background. The result is that the profit given is only based on the loan contract we explained in the first point. Thus, this constitutes ribā.

For the sake of argument, if we accept that a Muḍārabah contract takes place, the prohibitions are still likely not removed due to the following reasons:

1. The actual profit, as stated by experts, is impossible unless incentives from a pyramid scheme are added to achieve it.

2. It is not permissible to arrange a loan combined with a sale. This was narrated in the ḥadīth of ʿAbdullah ibn ʿAmr (see Al-Tirmidhī (1234), who said it is Ḥasan Ṣaḥīḥ; ʿAbdullah Al-Saʿd agreed in his commentary on Al-Tirmidhī).

4. Guaranteeing the Capital

GMCU guarantees that the capital which is "invested" can be withdrawn without risk. This condition will take the deal out of the framework of partnership or Muḍārabah and make it a loan, which, if followed by profit or interest, will be forbidden because it is based on interest (Ribā).

5. Guaranteeing Profits

If profits are guaranteed, the risk factor is eliminated, making the profit resemble interest, and this is forbidden because it is based on interest (Ribā). The GMCU dealers guarantee profit each time the grid is run, and they provide a lower and upper limit, like 2-5 percent at most, as they claim.

[The above details, bulk of which were taken from this paper, by Ismail Riyaz]

6. Obscurity and high uncertainty

The GMCU does not declare any official agreements or working details. The agreements are made through oral promises at the point of sale. The oral declarations are considered valid agreements in themselves, and thus we have categorized these as agreements in the points mentioned above.

That said, its activities, how it operates, where it invests, and which coins it uses for buying and selling remain unknown to the investor. “It is essential to know the field of investment and whether it is permissible. It is not permissible to invest in a company when its activities are not known, because the money may be invested in riba (usury), or in unlawful transactions on the stock exchange or otherwise, or in gambling venues or places that sell alcohol. Trading in currency may be permissible, or it may be forbidden.” (see: islamqa)

Secondly, the nature of pyramid schemes and the risk of the scheme being a scam, along with investing in it despite these high risks (apart from the prohibitions), fall under the prohibited Gharar. This refers to transactions that are prohibited because they involve a high amount of risk and uncertainty. Excessive risk is prohibited in trade agreements, and this has been agreed upon by the four jurisprudential schools of thought: the Ḥanafīs, Mālikīs, Shāfiʿīs, and Ḥanbalīs, and a consensus has been reported to that effect. Therefore, scholars have prohibited pyramid schemes and categorized them as gambling or speculation (maysir). (See for details on Gharar and Pyramids marketting, here)

[For Part one of this series, here]

~ Galandān