SEC Adm. Case No. 01-08-91 North East Luzon Foundation

SECURITIES AND EXCHANGE COMMISSION Republic or the Philippines

SEC Bldg. EDSA, Greenhills, Manda!uyong City.

IN THE MATTER OF

NortH eASt lUZON FOUNdAtiOn. INC. Y X For: Revocation of Corporate SEC Admin Case No. 01-08-91 (CED Case No. 03-2771) Registration

DECISION

Corporate Registration of respondent North East Luzoi: Foundation, Inc. ("NELFI" for what the corporatior in violation of Section brevity) dated 18 Department ('CED' For consideration of the Commission En Banc is the Petition for Revocation of December 2007, filed by the Compliance and Enforcement I for brevity) on the ground of serious misrepresentation as tol can do or is doing to the damage and prejudice of the public, 6(1)(2.) of Presidential Decree No. 902-A, as amended.

FACtS oF tHE CASE

Petitioner CEd is the departmer:t of the Commission mandated to file petitions for revocation of certificates of registration for violation of the Securities Regulation Code ("SRC'?, the (Corporation Code: P.D. 902-A as amended, including their

Commission. Implementing Ru!esland Reguiations, and such other reievant laws enforced by the

corporation duly reglstered with the Commission on 08 September 1997 under SEC NELFI, formefly the Cagayan Valley Farmer Workers Association, Inc., is a

Registration No. A19b717282, with principal office at No. 70 Diamond Street, Plaridel Heights Subdivision, Santiago City, Isabela.

NELFI's Amerded Articles of Incorporation (`AOI')2 provide that its primary purposes are:

1. To uplift the living conditions of members by assisting them in thel establishments of livelihood facilities, services and

enterpfise.

2. To enpurage the members in the effective utilization of

2 Annex "g" of the Petitioh. 1 Now known as the Enfofcement and Prosecution Department.

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local resources in livelihood activities and thereby improve the living condition in the community.

3. To acquire ioans or other financial accommodations from the finance productive livelihood enterprises. government and private lending institutions in order to

4. To assist and support the members :.: the promotion of their business.

5. To develop and harness the people's: participation in every economic activity towards the development of the community through seif-help and self-reliance.

6. To offer and provide the members, inciuding their families to the promotion and encouragement of small business opportunities to participate actively ir: any program relative entrepreneurs.

NELFI with their respective addresses, nationalities and capital contributions are as follows: Also, as stated in its AOI, the names of the incorporators and trustees of

Artemio L. Corpus Ireneo M. Nicolas Simon M: Sebastian Azucena A. Bonilla Jimmy S. Torres NAME Basilio Street, Sampaloc, Manila Santiago Lodge, Santiago City Santiago Lodge, Santiago City Basilio Street, Sampaloc, Manila Santiago Lodge, Santiago City ADDRESS NATIONALITY Filipino Filipino Filipino Filipino Filipino SHARES NO. OF 10,000 10,000 10,000 10,000 10,000

individuals inquiring about the activities of NELFI, the first of which was a letter- complaint3 dated 16 July 2003 from the office of Representative Arthur F. Celeste, informing the Commission that NELFI has been ailegediy using his name to entice and recruit prospective members in nis district, with the promise that each member This petition stermmed frorr: numerous compiaints and/or queries from various

loan of up to five hundred thousand pesos (P500,009.00) without collateral. upon payment of three hundred seventy five pesos (P375.00), shall be entitled to a

The letter-complaintst, queries and endorsements allege, among others, that:

3 Adressed to Jose Tomas Syquia, Director of CED, CED Petition, Annex C. CED's Petition, Annexes D-1 to D-6.

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1. NELFI is engaged in wide scale recruitment of members

from various parts of the couniry, promising each prospective member a collateral and interest free loan ranging from fifty thousand pesos (P50,000.00) to five hundred thousand pesos (P500,000.00).

