In its complaint, the SEC said Asian Diamond resorted to a series of misrepresentations to make it appear that it has complied with rules on the registration and sale of pre-need plans, including the minimum paid-up capital of P100 million.
"Fraudulent entries were made in Asian Diamond’s accounting books, financial statements and reports presented to SEC with intent to mislead the latter and conceal its paid-up capital deficiency. The general information sheet of Asian Diamond submitted to the SEC on Nov. 27, 2002 declared that its subscribed capital stock amounted to P100 million but an examination of its books showed otherwise," the SEC said.
Per audit findings, Asian Diamond’s capital at the time was only P43.96 million even after the entry of new investors in June 2002.
Respondents to the case are Damaso Magbual, the former president of Asian Diamond, Norman Gonzalez, currently the president and chief executive officer of the company, and directors Bryan Wee Poh Aun, Ennily Pang, and Rommel Aniag.
The SEC Findings also showed that Magbual, during his term, caused the booking and recording of an alleged short-term investment in the amount of P12 million in violation of accounting standards.
The SEC said Asian Diamond sought to conceal this overstatement by crediting its general fund account by P6 million as advances to DOSRI accounts (directors, officers, stockholders and related interests), thereby reducing the overstatement in its general fund by the same amount.
According to the SEC, Asian Diamond’s trust fund contributions from collections have substantially been reduced since the new management took over. Under the old management, there were no withdrawals from the trust accounts in order to maintain the fund level.
With the new management, all claims paid to planholders from prior years were withdrawn to augment the company’s operational requirements.
Apart from this, Asian Diamond was also found to have sold securities to the public despite an SEC order prohibiting the company from doing the same.
Further review of the pre-need firm’s bank statements showed that from May to July 2003, there were several checks which were encashed and cleared but were not remitted to Asian Diamond. In addition, there were unauthorized cash withdrawals.
"In committing these acts, respondents made a false or untruthful narration of facts to conceal acts of misappropriation with intent to cause damage to Asian Diamond and its innocent planholders. The elements of the offense of falsification are therefore present and respondents must be held criminally liable under Article 172 of the Revised Penal Code," the SEC said.
The SEC alleged that the salary scheme of Asian Diamond further drained its revenue collection. Instead of being used to cover the required trust fund contribution and paid-up capital, the collection stream was largely used to pay the exorbitant renumeration of Asian Diamond’s officers and directors, the SEC said.
"The grant of privileges to Gonzalez and Aniag as well as the unrestricted cash advances made by Wee and Pang certainly manifest gross and grave abuse of their position as officers of Asian Diamond and give the impression that all four of them are in collusion with one another, unjustly enriching themselves at the expense and detriment of Asian Diamond," the SEC said.
Asian Diamond was earlier ordered liquidated by the SEC due to its failure to inject the much-needed capital to sustain operations.
The SEC earlier encouraged other pre-need firms to take a look at Asian Diamond to spur consolidation and mergers in the industry. This would allow smaller pre-need firms to cope with the prevailing financial difficulties and meet the minimum paid-up capital and trust fund requirements.