THE SECURITIES and Exchange Commission (SEC) has filed criminal charges against a husband- and-wife team from Quezon City who allegedly operated a P148-million “Ponzi” scam that recently defrauded 46 investors and dragged the name of food manufacturer Commonwealth Foods Inc. (Comfoods).
Through its Enforcement and Investor Protection Department (EIPD), the SEC filed with the Department of Justice on Friday a criminal complaint against spouses Gary and Margarita Huang for “publicly selling and offering for sale unregistered securities in the form of investment contracts and engaging in fraudulent transactions.”
A Ponzi scam is an investment fraud which lures investors with promises of high financial returns or dividends. In such a scheme, the operator pays initial disciples by the amount invested by subsequent investors while bulk of the investment remains with the scammer.
The complaint alleged that the Huangs had offered and sold securities to more than 19 persons within a period of one year without first obtaining a license or permit from the SEC in violation of Section 8.1 of the Securities Regulation Code.
The spouses were also charged with violation of Section 26.3 for engaging in acts and transactions that would operate as “fraud” upon investors.
The unauthorized sale of investment contracts and the Ponzi scheme engaged in by Gary and Margarita Huang in soliciting investments from the public operated as fraud upon investors, the SEC said in a statement on Friday.
Citing complaints filed with the SEC by aggrieved investors, the spouses Gary and Margarita Huang allegedly enticed them to invest in a purported “Comfoods lending program,” promising a 4 percent interest per month and the return of the principal within a period of six months.
Complaining investors presented copies of the memorandum of agreement signed by Margarita Huang and a contract of loan/memorandum of agreement signed by both Gary and Margarita Huang as well as postdated checks drawn against the joint account of the couple as evidence of the couple’s investment-taking activities. Based on the complaints, the Huangs failed to pay them the promised interest and to return to them the money they invested which runs into hundreds of millions of pesos.
The complaint showed that the Huangs had received P148,025,000 from 46 investors within a period of one year from March 2015 to March 2016. The smallest placement amounted to P100,000 while the biggest amounted to P3.5 million.
The Huangs supposedly capitalized on their connection with Comfoods as they were able to convince investors of the bankability of the investment scheme they were offering.
Gary Huang is a stockholder of Comfoods, a producer of biscuits and chocolates, and a relative of the company’s president and chief executive officer. Margarita Huang had also worked at Comfoods at some point.
In a statement to EIPD, the CEO of Comfoods denied that the company was involved in the investment scheme of the couple. The EIPD did not find any competent evidence showing that the company was involved in the so-called “Comfoods Lending Program” propagated by Gary and Margarita Huang.
Aggrieved investors claimed that Gary Huang himself had admitted that there was no such lending program and it was only when he was confronted by investors about it that he learned about such a lending program.
Gary Huang likewise admitted that his wife may have been involved in a Ponzi scheme, the SEC said. He, however, declared before the EIPD that he was not involved in the investment-taking activities of his wife but claimed that he never asked about her transactions to maintain the peace between them.
But the SEC said witnesses have come forward stating that Gary Huang had known about the activities of his wife as in fact, the postdated checks issued by Margarita Huang in payment of the promised interest and return of principal were drawn against the joint account of Gary and Margarita Huang at the BPI bank branch located at the Comfoods building.
The penalty for violation of the SRC carries a maximum fine of P5 million and a maximum prison sentence of 21 years.
“Once again, the SEC warns the public against these investment schemes and advises anyone being offered such schemes to immediately report the same to the SEC and to refrain from investing their money without first checking with the SEC as to the legitimacy of the investment scheme being offered,” the SEC said./rga