In the Matter of Capitol Plans, Inc.

June 11, 2009 SEC CASE NO. 05-09-009 [Ref: CED Case No. 08-2882] IN THE MATTER OF CAPITOL PLANS, INC. COMPLIANCE AND ENFORCEMENT DEPARTMENT , petitioner . FOR : Issuance of a Cease and Desist Order O R D E R This resolves the Motion for Issuance of Cease and Desist Order dated 05 May 2009 ( "Motion", for brevity) filed by Petitioner Compliance and Enforcement Department ("CED"). 1 TEAaDC The facts of the case as culled from the records are as follows: Respondent Capitol Plans, Inc. ("Respondent") is a registered stock corporation with the Securities and Exchange Commission (the "Commission" ) bearing SEC Certificate of Registration No. 145587. 2 The primary purpose 3 of Respondent is as follows, viz. : "To organize, establish, develop, conduct, provide, maintain, operate, offer, issue, market and sell pension plans under which the savings of professionals, officers, directors and other personnel of corporations, firms, or entities, and the self-employed can be pooled together, accumulated, and invested in profitable placements and productive enterprises so as to build a retirement estate for each individual participant or plan holder; to organize, establish, develop, conduct, provide, maintain, operate, offer, issue, market and sell other types of pre-need and pre-paid including but not limited to educational, retirement, health care, etc. and services, merchandise or articles of all kinds and descriptions pertinent or necessary to such plans and services, to be delivered in the future to participants, subscribers, purchasers or plan holders; to manage, buy and sell all types of merchandise, equipment and/or services pertaining to the pre-need and prepaid businesses." In the course of the performance of its functions, the Non-Traditional Securities and Instruments Department ("NTD") of the Commission discovered that Respondent violated, and is in continuous violation of certain provisions of the New Pre-Need Rules and directives/orders of the Commission. For the said violations, the Commission through the NTD issued show cause orders 4 against Respondent and its officers and directors, to wit: "i. December 15, 2005 for failure to comply with its commitment to submit Schedule of Payment to Planholders (due on or before November 30, 2005) and Position Paper or Business Plan (due on or before December 7, 2005). ii. May 13, 2004 for failure to comply with the New Rules on the Registration and Sale of Pre-Need plans. iii. July 23, 2003 due to non-compliance with the New Rules and Registration and Sale of Pre-need plans. iv. July 24, 2002 due to non-compliance with the New Rules and Memorandum Circulars. v. May 29, 2002 non-submission of 2001 AFS and 2001 AVR. cIaCTS vi. March 26, 2002 non-compliance with the New Rules on the Registration and Sale of Pre-need plans (reportorial requirements). xxx xxx xxx." 5 However, the aforementioned show cause orders of the NTD fell on deaf ears. Hence, NTD endorsed Respondent's case to the CED for appropriate action. As a background, sometime in 1999, after conducting its routine audit examination, the NTD reported 6 the various infractions of respondent, viz. : "i) the company's paid up capital is far below the legal minimum required PhP36 Million Paid-Up Capital as provided under SEC-IRD Memorandum Circular No. 02 Series of 1997; ii) Respondent CAPITOL was engaged in selling life plans, without prior authority from the Commission, as well as over issuance of pension plans worth Php31,206,730.00 as of year 1999; iii) Respondent CAPITOL failed to file the required Actuarial Valuation Report (AVR) from 1994 to 1998 and Collection Report from 1998 up to the first quarter of 1999." 7 Thereafter, on 31 December 2000, respondent's dealer's license expired. 8 When it applied for the renewal thereof, it was denied by the Commission for failing to comply with the minimum paid-up capital requirement of Twenty-six million pesos (Php26,000,000.00) for pre-need plan companies applying for renewal of dealership license on top of the additional P10 Million requirement per type of plan. 9 Subsequently, in its letter dated 08 December 2003, NTD informed Respondent that it was dropped from the list of the Philippine Federation of Pre-Need Companies. 10 Moreover, during the routine audit examination on the operations of Respondent conducted by the Monitoring and Audit Division of NTD, the following were its findings which it reported thru a Memorandum dated 10 June 2005: 11 "1. The company has no books of account to present duly registered with the BIR; ACTaDH 2. The company only furnished a copy of the cash receipts and disbursements summary covering the period from January to December 31, 2004. 3. No general ledger is being kept to post transactions, was informed that no personnel to attend to. * 4. An un-audited balance sheet as of December 31, 2003 was submitted; xxx xxx xxx No available record to verify the accuracy and reliability of the above balance sheet which was only faxed to Ms. Alma Pena, on May 31, 2005. The company has stopped submitting monthly reports since 2002. The latest Actuarial Valuation Report submitted by the company to the Commission is as of December 31, 1998. It was noted that based on the available records, the company continue to collect premium payments from its actively paying plan holders. Use partially the amount collected to defray operation and pay benefit due to plan holders. In a conversation with the company's President, Mr. Wilfredo M. Quitongco, he verbally stated that the management has been inviting their planholders to become part owners of the company and help rehabilitate the company by converting their matured/maturing plans into subscriptions in order to help the company increase its authorized capital stock to meet the requirements of the SEC. . . ." Further, Respondent reportedly offered, sold and issued two types of life plan, namely: Life Plans and the Capitol Bayanihan Life Plan Program ("BLPP"). 