In re DGF Group Inc. and Fletcher's Group, Inc.

December 16, 2010 SEC ADMINISTRATIVE CASE NO. 05-10-114 IN THE MATTER OF DGF GROUP INC. AND FLETCHER'S GROUP, INC. FOR : Revocation of Certificate of Registration DECISION For consideration is the Petition for Revocation of Corporate Registration ("the Petition", for brevity) dated 6 May 2010 filed on 7 May 2010 by the Commission's Enforcement and Prosecution Department ("petitioner") against DGF Group, Inc. ("DGF") and Fletcher's Group, Inc. ("Fletcher's") on the ground that there was fraud in the procurement of their certificates of registration. DGF and Fletcher's are domestic corporations registered with the Commission on 13 February 2006 and 28 June 2006 under SEC Reg. No. CS200601992 and SEC Reg. No. CS200610067, respectively, 1 "to own, use, improve, develop, subdivide, sell, exchange, lease, and hold for investment or otherwise, real estate of all kinds, including buildings, houses, apartments and other structures." 2 As stated in their Articles of Incorporation ("AI"), DGF's principal office address is at No. 487 Almanza Uno, Zapote, Alabang Road, Las Pias City, while that of Fletcher's is at C2 New York corner Yale Streets, Cubao, Quezon City. 3 In January 2007, petitioner received a letter dated 24 January 2007 from Susan Yashar of the U.S. Securities and Exchange Commission ("US SEC letter"), seeking assistance in conducting its non-public investigation of Fin AXA Settlements ("Fin AXA"), that appears to be entirely fictitious, not registered with the US SEC, and is alleged to be part of an international boiler room fraud that may be operating in the Philippines. 4 AScTaD According to the US SEC letter, FinAXA contracts investors who have purchased worthless shares from other boiler rooms, and tells the investors that: (a) there will be a pending take-over or similar corporate event of the company in which the investors own shares; and (b) the investors' shares are now worth large amounts of money. It collects advance fees from the investors, telling them that these fees are required in order to get trading restrictions removed from the investors' stocks. An investor who sends money to FinAXA for the advance fee is defrauded of the entire payment because the proposed securities transaction is never consummated. FinAXA tells the investors to send the advance fees, typically several thousand dollars or more, to one of the following accounts : Account Name Account No. Bank DGF Group, Inc. 364-2000-914 Allied Bank (6754 Ayala Ave. cor. Legaspi St., Makati City) DGF Group, Inc. 2-115-00974-0 Metropolitan Bank (Metrobank Plaza, Sen. Gil Puyat Ave., Makati City) Fletcher's Group, Inc. 364-2001-031 Allied Bank (same branch as above) Petitioner then formed an investigating team to conduct the investigation on DGF and Fletcher's. In April 2007, EPD sent to every incorporator of DGF and of Fletcher's a "Notice Requiring Appearance at an Examination" dated 11 April 2007 at their respective addresses stated in the AI. However, the Notices were not served because the said addresses were incomplete, indicated false/fabricated house streets and/or house/building numbers, and/or were never occupied by the incorporator(s). 5 On 10 April 2007, the investigating team proceeded to the principal office of Fletcher's indicated in its AI to be at C2 New York corner Yale Streets, Cubao, Quezon City, to conduct a surveillance and ocular inspection of the activities and premises and to validate the principal office address. The team, however, found no such address. 6 EIAaDC On 11 April 2007, the investigating team likewise proceeded to the principal office of DGF indicated in its AI to be at No. 487 Almanza Uno, Zapote, Alabang Road, Las Pias City, for the same purpose. Again, the address could not be located. 7 On separate dates, i.e. , 10 October 2007, 15 October 2007 and 16 October 2007, the investigating team conducted ocular inspections of the addresses of the incorporators of DGF, and confirmed that the same are fictitious and non-existent. 8 Also on separate dates, i.e. , 4 October 2007, 25 October 2007, 7 November 2007 and 20 November 2007, the investigating team likewise conducted ocular inspections of the addresses of the incorporators of Fletcher's, and again confirmed that the same are fictitious and non-existent. 9 On 7 May 2010, petitioner filed the instant Petition . On 6 September 2010, an Order was issued directing petitioner to cause the publication of the said Order together with the Summons once in a newspaper of general circulation. In addition, petitioner was directed to cause the posting of the said Order and Summons in the Commission's website ( www.sec.gov.ph ) for thirty (30) days. On 23 September 2010, petitioner filed a Compliance dated 22 September 2010, attaching the following: (1) Affidavit of Publication of the 6 September 2010 Order and Summons in the 14 September 2010 issue of the Manila Bulletin; and (2) Certification from the Director of the Economic Research and Information Department that the said Order and Summons together with the Petition have been posted in the website of the Commission. To date, however, DGF and Fletcher's have not yet filed their Answer. Hence, they are now considered as in default. 10 Consequently, the Commission shall render judgment on the basis of the Petition and available records at hand. DEIHAa The issue to be resolved in the case at bar is whether there is sufficient ground to revoke the certificates of registration of DGF and Fletcher's. We answer in the affirmative. Section 6, paragraph I (1) of Presidential Decree No. 902-A, as amended, provides: "Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers: (I) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: 1. Fraud in procuring its certificate of registration; xxx xxx xxx." The AI is the basic corporate contract which is accorded with reverence by the law and the courts, as manifested by the stringent rules for its registration and the manner by which any part thereof may be amended. 