The SEC report also said UII and its mother company, the failed Urban Bank, had the same set of directors and officers in violation of BP 66 which allows such a-set-up only "where the majority or all of the equity of the investment house is owned by the bank."
Urban Bank owns only 40 percent of UII, not enough to consider it majority owned, the SEC report said.
The report also said UII borrowed from retirement funds that did not have the legally mandated approval of the Bureau of Internal Revenue. BIR approval would have made these transactions exempt from registration. As such, the report said the SEC examiners "considered the borrowing issues as illegal sourcing of funds."
The investment house, the report added, violated a Monetary Board resolution requiring it to derive at least 25 percent of its gross income from underwriting and other fee-based activities.
It was found to have banked too much on its trust operations or the sale of receivables which were eventually blamed for the collapse of Urban Bank.
Complaints filed by government regulators with the Department of Justice alleged that the bank, headed by chairman Arsenio Bartolome III and president Teodoro Borlongan, absorbed the bad loans or trash receivables of UII which they also headed.
One week before declaring a bank holiday, when it was being besieged by depositors, Urban Bank absorbed P4.6 billion of UII’s bad loans, leaving it only P125 million in cash and less than P1 billion in quick assets to meet more than P8 billion in deposit liabilities.
Affidavits annexed to the complaint said people related to the officers of Urban Bank and UII where among the beneficiaries of the transfer of UII’s bad loans to the bank.
These people got their money back as Urban Bank transferred P4.6 billion of its remaining cash to UII in exchange for the bad loans which were paid their full face value plus accrued interest.