Rev. Fr. Pio De Castro, S.J. vs. Kingly Commodities Traders and Multi Resources, Inc. et al.

[SEC-SICD * CASE NO. 3291. March 21, 1990.] REV. FR. PIO DE CASTRO, S. J. , complainant , vs . KINGLY COMMODITIES TRADERS AND MULTI RESOURCES, INC. ET AL. , respondents . D E C I S I O N This is a complaint filed by Rev. Father Pio de Castro, S. J. against Kingly Commodities Traders and Multi-Resources, Inc. (Kingly for short) and Augustus Gabutina for annulment of contract, recovery of sums of money, suspension and/or cancellation of corporate license or trading activities with damages, alleging among others, that complainant is the principal of the High School Department of Xavier University and in such capacity, he was in charge of the high school scholarship funds; that sometime in the month of November, 1986, respondent Gabutina approached complainant and initially introduced respondent Kingly's "no risk, sure profit scheme"; that respondent Gabutina during the initial approach, did not merit much the attention of complainant; that subsequently, however, thru repeated calls of respondent Gabutina, the latter was able to convince complainant to place an investment with respondent Kingly in the expectation of using the earned profits in augmenting the High School Scholarship Program of the University; that pursuant thereto, complainant delivered to respondent Gabutina the sum of P50,000.00 on January 15, 1987, for which Margin Receipt CDO No. 0283 was issued and simultaneous to the delivery of complainant's deposit of P50,000.00, respondent Gabutina, taking advantage of and exploiting complainant's busy schedule, made him sign what turned out to be Rules for Commodity Trading and Customers Agreement, Brokers Trading Regulations and Policies, Trading Information and Risk Disclosure Statement, without giving him time to read nor explaining to him the mechanics and risk involved; that after delivery of the amount of P50,000.00, complainant awaited for the advise of the respondent, as the latter assured him of profits to be forthcoming in a week's time; that to complainant's surprise, respondent Kingly on January 22, 1987 instead, advised and demanded from him the payment of their so called "necessary margin" for an additional amount of P50,000.00, otherwise, any order for settlement will be dishonored which in simple terms, meant that he would lose his initial investment of P50,000.00; that he was left with no other alternative but to accede to the demand and on January 26, 1987, he delivered the additional amount of P50,000.00 to respondent Gabutina as evidenced by Margin Receipt CDO No. 0284; that complainant, inspite of his follow-ups, was not advised nor informed by the respondents that he made a profit on April 9, 1987 of P45,140.00 out of his original investment; that sometime on March 26, 1987, complainant becoming uneasy and impatient as to the return of his investment, including the promised profits, demanded from respondents, the immediate return of his P100,000.00 plus profit of P32,280.00; that respondents, using one excuse or another, told complainant to wait for a few days as they allegedly had to secure clearance and approval of payment from their head office in Manila and Hongkong; that after about four (4) days from March 25, 1987, instead of being paid back P132,200.00, complainant was notified by respondents that he had to deliver again another sum of P54,260.00 otherwise, respondents will close and/or cancel the whole or part of his investment; that with no other alternative, complainant was again coerced to deliver to respondents the additional amount of P54,260.00 on March 31, 1987 under Margin Receipt CDO No. 0304 with the assurance from respondents that he would not only be getting back all his investment but profits as well; that to the great dismay of complainant, on April 1, 1987, or barely twenty four (24) hours from March 31, 1987, another notice or call for additional margin came from the respondents demanding an additional sum of P29,300.00 and contrary to respondents' notice on written call for P29,300.00, the latter demanded instead the sum of P50,000.00; that complainant had no more choice and although it took him several days to raise the amount he nevertheless was able to deliver the same on April 7, 1987; that thereafter, complainant reiterated his demand for the return of his investment from the respondents including all the profits; that contrary to the respondents' assurance, complainant was not able to get back even a single cent of his investment; that insidious schemes were adopted and resorted to by respondents so much so that instead of returning complainant's investment as early as March 25, 1987, when it earned a profit of P32,380.00, hid that fact from him and its subsequent calls for additional margins paved the way for complainant to sink deeper and deeper in those dubious transactions; and that up to now respondents failed to return complainant's investment for which he is entitled. cdll In answer thereto, respondents denied specifically most of the allegations of the complaint but stated that most of the allegations are contrary the facts and circumstances of this case; that complainant was not assured about making profits, on the contrary, he was cautioned about the risk involved in commodities futures transactions; that complainant made his initial deposit of P50,000.00 after he examined carefully the nature of commodities