Prudence required
Holders of education and pension plans suing Legacy Consolidated Plans Inc. have reason to worry with the death of Celso de los Angeles, founder of a network of rural banks, pre-need firms and lending companies collectively described by the Bangko Sentral ng Pilipinas as “the most complete criminal banking model” ever seen in the Philippines.
De los Angeles’ demise extinguishes all his criminal liabilities, which are nontransferable to his surviving kin. The plan holders’ only legal recourse seems to be the tedious process of filing claims against the estate of the former mayor of Santo Domingo, Albay.
Clients of the Legacy group’s rural banks are lucky in that their deposits up to P500,000 were covered by Philippine Deposit Insurance Corp. But no government entity is mandated to refund investments made by pre-need plan holders. The collapse of the Legacy group in 2009 was not without cost. At least P10 billion in public funds, through PDIC, went to settle the covered deposits of the shuttered Legacy banks. Another P1 billion is being claimed by plan holders of Legacy Consolidated Plans alone.
Despite the billions in pesos lost, the Legacy fiasco had some favorable consequences. The most notable was a safeguard to avoid a repeat of the pre-need scam—the passage of Republic Act 9829, or the Pre-need Code of the Philippines, in December 2009. From a one-paragraph mention in the Securities Regulation Code, the pre-need industry was given a law of its own, complete with guidelines for operations and sanctions for violations. As pre-need contracts were considered insurance products, the regulatory responsibility over pre-need companies was also transferred to the Insurance Commission from the Securities and Exchange Commission.
A provision of the law worth citing is the authority given to regulators “to prescribe, pass upon and review the qualifications of directors and officers of pre-need companies.” Pre-need firms were also barred from investing in the companies of the firms’ directors and their relatives to prevent the diversion of funds. (This was notable in the Legacy fiasco: De los Angeles was found to have bought resorts and yachts using his clients’ money.) The law also raised the minimum paid-up capital of a pre-need company to P100 million, and companies were required full disclosure of their investments by publishing these in two newspapers of general circulation.
For its part, PDIC promised that it would conduct regular inspections to check the solvency, liquidity and risk management systems of banks. The BSP likewise released Circular No. 640, which included in what it considered bad banking practices such activities as offering depositors huge commissions or referral and solicitation fees, as well as non-cash incentives worth much more than their deposits. (Again, these activities were quite evident in the Legacy group.)
But while the BSP and PDIC may be commended for these actions, think how much better it would have been had regulators focused more on prevention. The BSP and PDIC—and the SEC, for that matter—often came into the picture in the same fashion as police do in crime movies: after all had been said and done. But the BSP’s dilemma is worth mentioning at this point. While it has enough powers to examine the books of banks and detect problems early on, it is powerless against a judge who, for one reason or another, issues an order to bar it from going after an erring bank. This explains the BSP’s request for immunity from suits and other court actions while in pursuit of troubled financial institutions.
But beyond regulation, ordinary workers still have to practice due diligence before investing their hard-earned money in a pre-need plan or any investment outlet. Prudence is a virtue in the investment world. Potential investors also need to scrutinize a prospective company’s integrity and history.
De los Angeles and other proponents of investment scams would not have “succeeded” without the participation of investors—some of them unsuspecting, others naive, and many greedy.
We have seen pyramiding scams in various forms and guises. Would-be investors should learn from other people’s woes. It really is difficult to walk away from a deal that promises to double one’s money quickly. There will always be that nagging question: “What if this is true?” But don’t hold your breath. It’s 100-percent untrue. On the other hand, tempering one’s greed has saved many people from troubles like the Legacy scam.
