The Securities and Exchange Commission quashed an appeal by defunct HK Securities Inc. for the reconsideration of the sanctions imposed on it by the Philippine Stock Exchange, which had padlocked and taken over the assets of the brokerage house in September 2008.
In an en banc resolution dated August 4, the SEC denied for “lack of merit” HK Securities’ appeal against monetary and nonmonetary sanctions slapped by the PSE.
Prior to its takeover, the PSE’s market regulation department (MRD) suspended HK Securities’ trading operations, citing various violations of the securities laws uncovered during an audit of HK Securities.
The MRD subsequently issued an order expelling HK Securities from the PSE, among other sanctions imposed for the said violations.
HK Securities appealed on grounds that the MRD failed to support the findings that the company had committed fraudulent transactions and violated rules on reserve requirement, books and records rule, special bank reserve account, ethical standards, customer protection rule and delivery of customers’ securities. It denied allegations of misappropriation of securities, although it admitted having been remiss in the delivery of monthly statements of accounts to clients.
The SEC, however, said that contrary to HK Securities’ allegation, the audit findings “adequately” supported the conclusion that the company had violated the subject provisions of the Securities Regulation Code and its implementing rules.
“In fact, it is HKS that has failed to submit any evidence that would support its denials and excuses, or would discredit the audit findings,” the SEC said.
The SEC noted that when the brokerage was confronted by the PSE with the audit findings, it did not contest its reported violations. Instead, the nominee Rodolfo Cruz committed to infuse $1.15 million in order to cover up short security position and to rectify other violations, the SEC said.
“HKS agreed that should such infusion fail to materialize by the given deadline, the PSE shall immediately suspend HKS and the latter shall not contest the suspension and any takeover order issued by the Commission,” the order said.
But the SEC noted that the brokerage and its nominee had failed to infuse the funds in accordance with their undertakings.
To date, four officers and directors of HK Securities, including Cruz, are in jail on charges of syndicated estafa, a nonbailable offense.
In 2008, several complaints of syndicated estafa were filed by clients of HK Securities against these people, as well as other non-executive directors, for alleged fraudulent transactions involving the complainants’ funds and securities.
Currently, the PSE is in the process of liquidating the trade-related assets of HK Securities and allocating the proceeds to claimants.—Doris C. Dumlao