Finally, after more than two decades, a trial court has rendered a decision on a scandal that almost caused the collapse of the Philippine stock market in 1999.
The court found Johnny Yap, then president of Solar Securities Inc., a stockbroker, guilty of stock manipulation of the shares of BW Resources Corp., a listed gaming company, and sentenced him to 14 years in prison and to pay a fine of P1 million.
The evidence presented showed that Yap engaged in the sale and purchase of BW stocks 142 times through parties with common owners.
That scheme, which the law describes as a “wash sale” and prohibits, resulted in the phenomenal rise of the per share price of BW stocks from P0.80 to P12.50 within the period of June and October 1999.
Incidentally, the people behind BW were known to be in the good graces of then President Joseph Estrada.
The trading frenzy reached a point that several stockbrokers traded BW stocks over and beyond their capital, which was in violation of the securities laws. Had the scandal run its full course and those stockbrokers defaulted on their trades, the stock market would have been toast that year.
The stockbrokers and their clients who were in the know on the manipulation earned millions of pesos in profits and brokers’ fees, but, in the process, hundreds of “less smart” investors, which included high government officials and lawmakers, later found themselves holding worthless BW shares.
When the scam unraveled, the trust and confidence of the public, particularly foreign investors, in the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE) hit its lowest level ever.
The SEC appeared remiss in its responsibility to protect investors from unscrupulous trading practices in the PSE. On the other hand, the PSE’s “old boy’s club” culture was blamed for its failure to immediately take action against stockbrokers who participated willfully in BW’s stock transactions.
Despite the fact that the unlawful trades had adversely affected the integrity of stock market transactions, however, the SEC treated the unprecedented securities violation as an administrative, rather than a civil or criminal, case.
If a stockbroker is found liable in an administrative case, the penalty imposable is withdrawal or suspension of the broker’s license or payment of fines, or both.
Accordingly, the SEC ordered the stockbrokers it found to have been involved in the trading charade to pay a certain sum of money as penalty depending on its appreciation of the extent of their participation.
Those stockholders, except Yap, quickly accepted the slap on their wrist and paid the measly (compared to their earlier gains) fines. That payment cleared them from any criminal liability from the stock scandal.
Why Yap did not take advantage of the kid gloves treatment is a big question mark. His “intransigence” resulted in his becoming the sole defendant in the unlawful trading case.
To prevent a repeat of the BW scandal, Congress, with the late Sen. Raul Roco in the lead, amended the securities law then in force, the Revised Securities Act, which was enacted when stock market trades were posted using blackboards and chalks.
In record time, the Securities Regulation Code was enacted into law in 2000 (with President Estrada promptly signing it) which, among others, tightened the rules on stock market transactions and gave the SEC stronger regulatory authority over market players.
Going back to Yap’s case, it’s remarkable the lawyers from the Office of the Solicitor General and SEC staff who collaborated in it were able to secure a conviction despite the fact that some of their important documents disappeared after they were turned over to the SEC.
They solved a complicated jigsaw puzzle of stock transactions that were purposely designed to avoid detection as a scheme to raise and deflate BW’s share prices to entice investors.
Since the court’s decision is not yet final as it may be reversed on appeal, there can be no closure yet on the BW scam. Besides, the person believed to be the brains behind it, Dante Tan, has yet to be held accountable. INQ
For comments, please send your email to rpalabrica@inquirer.com.ph.