PIPC’s wicked pitch
By Gerry Geronimo
Fans call it the curve ball, that baseball pitch that makes the ball travel on a seemingly straight and horizontal trajectory and then “break” abruptly as it nears the home plate. The batter sees the ball dropping sharply but he is unable to adjust his swing on time. Instead of hitting a home run, he finds himself silly hitting striking nothing but air. That was exactly how Performance Investment Products Corp. pitched its scam to its investors.
The sleuthing by Sheer Luck Holmes shows that the prospect is initially given by PIPC Corp., PIPC’s local arm, a dignified-looking three-section packet thick enough to assure any curious George that contained therein is everything one needed to know to make big money quickly, easily and safely the PIPC way.
As soon as the front leaf is folded out, the prospect is faced with a somber page that is conspicuously headed “Important.” The text that follows bears the fingerprints of a lawyerly hand, possibly in the practice of English securities law.
“This brochure,” goes the opening line, “is furnished on a confidential basis to a limited number of sophisticated investors.” The flattery drips: the prospect is esteemed by PIPC as belonging, not to the vulgar many but to the select few, to the small circle of trustworthy keepers of secrets, to the class known as “sophisticated investor.”
The use of the term “sophisticated investor” is obviously not unintended. Addressed to us ordinary Pinoys, it means nothing, except, at most, the opposite of baduy. But in other countries with English-based law on securities, a “sophisticated investor” is someone who can take care of himself and his money and therefore needs not the protective care of the regulatory authorities. By using it, PIPC is saying it intends to address itself only to the investment savvy who, by the way, the government need not protect.
Then follow familiar disclaimers and advisories. “The purpose of this brochure… is to provide an overview of certain information about [PIPC’s] investment programme… [but which information alone, however] does not constitute an offer to participate…[ instead] prospective investors should determine whether to invest on the basis of information contained in this brochure… with specific information, including the risk warnings contained in the Information Memorandum distributed together with this document…”
The legal mantras are dutifully recited. “…There is no guarantee of the future results…Investors should not rely upon actual or hypothetical past performance data in analyzing the potential benefits and risks of an investment in the Programme… Neither [PPIC or the Group] guarantees the performance… no information or opinions set out herein will form the basis of any contract… no representation, express or implied, is or will be made in relation to, and no responsibility or liability is or will be accepted… in relation to the accuracy or completeness of this (sic) documents.”
Everything looks straightforward, doesn’t it? In fact, the legalese is familiar to the intended market, namely, the hijos and hijas of the buena familia living in exclusive villes and condos. But as soon as they are read, these cautions are, however, relegated to the back, figuratively and literally, when the investor folds out the leaf to read the inside of the packet for a description of the PIPC’s wonderful Programme.
Inside, more buzz words. The Programme is allegedly “managed with the intention to offer investors a superior short-term rate of return on capital with only moderate expected volatility…” Any wandering the thought of the possibility of loss is swept away by the Programme’s claimed performance: “Over two years prior to inception… the programme has achieved a return of over 22 percent per annum… [and] since inception… has delivered a net annualized return of 30.01 percent…”
Wondering how any program can achieve any return prior to inception? How stupid can you be! Are you saying they are liars? Read the paragraph’s asterisk note: “The underlying programme referred to is hypothetical and consists of aggregated actual historical performance…”
That having been said, the wonderful feature of the Programme is thereafter presented. “…The Investment Manager has carefully selected a special group of highly professional currency traders [who] generally have distinctive and complementary investment styles. Exposure can be limited to “an eight-calendar weeks lock-in period… however, the recommended investment time horizon is six to 12 months…”
The investor is even shown in detail the “Investment Flow.” The money of the investor “will be placed into a fixed deposit account with PIPC designated bank and shall not be exposed for trading purposes… [instead] PIPC designated bank shall then extend a margin line request for trading based on the deposit… PIPC shall open a separate account… of not more than 30 percent of its own funds to serve as a profit and loss account… trading will commence with PIPC designated bank closely monitoring the performance to ensure that if losses are incurred, trading will stop immediately should they hit 20 percent…” So how could you lose when it is not your money being traded and any trading loss (which will stop at 20 percent) is absorbed by PIPC’s own funds?
In time, the contract documents are pulled out for the prospective investor to sign. And just as the top spin generated by the twist of pitcher’s wrist creates an imbalance between the air flow on top of the ball and air flow at the bottom, the spin in the brochure causes a mismatch between what is promised and the documents presented to the investor for his signature.
The primary agreement, which establishes the relationship between the investor and PIPC, is a so-titled “Portfolio Management Partnership Agreement.” It creates between the parties an “investment partnership on a case to case basis.”However, not indicated in the brochure is that PIPC is given a power of attorney “for the management of the trading account, … to perform the investment activities and to act for [the investor] as if [the investor] is personally present to perform the same.” This seemingly innocuous clause will constitute PIPC’s authority to touch the investor’s money on deposit, without the investor knowing about it.
The partnership period is expected to be filled in, presumably by the investor’s hand, but the brochure has declared that it cannot be for less than eight weeks. What the brochure has not said is that the agreement to be signed provides that the period is “automatically renewed unless written termination notice is given by either party fourteen (14) days prior to expiry.”
The parties agree to invest the funds… with an investment loss not exceeding 30 percent of the total invested funds… and… all the losses up to 30 percent… shall be borne by” PIPC. The brochure says, “… trading will cease immediately should the 20-percent stop limit is [sic] hit.” But, the agreement signed says PIPC will “cause all investment activities to stop” when 30 percent is lost.
In addition to a partnership agreement, the investor also signs a “Security Agreement” wherein the investor agrees to deliver to PIPC a specified amount to constitute as “Margin Deposit” for foreign exchange trading which shall be used by PIPC “in relation to the trading activity.” The investor then “assigns and transfers, by way of security in his favor,” to PIPC the margin deposit. This is contrary to the assurance in the brochure that the fixed deposit made by the investor “shall not be exposed for trading purposes.”
Whatever residual investor hesitation remains is swept away as PIPC, in a grand gesture, issues its “Declaration of Trust.” Therein PIPC is to “expressly declare” that the money in the designated bank account “does not belong to us, but to (handwritten name of investor) … referred to as ‘the beneficial Owner’” and PIPC agrees “to transfer, pay, dispose of any of the said sum of money upon the satisfactory (sic) of the terms and conditions stated in the clauses in the Partnership Agreement and the Security Agreement as the Beneficial Owner shall from time to time direct.” But didn’t the said “terms and conditions” in the partnership and security agreements precisely direct PIPC to put the investor’s money at risk?
Sure, in many instances, samples of the legal documents were in fact given to some of the prospects. But who is the investor who would think of actually reading and understanding the legal documents when, by the time he gets hold of them, ringing in his ears is the sound of potential profit after potential profit?
With such a curve ball in the PIPC repertoire, it is obvious how easy it was for Michael Liew and his cohorts to win the game like the pitcher against Mudville’s nine in Ernest Thayer’s Casey at the Bat. The execution was perfect: concede a couple of minor victories in the beginning by allowing that lulu Flynn to go on to third and putting that cake Blake on second.
But when the big investors came in, PIPC let go the curve ball replicating Thayer’s lines:
“And now the pitcher holds the ball; and now he lets it go; And now, the air is shattered with the force of Casey’s blow.”
In the end, there was no joy in Mudville, and neither in our own very mad villes and condos when one of their kith and kin announced in mid-July that Michael Liew and their money were nowhere to be found.