Cresencio A. Sosa vs. Pan-Asia International Commodities, Inc., et al.

[SEC-SICD * CASE NO. 11-96-5494. February 17, 2000.] CRESENCIO A. SOSA , petitioner , vs . PAN-ASIA INTERNATIONAL COMMODITIES, INC., Evangeline Reinoso, Patrick Sum, Rolando Rivera, Maybelline Pinky Lapid, Isabelita Dela Cruz , respondents . D E C I S I O N Before the Commission, is a complaint for recovery of investments filed by Cresencio Sosa against Pan-Asia Commodities, Inc. (hereinafter referred to as "Pan-Asia") and its officers and directors. The complaint alleged among others, that through the solicitation of Elaine Zabala, an investment consultant for Pan-Asia the Petitioner opened several accounts and invested with Pan-Asia in the total amount of P5,326,037.67; that all accounts were covered with a Customers Agreement, Risk Disclosure Statement and guidelines for spot/future currency trading; that the account was jointly traded and supervised by Elaine Zabala, Elmer Tabing and Estrelita Gaudario; that during Petitioner's visit to the offices of Pan-Asia, the officers, directors, especially Respondent Reinoso fully assented to the actions of their subordinates; that sometime in October 1996, Petitioners learned for the first time, that these individuals were not licensed to engage in commodity futures transactions contrary to the provision of the Customers Agreement 1 that disgusted over Respondents' assent to the unlawful 2 acts that rendered their agreement void, Petitioner demanded for the return of his investment in the amount of P3,398,917.80 despite Petitioner's demands, Pan-Asia refused to comply. aHICDc On December 19, 1996 and March 10, 1997, Respondents filed their Answer and a Supplemental Answer respectively specifically denying the material allegations in the complaint averring that the illegal acts complained of are merely figments of Petitioner's imagination; that Petitioner is merely looking for scapegoats since he lost his investment; that Petitioner is now estopped from claiming any balance because when he made his withdrawals he duly realized his losses; since Petitioner signed the Risk Disclosure Statement, they should be excused from any liabilities for any loss incurred by Petitioner Sosa; that insofar as the participation of the three aforenamed persons in the Complaint, Respondents assert that they merely assisted Petitioner on the matter of clerical services but did execute any trade since all of the trading orders were signed personally by Petitioner himself and that Respondents have nothing to do with the decision of orders by Petitioner therefore, he should be liable for any and all consequences of his orders. On February 13, 1997 Respondents were declared in default due to their failure to submit pre-trial brief as well as to appear at the pre-trial conference. However, upon motion dated September 10, 1997 of respondents, and without objection on the part of Petitioner, the Order of default was lifted and trial on the merits proceeded. The Petitioner presented his evidence and formally offered the same on March 22, 1998, and admitted by the Commission on May 6, 1998. Thereafter, the hearing for the presentation of respondents' evidence were set, but, were repeatedly postponed on account of several requests for postponement on the part of respondents. However, in our Order dated September 25, 1998, this Hearing Panel warned the Respondents that failure on their part to appear during the hearing shall be deemed as a waiver of their right to present evidence, and the case shall then be submitted for resolution. Notwithstanding the above Order, Respondents, again, moved for a postponement of the hearing set for January 6, 1999, which date was earlier agreed upon by the parties themselves. In a motion and opposition dated January 26, 1999 Petitioner opposed the postponement of the same hearing and orally moved that the case be submitted for decision. The Hearing, Panel granted the oral motion and gave the parties fifteen (15) days within which to submit their draft decisions. cTACIa From the pleadings, pieces of evidence presented and admission of the parties, it was established that on several occasions from January 3, 1996 to May 31, 1996, Petitioner opened several accounts and invested sums of money with Respondent Pan-Asia, a commodities futures broker, in the total amount of P5,326,037.67. These invested were covered by official margin receipts (exhibits "K"-"EE") and for which corresponding Customers Agreements (Exhibits "B", "C", "D", "E", "F", "G", "H"), Risk Disclosure Statements, Guidelines for Spot/Futures Trading and Trading Rules and Regulations were issued by Respondent Pan-Asia to the Petitioner, the provisions of which were understood by the latter being familiar with commodity futures transactions, and that out of said total investment, Petitioner was able to withdraw the amount of P1,727,119.80. In the hearings conducted; Petitioner testified among others that the persons who participated in his accounts were Elaine Zabala, Elmer Tabing and Estrelita Gaudario (p 74 TSN dated Oct. 9, 1997). For her part, Elaine Zabala testified that she was employed at Pan-Asia as an investment consultant from January 1996 until she resigned on February 1996 (pp. 4, 14, TSN dated November 19, 1997) and that she has the same work; schedule with Elmer Tabing (p. 16 TSN dated Nov. 17, 1997). Elaine Zabala likewise testified that she did not solicit or trade the account of the Petitioner (p. 8 TSN dated Nov. 17, 1997) and that her participation thereon was purely clerical by only advising the Petitioner on the status of his account.