Edward C. Yap vs. Queensland Tokyo Commodities, Inc., et al.

[SEC-SICD * CASE NO. 5523. June 27, 2000.] For: Breach of Trading Contract, Recovery of Investments and Damages EDWARD C. YAP , complainant , vs . QUEENSLAND TOKYO COMMODITIES, INC., ET AL. , respondents . Trading Contract; breach of; refund of investments; case at bar. In the case at bar, there was inherent fraud from the very beginning. . . . In sum, the manipulation is very evident and it only shows that there was no trading that happened but the price is only dictated by the respondents to the prejudice of the complainant. . . . There being fraud and misrepresentation on the part of the respondents, complainant is entitled to the refund of his investments, nothing more, nothing less. TaDCEc D E C I S I O N This is an action for breach of trading contract, recovery of investments and damages filed by complainant Edward C. Yap (Yap for brevity) against Queensland Tokyo Commodities, Inc. (Queensland for brevity) and Jorge S. Pea (Pea for brevity). In his Complaint, Yap alleged that respondent Pea convinced and persuaded him to invest with Queensland in its community futures trading which the former represented to be risk free, well managed accounts and high returns of investments and withdrawable at any time upon demand; that Yap was attracted and fully convinced of such representation of Pea, hence on December 20, 1995, Yap and Queensland executed a trading contract denominated as Customer's Agreement for Queensland to open and/or continue to maintain one or more accounts for the purchase and/or sale of futures contracts for and in behalf of complainant, and under which agreement Yap authorized, among others, Queensland to receive and/or execute Yap's orders for futures contracts through Queensland's principals, agents, or correspondents; that Yap and Queensland likewise executed on the same date, that is, on 20 December 1995, the rules for commodity trading denominated as "Guidelines for Spot/Futures Currency Trading, in relation to the aforesaid customer's agreement; that Yap and Queensland likewise executed another agreement/contract denominated as Addendum in relation to the aforesaid customer's agreement and the rules for commodity trading; That in view of the aforesaid representation of Pea and his assurance that he is a pro-client, Yap likewise executed a Special Power of Attorney authorizing Pea to take charge of his account with Queensland; that Yap then deposited with Queensland under his account No. QC 5076 a margin deposit by way of personal check, ABC MC000166 with a face value of Five Hundred Thousand Pesos (P500,000.00) as shown by Margin Receipt No. 9109 dated 21 December 1995 issued by Queensland; that an additional margin was also made by Yap by way of personal check; ABC 000193466 in the amount of Two Hundred Thousand (P200,000.00) as shown by Margin Receipt No. 9133 dated 5 January 1966 issued by Queensland; that upon receiving the aforesaid trading investment money of complainant, Queensland assigned Yap's account to Pea on the strength of the special power of attorney; that on January 3, 4, and 5, 1996 while Yap was at the respondent's Office observing how his money was traded by respondents, he was then on a locked position due to which he instructed Pea to unlock it when there would be a sign of correction from the market which was expected to happen anytime. After the big 200 points drop on January 05, 1996 and after inquiries from Pea why he failed to unlock Yap's position despite his instructions, the former said that he fell asleep; that previous to this event, that is, on January 06, 1996, through fraud, deceit and negligence, and in violation of the aforesaid trading contract and power of attorney, Pea in advised Yap who was then on the right track to change their open-sell position the other way; that after a few minutes, the market started moving towards complainant's previous position, and instead of locking or actualizing his loss, he was advised by Pea that it would recover and just to tolerate it as Yap had enough money to support the position; That finally, Yap was ill advised to cut loss 8 lots wherein he could have recovered all his loses and Pea informed him that he could sign a Prime Deposit for cutpoint, as anyway if the market would not correct or recover, Yap would have enough margin to hang on at least up to the 2:00 P.M. deadline; that after liquidating 8 lots, information regarding the cutpoint promise deposit was given, but to exercise that option was then too late; that the above fraudulent and; deceitful acts of Pea which resulted in the loss of all of Yap's investment money constitute a breach of their contract, to Queensland's own advantage but to Yap's prejudice, which necessitates the return of his investment money to him by respondents; that Yap then demanded the respondents to immediately return his investment money but despite repeated demands, the latter failed to do so. ITcCaS In their Answer, respondents raised the following defenses: Complainant has no cause of action against respondents. The complaint is based principally on Yap's imputation of fraud, deceit, and negligence on the part of the defendants. However, there is no factual basis for Yap's allegations of wrongdoing because of dealing with Yap, respondents acted in utmost good faith, not failing to advise Yap on the positive and negative sides of his positions. They likewise followed strictly the instructions given by Yap who traded his money directly and made all decisions. In addition, the demand set forth in the complaint has been waived, abandoned, or otherwise extinguished. Prior to the filing of the action or sometime on July 1996, Yap filed a letter-complaint against Queensland with the Manila International Futures Exchange, Inc. (MIFE). The subject matter of that