Corporate Securities Info

Slap on the wrist decision

The first criminal conviction under the Securities Regulation Code (or Republic Act 8799), which was enacted in 2000, was a big letdown to investors, market participants and financial regulators.

In 2003, Asian Capital Equities Inc., a stock brokerage firm owned by Francisco Borromeo, collapsed due to mismanagement and failure to comply with regulatory standards.


The Securities and Exchange Commission filed criminal charges against Borromeo for selling and trading a client’s stocks without his consent; using fictitious and dummy accounts; selling a client’s stocks and not remitting the proceeds of the sale to him; maintaining two books of accounts, and failure to comply with capital requirements.

Some P100 million worth of stocks and funds are believed to have been misappropriated. The exact amount could not be determined because the audit conducted on the brokerage was hampered by missing transaction records.


If these offenses were committed under circumstances outside of the stock market, Borromeo would have faced charges for large scale swindling (or estafa) and falsification of private and commercial documents which carry stiff prison penalties.

In January 2005, after going through a convoluted investigation process at the Department of Justice, the cases were filed in court.


The criminal proceedings slowed down because Borromeo made a disappearing act. He could not be located at his last known address in his native Cebu where his family reportedly enjoys strong political influence.

The SEC repeatedly sought the assistance of the Philippine National Police for the service of the arrest warrant against him.

After being on the lam for two years, probably drained from being a fugitive from justice for so long, Borromeo emerged in 2007 and entered a “not guilty” plea to the charges against him.

For unknown reasons, he had a change of heart. He withdrew his claim of innocence and admitted the violation of his fiduciary duties and responsibilities to his clients.


In the wake of that admission, the judge ordered him, by way of punishment, to pay a fine of P2.1 million, or the equivalent of 2 percent of the estimated value of the stocks and cash his brokerage firm defrauded its clients.

Undoubtedly, the penalty is a drop in the bucket. Or chicken feed (patuka sa manok, as gamblers would probably describe it).

Manuel Amalillo, Coco Rasuman and their fellow con artists would probably have a nice laugh if they learn about the decision. Yes! It’s more fun in the Philippines.


Legally, there is nothing wrong with the decision. The SRC states that any person who violates its provisions shall, upon conviction, “suffer a fine of not less than P50,000 nor more than P5 million or imprisonment of not less than seven years nor more than 21 years, or both,” at the court’s discretion.

The law gives the court some leeway in the imposition of penalties on securities-related crimes depending on the underlying circumstances.

Her Honor must have been in a forgiving or charitable mood when she decided on Borromeo’s punishment. No prison term, not even a day. Just a fiddling fine of P2.1 million. Not the maximum imposable fine of P5 million, or 5 percent of the misappropriated amount.

Unless a higher court overturns the decision, the judge’s exercise of her discretion in the appreciation of the facts of the cases against Borromeo should be respected.

Unfortunately, the “slap on the wrist” decision has sent disturbing signals to capital market participants.

A stockbroker admits to defrauding his clients millions in pesos and all he gets is a miniscule fine that can be easily be sourced from the proceeds of the crimes themselves?

What gives? Are white collar criminals entitled to kid gloves treatment? It’s bad enough Borromeo’s clients had to wait for 10 years before they could get justice. Worse, the punishment he got was a little better than a reprimand.


In the United States and other developed countries, offenses of similar nature or magnitude would have invited long prison terms and stiff monetary fines. Or as the lawyers there put it, you do the crime, you do the time (behind bars).

Is the Borromeo conviction a portent of things to come in the prosecution of pending and future securities-related crimes?

At present, a case of syndicated estafa is pending at the Pasig regional trial court against key officers of the defunct HK Securities Inc., e.g., Rodolfo Cruz, his wife Cecilia, and daughter Primalee Cruz-Cordero.

They are accused of engaging in fraudulent transactions involving their clients’ funds and securities, in addition to numerous violations of securities laws.

The cases against them were filed in court in 2008. If we use the Borromeo case as the yardstick, it will probably take up to 2018 before those cases are resolved by the trial court.

If convicted, expect the accused to appeal to the Court of Appeals, then to the Supreme Court. That may translate to an additional five years in the judicial mill before we see a final resolution of those cases.

The SEC and DOJ should not be content with the court’s decision on the Borromeo case. A motion for reconsideration and, where appropriate, an appeal should be filed with the appellate court to question the validity of the pittance fine imposed.

A strong stand against lenient treatment of erring stockbrokers will send two messages: first, it will assure the investing public that the regulators will not allow a few rotten eggs to mess up the capital market; second, stockbrokers will pay a high price if they violate their fiduciary obligations to their clients.

For comments, please send your e-mail to [email protected]

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TAGS: Business, column, conviction, financial regulators, Investors, market participants, raul j. palabrica, Securities Regulation Code
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