Questionable stock transactions
Two officials of the Social Security System (SSS) resigned and two others were placed on floating status in the wake of a complaint for serious dishonesty and grave misconduct filed against them by SSS Commissioner Jose Gabriel La Viña.
La Viña alleged that three of these officials bought and sold stocks for their personal accounts through stockbrokers authorized by the pension fund to handle its stock investments, while the fourth failed to provide him with the complete records of those transactions.
SSS has some P500 billion in assets representing the monthly premium contributions of its member employees and their employers. A maximum of 30 percent of its reserve funds (or money available for investment) can be invested in shares of stocks that meet the criteria of an investment committee.
Considering that the returns from these investments represent a substantial portion of the funds that SSS uses to pay for, among others, the members’ health, maternity and pension benefits, it is essential that the stockbrokers appointed to manage these investments have the expertise to know what stocks to buy, when and at what price, and when to sell them to get maximum profits.
In other words, they should know how to interpret the tea leaves in the local stock market and major stock trading portals abroad, including domestic and international events that can affect stock prices.
Stockbrokers will fight tooth and nail to get the mandate to handle the investible assets of SSS and the Government Service Insurance System, the pension fund for government employees, which has over P900 billion available for investment.
Aside from multimillion pesos in fees that the anointed stock managers can earn from the assignment, the appointment carries with it bragging rights in the highly competitive brokerage business. Thus, it is considered par for the course for stockbrokers who are keenly interested in securing that mandate to tap political connections, if necessary, to clinch the deal.
Once anointed, the winning brokers have to prove their worth by delivering on their commitments on investment returns. An essential element of this task is keeping their fund counterpart abreast with trends in the stock market, anticipated price fluctuations, prospective mergers and acquisitions, initial public offerings and other related information.
For practical and strategic reasons too, the stockbrokers have to maintain good relations (read: ingratiate themselves) with the fund officials who will review and pass upon their performance.
When the parties have become comfortable with each other and the official relationship assumes a personal character, it is possible that information that is not publicly available may be shared and used in deciding whether or not to buy or sell certain shares in the stock market. When done at the right time, the purchase or sale of those shares can be very profitable.
Under the law, it is unlawful for an “insider” to communicate material nonpublic information about a company and its securities to any person whom the passer of the information knows or has reason to believe will likely buy or sell those stocks on the basis of such information.
An insider is defined as a company that issues securities; or a director or officer of that company; or a person whose relationship or former relationship to the issuer gives or gave him access to material information about the company and its stocks that is not generally available to the public.
It also includes a government employee, or officer of an exchange or clearing agency who has access to similar information, and any person who learns such information through any of the entities mentioned.
At this stage, it is unclear whether the SSS officials who traded stocks for their personal accounts through the SSS stock managers engaged in insider trading or simply breached the conflict-of-interests rule of the pension fund.
No stone should be left unturned in the investigation of this incident. It is immaterial if personal funds were used in the transactions, or the SSS did not suffer any loss from the subject actions because the integrity of the pension fund on which many of our countrymen rely on, especially for their sunset years, is at stake.
