SEC probes 15 foundations for possible fraud

The Securities and Exchange Commission (SEC) is investigating around 15 foundations for possible fraud and non-submission of reportorial requirements in violation of the Securities Regulation Code (SRC), according to an SEC official.

However, Hubert Guevara, head of the SEC’s Compliance and Enforcement Department, refused to identify these foundations, but said some are owned by well-known personalities.

Guevara said some foundations use the name of politicians to get on with their illegal solicitation activities.

He said he has been receiving complaints against these foundations which allegedly have been illegally soliciting funds from the public.

He said the SEC is now working with the Bureau of Internal Revenue (BIR) to firm up the details on the responsibilities of a newly-created joint taskforce, which will will look into the operations of several non-stock, non-profit organizations believed to be posing as legitimate foundations.

Guevara said foundations found to have violated the SRC may either face criminal prosecution or revocation of corporate license or both.

He said the SEC may also opt to tap law enforcement agencies to ensure the criminal prosecution of the responsible individuals.

The criminal cases, he said, will either be filed at the Justice Department or the Prosecutors Office.

To further safeguard the investing public, the SEC has tightened its requirements for non-stock, non-profit organizations to curb illegal foundations that have been making a killing in their solicitation activities.

Guevara said the move is intended to ensure that donations are utilized according to the foundation’s purpose as stated in its articles of incorporation.

A foundation is defined by the SEC as a "non-stock, non-profit corporation with funds established to maintain and aid charitable, religious, educational, athletic, cultural, literary, scientific, social welfare or similar activities primarily through extending grants or endowments."

Foundations applying for registration with the SEC are required to submit their plan of operations, executed under oath, by the president of such organization, specifying their mode of operations and source of funds. Applicants are also required to submit a certificate of bank deposit in the amount of not less than P1 million representing the funds to be used for extending grants or endowments.

Apart from this, foundations shall submit to the SEC, together with the financial statements, a statement of funds application, how much funds were raised, the names of beneficiaries and the corresponding amounts of funds granted or endowed.

The proliferation of foundations in the past several years has put into serious question their true motives. Some foundations are reportedly being put up to accept bribes from political leaders and businessmen.

From a little over 110,000 in December 2001, the number of active non-stock corporations, which include foundations and other non-government organizations, increased to over 200,000.

Benito Cataran, who heads the SEC’s Company Registration Department, said the significant jump in the number of foundations set up was due to their growing popularity as an alternative source of income for unscrupulous individuals. He was quick to admit, though, that not all foundations are illegal as there are some that are for humanitarian projects or are not for business.

Cataran said some are using their SEC registration license to legalize their solicitation activities.

Cataran, however, said it is difficult to distinguish which among the foundations are legitimate because the SEC does not know where these organizations channel their money. He said the Commission though requires non-stock corporations to submit annual financial statements and general information sheets.

Financial statements, he said, are essential in determining whether funds of a company are sourced from an unlawful activity.

Cataran said another reason why foundations have mushroomed in the country is because of the tax incentives given to them.