After reading “Strengthening Consumers’ Protection Against Fraud: Financial Products and Services Consumer Protection Act”, read also “Fraud Exception Principle”.
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Investment fraud refers to any form of deceptive solicitation of investments from the public.
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Any person who commits investment fraud shall be liable the Securities Regulation Code in addition to the administrative sanctions to be imposed under the Financial Products and Services Consumer Protection Act.
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Protecting the interest of consumers of financial products and services are in place under the conditions of transparency, fair and sound marketing conduct, and fair, reasonable, and effective handling of financial consumer disputes, which are aligned with global best practices.
Consumers’ protection against fraud is now strengthened by Republic Act No. 11765 or the Financial Products and Services Consumer Protection Act, a law approved by the President of the Philippines on May 6, 2022 that boosts consumers’ protection against fraud in availing of financial products and services.
Financial product or service refer to financial products or services which are developed or marketed by a financial service provider. This likewise includes digital financial products or services which pertain to the broad range of financial services accessed and delivered through digital channels. (Section 3(c), Republic Act No. 11765)
What is an investment fraud? The law says:
Investment fraud refers to any form of deceptive solicitation of investments from the public. This includes Ponzi schemes and such other schemes involving the promise or offer of profits or returns which are sourced from the investments or contributions made by the investors themselves, boiling room operations, and the offering or selling of investment schemes to the public without license or permit from the Securities and Exchange Commission. (Section 3(f), R.A. No. 11765) (emphasis supplied)
Any person who commits investment fraud shall be liable under Republic Act No. 8799 or the Securities Regulation Code (SRC), in addition to the administrative sanctions to be imposed under R.A. No. 11765. (Section 11, R.A. No. 11765)
What is the penalty for committing investment fraud as provided for under Republic Act No. 8799 or the Securities Regulation Code? The law says:
Any person who violates any of the provisions of this Code, or the rules and regulations promulgated by the Commission under authority thereof, or any person who, in a registration statement filed under this Code, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (P50,000.00) nor more than Five million pesos (P5,000,000.00) or imprisonment of not less than seven (7) years nor more than twenty-one (21) years, or both in the discretion of the court. If the offender is a corporation, partnership or association or other juridical entity, the penalty may in the discretion of the court be imposed upon such juridical entity and upon the officer or officers of the corporation, partnership, association or entity responsible for the violation, and if such officer is an alien, he shall in addition to the penalties prescribed, be deported without further proceedings after service of sentence. (Section 73, R.A. No. 8799) (emphasis supplied)
Thus, under the SRC, the penalty to be imposed for committing investment fraud is a fine ranging from Fifty thousand pesos (P50,000.00) to Five million pesos (P5,000,000.00) or imprisonment of seven (7) years to twenty-one (21) years, or both at the discretion of the court.
Moreover, as provided for under R.A. No. 11765, administrative sanctions of the respective charters of the financial regulators shall be made applicable to a financial service provider, its directors, trustees, officers, employees or agents for violation of this Act or any related rules, regulations, order or instructions of financial regulators; or to any person found administratively liable for investment fraud.
The law says:
That for persons found responsible for investment fraud, the SEC may impose a fine of no less than Fifty Thousand Pesos (P50,000.00) nor more than Ten Million Pesos (P10,000,000.00) for each instance of investment fraud plus not more than Ten Thousand Pesos (P10,000.00) for each day of continuing violation in addition to the other administrative sanctions under Section 54 [Administrative Sanctions] of Republic Act No. 8799. (Section 16, R.A. No. 11765) (emphasis supplied)
Persons found guilty of investment fraud may be penalized with a fine of Fifty Thousand Pesos (P50,000.00) to Ten Million Pesos (P10,000,000.00) with additional fine/s in the amount of Ten Thousand Pesos (P10,000.00) per day of continuing violation.
In the instance that profit is gained or loss is avoided as a result of the investment fraud committed, a heftier penalty is thereby imposed.
The law says:
That in case profit is gained or loss is avoided as a result of the violation of this Act or investment fraud, a fine not more than three (3) times the profit gained or loss avoided may also be imposed by the financial regulation: Provided, finally, that in addition to the administrative sanctions that may be imposed, the authority of the financial service provider to operate in relation to a particular financial product or service may be suspended or cancelled by the financial regulator. (Section 16, R.A. No. 11765) (emphasis supplied)
Financial service providers may face the penalty of paying the fine of three (3) times the profit gained or loss avoided. In addition to this, its operations may also be suspended or cancelled by the financial regulator in accordance with its regulatory powers.
Financial regulators refer to the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), Insurance Commission (IC), and the Cooperative Development Authority (CDA). (Section 3(d), R.A. No. 11765)
What is the remedy of financial regulators to protect its financial consumers?
The law says:
A financial regular, consistent with public interest and protection of financial consumers, is authorized to institute an independent civil action on behalf of aggrieved financial consumers for violation of this Act and its IRR.
If in any of these proceedings, the financial regulators obtain a civil penalty against any person or entity, or such person or entity agrees to settle such civil penalty, the amount of such civil penalty shall, on the motion of the financial regulators, be added to and become part of disgorgement fund or other fund established for the benefit of the aggrieved financial consumer. (Section 17, R.A. No. 11765)
The strengthening of consumers’ protection against fraud is put forward in accordance with the policy of the State to ensure that appropriate mechanisms are in place to protect the interest of consumers of financial products and services under the conditions of transparency, fair and sound marketing conduct, and fair, reasonable, and effective handling of financial consumer disputes, which are aligned with global best practices. (Section 2, R.A. No. 11765)
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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