The Securities and Exchange Commission (SEC) filed a case against the Maria Francesca Tan (MFT) Group of Companies Inc. and Foundry Ventures I Inc. before the Department of Justice (DOJ) over their illegal investment-taking activities.
Also implicated in the complaint was Isla Lipana and Co., which served as the independent auditor of the MFT Group and Foundry Ventures for fiscal years 2018 to 2021.
The SEC has filed a criminal complaint against the MFT Group and Foundry Ventures for violation of the Securities Regulation Code (SRC), in relation to Section 6 of Republic Act 10175, or the Cybercrime Prevention Act of 2012.
The SEC implicated in the complaint the officers of MFT Group and Foundry Ventures, including Maria Francesca Tan, Eduardo Tan, Florita Tan, Enrique Eduardo Tan, Charles Edward Tan, Christian Konstantin Agbayani, Mario dela Fuente, Philip Tan, Jenna Fuentes, among others.
The filing of the criminal case stemmed from complaints submitted by several investors who participated in the investment scheme of the MFT Group, which later transitioned to Foundry Ventures.
The MFT Group allegedly promised guaranteed returns ranging from 12 percent to 18 percent of the amount they invested, which was considered as interest income. The scheme was perpetuated through the issuance of postdated checks reflecting a 1 percent to 1.5 percent monthly interest to interested investors, who were given either a promissory note or borrower-lender agreement, as proof of their investment.
“The instruments executed by MFT Group and Foundry Ventures are clearly investment contracts considering that the scheme, the transactions, as well as the attendant circumstances show that elements provided under SRC Rule 26.3.5 are all present, which are also the elements under the Howey Test,” the complaint read.
The SEC also noted that the unauthorized investment-taking activities of MFT Group and Foundry Ventures resemble the nature of a Ponzi scheme, since their success and viability are anchored on the additional investments of existing investors and/or the investments of new investors.
A cease-and-desist order was earlier issued by the SEC against the MFT Group and Foundry Ventures in January, which directed the officers and directors of the companies to stop their investment solicitation activities without the necessary licenses from the SEC.
The order was subsequently made permanent on April 1.
In addition, the SEC found that the MFT Group and its officers and directors are liable for 17 counts of misrepresentation in its 2018 to 2021 audited financial statements by reflecting dividend income which has no basis.
The SEC noted that the amount received by the MFT Group from its investors should have been recognized in its books of accounts either as part of the company’s liabilities or creditor’s equity or share capital or stockholder’s equity. This is consistent with the accounting equation that any increase in the asset of an entity must have a corresponding increase in the company’s liabilities or capital or both.
The MFT Group declared dividend revenues from its subsidiaries for the years 2018 to 2021 without basis, as its related companies did not declare any dividends due to insufficiency of retained earnings or, in some cases, due to negative balance or deficit.
The SEC claimed that Isla Lipana colluded with the MFT Group in their fraudulent activities by making it appear that the financial statements of the company were fairly presented despite inconsistencies and inaccuracies in the annual financial statements (AFS).
“The investing public, including and especially MFT’s investors, relied on these AFS in making investment decisions. Stated otherwise, the information/entries in the AFS of the MFT Group were essential in convincing investors to part with their hard-earned money, and entrust the same to the MFT Group, because they presented MFT Group as financially healthy and viable,” SEC said.
“Considering that this discrepancy happened over the years, and given its significant impact on the financial position of the MFT Group, the same cannot be considered an isolated event. The fact that respondent auditors repeatedly engaged themselves in this kind of irregularity is a clear indication of its intention to conceal the actual financial status of the MFT Group, to the prejudice of its investors.”