What we know: the National Bureau of Investigation (NBI) raided the offices of PFEC (Performance Foreign Exchange Corporation or Performance Forex) at the Enterprise Building in Makati yesterday.
Why the NBI raided PFEC
The NBI gave the following reasons for conducting the raid: (1) some investors reported they have been scammed by PFEC; and (2) that the company is suspected of operating illegally (that is, against the stated purposes in its SEC registration).
This was reported in this Philippine Daily Inquirer article:
[An NBI official] said the raid was prompted by complaints filed by several investors who claimed to have fallen victim to an investment scam perpetrated by the firm.
"We received information that the firm was illegally operating as a foreign currency trader," the NBI source said.
If you were one of these investors who have been scammed, we encourage you to post on the PFEC Discussion Thread in the forum so that other people, including fellow PFEC investors, would know about your plight.
If the NBI, however, is acting because of the supposed relation of PFEC with the "other investment scam," Performance Investments Products Corporation (PIPC), the raid appears to be premature because the NBI themselves claimed no link is established yet between PFEC and PIPC:
The NBI said it has yet to determine if Performance Forex was connected with another foreign exchange trading firm, Performance Investment Products Corp. (PIPC), whose Singaporean owner, Michael Liew, allegedly disappeared with at least $250 million of investors' money.
"We still don't know if this is a separate company or an offshoot of the PIPC," the NBI source said, but added that "most likely, the two companies have the same nature of operation."
– From the same Inquirer news story
If the NBI is able to prove that PFEC was illegal because the latter operated outside the purposes stated in its Securities and Exchange Commission (SEC) registration, then the NBI has valid reasons to conduct the raid. But then again, one problem lies ahead. It would still have to contend with the previous Supreme Court decision that struck down a 2001 NBI Cease and Desist Order against PFEC.
Why the Supreme Court ruled for PFEC in 2001
Here is a summary of events related to that Supreme Court ruling:
January 16, 2001. The NBI's Compliance and Enforcement Department issued a Cease and Desist Order against PFEC, following an inquiry that supposedly showed the company engaging in the "trading of foreign currency futures contracts in behalf of its clients without the necessary license" — a violation of Section 11 of R.A. No. 8799, The Securities Regulation Code.
January 25, 2001. PFEC asked that the Cease and Desist Order be lifted, alleging that: (a) it has not violated any law or regulation in the conduct of its business; (b) it has been operating in accordance with the purposes for which it was organized; (c) it has not engaged in currency futures contracts trading; and (d) its business involves "spot currency trading which is not a form of currency futures transaction."
February 8, 2001. The SEC sent a letter to the Bangko Sentral ng Pilipinas (BSP), requesting a "definitive statement" that the PFEC's business transactions are a form of financial derivatives and, therefore, can only be undertaken by banks or non-bank financial intermediaries performing quasi-banking functions. The next day, the SEC denied PFEC's motion to lift the cease and desist order without waiting for the BSP's response.
April 23, 2001. The SEC made the Cease and Desist Order against PFEC permanent.
August 13, 2001. The BSP sent a response to the SEC's Feb. 8 letter, stating that PFEC's business activity "does not fall under the category of futures trading" and "can not be classified as financial derivatives transactions."
February 11, 2002. The Court of Appeals issued a decision in favor of PFEC, ordering the SEC Cease and Desist Orders to be "set aside."
July 20, 2006. The Supreme Court upholds the decision of the Court of Appeals.
In the said ruling, the Supreme Court pointed out two requirements that were not present which voided the SEC Cease and Desist Order against PFEC.
First, the SEC supposedly failed to "conduct proper investigation or verification" before issuing the Order. The Supreme Court considered the BSP opinion an "essential part of the investigation and verification process," which the SEC failed to acquire prior to issuing the Cease and Desist Order against PFEC.
Second is that "there must be a showing that the act or practice sought to be restrained will operate as a fraud on investors or is likely to cause grave, irreparable injury or prejudice to the investing public." Simply speaking, the Supreme Court was asking the SEC to prove that PFEC constituted as a fraud and would consequently cause "injury or prejudice" to the public. However, the Supreme Court again stressed that this could be determined only after the BSP submitted its findings to the SEC. Recognizing that the SEC lacked enough proof to show that PFEC would injure or prejudice the investing public, the Supreme Court affirmed the Court of Appeals ruling that ruled in favor of PFEC.
Why a new Cease and Desist Order may be difficult to file against PFEC
In yesterday's NBI raid of PFEC offices, the second requirement is deemed to have been met if indeed the NBI has enough complainants against PFEC. But as mentioned earlier, these investors must point exactly to PFEC — NOT to PIPC — as the one that defrauded them, unless the link between the two companies has been clearly established.
As for the first requirement, the NBI and SEC have to show that a "proper investigation or verification" was conducted that ascertained the illegal operations of PFEC. Thus, a new Cease and Desist Order against PFEC is, at the moment, unlikely — unless new pieces of evidence against the company have been gathered or the BSP changes its previous statement about the nature of PFEC's business.
Again, we wait and see.
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