Foreign exchange investments and the Banilad flyover

In just a few weeks after the dollar pyramiding scam, the foreign exchange investment disaster of PERFORMANCE INVESTMENT PRODUCTS CORPORATION (PIPC), blew up, leaving quite a number of rich Filipinos a few million pesos poorer. It seems the principals/owners of the company, which is Singapore-based, have disappeared together with some $250 million. As of this time, they have not located and only $2 million was left in the corporation coffers. No official amount was mentioned as coming from the Philippines, but I would surmise it would be at least $50 million.

The only good thing about this scam is that it did not hit the small guys, but the people who had at least $40,000, which was the minimum lot to be able to participate in this investment.

Some months ago, I received a call from this company for the funds of one of Cebu’s institutions which I had a hand in managing. I visited their office which was nice and listened to their proposal. It was a minimum of $40,000 investment, and they guaranteed that your capital would earn at least 12 percent per annum. It was an attractive proposal because, then and until now, the interest on dollar deposits are between 1 percent to 3 percent. I also understood how they could guarantee the return of principal. They put a portion of the funds in a long term high-yield deposit, while they put the other half into aggresive foreign exchange trading. If they or their traders were that nimble and good, they would really have a chance to deliver on their promise, while earning hefty commissions for themselves and the traders.

What subsequently happened was that their traders were not making money buying and selling foreign exchange; they were even losing money! So, when there were no more new investors coming in, the company could not keep on paying the promised interests, especially since their traders had to keep on putting up margin calls on their highly leveraged trades (they borrowed five to 10 times their capital). The owners/principals, sensing that the situation have very little chance of turning around, decided it was time to disappear.

It was not initially a scam, because it had a legitimate business plan. But the principals were too full of themselves, thinking they could beat the market. Add to it the gunslinging mentality of the traders, it was a disaster waiting to happen.

I did not commit any of the institution’s funds to this investment or to this company, not because I thought it was a scam, but because I thought it was too risky an investment. I had spent time as a foreign exchange trader for a bank, and even spent my lunch hours in the Chicago Board of Trade, and I know the risks. I also did not like the domiciles/addresses of the company which were all tax havens, i.e., Virgin Islands, Vanuatu, etc. This means that you cannot sue them in the Philippines and would have to spend a lot of money to sue them in the domiciles.

Some eleven years ago, there was also a proliferation of Foreign Exchange Trading companies/brokers that descended in the Philippines, and some of them had offices in Cebu City. I know for a fact that a lot of investors lost a lot of money, including many doctors, because it had an office near the hospital. They also had some really attractive young ladies as salespersons. The P200,000 to P1 million that these doctors lost can be charged to experience, but it should have been four times the amount if it were properly invested. These investments then and now, if they are still around, is a scam. These brokers were not really executing the trades in the authorized exchanges. They simulated the trades most of the time and they acted as counterparty, which means they played against you. Since they run the company, there was no way you can win, you had better odds playing blackjack against them.

Again, there is a lesson to be learned from all of the above. Do your homework, ask the right questions, ask for expert advice, and don’t be greedy. Preserving your wealth is as important as getting your wealth.

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The BANILAD FLYOVER issue is not at all related to the investment scams. Its just that a number of people had ask me about the issue, and I happen to know of the plans for Banilad road when I was Chairman of MCWD for a number of years. I also happen to live in the Banilad area, so I will be affected with the eventual solution or non-solution.

I had suggested to Mayor Osmeña, Vice Mayor Rama and Cong. del Mar, that the widening of the Banilad road to six(6) lanes as originally envisioned should be pursued before the flyover. This starts from the flyover in Arch. Reyes up to the Ma. Luisa junction, and includes the widening of the Mahiga Bridge. I had known about this since MCWD wanted to make sure that if we lay new transmission pipes, it will be beyond the widened road. I even heard that all the property owners along the area had signed a waiver that they will allow the widening. You will also notice that a lot of the buildings in the area are setback already—the UC and the adjacent bldgs., the Country Mall, and the gasoline stations. I even suggested that there is a way to avoid the cash cost of paying the “right of way,” which is to pay them with Tax Credit Certificates, which the lot owners can use to pay their real estate taxes over a period of ten years. The cash loss of the City on these certificates will be offsetted by the bigger tax collections from the higher value and more business taxes that will be collected in the area.