Laws, raids fail to thwart boiler room activities

Even the US Federal Bureau of Investigation is now looking into his companies’ activities, but Pangasinense Amador Apungan Pastrana has managed to elude authorities across the globe who want to pin him down for the shenanigans of his alleged boiler room firms.

Indeed, Pastrana, who is said to head a global network of "collapsible" companies that hype nearly worthless stocks to gullible investors and then just suddenly close shop months later, remains free to enjoy the billions of dollars he is reported to have earned in the few years that he has been in business.

And despite raids last year in Bangkok and Manila, boiler rooms still thrive in both cities as well as other places around the world. Authorities also admit that these operations have grown even more sophisticated as years pass. They say that the heads of some networks have even started to buy banks, intending to use these not only to launder their money, but also to use as centers for their boiler room transactions.

James Martin, who claims to have lost $35 million to Pastrana in a completely different scam and now heads Sydney-based Stock Investigation Research Society (SIRS), says, "Those that were picked up by authorities (so far) were just small fry. They haven’t gotten the big one (like Pastrana)."

Authorities say that the big bosses of boiler rooms are hard to catch largely because the transactions cross borders, giving rise to questions on jurisdiction. Up until last year, in fact, US authorities seemed uninterested in checking boiler room operations, even if the stocks these firms were selling were those listed in the unregulated Over-the-Counter Bulletin Board (OTCBB) of the US NASDAQ. Former boiler room employees themselves say that they were given strict instructions not to call anyone in the US or pitch shares to American citizens, fearing the long arm of US laws.

It was only after US national Christopher Coppola was stabbed to death in Pasig last May that the FBI began scrutinizing boiler room operations, especially those linked to Pastrana. Coppola had reportedly been employed by a Pastrana boiler room in Manila.

The PCIJ has learned that the US Customs police is now also following leads that Pastrana has been laundering proceeds of his illegal operations by amassing properties in the United States.

But Tomas Syquia, acting director of the Compliance and Enforcement Division of the Philippine Securities and Exchange Commission (SEC), echoes Allan Cantado of the National Bureau of Investigation (NBI) in saying that it is difficult to make a case against boiler room companies because of the inadequacies of local and international laws, and the sheer shortage of official manpower.

Cantado points out, too, that in the Philippines alone, prosecuting agencies should first prove that the company does not really hold a license to deal with securities, and that the transactions really existed for a case involving violations of the Securities Regulations Code to prosper.

"The problem is that the complainants are all foreigners and don’t want to come here (to the Philippines)," he says. "They only send documents. Under our jurisprudence, victims have to physically appear before the fiscal to lodge a formal complaint."

Cantado also does not rule out the possibility that boiler rooms get prior warnings before they are raided, leaving the police with little to show afterwards. "Considering that the syndicate is moneyed," he says, "it’s not totally impossible that they pay off or have paid off insiders to tip them off" whenever a raid was or is going to be conducted.

He suspects this is precisely what happened in an NBI raid of a Makati-based boiler room. Recounts Cantado: "When we came in, the coffee on their office desks was still hot. We found out they had left just minutes ago through the emergency exit at the back door."

Yet in March last year, the Philippine SEC thought it finally had some goods on Pastrana after a raid on 88 Corporate Business Center in Makati. The bust had been conducted after a Saudi national who lost $48,811 to two boiler rooms lodged a formal complaint against the companies that duped him. According to the SEC, the raid on 88 Corporate Business Center established the interlocking relationships of boiler rooms linked with Pastrana: not only were several documents on the illegal stock brokering operations of 21 firms all found in one office, but they also share some names as incorporators.

A month later, the SEC filed a criminal case with the Department of Justice (DoJ) against 21 companies and 14 individuals, including nine foreigners and John/Jane Does believed to be working as brokers or telemarketers. Among those charged with the criminal offense of running an operation that trades securities without a license were Pastrana, Rufina Abad, Noel Galang, Hilda Ronquillo, Greshiela Compendio and British national Gregory Barnes.

The SEC thought it had an airtight case. Apart from documents, it was also able to gather sworn testimonies from witnesses who were privy to the inner workings of Pastrana’s companies.

But Pastrana’s lawyers got an injunction order from the Regional Trial Court of Muntinlupa preventing the SEC, NBI and the Department of Justice (DOJ) from using documents seized from the raid as court evidence. The court ruled that the search warrant used to get the documents was invalid as it violated the legal procedure of stating only one offense. The court also charged the SEC and NBI for contempt after the agencies failed to return the documents within the deadline it imposed.

With the documents declared inadmissible by the court, the DOJ last November decided to junk the case for lack of evidence.

Those close to the case say the police in Hong Kong were dismayed to learn what had happened here. The week after the March 2001 raid in Makati, five Filipinos were arrested in a Hong Kong hotel for allegedly trying to launder some $50 million in proceeds from boiler rooms. All five were believed to be working for Pastrana, and were actually based in Manila. The Organized Crime and Triad Bureau of Hong Kong alleged that many of their victims had paid through Hong Kong accounts set up through company-formed agents there.

