From out of nowhere, the Department of Justice recently stepped into a legal fight between two financial institutions. Here is the thing: The DOJ did not even bother to specify the reason for its intrusion.
The two financial companies were the Philippine Investment Two, known as PI II, the former local subsidiary of the bankrupt New York-based Lehman Brothers, and the local outfit of London-based Standard Chartered Bank, known as SCB.
Last December, PI II filed a criminal case against the top executives of SCB here, namely Mahendra Gursahani, Chun Wei Yeong, Kathrina Sebastian and Karen Chin Geok Go.
PI II has been under a court-mandated rehab since 2009. SCB was one of its creditors in the rehab plan, sitting even in the management committee headed by Metropolitan Bank and Trust Co.
In a criminal complaint filed before the Makati city prosecutor, PI II alleged that the top officers of SCB “deliberately” withheld information from court that was “vital” to its rehab plan.
Specifically, SCB supposedly hid from the court—and of course PI II, plus its many other creditors—that PI II was able to cover its obligations with SCB, through an arrangement in New York between Lehman Brothers and the bank.
The New York deal was done way back in 2008, or a full year before the court approved the rehab plan for the local PI II.
After five long months of grinding legal proceedings before the Makati city prosecutor, the DOJ all of a sudden wanted the case to start all over again. In the middle of it all was the DOJ boss, Justice Secretary Leila de Lima herself.
De Lima issued three orders, one after another, in a span of 28 days, ordering one thing and then reversing herself twice. When the case was filed last December, senior assistant city prosecutor Amador Pineda handled the preliminary investigation. On May 20, De Lima issued an order to take Pineda out of the case. She then reassigned it to another prosecution attorney named Caterina Isabel Caeg.
Yet the complainant PI II indicated that the original prosecutor, Pineda, was already about to decide on whether or not to pursue the criminal case in court. The company also noted that the case had been under preliminary investigation for five long months.
After only seven days, De Lima changed her mind and issued another order to give back the case to the original prosecutor. After the next 20 days, De Lima wavered and she ordered that the case be given again to prosecution attorney Caeg.
According to complainant PI II, the DOJ never really gave a reason for the vacillating orders—like it was all some top national secret. It was all justified under one generic clause: “in the interest of public service!”
Neither of the two opposing sides in the criminal case, neither PI II nor SCB, supposedly sought the DOJ intervention in their case. In fact, the law firm of PI II claimed it only learned about the DOJ interference orders from the law firm of SCB, which got hold of the De Lima orders way ahead of the PI II lawyer.
Up to today, PI II is still waiting for an answer from the office of the justice secretary, “respectfully” asking De Lima why she would not allow this particular case to proceed, out of the thousands of criminal cases in the country. No wonder, PI II felt oppressed by the DOJ.
In the first place, the DOJ did not even allow PI II to comment—much less submit an opposition—to the series of orders which seemed to PI II to be last-minute DOJ decisions.
The case is important to PI II as it tries to get back on sound financial footing as a so-called special purpose vehicle, or SPV, created under RA 9182, the law laying down the rules for the government program to help the financial system clean up its non-performing assets or NPAs.
The law came about as the government attempted to help financial institutions unload their NPAs that grew to alarming levels as a result of the Asian financial crisis of 1997.
As I said, PI II happened to be a former subsidiary of New York firm Lehman that went belly up a few years ago, forcing PI II to seek a court-supervised rehab program.
The court created a management committee to oversee the rehab, appointing Metrobank as the head. SCB claimed PI II owed the bank more than P800 million, and so SCB was able to sit in the committee, represented by its officer, Kathrina Sebastian.
Since the rehab started in 2009, and according to PI II, it has been religiously repaying its SCB loan, having already shelled out some P240 million to SCB.
In New York, meanwhile, SCB already obtained relief from the court for its claims on the bankrupt Lehman Brothers, in effect covering the P800 million debt of PI II here. SCB already received $90 million worth of collateral from Lehman Brothers in New York, equivalent to about P3.9 billion.
Part of the Lehman-SCB deal in New York covered the obligation of PI II with SCB here that also happened to have been part of ongoing rehab program. Thus, while the Philippine obligation was already covered, SCB still continued to collect the loan payment from PI II.
SCB in effect was enforcing two claims against PI II for the same single obligation.
Even the head of the management committee, Metrobank, noted that the “double” claim of SCB would hurt the other creditors. For instance, the P240 million that PI II remitted to SCB could have gone to the other creditors.
To think, all the while, SCB insisted that Lehman Brothers failed to deliver to SCB the $90-million collateral specified in the New York agreement, and so, in effect, the PI II obligation here was not covered.
Subsequently, SCB even claimed before the rehab court that those “undelivered” collateral were worthless. Question: How did SCB know their worth if they were not delivered?
Anyway, to verify the whole thing, the court is set to order SCB to submit a list of those collateral, which SCB simply forgot to do.
Finally, after a couple of years of hemming and hawing, SCB admitted it had taken delivery of the collateral. What did the rehab court do? Well, it threw SCB out of the rehab management committee.
PI II subsequently filed the criminal case against the top officers of SCB here, which the DOJ series of orders, signed by De Lima herself, seemed to be dribbling around in a full court press.
By the way, SCB was the same bank that the authorities in New York fined for some “illegal transactions,” amounting to more than $300 million. It was the same bank that the authorities in Singapore accused of rigging bank rates, and a lot of banking transactions in Asia were based on those rates in Singapore—the so-called Sibor.