The Philippine Deposit Insurance Corporation (PDIC) recently filed with the Department of Justice (DOJ) charges of estafa against 88 depositors for participating in a conspiracy to defraud the government by as much as P97.73 million.

In its complaint, the PDIC alleged that based on investigations conducted, spouses Manu and Champa Gidwani and 86 other alleged “depositors” were found to have gravely misrepresented themselves to be insured depositors of various closed Legacy banks.

Gidwani et. al. in conspiracy with each other, were found to have falsified commercial and official documents. The fraudulent scheme, referred to as deposit insurance fraud, involved the respondents’ acts of misrepresenting themselves to be the owners of certain deposits; filing claims for deposit insurance and; receiving deposit insurance payments from the PDIC when they are not the true owners of the said deposit accounts maintained with the Legacy banks. The Legacy banks are a group of 12 affiliated banks with nationwide presence that were ordered closed by the Monetary Board almost simultaneously in December 2008 and cost the PDIC Deposit Insurance Fund an estimated P12 billion in deposit insurance payments. Another Legacy bank, the Rural Bank of Polangui in Albay, was ordered closed on February 26, 2010. The Legacy banks’ failure is touted as the largest financial scam in the banking system.

It was found out that the deposit insurance fraud was made possible when a bank with a branch in the Visayas region accepted 683 “crossed checks” issued by PDIC as deposit insurance payments to 86 individuals who misrepresented themselves as owners of accounts in various Legacy banks in conspiracy with Manu and Champa Gidwani. The bank allowed the deposit of the said “crossed checks” to a single account despite PDIC’s specific instruction that the checks should be “For Payees Account Only.” Under Republic Act No. 8791 or the General Banking Law, the bank’s failure to heed warnings and admonitions of the supervisory and regulatory authorities was tantamount to conducting business in an unsafe and unsound manner. The PDIC had issued on June 29, 2010 Bulletin No. 2010-14 reminding all member-banks to strictly observe the provisions of the manual of regulations for banks on second-endorsed checks in relation to payments approved by PDIC for deposit insurance claims.

Investigations showed that the Gidwani spouses and the 86 other respondents had maintained 471 accounts in various Legacy banks amounting to P118.19 million. These accounts were simultaneously opened and funded through checks issued by only one individual or through fund transfers from a single account. It was also found that 10 of the respondents who placed a combined P20.96 million in deposits were found to be employees or household help of the Gidwani couple.

Under the PDIC Charter, all deposits in a bank maintained in the same right and capacity of the depositor for his benefit either in his own name or in the name of others shall be consolidated into one deposit account entitled to the maximum deposit insurance coverage. At the time of the closure of the Legacy banks, the maximum deposit insurance coverage was P250,000.

PDIC, in relation to its functions as co-regulator of banks, deposit insurer and receiver/liquidator of closed banks, is authorized to conduct investigations and file necessary cases against erring bank officials and unscrupulous individuals. PDIC vigorously pursues legal action against these parties that circumvent the deposit insurance scheme for their personal benefit. The quest for justice against erring depositors is an important undertaking of PDIC to protect the Deposit Insurance Fund, PDIC’s funding source for payment of insured deposits.

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The Philippine Deposit Insurance Corporation (PDIC) was established on June 22, 1963 by Republic Act 3591 to provide depositor protection and help maintain stability in the financial system by providing permanent and continuing deposit insurance. Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together. A joint account shall be insured separately from any individually-owned deposit account.

PDIC news/press releases and other information are available at the website, www.pdic.gov.ph.