I am publishing herewith excerpts from the Supreme Court’s decision [G.R. No. 154131, July 20, 2006] citing the letter from the Central Bank which became the basis for the dismissal of the case filed by the SEC against Performance Foreign Exchange Corporation, to wit:

“Meanwhile, on August 13, 2001, Amado M. Tetangco, Jr., then Officer-in-Charge, Office of the Governor, BSP, in answer to SEC Chairman Lilia Bautista’s letter-request of February 8, 2001, stated that respondent’s business activity “does not fall under the category of futures trading” and “can not be classified as financial derivatives transactions,” thus:

Dear Ms. Bautista,

This refers to your letter dated February 8, 2001 requesting for a definitive statement that the foreign currency leverage trading engage in by private corporations, particularly, Performance Foreign Exchange Corporation (PFEC), is a financial derivatives transaction and that it can only be undertaken by banks or non-bank financial intermediaries performing quasi-banking functions and/or its subsidiaries/affiliates.

As indicated in your description of the transactions and the documents submitted, the foreign currency leverage trading, subject of your query, is essentially similar in mechanics to currency future trading, particularly with respect to the margin requirements, standard contract size, and daily market-to-market of open position. However, it does not fall under the category of futures trading because it is not exchange-traded. Further, we can not classify it as being financial derivatives transactions as we consider the transaction as plain currency margin trading, which by its mechanics, involve the set-up of margin and non-delivery of the currencies involved.

In view of the foregoing facts, the activities of the aforesaid corporation are not covered by BSP guidelines on derivative licensing.

We hope we have satisfactorily clarified your concerns.

Very truly yours,

(Sgd.)
AMANDO M. TETANGCO, JR.“

THE SEC WAS TRYING TO PIN DOWN PFEC ON THE BASIS OF OUTDATED DEFINITIONS OF SECURITIES AND REGULATORY GUIDELINES AS SET IN THE Republic Act 8799 OTHERWISE KNOWN AS THE SECURITIES REGULATION CODE OF THE PHILIPPINES ENACTED ON JULY 19, 2000.

WHY OUTDATED? BECAUSE REPUBLIC ACT 8799 FAILED TO ENCOMPASS THE FAST BECOMING POPULAR SPOT CURRENCY TRADING WHICH WAS BEING CONDUCTED ELECTRONICALLY OFF-EXCHANGE AND NON-BANK BASED, CREATING A LEGAL LOOPHOLE WHICH PFEC IS NOW EXPLOITING TO THE HILT.

IT IS FUNNY, THOUGH, TO NOTE THAT WHILE REPUBLIC ACT 8799 PRACTICALLY GAVE THE SEC A BLANKET AUTHORITY TO REGULATE PRE-NEED PLANS (SEE THE PROVISION BELOW) , IT FAILED TO ADDRESS AND DEFINE THE SEC’S OVERSIGHT FUNCTIONS OVER SPOT CURRENCY TRADING WHICH BY THEN WAS FAST DEVELOPING INTO A PARALLEL MARKET TO INTERBANK FOREIGN CURRENCY MARKET. TOTALLY DIFFERENT IN ESSENCE WITH COMMODITY FUTURES TRADING AND DEFINITELY NOT A FINANCIAL DERIVATIVE BY DEFINITION.

(CHAPTER IV
REGULATION OF PRE-NEED PLANS

Section 16. Pre-Need Plans. – No person shall sell or offer for sale to the public any pre-need plan except in accordance with rules and regulations which the Commission shall prescribe. Such rules shall regulate the sale of pre-need plans by, among other things, requiring the registration of pre-need plans, licensing persons involved in the sale of pre- need plans, requiring disclosures to prospective plan holders, prescribing advertising guidelines, providing for uniform accounting system, reports and recording keeping with respect to such plans, imposing capital, bonding and other financial responsibility, and establishing trust funds for the payment of benefits under such plans.)

WHEN THE PIPC INVESTMENT SCAM HIT THE NEWS WIRES, SOME WRITERS DESCRIBED THE INCIDENT AS BEING SIMILAR TO THE LARGE SCALE INVESTMENT FRAUD PERPETRATED BY THE MANILA INTERNATIONAL FUTURES EXCHANGE IN THE MID‘80′S.

BUT DOES THE SIMILARITY END THERE?

FOR MORE THAN A DECADE, FROM 1985 TILL 1996, THE MANILA INTERNATIONAL FUTURES EXCHANGE HAVE BEEN MILKING THE UNSUSPECTING PHILIPPINE INVESTORS MILLIONS OF THEIR HARD EARNED MONEY, WHILE THE CORRUPT OFFICERS OF GOVERNMENT REGULATORY AGENCIES SUPPOSED TO MONITOR AND PROTECT THE INVESTING PUBLIC PLAYED COY WITH THE PERPETRATORS OF THE SCAM.

