SEC blacklists auditor of failed stockbrokerage firm

The Securities and Exchange Commission (SEC) has blacklisted and fined R&L Investments’ external auditor, under whose watch a rouge settlement clerk pulled off a long-running stock theft that led to the collapse of the stockbrokerage house.

In a statement on Monday, the SEC announced that it had disqualified KL Siy & Associates (KLSA) from securing accreditation as external auditor, citing “gross negligence” over a scheme that resulted in the collapse of stockbrokerage R&L Investments.

In an order issued on July 21, the SEC’s Office of the General Accountant (OGA) effectively barred KLSA, along with its managing partner Kathleen Mary Siy and partner Arturo Sabino, from acting as external auditor of all entities regulated by the SEC.

KLSA was previously accredited by the SEC to serve as external auditor of issuers of registered securities, public companies, clearing agencies, exchanges and other self-regulatory organizations, among others.

Aside from disqualification, KLSA was ordered to pay P314,570.65 as penalty for “material disclosure deficiencies and misstatements, as well as for violation of independence rules.”

The OGA issued the order after finding that KLSA failed to comply with the auditing standards and other rules adopted by the SEC under the Securities Regulation Code (SRC) Rule 68, resulting in what it described as “gross negligence” in the audit of R&L Investments’ financial statements for the year 2018.

“The failure to flag the misappropriation of securities through the conduct of appropriate audit procedures contributed to the continuation of the illegal acts, which resulted to the massive loss of securities in the total amount of P606,641,351 as of Dec. 31, 2018, belonging to numerous investors,” the OGA noted.

“The misappropriation of the said securities under the custody of R&L Investments did not only cause damage to the concerned investors but also created a negative impact on investors’ confidence to the Philippine stock market,” it added.

In its 2018 audited financial statements, R&L Investments booked client securities worth P738.9 million. However, the business partner (BP) portfolio report provided by Philippine Depositary and Trust Corp. showed that its client portfolio only amounted to P132.25 million.

The SEC said that KLSA, for its part, admitted that it relied on the BP portfolio report furnished by R&L Investments, which turned out to be altered, and accepted the same as audit evidence to validate the information in the brokerage’s inventory report.

KLSA should have rejected the documents as audit evidence. INQ