Biz Buzz: SEC probe wants big penalty for DBP’s ‘wash sales’

In an unusual move that is sure to make jaws drop among players in the Philippine investment community, the Securities and Exchange Commission (SEC) has imposed a hefty fine of P1 million for each director of the state-owned Development Bank of the Philippines (DBP), which was found to have engaged in more than P14 billion of what critics described as “wash sales” that resulted in the booking of P717 million in losses for the government financial institution.

According to our source in the government regulatory agency, the fine was imposed on each member of the board of directors of the financial institution for “violation of the Securities Regulation Code on manipulative trading practices.”

Apparently, the thinking at the SEC unit that was tasked with investigating this long string of transactions (that happened in 2014, but came to light only last year) was that the trades worth billion of pesos in government bonds affected market prices, perhaps by artificially keeping them at certain levels while the securities were sold and eventually bought back by the same party.

The surprising thing about all this was that the SEC’s top brass included people who were known to be close to DBP, including Commissioner Blas Viterbo, a former Senate chief of staff of defeated presidential candidate Mar Roxas. Viterbo once served on the very same DBP boardroom as the ones being penalized now.

Biz Buzz spoke to a ranking DBP official who hinted that there might be politics involved in the SEC investigation unit since there were many “potholes” in the decision. The official pointed out that the ruling of this SEC unit has yet to be elevated to the commission en banc, the highest policymaking body of the corporate regulator.

DBP will definitely appeal the SEC decision especially since the directors feel that the penalty was arbitrarily arrived (“It could be anywhere from zero to P1 million.”), Biz Buzz was told.

A statement sent to Biz Buzz said the members of the board and officers named liable have expressed their disappointment “as they believe that (the order) disregarded the array of evidence presented by each of them and, thus, resulted in a veritable failure to apply the basic tenets of due process.”

But if the penalty stands, it will be a record amount imposed by regulators on individual bankers and officers in the country’s history and is definitely weightier than the sanctions the central bank imposed for the deal.

Now here’s the thing: The phrase “manipulative trading practice” has significant implications on the local financial market. If this is the SEC’s conclusion, this could mean that the benchmark bond prices that were set because those massive trades in 2014 were not reflective of actual market conditions (because the sheer volume of the trades that ended up with the same buyer as the seller might have kept bond prices steady when they should have risen or fallen).

That means every single corporate or retail investor (small savers who were looking for safe haven securities) may have traded their bonds at prices that were tainted by manipulation. If this is so, what will financial regulators do about these tainted prices and resulting trades? That is the real question. Daxim L. Lucas

Buying peace

AS PART of its bid to make stock investing more inclusive, leading online stock brokerage COL Financial previously allowed the opening of stock trading accounts by overseas Filipinos and provincial investors through third-party processing—such as by remittance firms—for as long as they had bank accounts, believing this to be in line with the Anti-Money Laundering rules. It turned out that such practice is not acceptable to the Securities and Exchange Commission, which insists on face-to-face account opening exercises, which COL—for its part—believes to be obsolete given the availability of technology that allows virtual conferencing and other online interaction.

Capital Markets Integrity Corp. (CMIC) has thus accused COL of violating the 2004 implementing rules of the Securities Regulation Code in relation to such account openings without face-to-face interactions.

For its part, COL could have chosen to bring the case to the courts.  But in order to “buy peace and avoid the inconvenience and expense of litigation” without admitting to any violation, COL disclosed Tuesday that it had agreed to pay a total of P230,000 as penalty for the alleged violation. Apart from closing the chapter on this, COL has also tightened account opening requirements as prescribed by the SEC and CMIC, which insist on the face-to-face account opening requirement. This means that for OFWs henceforth wanting to open stock trading accounts, they have to do that when they are in town for vacation or before they leave the country. Doris Dumlao-Abadilla

Salmon for Branson

Salmon will be on the menu for Sir Richard Branson, founder of the Virgin Group, who will be in town today for a whirlwind visit as part of the 20th anniversary of ANC, the ABS-CBN News Channel. Branson is the guest speaker of ANC’s first Asian Innovation and Entrepreneurship Forum at the Sofitel Philippine Plaza. This is the first time in the Philippines for Branson, who will also fly out tonight.

During his short and sweet visit, the self-made billionaire requested salmon, in keeping with his healthy diet. The British knight is known for eating healthy and gluten-free food. But the talk of the corporate rock star today promises to be the equivalent of a buffet as he is expected to share his insights and experiences to Philippine industry leaders and executives.

Tickets to the forum were pegged at P25,000 for the silver to P30,000 (gold) and P35,000 for platinum.

Branson is credited for building from scratch an empire that has gone on to grow successful businesses in sectors that include mobile telephony, travel, transportation, financial services, health and wellness, leisure and entertainment.

In 2004, he established Virgin Unite, the non-profit foundation of the Virgin Group, which unites people and entrepreneurial ideas to create opportunities for a better world. Tina Arceo-Dumlao

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