11 It is the contract between the corporation and the State, the stockholders and the state, and the corporation and its stockholders. Thus, the law enumerates mandatory contents of the AI. 12 Hence, a cancellation suit in the name of the State will lie to annul an incorporation for fraud, based on the theory that it is a contract with the State. 13 Fraud in procuring a certificate of incorporation, practiced on State officers, makes the corporation a nullity, and in determining whether a corporation was actually created, it is immaterial that it was a fraudulent scheme for the purpose of cheating the public. 14 Section 14 of the Corporation Code 15 ("the Code") mandates that the AI state the "place where the principal office of the corporation is to be established or located, which place must be within the Philippines." 16 The place where the principal office is located determines the corporation's residence and the venue in an action by or against it. 17 The purpose of this requirement is to fix the residence of the corporation in a definite place, instead of allowing it to be ambulatory, for effective supervision and regulation of the corporation. 18 SHADcT Section 14 likewise requires that "the names, nationalities and residences of the incorporators" be stated in the AI. 19 The statement of the residences is required to show that majority of the incorporators are residents of the Philippines, as mandated by Section 10 of the Code. 20 The requirement gains more significance in light of the fact that the incorporators, who, as in this case, usually act as the first set of directors, may be held personally liable for certain acts or omissions under Section 31 of the Code. 21 In the case at bar, there is substantial evidence that DGF and Fletcher's falsified their AI's by making use of false and/or fictitious/non-existent addresses of their respective principal offices and of their incorporators. DGF could not be located at its stated principal office address ( i.e. , No. 487 Almanza Uno, Zapote, Alabang Road, Las Pias City) because it actually does not reside thereat. 22 This is corroborated by a Certification dated 20 April 2007 from the Business Permits & Licensing Office, Office of the Mayor of Las Pias City, that there is no business permit issued to, or any record whatsoever of, DGF. 23 Fletcher's could not likewise be located at its given principal office address ( i.e. , C2 New York corner Yale Streets, Cubao, Quezon City) because there is no such number "C2" within the area, as the houses and buildings therein are numbered numerically and not in alpha-numeric series. 24 This is corroborated by a Certification dated 20 April 2007 from the Business Permits & License Office, Office of the Mayor of Quezon City, that no business permit has been issued in the name of Fletcher's, with no address cited. 25 Further, the reports of the investigating team and the various affidavits of the concerned barangay officials/employees, homeowners' association and/or residents indicate that the addresses of the incorporators of DGF and Fletcher's are false and/or fabricated because they have false/fictitious house streets and/or house/building numbers, and/or were never occupied by such incorporator(s). 26 It is clear from the falsification of the addresses of their principal offices and of their incorporators that DGF and Fletcher's intended to undermine and defeat, not only the exercise by the Commission of its powers of supervision and regulation over them, but also the enforcement of whatever claims the Commission, the corporate stakeholders and the general public may have against them. This is further supported by the fact that since their incorporation, they have not filed any of the required General Information Sheet and Audited Financial Statements. 27 Surely, had the Commission known of these falsities, it would not have issued DGF and Fletcher's their certificates of registration. WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Certificates of Registration of DGF Group, Inc. and Fletcher's Group, Inc. are hereby REVOKED. Further, let the names of the incorporators of these corporations be included in the watch list of the Commission, namely: Dionisio Garcia Figueroa, Luis Garcia, Josefina Bernal, Ricardo Mercado, Florecio Montemayor III, Bernardo M. Florendo, Violeta F. Etrata, Rafael S. Chera, Conrado C. Tiongson and Leonardo T. Desales. Let a copy of this Decision be furnished the Company Registration and Monitoring Department of this Commission for its appropriate action. HEaCcD SO ORDERED. Mandaluyong City, December 16, 2010. (SGD.) FE B. BARIN Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) RAUL J. PALABRICA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner Footnotes 1. Petition, Annexes "A" and "C", respectively. 2. Petition, Annexes "B" and "D". 3. Ibid. 4. Petition, Annex "E". 5. Petition, Annexes "I" to "I-4" (for DGF), and Annexes "M" to "M-4" (for Flecther's). 6. Petition, Annex "J". 7. Petition, Annex "F". 8. Petition, Annexes "H" to "H-2". 9. Petition, Annexes "L" to "L-3". 10. Section 3-12, the Commission's 2006 Rules of Procedure. 11. Cesar L. Villanueva, Philippine Corporate Law 155 (2001). 12. Ibid. , citing Section 14 of the Corporation Code. 13. Fletcher Cyclopedia Corporations 604 (Permanent Edition). 14. Ibid. , p. 543. 15. Batas Pambansa Bilang 68 (1980). 16. Item 3, par. 1, Section 14, the Code. 17. Hector S. De Leon, The Corporation Code of the Philippines Annotated 161 (2002). 18. Ibid. , pp. 160-161, citing Young Auto Supply Co. vs. CA , 223 SCRA 670 (1993). 19. Supra , Note 14, Item 5. 20. "Sec. 10. Number and qualifications of incorporators. Any number of natural persons not less than five (5) but not more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines , may form a private corporation for any lawful purpose or purposes. . . . ." 21. "Sec. 31. Liability of directors, trustees, or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons. . . . ." 22. Supra , Note 7. 23. Petition, Annex "G-1". 24. Supra , Note 6. 25. Petition, Annex "K-1". 26. Supra , Notes 8 & 9. 27. Petition, pp. 7-8.