I found this on another thread, it ties in with the investigation of the Clinton administration.
"SEC took timely and decisive action resulting in the issuance of cease-and-desist orders to at least 14 firms found to have engaged in illegal pyramiding, boiler-room operations, and unauthorized sale of securities."
Among the 17 are Performance Foreign Exchange Corp., American Automobile International Inc., Power Homes Unlimited, Prosperity.com, Multinational Telecom Investors Corp., Sherman Brothers Management, Barclays, New World Financial Group Inc., Wells Chadwick Inc., Oxford International Mgt, GEI Training and Services Center Inc., United Capital Management, G. Cosmos Philippines Inc. and Goldberg and Partners.
SEC walks tightrope between liberalization, growing need
to crackdown on corruption
By Zinnia dela Peña
In keeping with sweeping changes in the international business arena, the Securities and Exchange Commission has set significant milestones in structural and regulatory reforms to generate confidence in the badly-shaken Philippine capital market.
The SEC, having learned its lessons from the past, has spent the last twelve months setting new policy directions to create a more transparent and efficient market and pursuing institutional strengthening programs covering operations, computerization, human resource development and re-engineering systems and procedures.
The Commission remained focused on ensuring the implementation of the provisions in the Securities Regulation Code to keep the government and the private sector on the right course to economic growth.
Charting the course has been relatively easy. However, staying on course has proven to be the ultimate challenge. With the SEC leadership initiating multi-level reforms to develop and strengthen the capital market, the state-run securities watchdog has come face to face with diverse forms of resistance from certain sectors that had grown comfortable with past practices or had self-serving interests to protect.
And yet, the present leadership of the SEC remains determined to stay the course.
Lean and mean body
Following the effectivity of the Securities Regulation Code on August 8, 2000, the SEC acted swiftly and to implement the Code’s provisions as the framework for a broad agenda of reforms. The need to generate confidence in the Philippine capital market highlighted the SEC’s strengthened role in capital market development and regulation.
A critical element of the SRC reforms was reorganization of the Commission, which allowed the agency to retain and attract qualified individuals. The new setup is aimed to give SEC the flexibility to determine its own qualification standards and position classification system.
By January 2001, the SEC had successfully transformed itself into a leaner organization, staffed with highly-qualified professionals and governed by a structure more responsive to the changing demands of prudential regulation.
Barely a month after its reorganization, the SEC continued to work towards the demutualization of the Philippine Stock Exchange ,the regulation of market participants through licensing and continuous monitoring and the provision of exemptive relief in response to the needs of the market.
Bourse reforms
The SEC worked closely with the PSE to effect the latter’s reorganization as a stock corporation by August 8, 2001, as prescribed by the SRC.
With demutualization, the PSE will become a publicly-held corporation with a diverse ownership governed by a majority of non-brokers and managed by an independent and professional group.
Demutualization is expected to make the PSE more transparent as it is subject to rules on full disclosure. It is also expected to dispel the negative old boys club image of the PSE.
The SEC likewise strengthened its hand in the exercise of its strict oversight functions. It launched regular reviews of the PSE’s regulatory programs.
More important to the credibility of the bourse, the SEC stressed it was holding the PSE responsible for ensuring that all its members play by the rules fairly.
Exemptions
Following the September 11 attacks in the United States and the closure of certain exchanges in the region and consistent with Department of Justice opinion no. 45, the SEC granted relief three key provisions in the SRC – the mandatory tender offer, the broker director-rule and the broker-dealer prohibition.
The exemptions are effective for one year but may be extended by the Commission as warranted by economic conditions.
Invoking the exemptive powers given to it under Section 72.1 of the SRC, the SEC has lifted a rule barring brokers from trading shares of companies where they sit as officer, director or shareholder and instead required them to disclose any such transaction to ensure transparency.
The move followed an opinion earlier handed down by the Department of Justice that the SEC is authorized to grant exemptions to a particular person or group of persons, to give way to public interests in the face of ever-changing market conditions and the highly complicated and technical field of securities regulation.
The SEC now allows brokers or dealers to buy or sell securities of their firms, provided they disclose the plan to securities regulators within five days of a transaction.
The broker-director prohibition was intended to curb insider trading or the buying or selling of shares on the back of advance information about a listed company.
Member-brokers of the PSE have strongly objected to this rule, warning of damaging effects on the capital market. The protesters claimed the rule had affected the volume of stock trades and the market’s efficiency.