futures transactions, the risk involved therein, and the trading regulations and policies, and in addition thereto, complainant executed an acknowledgment that he received his copy of the customer's Agreement and the Risk Disclosure Statement, read and understood their contents, and executed the same freely and voluntarily; that the notice made to the complainant to deposit the additional amount of P50,000.00 is legitimate, lawful, and valid; that complainant made the necessary margin deposit voluntarily and the complainant had the option of making the deposit or refusing to do the same; that complainant was not assured that he will make any profit, much more substantial profit for as in fact, he was cautioned about the risk involved in the transaction; that respondent never received any demand from the complainant for the return of his deposits; that a margin call was made is admitted with the qualification that this was caused by an adverse price fluctuation in Philippine sugar; that respondents did not commit any insidious scheme and/or machination nor did they threaten the complainant but only served notice to him he was on margin call that complainant had the option to refuse to answer the margin call and instead liquidate his position; that complainant voluntarily complied with the margin call, thereby confirming all the transactions resulting thereto that complainant was not assured that he will recover his investments; that as to complainant's allegation that Kingly was actually the one who traded complainant's money, the same is denied, the truth being that complainant never questioned his transaction and he confirmed the same by complying with the various notices of margin call; and that respondent has not received and does not have any record of complainant's letters dated April 6, 1987 and July 21, 1987, respectively. The evidence for the complainant shows that sometime in November, 1986, he met respondent Augustus Gabutina, a senior consultant of respondent Kingly Commodities Traders and Multi-Resources, Inc. and under the guise of the Alumni Association wherein they are trying to raise money, respondent Gabutina approached and encouraged complainant to invest in Kingly which according to the former is more or less safer; that during the Alumni Homecoming, complainant met respondent Gabutina again and the latter repeated the same offer for complainant to make the investment and thinking that being an alumnus, he could help him raise the needed funds for the scholarship funds of the school, complainant finally decided to invest, the initial amount which was P50,000.00 as evidenced by Marginal Receipt No. CDO 0283 (Exhibit "A"); that he was made to sign several documents which he did not bother to read because he trusted Gabutina and he was very much busy at that time; that one of the documents he signed was Kingly Commodities Traders Multi-Resources for Commodity Trading and Customers' Agreement (Exh. "B"); that he was also made to sign several documents such as the Brokers Trading Regulations and Policies (Exh. "C"), the Trading Information (Exh. "D") and the Risk Disclosure Statement (Exh. "E"); that at the time he signed these documents, respondent Gabutina was not able to explain to him in detail the terms, conditions and mechanics of the transactions because he (complainant) was very busy; that after payment of the initial amount of P50,000.00, respondent Gabutina gave him the assurance that within a few weeks time, he could find out the results and probably get profits; that on January 22, 1987, he received a communication (Exh. "F) advising him to put a margin deposit of another P50,000.00 to keep his money intact otherwise he would lose the same; that with much hesitation and in order not to lose the first deposit, he again paid the P50,000.00 as evidenced by Margin Receipt No. CDO No. 0284 (Exh. "G"); that on February 7, 1989, respondent Gabutina made mention about a profit of P45,140.00 he gained from his investment and manifested his desire to withdraw his investment immediately because he needed money which did not materialize; that on February 18, 1987, respondent Gabutina reported to him a loss of P17,580.00 and this time complainant again insisted that they get out from the transaction; that he was told that there was a need to deposit some more since they cannot withdraw the profits right away and instead he was told that there was a need to put up P54,260.00 as order to save everything as evidenced by the Notice of Additional Margin (Exh. "H"); that on March 31, 1987, he gave the amount of P54,260.00 as evidenced by Margin Receipt No. CDO 0304 (Exh. "I"); that one day after he gave Gabutina the amount of P54,260.00 he was told by the latter that he was still lacking and a certain amount was needed more; that on April 1, 1987, he received a notice for additional margin in the amount of P29,300.00 (Exh. "4"); that because he could not immediately put up the additional margin of P29,300.00, respondents Kingly and Gabutina demanded instead P50,000.00 which they said are needed to save all the money he had invested; that he did give the amount of P50,000.00 as demanded on April 7, 1987, with the advise that it was definitely the last; that as of April 7, 1987, he had the total of P204,260.00 investment with the respondent Kingly; that on April 6, 1987, complainant wrote a letter to respondent Gabutina to make sure that his investment was alright