2. NELFI's scheme is to recruit persons who would be acting as shall be entitled to the interest and collateral free loans, a study-now-pay-later for students, pension for senior citizens, and disability benefits for disabled persons. coordinators, by recruiting other prospective members, usually two hundred (200) members each. The members

3. The members shall act as marshals, barangay coordinators, pesos (P15,000.00) to thirty thousand pesos (P30,000.00) municipal coordinators, and district coordinators, depending on the number of members recruited by each. They were promised by NELFI salaries ranging from fifteen thousand depending on the position. plus at ieast five thouisand pesos (P5,000.00) allowance,

4. As conditions for membership, NELFI charges a membership from fifteen pesos (P15.00) to twenty-five pesos (P25.00). hundred pesos (P300.00), and identification card fee ranging fee ranging fron: two hundred peso3 (P200.00) to three

regarding NELFI, the Commission issued a SEC Advisory5, which was posted on its website, informing the public that NELFI is not authorized to grant loans, as such is Subsequently, a similar advisory was again issued by the Commission on 27 not included as one of the foundation's purposes enumerated in its AoI. November 2003. On 16 October 2003, acting on the numerous compiaints and queries

individuais from various parts of the country.? receive letter-complaints, queries, affidavits and similar communications from However, despite the posting of these Notices, the Commission continued to

On 09 January 2008, the CED, on the basis of its own findings, fied the instant petition.

On 21 January 2008, the Commission issued an Order directing the officers and the board of trustees of subject corporation to file their comment on the

7 Id., Annexes G, G-1 to G-16. 5 CED's Petition, Annex F. Id., Annex F-1

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petition. On 11 February 2008, NELFI filed a request for extension of time to file the

March 2008 directing NELFI to file its comment/answer within a non-extendibie comment/answer to the petition. Thus, the Commission issued an Order dated o3 period of ten (10) days from actual receipt of the Order.

following defenses: In its Answer dated 10 March 2008, NELFI alleged, among others, the

1. No !oan was promised to entice merr,bership with NELFI be payable in five (5) years without any interest and The prospective members were only informed of a possibility of acquiring financial assistance ranging from one hundred thousand pesos (P100,000.00) to five hundred thousand pesos (P500,000.00), which shall depend on the feasibility of the proposed projects of the members and their capability to effectively manage the same. This financial assistance shall collateral required, in contrast to a loan.

2. No membership fee was required and collected as a be collected from the members, NELFI did not implement condition for membership. Although its By-iaws provide that such provision. The charges for the identification cards and the conduct of seminars are ali minimal, which could not possibly enrich the officers of NELFI. admission fees, annual dues and speciai assessments are to

3. No salary was promised to member recruiters.

4. NELFI offers benefits such as financial assistance, educational assistance, social and health services. At the assistance to any cf its members since it has not finished moment, the foundation has yet to extend financial

and complied with the documentation demanded by its donors and benefactors.

ISSUE

sufficient ground to revoke NELFI's certificate of registration. The sole issue.to be resolved in this case is whether or not there is a

We rule in the affirmative.

Section 6(I)(2) of P.D. 902-A, as amended reads

"sEC. 6. In order to effectively exercise such jurisdiction,

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the Commission shall possess the following powers:

X X X

the franchise or certificate of registration of corporations, iaw, including the following: partnerships or associations, upon any of the grounds provided by (l) To suspend, or revoke, after proper notice and hearing

X X X

corporation can do or is doing to the great prejudice of or damage to the generai public; 2. Serious misrepresentation as to what the

x x x"(emphasis supplied)

as: (1) uplifting the living co:iditions of members by assisting them in the fees and charges, and promising therm with all sorts of benefits, which were never establishments of livelihood facilities, services and enterprise, and (2) encouraging the members in the effective utilization of iocal resources in livelihood activities, thereby improving the living conditions in the comrnunity. However, while holding itself out as a legitimate foundation, it is more interested in resorting to devices and schemes to defraud the public by recruiting members, coliecting from them various delivered. NELFI was purported!y organized for noble and philanthropic purposes such

nor collaterai. free loans to entice the public to become members of the foundation. On the contrary, NELFI reiterates that it is only offering financial assistance to members. which is different from a loan since such financial assistance bears neither interest In its Answer, NELFI explained that it has not promised interest and collateral

thousand "pesos (P500,000.00) to entice a person to become a member of the ioans ranging from one hundred thousand pesos (P100,000.00) to five hundred foundation. This fact is evidenced by numerous complaints by individuals who have personal knowiedge of the alleged illegal and fraudulent activities of the foundation. Severai affidavits were also executed by members of NELFI, who were iured to Apparently, the records of the case show that NELFI is, indeed, promising

% Id., Annex G-11 "" Affidavit dated 28 December 2006, executed by Minda A. Manicdo. 8 CED's Petition, Annex G-1 -- Letter dated 21 July 2004, addressed to ABSCBN. Annex G-14 -- Malayang Salaysay dated 13 June 2007, exicuted by Leonardo Bagtas. Annex G-16 -- Affidavit dated 2t July 2007, executed by Erlinda S. Inabangan. Annex G-12 -- E-mail ated 03 February 2007. Annex G-2 - E-mail dated 22 Novermber 2004. Annex G-3 -- Letter dated 25 October 2004, addressed to The Office of the President. Annex G-8 -- E-mail dated 15 July 2006. Annex G-9 -- E-mail dated 06 November 2006.