The SEC likewise allowed PSE member-brokers to trade for their own account provided that the local bourse puts in place the necessary safeguards, to ensure that clients’ orders will always come first.
Under the SRC, brokers are prohibited from trading for their own account, unless they intend to engage in market making activities that require a higher paid-up capital.
The PSE has proposed to reconfigure its computer to check possible abuses of brokers in the execution of stock trades and to make sure that the brokerage firms will prioritize clients’ orders before their own.
Luzoncentric growth
Not spared the effects of the global economic slowdown, new investments in the first nine months of the year plunged 29 percent, to P53.63 billion from P75.94 billion the same period a year ago. The SEC has yet to cull figures for the fourth quarter of the year.
SEC data showed that there were fewer companies that set up shop in year’s first three quarters, reflecting the prevailing financial difficulties. From 9,322 corporations, the SEC received only 9.255 new registration applications for the period under review.
The subscribed capital stock of the new companies amounted to P19.57 billion, P11.33 billion of which was paid-up. Compared to last year’s levels, the subscribed and paid up capital were lower by 28 percent and 30 percent, respectively.
By geographic distribution, bulk of the new corporations were located in Luzon, accounting for 6,825 entities with a paid-up capital of P8.76 billion. This comprised 77 percent of the total paid-up capital investment for the period.
Southern Tagalog came in second with a total of 843 corporations contributing a paid-up capital of P1.51 billion, followed by Central Luzon with 512 companies and a paid-up capital of P450 million.
Outside Luzon, Central Visayas and Southern Mindanao each accounted for two percent of the total paid-up capital investment.
Winners, losers
Industry-wise, the wholesale and retail trade cornered the lion’s share of new investments with 3,397 companies or 30 percent share of the total paid-up capital. At second place was the real estate sector witih 2,367 companies or 24 percent of the total paid-up. Trailing was the financial intermediary sector with 821 corporations, 26 percent of the total paid-up capital.
Foreign investments in new and existing domestic corporations likewise fell by 45 percent from P16.01 billion to only P8.75 billion in the period January to September this year.
Among existing companies, only 366 corporations raised their authorized capital stock compared with 892 firms, indicating that firms are feeling the brunt of the economic crisis and are not optimistic with the business environment in the coming months.
New capital injected into existing domestic corporations dipped 60 percent, to P51.68 billion from a whopping P130.01 billion.
Short-term commercial papers and initial public offerings registered with the SEC amounted to P1.5 billion and P729 million, respectively.
Tight watch
Meawhile, the total amount of pre-need education and pension plans registered during the year amounted to P3.25 billion and 122 certificates of permits to sell were issued to pre-need plan firms.
To improve the regulation and monitoring of pre-need plan corporations, the SEC in cooperation with the Federation of Pre-Need Plan Companies, formulated and promulgated the implementing rules and regulations on pre-need plans. The IRR defines the licensing/registration rules and monitoring of pre-need plan companies and sets out the requirements for the establishment of a trust fund.
The SEC and the Federation have also organized registration and complaints desks to expedite the filing/processing of registration statements and avoid the over-issuance of pre-need plans and facilitate the amicable settlement of complaints.
The SEC continued to streamline its operations and simplify procedures to facilitate company registrations. This involved the elimination of certain documentary requirements, examination of books
and inspection of properties in the case of a stock increase and long form audits in the case of mergers and acquisitions.
Scams aplenty
SEC’s demonstrated capability to regulate the market and protect investors is essential in restoring investors’ confidence. With the full backing of the current administration, the SEC has been fulfilling with
renewed vigor its mandate of regulation and enforcement without fear against entities manipulating stock prices and committing securities fraud.
SEC took timely and decisive action resulting in the issuance of cease-and-desist orders to at least 14 firms found to have engaged in illegal pyramiding, boiler-room operations, and unauthorized sale of securities.
Among the 17 are Performance Foreign Exchange Corp., American Automobile International Inc., Power Homes Unlimited, Prosperity.com, Multinational Telecom Investors Corp., Sherman Brothers Management, Barclays, New World Financial Group Inc., Wells Chadwick Inc., Oxford International Mgt, GEI Training and Services Center Inc., United Capital Management, G. Cosmos Philippines Inc. and Goldberg and Partners.
The agency’s enforcement does not involve the issuance of cease-and-desist orders alone but also involves penalizes erring companies and filing charges before the Department of Justice.
