BIZ BUZZ: ‘Delicadeza’
With Ventures Securities Inc. (VSI) getting dragged into the R&L Investments stock fraud mess, VSI’s owner, businessman Eusebio “Yosi” Tanco has decided, out of “delicadeza,” to bow out of the Philippine Stock Exchange (PSE) board after a 14-year run.
In a letter to PSE chair Jose Pardo dated June 16, Tanco said he was declining the nomination for PSE board on the heels of recent events that “unfortunately and unjustifiably” besmirched the reputation of VSI, officers and employees.
On June 11, a special hearing panel (SHP) of the Securities and Exchange Commission (SEC) issued an order to strip VSI of its broker-dealer license. It also slapped penalties summing up to P32 million, citing acts and omissions that “indispensably contributed to, if they had not been the proximate cause of, the losses incurred by the clients of R&L.”
Monetary penalties totaling P25 million were also imposed by the SEC against R&L, its key officers and the client involved in the fraudulent scheme.
R&L’s settlement clerk Marlo Moron, the person identified to be the main architect of the stock fraud, and Julieto Sulapas, the day trader who owns the account used for this scheme, were found liable for engaging in fraudulent transactions. A P2-million fine was slapped against Moron while P1 million was imposed against Sulapas and both had been blacklisted in the capital market.
Acting as both trade and settlement clerk in violation of the rules, Moron allegedly executed trades that allowed him to steal shares owned by other clients.
“It therefore came as a complete surprise to Ventures that it became the subject of an investigation and has been made to appear as complicit in the anomalous schemes of Mr. Moron. These machinations of Mr. Moron have been going on for over seven years and has apparently escaped the attention of Capital Markets Integrity Corp. (CMIC), the guardian of the morals of the brokerage community,” Tanco said.
“Had the CMIC bothered to look at R&L and its activities, the CMIC would have easily noticed what was happening as they are better equipped to detect this kind of transactions violative of the rules of the exchange. The fact alone that Mr. Moron was both trader, settlement clerk and keeper of the books of accounts should have been discovered by CMIC.”
While he himself had not been held personally liable for any of the charges cited by the SHP, Tanco said the interest of the PSE would be better served if he were to decline the nomination.
“The Exchange, after all, is bigger than any individual broker and it is my belief that all our efforts should be directed to the protection and preservation of the image of the Exchange,” Tanco said.
“My only wish is for an acknowledgement that the real guilty parties will be called to account for this sorry state of affairs.”
—Doris Dumlao-Abadilla
Irked CMIC
Capital Markets Integrity Corp. (CMIC), the Philippine Stock Exchange’s self-regulatory market regulation arm, rarely issues public statements as its functions—including investigations of trading participants (TPs)—are inherently done discreetly. CMIC, however, decided to publicly rebuke Ventures Securities Inc.’s (VSI) reference to lapses in its regulatory oversight.
“The purported lack of citations of irregularities from CMIC for and within a certain audit period, or even after the conduct thereof, does not preclude a subsequent finding that other rules have been violated by the trading participant,” CMIC said. CMIC said its audit of TPs and trading-related documents for a particular period may not arouse suspicion by themselves, but if similar documents for prior periods were correlated to each other, the suspicion of fraud may be supported by extending the examination procedures for the relevant prior periods or years. This is similar to the regular audit practice of non-TP companies, wherein it’s not uncommon for the external auditor to revisit records of prior periods/years, when warranted, particularly in cases of suspected fraud.
In appealing against the P5.16-million penalty imposed by CMIC, VSI argued that CMIC should be barred from penalizing it for transactions that had occurred more than five years from the time of the special audit pursuant to Article 1149 of the Civil Code.
The Securities and Exchange Commission en banc, however, said this argument was “misplaced,” adding that VSI “recognized and submitted to the jurisdiction of the CMIC when it voluntarily submitted to the latter its internal records (which included documents for the year 2012 which was clearly beyond the five-year prescriptive period) for purposes of the conduct of the special audit.
“CMIC’s audit findings of any TP, Venture included, should not be construed as relieving any such TP of its accountabilities and its responsibility to answer for its violations of the pertinent securities laws, and for matters which were and are within its power, control or management. Adopting effective internal/financial controls including compliance therewith and adherence to good corporate governance standards and practices are properly the responsibilities of the owners and management of a company, not its auditor,” CMIC said.
