Double or knotting

As it turns out, none other than the Court of Appeals, the CA itself, now stands in the way of this troubled financial company from getting back its own money amounting to some P270 million.

The company is Philippine Investment II, or PI II, one of the SPVs (special purpose vehicles) that the government encouraged to help local banks unload their bad assets, which happens to be the former local subsidiary of the bankrupt New York-based Lehman Brothers.

PI II has been undergoing rehabilitation for the past five years. In the past two years, PI II has also been involved in this knotty situation with one of its creditors, the local unit of the London-based Standard Chartered Bank, known as SCB.

PI II claimed SCB had, in effect, deceived the management committee overseeing PI II’s rehab, which was headed by another big creditor, Metropolitan Bank & Trust Co., to the detriment of the rehab program.

According to PI II, the local SCB received double payment for its loan to PI II, since SCB already received full payment for the same loan under an arrangement done in New York some five years ago between Lehman Brothers and SCB.

At first, SCB hid the New York arrangement from the management committee, not to mention the rehab court. When SCB was found out subsequently, it claimed that the securities used in the New York deal were low grade and insufficient to cover for PI II’s loan. In the end, SCB was forced to admit the existence of that payment scheme.

So the rehab court ordered SCB to return what PI II already remitted to SCB as payment amounting to some P235 million, plus some P35 million of PI II’s funds that were held in escrow, supposedly as another installment by PI II to SCB.

The ruling of the rehab court was deemed, in legal parlance, as “immediately executory,” although the judge, RTC Judge Cesar Untalan, even begged both sides to go into an out-of-court settlement.

Instead of sitting down with PI II and the rehab court, SCB ran to the CA, which a few days ago issued the TRO to stop the rehab court from implementing its order for SCB to return the P270 million to PI II.

The claim of PI II for double payment to SCB has been dragging for the past two years. With the TRO issued by the CA, Metrobank as the biggest creditor of PI II and the other creditors would have to wait rather indefinitely.

Question: How did SCB convince the CA about the “urgency” of its situation in the PI II rehab program, something that might cause SCB “irreparable damage,” thus meriting the TRO?

In the past five years, it was SCB that enjoyed the supposed “double” payment from PI II, something that, according to PI II, SCB was able to enjoy based on its “false filings and representation” before the rehab court.

And SCB was the company facing “irreparable damage?”

It was not the first time that SCB ran to the CA for TRO against the rehab court of Judge Untalan, although the CA denied those other petitions of SCB, including the petition to stop Untalan from removing SCB from the management committee.

When the court approved the PI II rehab plan in December 2009, SCB was even made part of the management committee headed by Metrobank. When the knotty issue on the supposed “double” payment came up, the court yanked SCB out of the committee.

The court also removed SCB from the list of PI II creditors, ordering the management committee to distribute the available cash of PI II as payment to the remaining creditors.

By the way, as PI II noted in its motion to the CA, in effect questioning the TRO, SCB has anchored almost all its legal arguments on the opinions of its alleged “expert,” a certain Ms. Cyganowski.

“Expert evidence is admissible only if (a) the matter to be testified to is one that requires expertise and (b) the witness has been qualified as an expert,” PI II said, adding that the court has never qualified that certain “Ms. Cyganowski” as an “expert.”

It so happens that SCB was the same bank involved in a celebrated case in New York a few years ago, in which SCB was under investigation by the US justice department, the Manhattan district attorney and the US Federal Reserve Bank.

US authorities said that, for seven straight years, or from 2000 to 2007, right before the financial meltdown in the United States, SCB was involved in illegal transactions with US banks.

It seemed that SCB facilitated in the United States billions of dollars’ worth of transactions by SCB clients from other countries sanctioned by the US government, such as Iran and Sudan.

US authorities revealed that SCB simply removed information in those transactions that could have alarmed US banks on the origin of the funds, thus deceiving US banks to process the transactions.

They even indicated that SCB advised its clients on how to go around the US laws, which the bank did around the world, with the complete knowledge of its top executives.

In the end, after a three-year investigation by the US authorities, SCB settled the case with $327 million, of which $227 million were “criminal penalties.”

According to US authorities, SCB failed to disclose to Fed investigators those transactions that were deliberate violations of US laws.

It seems that the same forgetful SCB missed the deal between SCB and Lehman Brothers in New York that also covered the loans of PI II from the local SCB. In the deal, Lehman Brothers gave SCB some $90 million worth of bonds, which SCB then sold, even returning to Lehman Brothers some $64 million in change. You know—sukli!

SCB kept the settlement in New York as a secret even from the rehab court, which subsequently forced SCB to divulge the details of the deal, although SCB initially claimed it was all “confidential.”

In the meantime, the local SCB is under investigation by both the Department of Justice and the Bangko Sentral for possible perjury on the double payment issue before the rehab court.

Last December, PI II filed criminal cases against the top executive of SCB, although from what I gathered, the DOJ took over the preliminary investigation of the case.

In a resolution last month, the DOJ prosecution lawyer Caterina Isabel Caeg recommended the filing of criminal perjury against one of the SCB executives.

Still, because of the TRO from the CA, PI II could not get its funds from SCB, thus denying payment to its other creditors, particularly Metrobank.