WHAT VERY FEW PEOPLE KNEW THEN WAS THE FACT THAT THE OFFICERS OF THE EXCHANGE WERE MERE DUMMIES OF A GROUP OF EVIL SCHEMING HK-BASED CHINESE BUSINESSMEN WHO HATCHED THE PLAN TO ESTABLISH THE FIRST EVER COMMODITY FUTURES EXCHANGE IN THE COUNTRY.

ALSO, WHAT VERY FEW PEOPLE KNEW THEN WAS THE FACT THAT THE MEMBER-BROKERS OF THE EXCHANGE WERE ALL HENCHMEN OF THIS GROUP WHICH BANKROLLED THEIR PHILIPPINE OPERATIONS.

AND WORST, NEVER DID THE REGULATORY AGENCIES, SPECIALLY THE SEC SUSPECT THAT THEY WERE BEING USED TO LEGITIMIZE THIS GRAND SCHEME TO SCAM PHILIPPINE INVESTORS. THEY WERE LED TO BELIEVE THAT BY HAVING ITS OWN COMMODITY FUTURES EXCHANGE, THE PHILIPPINES WILL BE SEVERAL STEPS AHEAD OF ITS NEIGHBORS IN TERMS OF ECONOMIC DEVELOPMENT. AND SOMEHOW, THE HUGE AMOUNT OF GREASE MONEY THAT CHANGED HANDS THEN, INSURED THE ESTABLISHMENT OF THE EXCHANGE.

IT WAS TOO LATE FOR THEM TO LEARN THAT THE PEOPLE THEY WERE DEALING WITH WERE THE SAME PEOPLE RUNNING A NETWORK OF BOILER ROOM OPERATIONS ALL OVER AUSTRAL-ASIA.

AND, WHEN THE AXE WAS ABOUT TO BE STRUCK ON THEM BY THE SEC IN 1995 BECAUSE OF A DELUGE OF COMPLAINTS AND LAWSUITS, MOST OF THESE MIFE BROKERS RELOCATED TO NEW OFFICES, REGISTERED NEW NAMES, AND VENTURED INTO SPOT FOREIGN CURRENCY TRADING ,WHICH AT THAT TIME WAS HARDLY REGULATED , AND WAS JUST AS PROMISING ,AND JUST AS ATTRACTIVE TO INVESTORS LOOKING FOR "GET RICH QUICK" SCHEMES AS COMMODITY FUTURES TRADING.

IN THE ABSENCE OF REGULATORY MEASURES, THESE BOILER ROOM OPERATORS PLAYED "CATS AND DOGS" WITH THE SEC. THEY WOULD CLOSE SHOP IN ONE PLACE ONLY TO RE-APPEAR IN ANOTHER PLACE UNDER A DIFFERENT NAME.

GUESS WHO WERE THE PEOPLE BEHIND THE PPIC SCAM?

THEY WERE THE SECOND STRINGERS OF SOME OF THE BROKERAGE HOUSES OF MIFE IN THE MID '80S. THEY WERE THE BACK ROOM BOYS THEN. THEY ARE THE PRINCIPAL SCAMMERS NOW.

HOW DID I KNOW?

I SHOULD KNOW BECAUSE I WORKED WITH ONE OF THE MORE ACTIVE BROKERS OF MIFE AT THAT TIME. I ROSE UP THE RANKS AND GAINED ENOUGH OF THEIR TRUST FOR THEM TO SHARE WITH ME THEIR DIRTIEST SECRETS AND EVEN SENT ME TO SOME INTERNATIONAL ASSIGNMENTS.

MY EXPERIENCES WITH THEM TOOK ME TO DIFFERENT DESTINATIONS WORLDWIDE. THESE SHALL BE THE SUBJECT OF MY FUTURE BLOG POSTS HERE IN THE COMING MONTHS.

THIS BLOG IS MERELY THE INTRODUCTION TO A SERIES OF BLOGS DETAILING THE VARIOUS ROLES I TOOK IN THE BOILER ROOM OPERATION OF A COMPANY WHICH WAS CONTINUALLY ASSUMING DIFFERENT NAMES AS IT SPREAD ITS POISONED TASK OVERSEAS.THE CAPER TOOK "THE UNSUSPECTING ME" TO DIFFERENT CITIES IN THE PHILIPPINES AS WELL AS TO HONG KONG, SINGAPORE, KL, AND US CITIES LIKE SAN FRANCISCO, SAN DIEGO, PALO ALTO, AND TIJUANA IN MEXICO.

SUCH IS THE MAGNITUDE AND SCOPE OF THEIR SCAMMING OPERATIONS!