After more than 20 years, the Securities and Exchange Commission (SEC) has finally secured the conviction of a stock broker involved the manipulation of the price of Best World Resources Corporation (BW) that started in October 1998.
In a statement, the SEC said it has secured a fifth conviction under the Securities Regulation Code (SRC) after a regional trial court ruled that the president of a brokerage manipulated the market in illegal trade transactions involving stocks of then listed firm BW.
In a decision dated May 7, the Pasig City Regional Trial Court Branch 67 found Johnny S. Yap of Solar Securities Inc. guilty beyond reasonable doubt of violation of Section 26(a)(I)(1) of the Revised Securities Act, now Section 24.1(a)(i) of the SRC.
The court sentenced Yap to a penalty of imprisonment of 14 years and a fine of P1 million. It also ordered the issuance of a warrant of arrest against Yap.
The SEC filed a criminal complaint against Yap, who was then the president, sales manager, and director of Solar Securities, after the brokerage was found to have committed wash sale transactions composed of 142 buy and sell orders for stocks of BW during the months of June and October 1999.
Wash sales refer to transactions wherein the buyer and seller of the stock share a beneficial owner. A beneficial owner is any person who, directly or indirectly, has or shares voting power, which includes the power to vote, or to direct the voting of, such security; and/or investment returns or power, which includes the power to dispose of, or to direct, the disposition of such security.
A Special Operations Group (SOG) formed by the SEC in August 2000 to investigate the matter found that Solar Securities’ transactions were wash sales not only because the brokerage was both the buyer and the seller in all the 71 buy order and 71 sell order transactions, but also because the offers and bids were made at very close intervals.
The court ruled that Yap, as Solar Securities’ compliance officer, had the duty to ensure that the company was compliant with the regulations and legal requirements for its trading transactions. Thus, Yap was deemed to have directly or indirectly executed transactions. Yap also admitted that he himself executed some of the transactions.
Further, the court concluded that the transactions involved no change in the beneficial ownership.
Evidence showed that Solar Securities paid itself at the price it offered to sell the BW shares. If Solar Securities and Yap were selling shares for clients different from the bidding or buying clients, the court noted that no allegation or evidence was ever presented to show the circumstance.
“In fact, no commission was paid and/or earned in all these transactions, which totally negates any appearance that Solar was transacting for its clients,” according to the decision.
Moreover, the court ruled that the transactions were entered into for the purpose of creating a false or misleading appearance of active trading or misleading appearance with respect to the market of such security.
BW shares were trading for 80 centavos each at the start of 1999. Shares in the company steadily increased in that year and by October, BW shares had reached a price of P12.50 each, the same time as when Solar Securities executed its wash sale transactions.
This is despite the fact that BW posted losses of P10.84 million in 1999 and had no corporate fundamentals.
“[N]o other conclusion may be reached but that these series of trade transactions were executed with the intention of creating a false or misleading appearance of active trading or misleading appearance with respect to the market of BW shares,” the decision read.
It added that, “Indubitably, the subject transactions were knowingly executed by Solar with no other purpose but to manipulate the market.” The case marks the fifth conviction under the SRC since its enactment in 2000. Previous convictions mostly involved fraudulent investment scams, including a 2015 decision against Rosario and Saturnino Baladjay, who were ordered to a total of 455 years in prison and made to pay a total of P8 million to complainants.