Eduardo Herrera vs. Kingly Commodities Traders and Multi-Resources, Inc.

[SEC-SICD * CASE NO. 2993. December 14, 1990.] EDUARDO HERRERA , complainant , vs . KINGLY COMMODITIES TRADERS AND MULTI-RESOURCES, INC. , respondent . D E C I S I O N This is a complaint for the recovery by the complainant of his deposit with the respondent of the sum of P261,925.00 and interest; damages and attorney's fees, cancellation for respondent's license to engage in commodities trading and the revocation of its corporate franchise allegedly because the respondent committed fraudulent misrepresentations, mishandling of funds, unauthorized withdrawals and payments, and its refusal to return the investment and to pay the profits of the complainant. llcd In its answer, the respondent specifically denied that it committed any fraudulent misrepresentation, mishandling of funds, unauthorized withdrawals and payment, and refused to return his deposits or to pay his profits. The answer interposed a counterclaim when the parties failed to come to any amicable settlement, trial on the merits proceeded. Complainant Herrera testified that he became an investor of the respondent corporation when Ms. Olga de Ramos, an investment consultant of the respondent together with a lady companion, came to his office in August, 1985, and told him that his money will earn from 20 to 30 thousand pesos a month. He told them that his money was kept as time deposit in the bank. They told him that he would profit more if he invests his money with the respondent. Ultimately convinced, complainant initially deposited P80,000.00 on August 26, 1985 to open Account No. CAF-2801 evidenced by a deposit slip (Exh. A) duly signed by Ms. de Ramos (Exh. A-1) and a margin receipt (Exh. A-2). After three (3) days when this check was cleared, Ms. de Ramos returned with the rules and agreement to be notarized but she came back after one (1) week and gave him a copy on September 2, 1985 which was notarized. When he signed the document, he was not given the opportunity to read the same. On September 16, 1985, he again deposited P47,515.75 to open another account in the name of his wife Teresa Herrera identified as Account No. CAF-2802 upon the idea of Ms. Ramos (Exh. B; Exh. 1), Ms. de Ramos told him that this money will be transferred to his account in case he will suffer trading losses. He further deposited P17,299.25 under Account No. CAF-2802 on October 25, 1985 (Exh. C; Exh. 2); P24,000.00 under Account No. CAF-2801 on January 14, 1986 (Exh. D); P20,000.00 under Account No. CAF-2801 on January 17, 1986 (Exh. E); P5,000.00 under Account No. CAF-2801 on February 20, 1986 (Exh. F); and P 68,317.00 under Account No. CAF-2801 on February 28, 1986 (Exh. G). When he started to lose in his trading, he told respondent that he was replacing Ms. de Ramos, who was not a licensed trader with Alfredo Agdeppa who was licensed. This was accepted by the respondent. Agdeppa served as his consultant until his last transaction on April 28, 1986. His transactions are listed in his ledger (Exh. H) although he does not know who Lydia Chia was as indicated in the ledger to be his consultant. The complainant further testified that the respondent furnished him several trading balance sheets (Exhs. I; I-1 to I-14; Exhs. 3; 3A to 3N). The complainant likewise testified that he came to know that both Olga de Ramos and Alfredo Agdeppa are not licensed commodity futures solicitors and presented a certification to this effect from the BED signed by Director Gloria (Exh. J). He also filed a complain with the BED (Exh. K; K-1; K-2). In addition to the rules and agreement he signed under Account No. CAF-2801 in his name (Exh. L; Exh. 4), he also signed a similar contract in the name of his wife, Teresa Herrera under Account No. CAF-2802 (Exh. M; Exh. 5), He also testified that he signed blank, instructions of sale and purchase (Exh 6 to 35) to which, however, were attached the pertinent sales and purchase reports (Exhs 6-A to 35-A). He did not however sign Exh. 6 (an instruction of purchase); Exh. 10 (an instruction of sale); Exh. 13 (an instruction of purchase); Exh. 18 (an instruction of sale); Exh. 34 (an instruction of purchase); and Exh. 35 (an instruction of purchase). He did not object in writing to any of the sales and purchase reports submitted to him because according to his consultant, it was enough to call by telephone or to go to the office of the respondent. Complainant furthermore testified that on the basis of the trading balance sheets (Exhs. I; I-1 to I-14; Exhs. 3; 3-A to 3-N) and his ledger (Exh. H) he has a balance of P14,155.00 which he withdrew, from which was deducted respondent's commission of P7,000.00. Finally, he agreed to pay his counsel P25,000.00 in attorney's fees. On cross-examination, complainant Herrera testified that he is a dealer in imported frozen meat and canned goods and supplies them to groceries and big hotels; that he also deals in real estate; that he was a law graduate although he did not take the bar because he got married early. That three (3) months after he first invested with the respondent, he likewise invested with A and A Continental but this was wiped out. In addition to the Customer's Agreement for Acct. No. CAF-2801 (Exhs. L; Exh. 4) he also signed the corresponding Risk Disclosure Statement (Exh. 4-A; 4-B; 4-C). Likewise, in addition to the Customer's Agreement that