Brokerage loses license, fined P32-M for illegal transfer of P700-M shares

Published June 14, 2021, 4:19 PM

by James A. Loyola

The Securities and Exchange Commission (SEC) has revoked the license of Ventures Securities, Inc. (VSI) and slapped P32 million in penalties against the brokerage and its officers for the fraudulent transfer of P700 million worth of client shares from R&L Investments, Inc.

An SEC special hearing panel (SHP) had found acts and omissions on the part of VSI and its officers that have “indispensably contributed to, if they had not been the proximate cause of, the losses incurred by the clients of R&L.”

It will be recalled that, in November 2019, the SEC ordered the Capital Markets Integrity Corporation (CMIC) to take over the operations of R&L following the discovery of unauthorized transfers of shares to the account of a certain Julieto Sulapas in VSI.

The transactions were faciliated by one Marlo Moron on behalf of Sulapas while acting as a trading floor assistant and settlement clerk of R&L through EQ trades, or transfers of shares from one broker to another.

These transfers resulted in the loss of P700 million worth of client shares in R&L, one of the oldest brokerages in the Philippines.

The SHP said VSI and its presidentWilfred Racadio, associated person Adora Aguilar, salesman Loreto Balabis and settlement head Teresita Mosenabre failed to observe know-your-client procedures and other controls mandated by the Securities Regulation Code (SRC) and its implementing rules and regulations (IRR).

Thus, the SHP imposed monetary penalties amounting to P8 million for VSI, P9 million for Racadio, P8 million for Aguilar, P5 million for Balabis, and P2 million for Mosenabre.

The SHP also revoked the registration and license of VSI as broker/dealer pursuant to Section 29 of the SRC. Meanwhile, it disqualified Racadio, Aguilar, Balabis, andMosenabre from being registered persons and, except Racadio, from being an officer, director, or person performing similar functions.

The SHP noted that, the concerned officers of VSI were not present when Sulapas opened an account and failed to verify the authority of Moron to transact on behalf of Sulapas.

Separate investigations conducted by CMIC and the SEC Markets and Securities Regulation Department (MSRD) also revealed that Sulapas’ transactions under his VSI account amounting to P9.9 billion were “grossly disproportionate” to his declared total net worth, liquid net worth, and annual income of less than P1 million, as reflected in his Customer Account Information Form as of October 2017.

Sulapas’ account ledger with VSI further showed that he made approximately 2,800 buy transactions from 2012 to 2019, even though he only made five cash payments during the same period.

Despite the discrepancies, Balabis, Aguilar, and Mosenabre did not inquire, verify, or review the transactions made by Sulapas.

Moreover, VSI and its officers failed to report suspicious transactions to the Anti-Money Laundering Council and somehow even helped Sulapas evade the reporting threshold by issuing multiple checks for amounts lower than P500,000.

The panel also noted that VSI failed to maintain and keep a current and complete set of its books and records in violation of the SRC and its IRR, and lacked clear customer acceptance policies and procedures, among others.

Accordingly, VSI violated multiple provisions of the SRC and its IRR such as the rules on Ethical Standards; Capabilities; Information About Clients; Prohibitions on Extension of Credit; Purchases and Sales in Cash Account; Books and Records; and Customer Account Information.

“We cannot tolerate and ignore any act or omission on the part of those involved in the capital market which would violate the norm set by the securities law especially on the transactions and responsibilities of Broker Dealers and that would diminish or even just tend to diminish the faith of the investors on the integrity of the capital market,” the SHP noted.

It added that, “the practice of installing undiscerning persons in entities involved in the capital market cannot be tolerated, let alone allowed to perpetuate. This must be curbed by holding accountable those who consciously and willfully commit wrongful acts in the performance of their duties as officers, registered persons or employees.”