12 The same was likewise reflected in Respondent's Summary of Cash Transactions 13 covering the period from January 2005 to 29 December 2005. The said summary of cash transactions showed that Respondent collected premiums for pension, plans, Educational Plan ("ECAP"), and Capitol BLPP Life Plans. Some of Respondent's plan holders include several employees of ITTI, a shoe manufacturer in Marikina City, who were issued Certificates of Participation in Capitol BLPP 14 signed by Respondent's former President, Mr. Rolando P. Ancheta. ESTDIA In its Certification dated 20 June 2008, 15 the NTD confirmed that Respondent has not been duly authorized to offer, sell and issue the Capitol BLPP to the public. The aforesaid certification also stated that Capitol BLPP has not been registered with the Commission. The acts of the Respondent in offering, selling and issuing Capitol BLPP to the public without the requisite registration of these plans with the Commission constitutes sale of unregistered securities in flagrant violation of Rule 3 of the New Rules and Regulations on the Sale and Registration of Pre-need Plans under Section 16 of the Securities Regulation Code ("Code'') : "Rule 3. Registration of Pre-Need Plans . No corporation shall issue, offer for sale, or sell Pre-Need Plans unless such plans shall have been registered under Rule 4." Moreover, Respondent has no dealer's license to sell pre-need plans, in defiance of Rule 15 on the New Rules and Regulations on the Sale and Registration of Pre-Need Plans under Section 16 of the Code: "Rule 15. Registration of Dealers, General Agents and Salesmen of Pre-Need Plans . 15.1 Any issuer selling its own Pre-Need Plans shall be deemed a dealer in securities and shall be required to be registered as such and comply with all the provisions hereof; provided that the issuer selling different types of Pre-Need Plans shall be required to be registered as dealer only once for the different types of plans." WHEREFORE, premises considered, there being a prima facie evidence that respondent is engaged in the unauthorized offering, selling and issuance to the public unregistered pre-need plans without a Dealer's license to do so, Respondent, its respective officers, directors, representatives, agents and any and all persons, conduit entities and subsidiaries claiming and acting for and in behalf of respondent are hereby ordered to immediately CEASE AND DESIST 16 from further offering and selling unregistered pre-need plans to the general public. Moreover, to forestall grave damage and prejudice to all concerned and to ensure the preservation of the assets for the benefit of not only the planholders and investors, but the creditors, stockholders and other claimants, as well, Respondent or any of their representatives, or any person/s acting for and in their behalf, and such other persons directing or controlling the activities of such corporation, officers, representatives salesmen and agents, are all enjoined from a) transacting any and all business involving the funds in its depository banks, and b) from transferring, disposing or conveying in any other manner any and all assets, properties, real or personal, including banks deposits and tax credit certificates if any, of which the named persons herein may have any interest, claim or participation whatsoever, whether directly or indirectly, under their custody, excluding trust funds or assets thereof, immediately upon receipt of this Order, until further order from this Commission. aHIDAE All persons against whom this CDO is issued may, within a non-extendible period of five (5) business days from receipt of the order, file a formal request or motion for the lifting thereof with this Commission. 17 FAIL NOT UNDER PENALTY OF LAW. SO ORDERED. Mandaluyong City, June 11, 2009. (SGD.) FE B. BARIN Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) RAUL J. PALABRICA Commissioner (SGD.) THADDEUS E. VENTURANZA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner Footnotes 1. In relation thereto. CED also filed its Manifestation dated 01 June 2009 on 02 June 2009. 2. Annex "A" of the Motion. 3. Annex "B" of the Motion. 4. Annexes "E", "E-1", "E-2", "E-3", "E-4" and "E-5", respectively of the Motion. 5. Item 6, pages 3-4 of the Motion. 6. Annex "F" of the Motion. 7. Page 4 of the Motion. 8. Annex "G" of the Motion. 9. Annex "H" of the Motion. 10. Annex "J" of the Motion. 11. Annex "K" of the Motion. 12. Item 14, page 7 of the Motion. 13. Annex "M" of the Motion. 14. Annex "N" of the Motion. 15. Annex "O" of the Motion. 16. R.A. 8799, SEC. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. 17. R.A. 8799, SEC. 64.3. Any person against whom a cease and desist order was issued may within five (5) days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted. n Note from the Publisher: Copied verbatim from the official document. Published in The Philippine Star on June 17, 2009.