in the case of Securities and Exchange Commisison vs. Oudine Santos (G.R. No.
195542, March 19, 2014), the SEC was riddled with complaints from thirty–one
(31) individuals against a corporation including its directors, officers, employees,
agents and brokers, which had promised sky-high returns to its investors, in
violation of certain provisions of the Securities Regulation Code, including Section
28 thereof. The head of the corporation had gone missing and with it the monies and
investment of a significant number of investors. The respondent was charged in the
complaints in her capacity as investment consultant of the corporation who
supposedly induced private complainants to invest their monies.
The high court observed that the transactions involved were investment contracts or
participation in a profit sharing agreement that fall within the definition of the law.
When the investor is relatively uninformed and turns over his money to others,
essentially depending upon their representations and their honesty and skill in
managing it, the transaction generally is considered to be an investment
contract. The touchstone is the presence of an investment in a common venture
premised on a reasonable expectation of profits to be derived from the
entrepreneurial or managerial efforts of others. In such instance, the same
constitute securities which must be duly registered with the SEC essentially for the
protection of the investors and the general public.
The Supreme Court also found that respondent’s active recruitment and referral of
possible investors to the corporation give rise to probable cause to indict her for the
charge. The fact that respondent did not sign the investment contracts is of no
moment given that the same document the act performed by respondent, as it is
merely a scheme to circumvent and evade liability should the pyramid fall apart.
Not all investment opportunities are fraudulent, but it also pays well to remember
that scams do exist, and they had driven many well-meaning investors to penury. At
the end of the day, a simple yardstick can be used after due diligence is conducted:
if the scheme is too good to be true, it usually really is.
In People of the Philippines vs. Rosario Baladjay (G.R. No. 220458, 26 July 2017),
the Supreme Court, through Justice Velasco, had the opportunity to resurrect the said
scheme. But first, let me give you a brief summary of the facts of the case.
Multinational Telecom Investors Corporation (“Multitel”, for brevity), where the
accused was the president, along with her cartel of officers (9 of them remained-at-
large), was engaged in a devious scheme whereby they will search for investors with a
promised yield of 5-12% monthly interest in their total investment. Sounds good to be
true? Well technically yes. It turns out that the promise is only good for the first few
months, after which, sayonara.
In fact one of the private complainants Rolando T. Custodio found out “that Multitel
was not issued a secondary license by the Securities and Exchange Commission
(SEC) to deal in securities and solicit investments from the general public. In fact, per
an SEC Advisory, the company and its conduits were not duly registered and had no
juridical personality and authority to engage in an activity, let alone investment-
taking.”
So, the supreme tribunal rendered a guilty verdict of Syndicated Estafa as per Article
315 (2)(a) of the Revised Penal Code (RPC) in relation to Section 1 of Presidential
Decree (P.D.) 1689.
Since we are at it, let me refresh you of the elements of Syndicated Estafa:
1. Commission of the crime of Estafa or other forms of swindling, as defined in
Articles 315 and 316 of the RPC;
2. The Estafa or swindling is committed by a syndicate of five (5) or more
persons; and
3. The defraudation results in the misappropriation of moneys contributed by
stockholders, or members of rural banks, cooperatives, “samahang nayon(s), or
farmers’ associations, or of funds solicited by corporations/associations from
the general public.
As shown above, the accused, along with her cohorts, through their scheme, were able
to deceitfully obtain the said investments.
So….. what is the Ponzo scheme mister???
Interestingly, the Ponzo Scheme was discussed in the landmark ruling of People vs.
Balasa, whereby the Supreme Court narrated, to wit:
“ x x x x Named after Charles Ponzi who promoted the scheme in the 1920s, the
original scheme involved the issuance of bonds which offered 50% interest in 45 days
or a 100% profit if held for 90 days. Basically, Ponzi used the money he received
from later investors to pay extravagant rates of return to early investors, thereby
inducing more investors to place their money with him in the false hope of realizing
this same extravagant rate of return themselves x x x x
However, the Ponzi scheme works only as long as there is an ever-increasing
number of new investors joining the scheme. To pay off the 50% bonds Ponzi had to
come up with a one-and-a-half times increase with each round. To pay 100% profit he
had to double the number of investors at each stage, and this is the reason why a Ponzi
scheme is a scheme and not an investment strategy. The progression it depends upon
is unsustainable. The pattern of increase in the number of participants in the system
explains how it is able to succeed in the short run and, at the same time, why it must
fail in the long run. This game is difficult to sustain over a long period of time because
to continue paying the promised profits to early investors, the operator needs an ever
larger pool of later investors. The idea behind this type of swindle is that the “con-
man” collects his money from his second or third round of investors and then
absconds before anyone else shows up to collect. Necessarily, these schemes only last
weeks or months at most.”
There you have it! If ever asked in the bar exams, kudos to you for you know the
answer young padawan!
Let me end with the conclusion of the Supreme Court with regard to the above case:
“In the case at bar, it can be observed that Multitel engaged in a modus operandi that
does not deviate far from those practiced in the above-cited cases (one of this is the
Ponzi case). The similarity of the pattern is uncanny. Here, using Multitel as their
conduit, Baladjay and her more than five (5) counselors employed deceit and falsely
pretended to have the authority to solicit investments from the general public when, in
truth, they did not have such authority. The deception continued when Baladjay’s
counselors actively solicited investments from the public, promising very high interest
returns starting at five percent (5%) per month. Convinced of Baladjay’s and her
counselors’ promise of lucrative income, the private complainants were then enticed
to invest in Multitel. However, unknown to them, the promised high-yielding venture
was unsustainable, as Multitel was not really engaged in any legitimate business.
Eventually, Baladjay and her cohorts ran away with the private complainants’ money
causing them damage and prejudice” (brackets mine)