complaint is the same as the one being pursued by complainant in the present action. After Queensland filed its letter-reply on July 30, 1996, MIFE wrote Yap and furnished him a copy of respondents' reply. In the same letter, MIFE stated: "We hope that everything has been cleared. Should you wish to pursue the matter, however, please write/submit to us your specific charges and demands. We shall then refer your case to our Complaints Committee for investigation." Despite this directive, however, Yap never submitted his specific charges and demands. Instead, after the lapse of at least six months, Yap filed the present action. After the parties failed to reach an amicable settlement during the preliminary conference, trial proceeded with Yap himself testifying in support of the material allegations of his Complaint. On the other hand, Charlie Collado and respondent Pea himself testified to refute Yap's claims and prove respondents' counterclaims. The issues submitted for the resolution of this Office are: (a) whether respondents committed acts of fraud and/or deceit in the handling of complainant's account, (b) if the first is resolved in the affirmative, whether these acts resulted in damages or loss on the part of complainant which may be recovered in this action, and (c) if the first issue is resolved in the negative, whether respondents are entitled to recover on their counterclaims. After a perusal of the arguments of the parties, this Hearing Officer rules in favor of complainant. Looking back, as to who initiated the move whether it was respondents who persuaded complainant to invest in Commodity Futures Trading or it was complainant himself who is on the lookout of probable business opportunities in order to double up his money at so short a time. This Hearing Officer is convinced that the first scenario prevails in this situation. Aside from the promised high return of investment, complainant was assured by respondent Pea that he is a pro-client (TSN, pp. 17 & 22, May 24, 1999). There is no passive investor then that could not be convinced, as in many cases, every Filipino is willing to gamble on his last centavo if given the chance to earn millions of pesos. DaCEIc It will be recalled, the whole Commodity Futures Industry was issued a Cease and Desist Order (CDO) from this Commission because of rampant abuses, misrepresentation and lack of players-investors in the market to compliment the unwilling investors who were duped into investing in the commodity futures. It was at this point when this Commission received various forms of complaint ranging from price manipulation, unlicensed traders, return of investments, etc. Complainant was one of the many investors who were victims of these syndicate called Commodity Futures Trading. Aside from the initial gain that the complainant profited from trading during the early stages of the game (TSN, page 46, May 24, 1999) there are no significant and favorable development that may happen to the investor. Instead, he will totally loss his investment in a span of just weeks or even days. In the case at bar, there was inherent fraud from the very beginning. Although, complainant was at some time, within the trading floor, it was Mr. Pea who is in charge of the trading to the point that even the recommendations of complainant to sell or to buy a commodity at a particular point is not followed by Mr. Pea. Instead, he even took the opposite, thus the loss which complainant suffered. As a matter of fact, at one point, the buying/selling order pre-signed by complainant upon instruction and as a requirement from respondent (TSN, pp. 27 & 28, May 24, 1999) was executed by respondent Pea, but the time stamp was not machine validated, but only a handwritten one. In sum, the manipulation is very evident and it only shows that there is no trading that happened but the price is only dictated by the respondents to the prejudice of the complainant. The contention of the respondents that complainant's cause of action has been waived, abandoned, or extinguished is untenable. Complainant can not be faulted for not pursuing his claims against respondents from the Manila International Futures Exchange (MIFE) considering that said exchange is also controlled by people closely identified with the brokers/owners. Besides, the same has been rendered moot and academic considering that MIFE was likewise closed and or issued a Ceased and Desist Order by this Commission and lately, was subjected to liquidation. There being bad faith, fraud and misrepresentation on the part of the respondents, complainant is entitled to the refund of his investments, nothing more nothing less. In so far as the claim for moral and exemplary damages, there being proof that complainant was a prior investor in commodity futures also with other brokers, thereby he has already gained experience in the trade and he knows the risk in it, complainant must also suffer for such consequences of losing, if necessary. Considering that in filing this suit, complainant was constrained to seek the services of counsel, he is likewise entitled to attorneys fees of at least ten percent (10%) of the total award herein. WHEREFORE, judgment is hereby rendered: 1. Declaring respondents liable for the refund of complainants' investments amounting to P700,000.00. 2. Complainant's claim for moral and exemplary damages are hereby DENIED; 3. Declaring respondents liable for attorneys fee amounting to at least ten percent (10%) of the total award herein. 4. No pronouncement as to cost. IHDCcT Considering that respondent Queensland Tokyo Commodities, Inc., is now undergoing liquidation, let this Order, upon finality, be forwarded to the SEC Appointed Liquidator for satisfaction thereof. SO ORDERED. EDSA-Greenhills, Mandaluyong City. June 27, 2000. (SGD.) JULIETO F. FABRERO Hearing Office