Today, only one of the five Filipinos remains in detention, the rest having been released on bail. But one of Pastrana’s ex-employees says the alleged boiler room mogul would have been among those caught in that Hong Kong raid had he not gone to the toilet just minutes before the police arrived. According to the former employee, Pastrana had even left his laptop and coat at the hotel lounge. Pastrana is said to have avoided alerting Hong Kong authorities about his departure for the Philippines by renting a private yacht for P10 million and using this for his trip home.

Some observers speculate that the Filipinos would not have had the need to be in Hong Kong had the Bangko Sentral ng Pilipinas allowed Pastrana to keep the small Imus, Cavite-based thrift bank he bought two years ago. Although Pastrana’s income tax returns for 1997 to 1999 showed he had "limited sources of income," the Bangko Sentral still concluded that he was "capable of investing" in the Northpoint Development Bank based on his declared assets and liabilities as of March 2000.

But a "tip" from the banking industry that Pastrana and one of the bank’s new directors, Rufina Abad, had an ongoing securities fraud case with the SEC prompted Central Bank authorities to dig deeper.

Asked to explain these reports, the thrift bank, then already run by Pastrana, submitted a photocopy of an SEC order exonerating him and Abad from the criminal case involving an alleged boiler room, the First Federal Capital Inc. Upon verification with the SEC, the Central Bank discovered it had been given a forged document, as the SEC investigation into First Federal and Pastrana’s other companies was still ongoing at the time. Because of this, coupled with reports that he was engaged in "nefarious activities," the Central Bank rejected the sale of Northpoint to Pastrana.

Carmelita Climente, who has been president of Northpoint since its inception as a thrift bank in 1996, says businessman William Hernandez bought it from Pastrana last December. She says the new owner does not have links with Pastrana, and that the two have yet to meet in person.

Climente denies having any knowledge of Pastrana’s alleged boiler room operations. She says, "My only connection with him was through the bank. (When Pastrana left the bank,) I offered to resign but the Central Bank told me to stay out and run it."

Climente admits, however, that Pastrana once tapped her as a consultant in setting up an investment house that would sell nonconvertible preferred shares to foreigners – which the SEC does not allow. She says nothing happened of the plans because "I was not for it."

According to Climente, Pastrana had envisioned Northpoint to be a "technology bank" that would cater to the ATM needs of small banks. A prospectus of AAP Management, Inc. – Pastrana’s flagship company – given to clients does say that what Pastrana had renamed as United Resources Bank (URB) "will be positioned as a full-technology bank that will capitalize on its relationship with Infoserve Inc., a leading software developer for the banking industry." (Infoserve is not a Pastrana company.)

But the same prospectus indicates that Pastrana had more ambitious plans for the bank in which he had agreed to put in a fresh P400-million equity in December 1999. In truth, it maps out Pastrana’s plans to transfer URB’s head office from Cavite to Makati and then set up a branch in Ortigas Center, where most of his companies are located. By pumping in more cash and merging it with more banks, URB was envisioned to grow into a full-fledged commercial bank with a license to offer trust and foreign currency deposit products, hence freely catering to clients across borders.

A former Pastrana employee says URB was supposed to take care of all the banking needs of Pastrana’s companies, including the alleged boiler rooms, instead of giving out the business to other private banks. But lawyer Rodolfo Pineda, who was president of URB when it was still under Pastrana, denies knowing about any plans that would have the bank becoming a depository of any boiler room. Pineda says aside from incorporating some of Pastrana’s companies, he merely helped Pastrana look for a bank to acquire.

"When I met him, he said he made money from investing in the NASDAQ," says Pineda. "I didn’t realize it was illegal until I heard about it in the news."

Reports in the Austrian media, as well as in the Internet, reveal that Northpoint was not the only bank Pastrana had bought. These reports say Pastrana was part of a group that had bought WMP Bank AG in Vienna in November 2000.

In August last year, newspapers in Vienna reported that the Federal Bureau of Investigation (FBI) had started to look into "a gang of worldwide active financial artists who allegedly bilked a gigantic 15 billion Austrian schillings (US$1 billion) from clients." This syndicate turned out to be the new owner of WMG Bank AG – then already renamed General Commerce Bank (GCB).

Internet reports then said that the bank had been converted into a brokerage house that had become the nerve center of the "large-scale scam." Citing an FBI dossier, the reports said the "perpetrators" of the scam were "Manila- and Los Angeles-based Amador A. Pastrana, the "mastermind of the operations" and US citizens Regis Possino and Sherman Mazur, as well as prominent Saudi arms merchant Adnan Khashoggi.

Two months later, the Banking and Finance Commission of Belgium issued a public warning against the bank, which it said was offering investment instruments to Belgian and foreigners without a license. Various media reports say Austrian police raided the bank, which has since been closed.

The reports had securities regulators in Australia, New Zealand and Thailand scrambling to include GCB in its blacklist of boiler rooms and warning investors not to deal with the bank.

Oddly enough, the Viennese bank to this day maintains a website despite the reported FBI probe and the international blacklist. At its website, www.gcbankag.com, the bank claims to have been in operation for more than 10 years now, and trading on the Vienna Stock Exchange. It even recommends investors to buy shares of Thaon Communications, Inc., an obscure company trading for a fraction of a penny on the OTCBB of the US NASDAQ.