he signed for Acct. No. CAF-2802 in the name of his wife Teresa Cabugwason (Exh. M; Exh. J) he also signed the corresponding Risk Disclosure Statement (Exh. 5-A; 5-B; 5-C). He opened the Account in the name of his wife upon the idea of de Ramos and a certain Chia who is another employee of the respondent. Respondent traded his Acct. No. CAF-2802 which fact he accepted because his money is with the respondent. Respondent traded his Acct. No. CAF-2802 in the name of his wife without his consent and when he incurred losses, respondent asked him for support. When he incurred losses with Olga de Ramos, he asked the respondent to replace her with Agdeppa through a letter dated April 25, 1986 whom he authorized to liquidate his hedge sell position (Exh. 36). When respondent received his letter authorizing Agdeppa to liquidate his position (Exh. 36) his positions were liquidated. He likewise admitted that he made the additional deposits (Exh. D; E; F; and G) to support his positions. He further admitted that he was in possession of his ledger (Exh. "H") since the first week of February, 1986 but did not have the chance to question it. He also admitted that he did not send the respondent any demand letter and did not instruct his lawyer to do so. He filed his complaint directly with this Commission when the sustained losses in his account CAF 2801 and in the account in the name of wife, CAF 2802. He opened another account in the maiden name of his wife Teresa Cabugwason because Agdeppa insisted that if he will not open the new account, there is no way he can recover his losses. With respect to the instructions which he did not sign (Exhs. 6, 10, 13, 18, 34 and 35) he admitted that he received their corresponding reports (Exhs. 6-A; 10-A; 13-A; 34-A and 35-A) but he did not object thereto in writing within three (3) days from receipt as required by Article 9 of the Customer's Agreement. He likewise testified he continued to trade because he wanted to recover his losses. He likewise admitted receipt of all the reports pertinent to his transactions (Exhs. 6-A to 35-A) and that he did not question any of these in writing within three (3) days from receipt. llcd After his cross-examination the complainant testified by way of additional direct examination that he filed a complaint against the respondent with the Provincial Fiscal's Office of Rizal (Exh. T; T-1; T-3). Garroll Tang testified for the respondent. He testified, among others, that the respondent is a broker of commodity futures which are contracts of selling and buying of future delivery of certain commodities are traded abroad or locally at the Manila International Futures Exchange which is sanctioned by this Commission. Respondent derives its income through commissions charged clients whose orders they executed. The complainant is one of the respondent's clients who opened and maintained Acct. No. CAF-2801 in his name, and Acct. Nos. CAF 2802 and C71-1014) in the name of his wife. He signed the appropriate contracts (Exhs. 4 for CAF 2801; 5 for CAF 2802; and 43 for C71-1014) and the appropriate Risk Disclosure Statements thereof (Exhs. 4-A; 5-A; 43-A). The complainant traded the three (3) accounts separately and all transactions were duly recorded in their ledgers (Exhs. 45 for CAF 2801; 46 for CAF 2802; and 47 for C711014). The witness also testified that the consultant of the complainant was Lydia Chia who was properly identified as his adviser in his ledgers (Exhs. 45-A; 46-A; 47-A). Lydia Chia was duly licensed by this Commission to act as an investment consultant. The witness further testified that the complainant authorized all his transactions (Exhs. 6 to 35); that he was notified thereof by way of sales and purchase reports (Exhs. 6-A to 35-A); and that he did not question any of these transactions. The witness also testified that the complainant did not send any demand letter in connection with this case. On cross-examination witness Tang testified that even if the complainant did not sign the instruction of purchase (Exh. 6), he agreed to the purchase because he did not complain. This is supported by provision nos. 18 and 22 of the Customer's Agreement. The customer is notified whether his transactions resulted in a profit or loss through the trading balance sheet which the respondent sent to him. The respondent further charges the customer a P7,000.00 commission whether the transaction resulted in a profit or loss. The Commission is charged because of the service rendered. When the customer receives the trading balance sheet he is informed that he has a complete cycle of one transaction and if this resulted to a loss, it is his decision whether to continue or to withdraw whatever money he has with the company. The complainant confined his transactions in imported soy beans; that the complainant understood commodity futures trading because from his conversation with the respondent, he was made to understand that the complainant also traded in another commodity house. The customer is allowed to withdraw his deposit but in the case of the complainant, he did not give the respondent any instruction that he wanted to withdraw his profit. On re-direct examination, witness Tang testified that the complainant did not question any of the trading balance sheets which reflected the results of his transactions. Further, the respondent charges the complainant commission by authority