(p. 25 TSN dated November 17, 1997). Zabala likewise testified that Estrelita Gaudario traded the accounts of the Petitioner in collaboration with Mr. Tabing and that Gaudario traded the said accounts until April or May (pp. 32, 33, 44 TSN dated November 17, 1997). Furthermore, Zabala testified having actually seen her superior, Elmer Tabing, trade the Petitioner's accounts by buying and selling currency on said accounts (pp. 37 TSN dated Nov. 17, 1997). When confronted with the question "When you actually see a person trade an account, how do you know that it is Mr. Sosa's account that is being traded?", Zabala answered "Account lang po ni Mr. Cresencio Sosa ang hinahawakan; ni Mr. Elmer Tabing at that time." (p. 3 TSN dated Nov. 17, 1997) It can be gleaned from the records that Zabala's testimony revealed facts and events she actually is a privy to and had witness although the same is not reflected on the documents. Specifically, Zabala clearly and positively established and remain unrebutted the participation of Elmer Tabing and Estrelita Gaudario in the trading of Petitioner's accounts. These issues now to be resolved by us, therefore are as follows: Whether or not the spot/futures contracts under the accounts of the Petitioner were entered into by unlicensed personnel of Pan-Asia, and whether or not the Petitioner is entitled to recover his remaining investment. After a careful evaluation of the evidence presented, this Hearing Panel is convinced that the spot/futures contracts under the account of the Petitioner was entered into and traded by employees of Pan-Asia in the person of Elmer Tabing and Estrelita Gaudario. Judicial notice is also taken that the aforenamed persons were never licensed to act as commodity futures salesmen as shown by the Certification of the certified by the Brokers and Exchanges Department (BED) dated November 14, 1996. (exhibit "FF") Considering the patent violation of Sec 20, Rules and Regulations on Commodity Futures Trading Petitioner is thus entitled to a full recovery of his remaining investment with Pan-Asia in the amount of P3,398,917.87 as prayed for in his complaint, representing losses he incurred due the void spot/futures contracts by the Petitioner entered into with the unlicensed investment consultants seeing that the Revised Securities Act specifically provides. SECTION 53. Validity Of Contracts . . . (b) Every contract made in violation of any provision of this Act or of any rule or regulation thereunder, and every contract, including any contract for listing a security on an exchange heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this Act, or any rule or regulation thereunder, shall be void. As a consequence of the above citation, the Petitioner who is not at fault here may demand the return of what he has invested. After all, the Rules requires the Respondent corporation to comply with the provision on the licensing of its consultants. Failure to abide and allow these consultants to trade and accept investments and/or enter into contracts, invites peril and full sanction from this Commission. 3 Anent the issue of who among the individual respondents are liable jointly with the Respondent Pan-Asia, this Hearing Panel took into consideration, likewise, the audit report on the trading activities of Respondent Pan-Asia as submitted by the BED of this Commission (Exhibit "HH"). The findings contained therein include the presence of four (4) unlicensed investment consultants within Pan-Asia (exhibit "hh-1") We take judicial notice therefore. The presence of unlicensed investment consultants apart from Zabala, Gaudario and Tabing indubitably established the fact that the management of Pan-Asia failed to comply and implement the rules and regulations in the hiring of and trading of investment of clients by unlicensed investment consultants or traders. Respondent Reinoso, as President of Pan-Asia, cannot therefore feign innocence on the existence of the unlawful activities within the company. She cannot escape the resultant presumption that had she exercised a modicum of care and discretion in supervising the operations of Pan-Asia as well as strictly implementing the existing rules and regulations, she could have easily detected and prevented the unlawful acts now being complained of. Although Respondents Reinoso may not have participated nor been aware of the unlawful acts, we are of the belief and so hold that she have been grossly negligent and cavalier in managing the affairs of Pan-Asia. On the part of the other individual Respondents, the Petitioner has not established by substantial evidence that they are involved, in any way, in the operations of the company, particularly the trading of accounts and/or the supervision thereof. Thus, for lack of sufficient evidence against respondents Patrick Sum, Rolando Rivera, Maybelline Pinky Lapid and Isabelita Dela Cruz, the complaint against them are hereby ordered dismissed. WHEREFORE, judgment is hereby rendered in favor of Petitioner Cresencio Sosa and against Respondents Pan-Asia International Commodities, Inc. and Evangeline T. Reinoso, are hereby directed to pay jointly and severally the Petitioner the amount of P3,398,917.80 representing the balance of his investment plus legal interest to run from the date of the finality of judgment until fully paid. ICHDca SO ORDERED. (SGD.) YSOBEL S.Y. MURILLO (SGD.) IRENE V.C. ISIDORO-TORRES Hearing Officer Hearing Officer Footnotes 1. Par. 29 Contracts entered into by unlicensed account executives are deemed void and of no legal effect." 2. Section 20 Rules and Regulations on Commodity Futures Trading: It shall be unlawful for any person to be associated with any futures commission merchant as a partner, officer or employee (or any person occupying a similar status or performing similar functions) in any capacity which involves (a) the solicitation or acceptance of customers order (other than in clerical capacity) or (b) the supervision of any person or persons so engaged unless such person shall have been registered/licensed by the Commission and such license shall not have been expired nor been suspended or revoked, and it shall be unlawful for any futures commission merchants to knowingly permit such person to become or remain associated with him in such capacity." "Section 33-A Unless licensed by the Securities and Exchange Commission, it shall be unlawful for any person to engaged in, or solicit or accept orders or act as conduit, or make or enter into any foreign currency contract which is in the form of future contracts." 3. Article 1412 Civil Code of the Philippines.