Founder Joel Apolinario. (Kapa website)

Philippine government closes largest investment scam

The Securities and Exchange Commission (SEC) froze all bank accounts and assets of  Kapa Community Ministry International (Kapa) on June 4, 2019 over allegations that it operated the largest investment scam in recent Philippine history.

KAPA means KADATU ANG PADULNGAN APIL KOMUNIDAD in Cebuano.
In Tagalog or Filipino: PAGYAMAN ANG PATUTUNGOHAN KASAMA ANG KOMUNIDAD.

Kapa Ministry merges religion and social media and claims it has helped millions of Filipinos grow their money. It promised Filipinos that after a one-time donation, they will be receiving 30% of the amount for life.

President Rodrigo Duterte ordered the shutdown following a meeting with his friend Pastor Apollo Quiboloy on June 8. SEC has denied that it was influenced by Quiboloy in its decision to go after Kapwa Ministry.

Duterte said the activities of these companies were clearly a form of “syndicated estafa.”

Several investment scams have sprouted in Southern Mindanao and have reportedly branched out to as far as Luzon in recent days. These include Kapa, headed by Joel Apolinario, which promises a 30% “love gift” each month.

Some schemes, such as the Tagum City-based Rigen Marketing, Jogle, and Ever Arm, even promise a return of up to 500%.

Despite the red flags, its investors supported Kapa and called the government “anti-poor” for ordering the shutdown of the supposed religious organization.

Pastor Joel Apolinario, the organization’s leader, claims they have as many as 5 million investors, making it one of the largest scams in Philippine history.

The SEC said none have come forward to complain, but they have witnesses to help them for the case build-up.

According to a Rappler report, Apolinario is based in Bislig City, Surigao del Sur and started the organization there in 2015. Since then, it had branched out to most of the regions.

To be a member of Kapa, investors fill out a small form and donate at least P10,000 up to at most P2 million.

The contract states that the donation shall be used to achieve Kapa’s mission for the “propagation of the religious faith, establishment of livelihood programs for the benefits of its members.”

SEC chairman Emilio Aquino made the statement a few days after President Rodrigo Duterte appeared in a televised interview with Quiboloy, a long-time friend of his, and ordered the shutdown of Kapa.

“Hindi po totoo yun kasi considering yung mga proseso of getting the freeze order, arrest warrant, we were already securing that even before and then inexecute lang nagkataon nitong Monday,” he told radio DZMM.

Aquino said they have asked the Court of Appeals to freeze the bank accounts and assets of Kapa.

He earlier said the SEC will “pursue criminal charges against the officials and defenders of Kapa.”

The SEC said Kapa promised billions of pesos to its members, but the group’s assets cannot back up such claims.

The group accepted investments, which it dubbed as “donations” of no less than P10,000 from each of its members and in return promised a monthly interest rate of 30 percent, dubbed as “blessings” by the group.

In comparison, the top performing mutual fund in the country only yielded returns of 9 percent for a whole year.

The SEC said this could be considered to be among the biggest investment scams in the Philippines since it has already gotten no less than P50 billion from its members.

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File from SEC

According to the Civil Code of the Philippines, a donation is a voluntary transfer of possession without any consideration and is considered a gift.

However, Kapa promises the donated money will grow 30% per month and for life. In a year, a person who “donated” P10,000 will receive P36,000 in a year, which is a 360% return.

Compared to typical investments, mutual funds grow between 5% to a little over 9%. Government securities like T-bills and T-bonds yield at most over 6%.

The SEC said that the investment-taking activity of Kapa constituted a Ponzi scheme, an investment program that offers impossibly high returns and pays investors out of the capital contributed by later investors.

Aquino said the investment scheme is simply unsustainable. To illustrate, Kapa will need P15 billion a month to pay 5 million members, who have contributed at least P10,000 each.

Early members defend Kapa and attest that they have earned cash. The problem, however, is that the money they earned came from other people.

Without recruiting new members or soliciting more investments from the public, the pooled funds will not last beyond 3 months.

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Table from SEC

Kapa’s financials

Apolinario claims that Kapa has been operating for 6 years now and boasts of a diverse portfolio of businesses to sustain its promises to investors.

However, the SEC said that majority of the businesses are newly registered sole proprietorships. Moreover, some corporations which are allegedly acquired by Kapa do not have financial capabilities to generate the necessary funds to sustain the high returns.

“These are basically startups because these companies are new and there is no way it could have generated billions. And if they really did, the country’s top corporations could not even earn that big,” Aquino said.

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Table from SEC

As of 2017, Kapa’s assets totaled P465,000 with liabilities of P170,000. It has a total revenue of P425,000. Kapa did not file its financial statement in 2018, according to the SEC.

Kapa needs at least P15 billion a month to pay its supposed 5 million members who have contributed at least P10,000.

Some of the supposed Kapa-owned companies reported revenues nowhere near the needed amount to pay out investors.

Kapa-Community Ministry International earned P425,000 and spent P419,000 in 2017. This means that the company earned only a meager P6,000 during that year.

The revenues of Aces Tagum College in 2018 stood at P24.3 million, while its expenses were at P23.3 million, which means it earned just P1 million that year.

Meanwhile, Tagum Doctors Hospital’s revenues in 2017 totaled P171.7 million and it spent P164 million. Deducting all other costs incurred, the company earned P5.3 million that year.

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Table from SEC

The SEC also found that Kapa was venturing into gold processing. Aquino said this may indicate that Kapa is using investors’ money to finance the startup.

Aquino also disclosed that they found that Apolinario and his wife Reyna acquired 9 luxury vehicles between 2018 to 2019.

How did it grow?

Kapa’s official numbers clearly show that it is not capable of fulfilling its promises. But why did people still fall for it? How did it grow to be one of the biggest investment scams in Philippine history? (READ: Timeline: The Aman Futures pyramid scam)

Aquino said Kapa merged old scam techniques with modern technology.

He said disinformation spread quicker this time around due to social media.

With a religious front and modern tools, Aquino said Kapa’s strategy worked.

But as with many Ponzi schemes in history, all of them are bound to fall.

As early as 2017, the SEC already issued an advisory against Kapa. It was only in February 2019 that the commission issued a cease and desist order, and eventually a revocation order in April.

In June 4, the Court of Appeals issued a freeze order on Kapa’s assets.

The National Bureau of Investigation already conducted simultaneous raids on some of Kapa’s headquarters in the regions.

Aquino admitted that Filipinos need more lessons on financial literacy to put an end to scams. He also said enforcement agencies need to be educated as well, as there have been reports that some policemen invested in Kapa.

With soaring prices of goods and wide inequality between the rich and the poor, it is no surprise that Filipinos desire a little more comfort and fast cash.

Can government and the private sector take advantage of the high risk appetite of some Filipinos and lead them toward legitimate investments? – Rappler.com