Designing fraud? How Legacy Group’s schemes work

Posted at 03/08/2009 5:25 PM | Updated as of 05/08/2009 10:04 PM

The Bangko Sentral ng Pilipinas (BSP) knew that businessman-turned-politician Celso de los Angeles is behind the capital-deficient Legacy-linked rural banks, but couldn’t pin him down for years since de los Angeles’ name does not appear on any corporate document.

The BSP has filed criminal charges against Legacy’s bank executives, but it was only in February 26 when it finally named de los Angeles as one of the respondents in its syndicated estafa case filed at the justice department. Last Friday, the BSP filed a second syndicated estafa case that detailed P347 million in questionable transactions, which, the BSP alleged, sucked public and government funds into a ‘scam.”

Both cases followed a trend: While de los Angeles and his accomplices are not officials of the financial services arms—the rural banks and pre-need companies—they allegedly masterminded a scheme where public money in banks and investment instruments were siphoned into companies that de los Angeles allegedly owned.

BSP’s smoking gun came from no less than de los Angeles’ lieutenants in the scheme.

Key officers, including the presidents, of the Legacy rural banks helped the BSP build the first syndicated estafa case against Celso de los Angeles.

abs-cbnNEWS.com/Newsbreak obtained copies of the affidavits signed by William Lucero Escalante of Rural Bank of DARBCI Inc. in General Santos, Mabini Urgelles Sanico of First Interstate Bank Inc. in Leyte, and Ernest Carmel Jurado Sr. of Bank of East Asia in Cebu.

These affidavits were included in BSP’s first estafa case filed at the Justice Department.

Mastermind

The banks presidents claimed that between the last quarter of 2006 until November 2008, de los Angeles presided in at least four meetings of presidents of Legacy banks to discuss the “Motorcycle Loan Program,” “Investments Loans” program and—before the banks closed in December 2008—the necessary “clean up” to cover their tracks.

Based on the affidavits, abs-cbnNEWS.com/Newsbreak’s computation show that the “Motorcycle Loan Program” and “Investment Loan” program siphoned P1.6 billion up to P2 billion from the three banks to other companies allegedly owned by de los Angeles.

Besides the three bank presidents, officials of at least eight more Legacy banks attended the meetings, the documents showed.

The 13 Legacy banks had an estimated P24 billion in total deposits when they were closed. Out of this, only P14 billion will be returned to depositors whose bank accounts were P250,000 and below. This will be shouldered by the taxpayers through the state-owned Philippine Deposit Insurance Corporation.

“From the very start, the “investment loans” program of Mr. Celso de los Angeles was just a means of [de los Angeles-owned] Fusion Capital to siphon bank funds from from BEA,” Jurado sai in his affidavit.

“I followed all the instructions of my superiors as I was afraid of losing my job,” Escalante also said in his affidavit.

While the bank documents do not register de los Angeles as the controlling owner of the banks, the presidents said they know that he is the “titular head.” They also claim that most orders from Manila office were explained to them as instructions from de los Angeles.

Motorcycle Loan Program

The first “series of meetings” were held in the last quarter of 2006 in de los Angeles’s office in Makati City. Escalante and Sanico detailed how de los Angeles explained the “Motorcycle Loan Program.”

“During these meetings, Mr. Celso de los Angeles explained to us that his company, Legacy Motors Inc. (LMI), would purchase motorcycles from China and these would be offered for loans through our banks to interested borrowers,” Escalante said in his affidavit.

The procedure was simple. The banks will convince the prospective borrowers to each avail of the P55,000 motorcycle loans. For every approved loan, P51,000 would be deposited to the account of LMI. The rest was recognized as income by the bank.

LMI would deliver the motorcycles to the approved borrowers, who would pay a monthly amortization of P3,000 for period of three years.

Escalante said his bank in General Santos was able to deposit more than P200 million to the account of LMI from the loan scheme. Based on abs-cbnNEWS.com/Newsbreak computation, that involved at least 3,921 approved loans.

“Out of the total motorcycle borrowers, only a few motorcycles were delivered and distributed to the borrowers,” Escalante wrote.

Sanico’s bank in Leyte, on the other hand, was able to convince at least 2,000 motorcycle borrowers and deposited at least P102 million to the account of LMI.

“Out of the 2,000 borrowers, only 100 motorcycles were delivered and distributed to the borrowers,” Sanico said.

