The Banco Filipino pyramid scam

James Ryan Jonas

Back in 2008, several PinoyMoneyTalk forum members were lured by Banco Filipino’s promise of high returns for their deposits. At that time, Banco Filipino (BF) was offering gargantuan interest rates, with one time deposit scheme offering to double one’s money after 5 years.

Referring to that Banco Filipino time deposit offer, PMT Forum member yellowminded commented in December 2008: “If you think about it, with monthly interest out, after 3 years you’d have gotten back more than half of P500,000.”

To which another member, wintan2006, replied in jest:  “That is kung buhay pa ang Banco Filipino before you have doubled your money.”

The eerie reality is, as of March 2011, Banco Filipino is already closed.

Executives blamed the the Bangko Sentral ng Pilipinas (BSP), the country’s central bank, for the closure. They claim the BSP has still not acted on their request for a P25 billion worth of financial assistance and regulatory relief which they are supposedly entitled to get as compensation for the bank’s illegal closure in 1985.

The BSP issued a statement yesterday, however, accusing the bank of operating a Ponzi or pyramid scheme.

A Ponzi or pyramid scheme is a fraudulent investment program where funds from new investors are used to pay the principal and interest of old investors. It was named after Charles Ponzi who ran multi-million dollar investment scams in the US in the 1920s. 

It is called a pyramid scheme because in order to perpetuate the investment program, new investors have to be recruited to be able to pay original investors who are at the “top” of the pyramid. Sooner or later, however, the new investments cannot anymore cover for the maturing investments, causing the “pyramid” to collapse and investors to lose money.

According to the BSP, “Banco Filipino’s only way of operating is to continue engaging in a Ponzi scheme where withdrawals are funded by later deposits.”

It supposedly attracted investors by promising high returns on special deposits, such as the ones several PMT members availed of since 2008. The BSP said the bank engaged in such Ponzi schemes because it was “unable to generate enough income from normal banking operations.”

The BSP also accused Banco Filipino of paying hefty compensation to their executives, causing further deterioration in the bank’s financial health. The bank allegedly paid executives and consultants such as former SEC chair Perfecto Yasay and lawyer Harry Roque more than P245 million in 2010 alone — a lot more than the million-peso average salaries of top bank executives in the Philippines.

The BSP said that the higher-than-usual time deposits contributed to the ballooning of the bank’s interest expense that resulted to annual losses averaging P2.8 billion from 2007 to 2009.

Unfortunately, most of Banco Filipino’s depositors who availed of these high-yielding time deposits a few years go did not have a chance to see their funds mature.

Right now, they are waiting to be reimbursed by the PDIC, joining other depositors of failed local banks such as the Legacy Group, First Country Rural Bank, BMS Bank, Rural Bank of Nozagaray, Philippine Farmers Bank, and a few other who have recently closed.


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James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.