of provision nos. 13 and 19 of the Customer's Agreement. The deposit of P47,315.25 covered by Margin Receipt No. 12236 (Exh. B) was properly credited to the account of the complainant and reflected in the ledger of Acct. No. CAF 2802 (Exh. 46). The deposit of P17,288.25 covered by Margin Receipt No. 12465 (Exh. C) was credited to Acct. No. CAF 2802. The deposit of P24,000.00 covered by Margin Receipt No. 12853 (Exh. D) was credited to Acct. No. CAF 2801 and duly reflected in the ledger (Exh. 45). The deposit of P20,000.00 covered by Margin Receipt No. 12871 (Exh. E) was credited to the Acct. of CAF 2801. The deposit of P5,000.00 covered by Margin Receipt No. 3056 (Exh. F) was credited to Acct. No. CAF 2801. The deposit of P68,310.50 covered by Margin Receipt No. 13082 (Exh. G) was credited to Acct. No. CAF 2801. The complainant likewise made several withdrawals from his account. He withdrew P7,155.00 on April 29, from Acct. No. CAF 2801 and practically closed this account. He likewise withdrew P2,000.00 on December 18 from Acct. No. CAF 2802 which he maintained in the name of his wife Teresa Herrera and practically closed the trading of this account. The complainant deposited P60,000.00 under Acct. No. C71-1014 which he maintained in the name of his wife Teresa Cabugwason. The deposit however bounced resulting to a loss of P7,000.00. On April 30 Teresa Cabugwason deposited P7,000.00 to repay the loss that she incurred to close her account. All these transactions are reflected in the ledgers of the various accounts maintained by the complainant. On the basis of the evidence on record, the deposits sought to be recovered by the complainant from the respondent were duly credited and traded under the various accounts he opened and maintained. These accounts are CAF 2801 in the name of Eduardo Herrera; CAF 2802 in the name of Teresa Cabugwason. The last two (2) accounts although opened by the complainant are in the name of his wife and traded separately. Complainant Herrera signed Separate contracts and risk disclosure statements for the three (3) accounts. While he insisted that his consultant was originally Olga de Ramos whom he later replaced at his own initiative with Alfredo Agdeppa when he suffered losses in his trading, it appears from the records that he was in fact represented by Lydia Chia who was duly licensed by this Commission (Exhs. 45, 46 and 47). Further, it is clear that the complainant authorized all his transactions and that he was duly notified about the results thereof through the various trading balance sheets and purchase and sales reports that he received. While it is true that he did not sign some instruction forms (Exhs. 6, 10, 13, 18, 34 and 35), he however acknowledged receipt of the pertinent sales and purchase reports (Exhs. 6-A, 10-A, 13-A, 18-A, 34-A and 35-A). The sales and purchase reports warned the complainant that under Article 9 of the Customer's Agreement he must check and examine the contents of the report and raise his objection thereto in writing within three (3) days from receipt. Article 9 of the Customer's Agreement reads: "Reports of executions of orders and statements of my account shall be conclusive if not objected to an officer of your company in writing within three (3) days from receipt thereof." (Exh. L-1/4; M-1/5; 43). The complainant was therefore aware about the results of his transactions. He accepted such result for as in fact, he did not question any of them in writing within the three (3) day period required by Article 9. Furthermore, the complainant was aware of his losses when he demanded that Olga de Ramos be replaced by Alfredo Agdeppa. He confirmed his losses without any reservation in his letter dated April 25, 1986 (Exh. 36) where he authorized Agdeppa to liquidate his hedge sell position as soon as possible. Per his own testimony, he confirmed that he made additional deposits (Exhs. D, E, F and G) to support his positions. He likewise confirmed by his own testimony that his balance was only P14,155.00 as correctly reflected in the trading balance sheets (Exhs. I; I-1; I-14; Exhs- 3: 3-A to 3-N) and ledger (Exh. H) which he withdrew. He however questioned why the respondent charged him a commission of P7,000.00 which was however authorized by provision nos. 13, and 19 of their contract. From the evidence adduced by the parties, this Hearing Office finds that the complainant failed miserably to prove the fraudulent misrepresentations, mishandling of funds and unauthorized withdrawals and payments. However, the testimony of the complainant to the effect that Olga de Ramos, later replaced by Alfredo Agdeppa, a solicitor/consultant, were not duly licensed (Exh. J) was not satisfactorily disputed by the respondent. For employing unlicensed solicitor/consultant, the respondent have violated the express provision of Rule 21 of the Revised Rules on Commodity Futures, 1982 for which it should be penalized. On the respondent's counterclaim, no evidence whatsoever was presented to prove the same. WHEREFORE, the instant complaint should be, as it is hereby DISMISSED for insufficiency of evidence. Respondent's counterclaim is likewise dismissed for failure to prove the same. Let copy of the decision be furnished the Brokers and Exchange Department of this Commission for its appropriate action on the violation of its rules. SO ORDERED. (SGD.) ANTONIO M. ESTEVES Hearing Officer