The Securities and Exchange Commission (SEC) said it has filed criminal charges against Maria Francesca Tan (MFT) Group of Companies, Inc. and Foundry Ventures I, Inc. before the Department of Justice over their alleged illegal investment taking activities.
In a statement, the SEC said it filed a criminal complaint last April 5 against the MFT Group and Foundry Ventures for violation of Sections 8, 26, and 28 of The Securities Regulation Code (SRC), in relation to Section 6 the Cybercrime Prevention Act of 2012.
Section 8 of the SRC provides that securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the SEC.
Meanwhile, Section 26.3 of the SRC states that it shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities, to engage in any act, transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Section 28 further adds that no person shall engage in the business of buying or selling securities in the country as a broker or dealer, or act as a salesman or an associated person of any broker or dealer unless registered as such with the Commission.
The SEC also charged the MFT Group and Foundry Venture with violation of Section 54.1 (c), in relation to Section 54.2 of the SRC and Section 177 of the Revised Corporation Code (RCC), and SRC Rule 68, in connection with material misrepresentations in their audited financial statements (AFS).
SRC Rule 68 provides that financial statements filed with the SEC are primarily the responsibility of the management of the reporting company. In discharging its responsibilities, the board of directors reviews and approves the financial statements before these are submitted to the stockholders.
Section 54 of the SRC authorizes the SEC to impose administrative sanctions to any person who has made any untrue statement of a material fact in reports, applications, accounts, records, or documents required by law to be filed with the Commission.
The imposition of administrative sanctions shall be without prejudice to the filing of criminal charges against the individuals responsible for the violation.
The Commission implicated in the complaint the officers of MFT Group and Foundry Ventures, including Maria Francesca Tan, Eduardo Tan, Florita Tan, Enrique Eduardo Tan, Charles Edward Tan, Christian Konstantin Agbayani, Mario dela Fuente, Philip Tan, Jenna Fuentes, Ronaldo Nery, Halmond Parker R. Ong, Chiqui T. Tan, Jose Donnie B. Montelibano, Romarico S. Ruiz, Arlene M. Navarro A.K.A. Arlene Mauricio, Maria Beatriz Dolores R. Tomas, Mary Ruth A. Oquendo, Joanne A. Cabaero, Thuy Nguyen, Roxanne “Roxy” G. Agbayani, Luis Gabriel R. Cancio, Jr., Noel M. Olan, Joselito “Jr” D. Hernandez, Jr., Christian M. Olan, Tito T. Cosejo, Jr., Christian De Vera, Jose Carlos R. Cancio A.K.A. Carlos Cancio, Mae Tan, Martin Choi, Reanne Po, Marta Gilda M. Poursabouri, Alan Madlangbayan, Mildred Madlangbayan Jeruz Madlangbayan, and Rosanna Vidal.
Also implicated in the complaint was Isla Lipana & Co., which served as the independent auditor of the MFT Group and Foundry Ventures for the fiscal years 2018 to 2021.
The filing of the criminal case stemmed from complaints submitted by several investors who participated in the investment scheme of the MFT Group, which later transitioned to Foundry Ventures.
The MFT Group allegedly promised guaranteed returns ranging from 12 percent to 18 percent of the amount they invested, which was considered as interest income. The scheme was perpetuated through the issuance of post-dated checks reflecting a 1 percent to 1.5 percent monthly interest to interested investors, who were given either a promissory note or borrower-lender agreement, as proof of their investment.
“The instruments executed by MFT Group and Foundry Ventures are clearly investment contracts considering that the scheme, the transactions, as well as the attendant circumstances show that elements provided under SRC Rule 26.3.5 are all present (which are also the elements under the Howey Test),” the complaint read.
The SEC likewise noted that the unauthorized investment-taking activities of MFT Group and Foundry Ventures partake of the nature of a Ponzi scheme, since their success and viability are anchored on the additional investments of existing investors and/or the investments of new investors.
A cease and desist order was earlier issued by the SEC against the MFT Group and Foundry Ventures in January, where the officers and directors of the companies were directed to stop their investment solicitation activities without the necessary licenses from the SEC. The order was subsequently made permanent on April 1.
In addition, the SEC found that the MFT Group and its officers and directors are liable for 17 counts of misrepresentation in its 2018 to 2021 audited financial statements (AFS) by reflecting dividend income which has no basis.
The SEC noted that the amount received by the MFT Group from its investors should have been recognized in its books of accounts either as part of the company’s liabilities (creditor’s equity) or share capital (stockholder’s equity).
This is consistent with the accounting equation that any increase in the asset of an entity must have a corresponding increase in the company’s liabilities or capital or both.
Based on the financial review conducted, no such amount reflected in the AFS of the subject company would correspond to the monies invested by the investors to either equity or liabilities of the company.
This clearly indicates that the monies received through the representations of the MFT Group of Companies were not recognized in the company’s books.
The MFT Group likewise declared dividend revenues from its subsidiaries for the years 2018 to 2021 without basis, as its related companies did not declare any dividends due to insufficiency of retained earnings or, in some cases, due to negative balance or deficit.
In relation to the misrepresentations in the MFT Group’s financial statements, the SEC found that Isla Lipana colluded with the MFT Group in their fraudulent activities by making it appear that the financial statements of the company were fairly presented despite inconsistencies and inaccuracies in the AFS.
Isla Lipana issued an unqualified opinion for the years 2020 and 2021, indicating that the AFS of the MFT Group are fairly presented in all material respects and in accordance with the identified financial reporting framework.
“The investing public, including and especially MFT’s investors, relied on these AFS in making investment decisions. Stated otherwise, the information/entries in the AFS of the MFT Group were essential in convincing investors to part with their hard-earned money, and entrust the same to the MFT Group, because they presented MFT Group as financially healthy and viable,” the complaint read.
On the other hand, Isla Lipana issued qualified opinions for the 2018 and 2019 AFS of MFT Group based on the failure of MFT Group to maintain sufficient appropriate accounting records and documents to support the carrying amount of cash and property, net as of January 1, 2018 and December 31, 2018.
Said qualified opinions, however, were not related to the reported net income of the Company where misrepresentations were noted.
In fact, the respondent auditors did not include in its opinion the lack of basis of the MFT Group to earn the reported dividend income thereby creating an impression in the eyes of the users of the subject financial statements that the subject entity, indeed, fairly presented its revenue.
Again, these AFS which apparently concealed the misrepresentations of the MFT Group but which were nonetheless certified by respondent auditors, were relied upon by the investing public in making investment decisions.
“Considering that this discrepancy happened over the years, and given its significant impact on the financial position of the MFT Group, the same cannot be considered an isolated event. The fact that respondent auditors repeatedly engaged themselves in this kind of irregularity is a clear indication of its intention to conceal the actual financial status of the MFT Group, to the prejudice of its investors,” according to the complaint.