before leaving for Manila for medical check-up; that before he left, he was made to sign several documents consisting of twenty (20) forms of instruction of sales and twenty (20) forms of instruction of purchase; and that when he came back to Cagayan de Oro City, he made several demands for the return of his investments and the profits but to no avail. Hence, the instant petition. In their defense, respondents, through witness Caroll Tang, maintained that respondent Kingly is a commodity futures broker; that as such broker, it derives its income mainly on the commission it charges from its clients who wish to place order through Kingly; that complainant herein became an investor of respondent Kingly when he accomplished several documents required by the corporation, such as the Rules For Commodity Trading and Customers Agreement (Exh. "1"), Brokers Trading Regulations and Policies (Exh. "2" ), Trading Information (Exh. "3"), Risk Disclosure Statement (Exh. "4"); that complainant also signed an Acknowledgment Receipt (Exh. "11"), a document showing that complainant actually understood the contents of the documents he signed, and attesting to the fact that he received copies thereof; that the fact that complainant has accomplished all the documents, required for one to start trading with futures trading only show that he was properly briefed on commodities futures trading; that complainant has the option, after receipt of any notice requiring him to make additional marginal deposit, either to deposit the money or just allow the corporation to liquidate his existing position if he does not like it and take whatever balance he has with the corporation; that when complainant decides to comply with the notice to deposit additional money per notice received by him, it was a confirmation that he acknowledges the previous open position and he would like to maintain the same; that at any time, complainant has the right to get out of the market by executing an order that he wants to get out; and that complainant herein did not execute any order for him to get out of the market and instead put additional margin to remain in the market. It may be noted here that complainant is a person who, in our best estimation, is possessed of the requisite reputation, integrity, knowledgeability and judgment because of his professional training. And it is perhaps because of this qualification that he now occupies the position of principal of the High School Department of Xavier University, and as such, he was in-charge of the High School scholarship funds and he was morally bound to see to it that the funds allotted for the scholarship are properly expended. It was also his moral obligation to see to it that the funds earned more profits to augment it. When the complainant then decided to place an investment with respondent Kingly in the expectation of earning profits, he arrogated unto himself the sole moral responsibility to account for the said scholarship funds. That complainant was motivated by good faith in the sense that the purpose for which he acted as such was that the funds could earn profits to improve or augment the scholarship funds, scarcely deserves serious attention. Again, when we take into consideration the fact, by complainant's own admission, that he signed an acknowledgment receipt, there is more reason to believe the testimony of witness Caroll Tang that the client, complainant herein, was properly briefed on the important aspect of commodities futures trading. It proves quite strange, for us, that complainant could have made such a huge investment with respondent Kingly without actually understanding the contents of all the documents he had signed. And it falls beyond our comprehension why a person of complainant's character who is highly-educated, intelligent and experienced man could have neglected or even failed to inquire as to the procedure in trading with future commodities market. The charge that respondents were guilty of fraud and misrepresentation is of no moment for it finds no support in the evidence adduced during the hearing. The placement, as well as the actual trading were made upon a valid call or notice which were all complied by herein complainant without any protest. If only complainant exerted effort which he is supposed to display to protect the interest of the students, he could have availed of the other options open to investors, which is to allow the company to liquidate his existing position if he does not like it and take out whatever balance he has with the company. When complainant decided to comply with the notice to make additional deposits, he in effect confirms the previous position open. And the payment made is an acknowledgment that he would like to maintain his position. In short, he manifested that he would like to still remain in the market, admitted his position in the market and acknowledged the transaction in the market. As testified to by respondents' witness, complainant at anytime could always execute an order to go out of the market. This complainant failed to do and instead he deposited additional margin to remain in the market, a clear indication of a personal motivation. For all the foregoing, we find no sufficient justification, legal or otherwise to hold respondents answerable. WHEREFORE, the instant case should be, as it is hereby DISMISSED, without pronouncement as to cost. SO ORDERED. (SGD.) ALBERTO P. ATAS Hearing Officer