These allegations by Escalante and Sanico were supported by affidavits of bank employees who executed the scheme.

“The LMI account covered all the funds that would be taken out from the bank. A withdrawal slip was issued every time de los Angeles asked for funds from the bank to be deposited to the LCPI account at Banco De Oro Corp Bel-Air Branch,” Escalante said.

“The said account was also used to clean up simulated loans, motorcycle loans, and other Legacy related loans and to pay for marketing incentives,” Escalante wrote.

Investors Loan Program

De los Angeles presided in another meeting in November 2007. It was held at the 29th floor of the World Center Building in Makati City. It is said to be the personal office of de los Angeles.

Aside from Escalante and Sanico, the meeting was also attended by Jurado of Cebu’s Bank of East Asia. Jurado only joined BEA in 2006.

This time, de los Angeles allegedly discussed the “Investment Loan” program. He tasked Legacy bank presidents and employees to look for “investors” and give priority to existing depositors of Legacy owned banks as they would be “credible.”

“The concept of the “investment loans” program is for the bank to grant loans to individuals with the proceeds of their loans to be invested in Fusion Capital Corporation, a company owned by Mr. Celso de los Angeles,” explained Jurado in his affidavit.

Escalante also testified that Fusion Capital Corporation was owned by de los Angeles.

“In this program, the borrower individual is given one percent “incentive/commission” by the bank in consideration for his/her loan availment and investment at Fusion Capital. Mr. Celso de los Angeles also said that these loans shall be unsecured loans. Mr. de los Angeles encouraged us to market said product to our existing depositors, friends, and relatives,” Jurado added.

The office of the Fusion Capital Corporation was in the 30th floor of the same building. A follow up meeting was called by de los Angeles’s known consultant, Alex Petralba, explained the mechanics further.

The banks of Escalante and Jurado were able to generate from the “Investment Loan” P800 million and P500 million respectively. There seemed to be a typographical error in Sanico’s affidavit. It said his bank was able to generate “more or less P385,000,00.00.” It is not clear if it meant P385 million or P38.5 million.

A cashier’s check was issued in the name of the borrower to make it appear that they received the loan. But the banks’ presidents said the proceeds were deposited to the account of Fusion Capital Corp. maintained in their banks.

“The cash discrepancy in the bank cannot be noticed because it would be covered by the alleged withdrawal from the account of FCC in our bank,” Escalante said.

These allegations were also supported by affidavits of bank employees and “fake borrowers” who signed loan documents amounting to P2 million in exchange for P10,000 to P15,000 commission.

Covering their tracks

Jurado also testified about meetings in August and November 2008, which de los Angeles presided jointly with Petralba.

“During the meeting, Mr. de los Angeles and Mr. Petralba instructed all presidents of Legacy banks, including myself, to secure real properties from Legacy Consolidated Assets Holdings Inc. (LCAHI) and Fusion Capital, or for Fusion Capital to purchase and acquire real properties from prospective individual owners who are willing to sell their properties at a low price,” Jurado said in his affidavit.

“According to Mr. Petralba, the purpose of this scheme was to clean up and erase all traces of the investment loans and simulated loans from the books of BEA and replace them in BEA’s books with real properties,” Jurado added.

Before the closure of BEA in December 2008, Jurado said Petralba also instructed him to get rid of the originals and loan documents covering the investment loans and simulated loans.

“BEA burned some of the documents,” Jurado said.

Legacy Plans, too

Sanico and Escalante also mentioned how Legacy Plans Inc. chief finance officer Namnama Pasetes and chief executive officer Carolino Hinola would instruct them to take out funds from the bank—ranging from P100,000 to P1.5 million—to deposit to the account of Legacy Consolidated Plans Inc.

“Ms. Pasetes and Ms. Hinola would explain to me that those were directives of Mr. Celso de los Angeles, thus, I have no other choice but to follow their instructions because Mr. de los Angeles is the titular head of our bank,” Sanico said.

Escalante had the same excuse. “I have no choice but to follow their instructions. Sometimes, in giving these instructions, Ms. Pasetes and Ms. Hinola would tell me that these instructions have to be followed as the Chairman of the Legacy, Mr. de los Angeles, needs the funds,” he said.

Petralba, Pasetes, and Hinola were also tagged by the BSP as respondents in the syndicated estafa case.