SEC also revokes license of R&L Investments, penalizes officers

Published June 15, 2021, 3:06 PM

by James A. Loyola

The Securities and Exchange Commission (SEC) has also revoked the license of R&L Investments, Inc., as well as disqualified its key officers and the owner of the account used to siphon off P700 million worth of client shares from the stock brokerage.

In addition, the SEC special hearing panel (SHP) imposed monetary penalties totaling P25 million against the brokerage, its key officers and the client involved in the fraudulent scheme that led to the collapse of one of the country’s oldest stock brokerages.

In a decision dated June 11, the SHP found R&L, along with its president Joseph Lee, nominee and salesman Lucy Linda Lee, and associated person Jonathan Lee, liable for the fraudulent transfer of client shares to an account in another brokerage, Venture Securities, Inc. (VSI).

In separate decisions issued on June 11, the SHP likewise found Marlo Moron and Julieto Sulapas liable for engaging in fraudulent transactions, in violation of The Securities Regulation Code (SRC) and its implementing rules and regulations (IRR).

Moron facilitated the transactions as a trading floor assistant and settlement clerk of R&L through EQ trades — the transfer of shares between brokers — while, at the same time, representing Sulapas in his transactions at VSI.

Documents submitted by R&L and VSI showed that a total of P1.13 billion worth of client shares in R&L were transferred to Sulapas’ account in VSI through the EQ trades executed by Mr. Moron from 2012 to 2019.

However, Sulapas’ ledger in R&L revealed that no such shares existed, and that the shares transferred to VSI actually came from the accounts of other clients of R&L.

The scheme resulted in the loss of P700 million worth of client shares in R&L and in the consequent deterioration of the brokerage’s financial condition, to the extent that it cannot readily meet the demands of its clients for the delivery of securities and/or payment of sales proceeds.

Investigation by the SEC Markets and Securities Regulation Department (MSRD) revealed that Ms. Lee gave Moron the necessary credentials to execute EQ trades.

Moron also received viewing access to R&L’s back-office system. As a result, he was able to access and acquire information pertaining to the shareholdings of all R&L clients and to tamper with the business partner portfolio reports to match the back-office records, thereby hiding the fraudulent scheme.

The SHP noted that Ms. Lee was the only registered salesman in R&L and, thus, the only person allowed to access the order and trade management tool provided by the Philippine Stock Exchange for use by trading participants in executing trades and accessing market data.

Jonathan Lee admitted to knowing the granting of the authority to Moron, but did not take action on the matter.

Meanwhile, the SHP noted that Mr. Joseph Lee failed to perform his duty as president of R&L, as he even admitted to having no knowledge of the daily operations of the brokerage.

The SHP imposed monetary penalties amounting to P6 million each for R&L, Joseph Lee and Jonathan Lee, and P4 million for Ms. Lee. It also disqualified Joseph Lee and Jonathan Lee from being registered persons, as well as from being an officer, member of the board of directors, or person performing similar functions for the latter.

In Moron’s case, the SHP found that he engaged in the buying and selling of securities without being registered or licensed as a trader, aside from fraudulently transferring shares from R&L to VSI using Sulapas’ accounts.

“Thus, the Respondent should not get away from the consequences of his intentional wrongful acts which resulted to the prejudice and damage of R&L’s investors in the present case,” the decision read.

Meanwhile, the SHP found Sulapas participated in the fraudulent scheme by allowing “himself and his accounts in R&L and Venture Securities to be used as a tool in the commission of the fraudulent scheme that resulted in the loss of large number securities that belonged to the clients of R&L.”

The SHP imposed a P2 million monetary fine for Moron and P1 million for Sulapas. In addition, the panel disqualified Moron and Sulapas from being registered persons and officers, directors, or persons performing similar functions.

In a separate decision issued on the same day but announced earlier, the SHP likewise revoked the license of VSI and disqualified its key officers from performing similar functions, on top of the monetary fines totaling P32 million, for acts and omissions that have indispensably contributed to the losses incurred by R&L clients.

“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, “it is totally unacceptable and unconscionable to place the Respondents’ act and imprimatur on these issues that seriously endanger the integrity of entire securities market. For this Commission to cop-out and to close its eyes to these acts and deeds, while convenient, would be to abandon its duty of safeguarding public interest and the integrity of the capital market.”