13 March 2009

Legacy's Fraudulent Scheme

Celso de los Angeles
Many depositor and investors are still reeling from the possible implication resulting from the closure of capital deficient Lagacy-linked rural banks. Some have filed their own separate cases against the owners while others supported the syndicated estafa case filed by the Bangko Sentral ng Pilipinas (BSP) against the Legacy's bank executives.

However, one thing is clear in this case, the siphoning of funds initially started in 2006 and moves to cover the tracks were made in 2008. During that period, not one red flag was raised and this has raised questions about the capability of government regulators, specifically the Securities and Exchange Commission (SEC), to monitor all transactions and initiate necessary steps to prevent such scheme from happening again.

Documents obtained by various news agencies showed that Celso de los Angeles, businessman-turned-politician, presided several meetings with bank officials to implement loan and investment programs that siphoned more than PhP 1.6 billion to other companies owned by de los Angeles.

One of these programs, dubbed the "Motorcycle Loan Program", allowed Legacy Motors, Inc. (LMI), owned by de los Angeles, to purchase motorcycles from China and offered for loans through the banks to interested borrowers. Once the banks has convinced their clients to avail of the vehicle through a PhP 55,000 loan, they need to deposit PhP 51,000 to the account of LMI, while the rest will be treated as the bank's income.

The process is really simple, but the implementation is questionable and problematic. A Rural Bank of DARBCI Inc. in General Santos City deposited more than PhP 200 million to the account of LMI after it approved more than 3,921 loan applications, but received only a few delivery. The same thing happened to First Interstate bank Inc. in Leyte where out of 2,000 borrowers, LMI only delivered 100 motorcycles even after the fact that the money has already been deposited to their account.

In the "Investment Loan Program", on the other hand, de los Angeles tasked the banks to look for possible investors, specifically from the existing depositors of Legacy-owned banks, and convince them to take out a loan that will be invested in Fusion Capital Corporation (FCC), a company also owned by de los Angeles. In this program, the borrower individual is given one percent incentive for taking on these unsecured loans.

A cashier's check was issued to make it appear that the borrower received the loan. However, the presidents of several banks issued an affidavit that the proceeds were actually deposited to the account of FCC. The cash discrepancy can hardly be noticed because it is covered by the alleged withdrawal from the account of FCC.

The Rural Bank of DARBCI, Inc. and the Bank of East Asia in Cebu were able to generate around PhP 800 million and PhP 500 million, respectively from this program.

The amount involved in these two anomalous programs are so staggering that the government just cannot ignore their responsibility and leave it to either the BSP or SEC to take appropriate action. With millions at their disposal, it is not surprising anymore to learn later that more people within these two government agencies are on the take and are involved in the alleged 'coverup' to clean the books. The brazeness of the anomalous scheme could further suggest that there might be a big-time political backer working behind the scene and it is high time for the chief executive of the land to weed them all and let them hang out in the open sun.