SEC asks banks to control issuance of checkbooks

The Securities and Exchange Commission has asked the Bankers Association of the Philippines to properly monitor and control the issuance of checkbooks to corporations or individuals as part of efforts to clamp down on operators of pyramiding or Ponzi schemes.

In a letter to BAP executive director Leonilo G. Coronel, SEC Compliance and Enforcement Department head Jose Tomas Syquia requested banks to limit the release of checkbooks, particularly to new corporations whose stated line of business do not normally entail huge volumes of checks.

Syquia also asked the BAP to immediately report to the appropriate government agencies any suspicious activities involving requests for unusually high volumes of checkbooks.

In the course of its investigation and profiling of corporations engaged in pyramiding and Ponzi schemes, the SEC noticed that an essential component of their modus operandi is the issuance of post-dated checks. Records showed that for each investor six to seven checks are issued covering six interest payments and the principal payment.

"From the perspective of the victims, the holding of a post-dated check gives them a sense of security and thereby they part with their money. On our part, what is alarming is the volume of checks issued over a short period of time and the fact that these corporations are able to procure hundreds if not thousands of check books," Syquia said.

"We believe that if we are able to monitor and control the release of checkbooks, we would be able to remove one of the essential tools used by pseudo investment firms in enticing and victimizing thousands of people," Syquia further said.

The SEC has received reports that several banks have been issuing 30,000 to 40,000 checkbooks to a single corporation. While it refused to divulge the identities of the banks, the SEC said these banks are located in Mandaluyong, Cavite, Antipolo, Las Pinas, Makati, Canlubang, Batangas, Alabang, Paranaque and Quezon City.

Syquia also asked the BAP to submit to the SEC the names of persons who are blacklisted from opening accounts with banks.

"We were made aware that your organization maintains a negative list containing names of persons whose credit standing is in question and we respectfully request that we be provided access to said list in order to aid us in monitoring persons who wish to incorporate new corporations," Syquia said.

The SEC earlier asked the Bangko Sentral ng Pilipinas to crack the whip on companies engaging in quasi-banking activities without the necessary license.

The modus operandi of pseudo-investment companies offering three- to 15-percent monthly interest rates for money deposited with them, fits the definition of quasi-banking and should, therefore, be dealt with by the BSP even if such activities are found not to have been licensed, the SEC said.

The SEC said the BSP has been referring to the commission cases and incidents of money being solicited from at least 20 individuals. Some of these referrals and other complaints reveal that these companies are engaged in activities which may partake of a nature of banking activities and/or quasi-banking functions without authority from the BSP.

Under the law, "the determination of whether a person or entity is performing banking or quasi-banking functions without BSP authority shall be decided by the Monetary Board. To resolve such issue, the Monetary Board may, through the appropriate supervising and examining department of the BSP, examine, inspect or investigate the books and records of such person or entity."

The law also prescribes sanctions against persons or entities found to be performing banking or quasi-banking functions without BSP license.

Nevertheless, the SEC has committed to look into the activities of firms referred to it by the Central Bank to determine the legality of their operations.

If found guilty, the SEC will issue cease-and-desist orders against these firms and impose administrative sanctions for the protection of the investing public.