Court stops SEC’s ‘boiler room’ pro

The Muntinlupa Regional Trial Court has stopped the Securities and Exchange Commission (SEC) and two other law enforcement agencies from proceeding with their investigation of the alleged boiler room operations of several individuals.

A writ of preliminary injunction was issued yesterday by the Muntinlupa RTC Branch 256 under Judge Alberto Lerma against the SEC, the Department of Justice and the National Bureau of Investigation to restrain them from evaluating and including in a criminal investigation certain corporate documents seized from the petitioners’ companies.

The SEC-NBI composite team has been actively raiding the offices of suspected boiler room companies as part of intensified efforts to swoop down on the illegal activities of these mostly foreign firms that have been using the Philippines as base for their global investment racketeering, earning for the country the dubious distinction of being the world’s boiler room capital."

Acting on a search warrant issued by the Makati RTC, the SEC-NBI team has filed cases against 21 corporations and a number of individuals including Amador Pastrana, Rufina Abad, Noel Galang, Gregory Barnes and Greshiela Compendio.

Interestingly the Yasay-Murrilo Flores Ladia Bacalla law firm, the legal counsels representing one of the accused individuals Greshiela Compendio who asked for the injunction from the Muntinlupa RTC, comprised primarily of former SEC officials.

Earlier, another suspected boiler room incorporator Rufina Abad, through her lawyer Ronald Olivar Solis, had also questioned the legality of the search warrant, principally asserting that the warrant is general in nature and not specific to an offense, thus contrary to established rules of court and therefore should be deemed null and void.

In the same manner, Compendio’s legal counsel likewise sought to prohibit the SEC-NBI from using the seized articles against them which they argued will prejudice and violate their individual constitutional rights.

The Makati office raid resulted in the seizure of 129 boxes of various office documents that include the list of brokers and employees, sales agreements, official receipts, telephone bills, credit advice, fax messages, client message slips, company brochures, letterheads, envelopes, offshore incorporation papers, lease contracts, vouchers and ledgers.

The petition stated that the agencies acted in excess of their jurisdiction and with grave abuse of discretion when they kept in their possession the seized items and refused to yield them to the Makati court’s custody, a contravention to the prescription in the warrant itself.

The petitioners said this will avoid the possibility of the seized materials being tampered with and/or altered and for the court to have an official inventory and determination if the materials confiscated corresponded with the items stipulated in the search order.

Further, the order prohibited the use of "any and all testimony given by and all individuals who were included in the investigation with respect to the seized documents until such time as there is final judicial resolution on their admissibility or inadmissibility in evidence."

The SEC has emphasized that it has solid basis for charging the 21 corporations and several individuals for violation of Sec. 28 of the Securities Regulation Code, or for engaging in fraudulent securities transactions.

The modus operandi of boiler room operations is to set up a corporation in the Philippines and without a secondary license, as required under the SRC, deals in securities. Using unlicensed brokers, dealers and telemarketers, they then engage in calling of "leads," usually names of CEOs, general managers, directors and other moneyed individuals abroad and offer their services alleging that they are qualified brokers/dealers in securities.

Once money has been collected from the unsuspecting clients or when there is knowledge that the government is closing in on their illegal practise, these companies then close shop, leaving the investors with nothing, and re-open under a different name.