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become members and coordinators.

to its members, the pertinent portion of which reads that contrary to NELFI's assertions, the foundation represents that it extends loans Moreover, a sample flyer1o being dissemina'ed by NELFI to the public, shows

"x X x

Tanong: Anong tulong ang matatanggap ko sa NELFI?

mang livelihood project na inyong sadya. Ang tulong pinansyal ay kailangan lamang maibalik ang puhunan sa lcob ng 5 taon upang maitulong din sa iba na nangangailangan. Sagot: Ang NELFI ay nagbibigay ng tulong pinansyal mula Php 100,000.00 hanggang Php 500.000.00 upang puhunan sa ano 'INTEREST FREE' o walang patubo. Itong tulong pinansyal ay

[Question: What benefit can NELFI provide to a member?

intended by the member. This financial assistance shall bear no interest and shall be payable within five (5) years to benefit other P100,000.00 to P500,000.00 to fund any livelihood project Answer: members.] NELFI provides financial assistance ranging from X X x"

once a corporation has been grantea juridical personality by the State, it is allowed and can legally exercise only those powers pi'ovided for by iaw and those enumerated in its charter.11 As regards the iatter, such powers are provided for in the AOI pursuant to Section 4512 of the Corporation Code. public that it has a capacity to extend loans to its members, which is not included in the purpose clause of NELFI's Articles of Incorporation ('AOI'?. It is well settled that From the foregoing, it is evident that NELFI made false representations to the

ioans or other financial accommodations from the government and private iending institutions in order to finance productive livelihood enterprises," it is not, however, authorized to grant loans to its members. Although it is within its power to "acquire clothed with the authority to grant loans. In fact, in two (2) separate SEC Advisories, dated 16 October 2003 and 27 November 2003, the Commission took a stand on the In the present case, nowhere in NELFI's AOI is it stated that NELFI is

10 CED's Petition, Annex J. 11 Cesar L. Vilianueva, PHILIPPINE CORPORATE LAW 232 (2001 ed.). any corporate powers except those conferred by this Code or by its articies of incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. 13 Batas Pambansa Blg. 68 (1980). 12 sEC. 45. Ultra vires acts of corporations. - No corporation under this Code shall possess or exercise

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as it is not authorized to grant loans, the same not being included in the purposes of matter and informed the public to take necessary precautions in dealing with NELFI. NELFI's Articles of Incorporation.

the public to become member-coordinators, which were aiso confirmed in the same complaints, queries and affidavits gathered as evidence by the CED. In one of the flyers/handouts distributed by NELFI to entice the public to become members, NELFI outlined some of the benefits that a member may avail of as follows: Apart from granting loans, NELFI also offers salaries and benefits to entice

"x x x

FOR THE PRINCIPAL MEMBER

:P100,000.00, Aggregate Family Medical and Health Care 'P500,000.00, Life Insurance Benefits P500,000.0, Accident Insurance Benefits P50,000.00, Memorial Services Benefits P50,000.00, Accident Family Medical and Health Care Benefits Benefits

parents if Mem ber is Single, not more thar 60 years old. FOR THE MEMBER'S SPOUSE. If Member is married; or to the

e P25,000.00, Accident Medical Reimbursement Be nefits . P100,000.00, Aggregate Family Medical and Health Care P250,000.00, Accident Medical Benefits Benefits

FOR THE MEMBERS' CHILDREN. If Member is married, or to brothers or sisters if Member is Single, who are below 21 years oid, Unmarried and staying with the Member.

P100,000.00, Aggregate Family Medical and Health Care P50,000.00, Accident Insurance Benefits P5,000.00, Accidental Medical Benefits

SENIOR CITIZENS

Senior Citizens are covered up to P259,000.00 to Life & Accident Insurance Benefit; P50,000.00 in Medical Services Benefits; and P100,000.00 Medical and Health Care Benefits, in addition to the

Citizen is living." Monthiy Pension of P15,000.00 for as long as the Member/Senior

NELFI in an obvious pioy to attract peop!e to become members of the foundation, The foregoing are just some of the promises and representations made by

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Certainly, to an ordinary person, such proposals are difficult to resist, which verily explain the reason why NELFI was able to attract thousands of members.