During the first semester of 2001 alone, SEC penalized a total of 241 corporations. A settlement offer in Reynolds case was accepted by the SEC consistent with Section 55 of the SRC,
In addition, SEC initiated enforcement actions against 24 companies and their responsible officers, wherein 21 of these were involved in boiler room operations. Among the suspected boiler room operators were Dukes & Co., Evergreen, Mendez Prior Europe, Berkleys, and Price Richardson. As of September, the amount of fines and penalties collected by SEC reached P17.81 million.
Joint operations
Realizing that two heads are better than one, the SEC and the National Bureau of Investigation inked a memorandum of understanding, undertaking joint surveillance, investigation and prosecution of violations of securities rules and laws.
The MOU, signed by SEC chair Lilia R. Bautista and NBI director Reynaldo Wycoco , was to intended to address the growing number of boiler-room operations in the country as part of efforts to regain investor confidence.
Bautista said the modus operandi of boiler-room operations is to employ telemarketers and foreigners who as unregistered brokers use high pressure sales techniques and promises of exorbitant returns on investment and fraudulently sell securities in unregistered transactions.
A boiler-room operates with only minimal legitimate business activities. Its primary activity is to raise investor funds which will then be pocketed by the principals and telemarketers in the form of commissions, costs and fees.
Unfinished business
The SEC likewise pursued its investigation of transactions involving shares of BW Resources Corp., now Fairmont Holdings Inc.
The SEC’s Special Operations Group filed with the Justice Department on February 23, 2001 its third report on the investigation, which revealed more violations of the SRC as well as the participation of other individuals in the share price-fixing case.
In the performance of its registry, monitoring and enforcement functions, the SEC collects service fees and penalties. Between January to September 2001, the agency’s income amounted to P361.5 million. Notwithstanding the substantial achievements made the past 12 months, the SEC recognizes that more reforms are needed to be able to compete in the global arena.
The core reforms currently being implemented by the SEC include the enhancement of disclosure requirements, to make them consistent with international standards. Investors need vital information to be able to make more intelligent investment decisions. For disclosure to be truly effective, the requirements must not only ask for information that is transparent but also demand information that is accurate and comparable.
Who audits the auditor?
The SEC is also moving towards the harmonization of its rules and regulations with international standards. The agency is actively implementing the IRR of the SRC, which contains disclosure requirements similar to international full disclosure rules. The SEC has also begun amending the Special Accounting Rules which govern the financial disclosures of publicly-held corporations.
Phased amendments in SRC rules to incorporate accounting and auditing standards will be made annually until these standards are fully adopted in 2003. The SEC also hopes to strengthen its regulatory power over external auditors and public companies on accounting and auditing matters.
Auditors play a key role in the financial reporting process. As such, auditor independence is critical to reassure investors that the financial information they receive is reliable, fair and complete.
In order to ensure auditor independence and to strengthen the SEC’s capability, the agency is working closely with the Board of Accountancy, the Professional Regulation Commission and the Philippine Institute of Certified Public Accountants on the formulation of a circular on the election and appointment of an external auditor.
The SEC has distributed a copy of the proposed circular to all auditing firms for their comments. The circular requires all external auditors being engaged by public companies to register with the SEC.
SEC auditors for their part will attend trainings to further hone their capacity to monitor and conduct in-depth reviews of audited financial statements and other reports.
Monitoring
To develop the bond market, the SEC and the Bankers Association of the Philippines are working on improvements in the legal infrastructure of the fixed income securities market.
At the same time, the SEC is working towards the development of the market for innovative or non-traditional securities such as asset-backed and index-linked securities as well as the formulation of more effective rules for bonds, long and short-term commercial papers, options and warrants.
To promote the development of the commodity futures market, the SEC is in the process of studying the viability of establishing a futures exchange.
The SEC is also pushing for the abolition of the documentary stamp tax for secondary trading, to make transaction costs in the Philippine securities market competitive with other markets in the region.
The agency, likewise, is developing internal mechanisms to improve the monitoring of corporations. These include the preparation of an IT-driven and risk-oriented monitoring device called I-Mode, which tracks the extent to which corporations are complying with laws, policies, rules and regulations, including the recently promulgated Anti-Money Laundering Law.
I-Mode also reflects the risks involved and the monetary and non-monetary sanctions for non-compliance.
Another major initiative is the proposed Investment Company Act, which aims to liberate the mutual fund industry from restrictive policies and practices. |
