By Atty. Julius Gregory B. Delgado
LEGACY, AMMAN, KAPA, ALMAMECO, RIGEN, FOREX: SURVEY OF JURISPRUDENCE ON PONZI SCHEME
(Second of Three Parts)
The case of People vs. Balasa, supra, was shortly followed by another case entitled People vs. Romero, G.R. No. 112985, decided on 21 April 1999. In the said case, Ernesto A. Ruiz, a radio commentator for Radio DXRB, Butuan City, came to know of the Surigao San Andres Industrial Development Corporation (SAIDECOR) when he interviewed its principals Martin Romero and Ernesto Rodriguez. SAIDECOR started its operations as a marketing business in August 1989. The said entity later engaged in soliciting funds and investments from the public guaranteeing an 800% return of investment within fifteen (15) or twenty-one (21) days. Investors were given coupons containing the capital and the return on the capital collectible on the date agreed upon. It stopped operations on September 1989 or just a month after it started its operations. The check given to investor Ruiz was dishonored by the bank when it was presented for payment.
In People vs. Romero, supra, the Supreme Court affirmed the conviction of accused Romero (accused Rodriguez died pending appeal) for Large-Scale Estafa. The Supreme Court, citing its earlier ruling in People vs. Balasa, supra, held that it was established that there was a Ponzi Scheme or “an investment swindle in which high profits are promised from fictitious sources and early investors are paid off with funds raised from later ones.” For the first time, the Supreme Court also coined the term “Pyramid Scheme” because “a broader base of gullible investors must support the structure as time passes.”
After Romero, the Supreme Court then ruled in the case of People vs. Menil, Jr., G.R. Nos. 115054-66, decided on 12 September 2000. The Ponzi Scheme involved in the said case also happened in the CARAGA Region, the same as that of the preceding case People vs. Romero, supra. In the said case, husband and wife, Vicente Menil, Jr. and Adrian B. Menil, were proprietors of a business operating under the name of ABM Appliance and Upholstery with offices at Denso Building, Capitol Road, Surigao City. On 15 July 1989, Spouses Menil, through ushers and sales executives, began soliciting investments from the general public in Surigao City and neighboring towns. They assured the investors that their money would be multiplied ten-fold after fifteen (15) calendar days. If a person invests Php100.00, it will be Php1,000.00 after fifteen (15) days. If a person invests Php1,000.00, his return will be Php10,000.00. The ushers and sales executives were given 10% commission from the total amounts they remitted to the business. The people who invested were issued coupons indicating the date of entry, the due date of the investment, the amount given, the amount to be received, the name and address of the investor and the name of the sales executive. The sales executives appointed were given these coupons which they in turn, gave to the people they solicited from as proof of their investments. These ushers and sales executives were required to remit their solicited amount and they were given immediately their commission. When the investments became due, they were tasked of distributing the proceeds to the investors. The entity stopped releasing payments after two months, or on 19 September 1989.
In People vs. Menil, Jr., supra, the Supreme Court affirmed the conviction of the accused Menil ruling that he and his late wife were engaged in a Ponzi Scheme. The Supreme Court used as indication the fact that the accused could not present any specific business plan or cite any donations or bequests which he received to finance his money-making scheme clearly showing that the investment scheme which he foisted on the unsuspecting public was fraudulent. The Supreme Court also noted that the paid-up capital of ABM was only Php11,000.00 and yet the same transacted millions of pesos. The Supreme Court also did not heed to the witnesses the accused presented who were early investors who already received payment. The Court held that the payment of returns to early investors is an integral part of the illegal Ponzi Scheme. The fact that early investors were paid the returns on their investments induced more people to participate in the illegal scheme with the hope of realizing the same extravagant rate of return. The Supreme Court noted that after words that payments were made spread like wildfire, the amount of investments received by accused ballooned from thousands of pesos to several millions of pesos.
In a fairly recent case decided by the Supreme Court on 14 January 2015, People vs. Tibayan, G.R. Nos. 209655-60, the company involved was Tibayan Group Investment Company, Inc. (“TGICI”), an open-end investment company registered with the SEC on 21 September 2001. Its modus operandi was that in inducing the public to invest with them, it made an undertaking that their investments would be returned with a very high monthly interest rate ranging from 3%-5.5%. Under such lucrative promise, the investing public were enticed to infuse funds to TGICI. However, the directors/incorporators of TGICI knew from the start that it is operating without any paid-up capital and has no clear trade by which it can pay the assured profits to its investors.
In that case, the Supreme Court convicted the accused of Syndicated Estafa, ruling that they were engaged in a Ponzi Scheme. The Court further characterized Ponzi Schemes as focusing on “attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business.” The Supreme Court held that it is not an investment strategy but a gullibility scheme, which works only as long as there is an ever-increasing number of new investors joining the scheme.” Finally, the Supreme Court also held that it is difficult to sustain the scheme over a long period of time because the operator needs an ever-larger pool of later investors to continue paying the promised profits to early investors. (To be continued in the third and last part.)