less any benefit as promised by NELFI, were ever granted and enjoyed by any benefactors." Such reasoning is rather absurd considering that the foundation was finished and complied with the documentation demanded by its donors and member of the foundation. In its Answer to the Petition, NELFI even admitted such fact, when it stated that "[W]hile it is true that at the moment NELFI has not extended any financial assistance to any of its members, it is because it has not organized since 1997. To make matters worse for the deceived members, not a single loan, much

fees shall be collected"17 from' the members. money from its members to enrich its officers. Although it is within its power to collect membership dues and other assessments,14 as well as solicit funds15 from its members as provided in its By-Laws,16 it consistently declares to the public that "no As if adding insult to injury, it appears that NELFI was able to collect sums of

Records show that the members were obliged to pay for various fees such as:

Transmittal 25 Membership Fee Identification Cards2 Certificates of Attendance of seminars and trainings19 Rentals for Venue Parking Fees Passbook and Type of Fee Bank Service Charge Amount Collected P200.00-P300.0018 P30.00-P250.0020 P15.00-P25.0023 P1,000.0024 P200.0021 P20.00

member to date was abie to avail of the numerous benefits promised to them by NELFI. Thus, with thousands of people from different parts of the country apparentiy deceived by NELFI's misrepresentations, the collection of these charges has become Notwithstanding all these payments made by each member, not a single

14 NELFI's By-Laws, SEC. 3(c), Article V. 15 Id., SEC. i, Article VII. 23 CED's Petition, Annexes G-2 and G-7. 17 NELFI's Information Sheet, Annexes L, L-1 and L-2 of CED's Petition. 20 CED's Petition, Annexes G-14, G-16. 21 Id., Annex G-2. 25 Id., Annex R. 16 CED's Petition, Annex K. 18 CED's Petition, Annexes G-9, G-14. 19 Samples of which are attached as Annexes O, O-1, O-2 and O-3 of CED's Petition. 24 Id., Annex G-11. 22 A sample of which is attached as Annex Q of CED's Petition.

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a money-making scheme of the foundation to the great prejudice of the public

balance for the year 2005 was only 0.20% of its minimum aggregate promised loans,26 which means that it can only grant the promised loan to a maximum of only five (5) members without financing its daily operations. Moreover, the CED found out in its investigation that NELFI's total funds

and charges paid by its members, the total number of which, as of 2007, was regarding the sources of its funds. NELFI refused to disclose the specific sources of its funds when petitioner CED inquired of the same. NELFI's Operation Plan27 for the year 2004-2009, certified28 by Jeremias S. Toires, chairman and president of NELFI, merely states that NELFI shat! receive "donations and grants from foreign countries and iocal." When compelled by the CED to furnish the Commission a certification of the sources of funds, Torres still refused on the the Commission approves its application for failed to appear before the CED despite num him, raising the presumption that he is deliberately evading the possibility of being questioned with regard to NELFI's alleged fraudulent activities. Since no proof was established determining the particular sources of NELFI's funds, it augurs weil with petitioner's conciusion that the foundation's funds came from the miscellaneous fees targeted at eighteen million (18,000,000) members throughout the country. This could easily transform to millions or even billions of pesos worth of funding, which are being extorted from unsuspecting members. Adding more suspicion to the activities of NELFI is the lack of information round that it will only comply once dment of its AOI. notices and subpoena sent to 'orres ever

NELFI committed acts amounting to serious misrepresentation to the great prejudice of or damage to the general public, in violation of Section 6(1)(2) of Presidential Decree 902-A, as amended. Hence, considering the foregoing evidence, it is undoubtedly established that

corporate registration of North East Luzon Foundation, Inc. is hereby REVoKED. WHEREFORE, premises considered, the Petition is hereby GRANTED. The

Monitoring Department for its appropriate action, as well as to the Economic Research and Information Department and the Commission's extension offices for dissemination to the general public. Let a copy of this Decision be furnished to the Company Registration and

SO ORDERED.

Mandaluyong City, 26 August 2010.

28 Id., Annex T-1. 29 NELFI's Letter clated 03 May 2004, attached as Annex U of CED's Petition. 26 NELFI's Financial Statement as of 31 December 2005. 27 CED's Petition, Annex T.

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#e B. Barin Ya A.b Chairperson

Ma. juAnita E. cueto Commissioner RAUL J. PALABrICA Commissioner

MANUEL HUBERTO B. GAITE Commissioner ElAdIQ M. JALA Commissioner