The Securities and Exchange Commission (SEC) is supposed to protect small investors from fraud and rapacious Ponzi operators by compelling all companies to register with it and those who fail with their reportorial obligations, from their general information sheets (GIS), changes in their corporate structures to financial reports, run the risk of being investigated.
Now, we have purported trading wizard Mica Francesca Tan (MFT) being creamed for concocting a multi-billion investment scheme on the strength of audited reports conducted by the world’s second largest accounting firm Isla Lipana & Co., the local unit of the equally controversial PriceWaterhouseCooper (PwC), which has been savaged for dispensing dubious accounting reports in China, Australia and other countries.
In a rare show of its steel nerves, SEC, which has been collecting enormous amounts of fines for corporations that are loath to abide by their reportorial requirements, the agency tagged PwC for “colluding with MFT” to produce glowing reports that lured investors to part with their cash in the hope of snagging 18% interest earnings annually. Why were ordinary investors lured into the Ponzi scheme? In its complaint filed before the Department of Justice (DOJ), SEC said MFT’s audit reports from 2018 to 2022 showed she was earning hundreds of millions, convincing the ill-starred investors that she was so liquid she could pay them between 1% and 1.5% monthly, for a total take of 18% a year.
Tan apparently fooled the SEC itself since she was able to use the audited financial statements (AFS) certified by Isla Lipana to sell unregistered securities. How she was able to do so under the very nose of the SEC is hard to explain. From 2018 to 2021, the MFT AFS reported a total income of P890.998 million, sourced entirely from dividends from its subsidiaries 32nd Street Prime Diner, Asianinvest Consultants, Meihao Corp., Saladstop Spain, Mr. Angel Credit, Mondial Medical Technologies, Water Woods Group, and Accentik Inc., which is owned by Mica’s husband Carlos Cancio. From 2018 to 2021, the SEC’s indefatigable investigators could have knocked on the MFT’s offices and inquired into the promissory notes and investment deals it has been selling.
It is only now that the SEC’s general accountant has revealed the shenanigans perpetrated by MFT, starting with the fact that the supposed MFT subsidiaries had not declared any dividend income or possessed adequate retained earnings to support such dividend declarations. In short, MFT’s dividend income was a mirage, and the interest that the investors should earn was an illusion. The entire operation was a big scam that treated investors as a bunch of bozos.
SEC pointed out that Isla Lipana & Co. and its auditors – Ruth F. Blasco for 2018, 2019, and 2020, and Geraldine Hammond-Apostol for 2021 – “rendered their opinion as if such irregularities did not exist.” If the SEC were to be truly serious in prosecuting MFT, then it must also go hammer and tongs against Isla Lipana & Co. since the apparently falsified AFS from 2018 to 2021 could not have been rendered without the accounting firm’s approval.
Indeed, Isla Lipana & Co. provided an unqualified opinion in the 2020 AFS and 2021 AFS, deeming them as fairly representing MFT’s financial condition in all material respects and in accordance with generally accepted accounting principles (FAAP) and the framework for financial reporting. The company issued qualified opinions on MFT’s 2018 and 2019 AFS but nothing was disclosed about the fake dividend incomes reported by MFT. “As one of the ‘best in the fields of auditing in the country,’” SEC argued that Isla Lipana & Co. should have followed procedures in line with the Philippine Standards on Auditing. The auditors repeatedly committed acts that concealed the actual financial status of the MFT Group to the prejudice of its investors, it stressed.
In response, the firm confirmed that MFT Group was its client but clarified that it was only auditing the firm “as a standalone entity and not any other company within the group, or the group in general.” In the MFT’s books, there was no record of the funds from investors. The promissory notes (PNs) issued to investors were not issued by the MFT subsidiaries but under the names of Tan, Roxanne G. Agbayani (Foundry incorporator and treasurer) and Noel M. Olan (Foundry representative agent and director.) Tan’s relatives were also well entrenched in MFT and its subsidiaries: Eduardo F. Tan (vice president or treasurer and Mica’s eldest brother); Charles Edward F. Tan (corporate secretary or treasurer); Enrique, and; Florita Tan (corporate secretary or treasurer).
