SEC collects P21.27-M fines over BW trading violations

The Securities and Exchange Commission (SEC) raised a total of P21.27 million from the collection of fines imposed on individuals and brokerage houses which were found to have violated securities rules and regulations in connection with the trading of shares of BW Resources Corp.

The amount was collected during the period 2000 to 2002 from over 100 brokers and 74 individuals.

Among the violations committed by these erring individuals and broker firms include hyping the stock, wash sales, matched orders, cross trades, marking the close, private placement, squeezing the float, free riding and improper extension of credit, done-thru transaction, and abuse of EQ trade facility.

According to the SEC, there were 79 counts of wash sales and rampant matched orders.

Wash sales is a transaction that leaves no change in beneficial ownership while marking the tape refers to trades executed at or near the closing time of trading for the purpose of pegging the closing price of shares for the day. EQ trades, on the other hand, refer to the transfer of shares to one broker who in turn will distribute these to numerous clients to create a semblance of active trading.

The EQ trade, private placements, and marking the close, based on American jurisprudence, are considered manipulative devices since they give the impression of an active market for a particular stock. The fines ranges from P50,000 to P500,000 per count of violation while the jail term shall not be less than seven years and not more than 21 years.

The SEC investigation was spurred by the phenomenal rise in the share prices of BW from only P1.98 per share to a peak of P107 per share in just seven months. The shares have since fallen to below P1.

The Justice Department had found prima facie evidence against Dante Tan, former chairman of BW and a crony of ousted President Estrada, and several other business executives for violations of the country’s securities laws.

Others charged were Raul de Castro of A.T. De Castro Securities Corp., Federico Galang of PCCI Securities Brokers Corp. and Eduardo Co of Aurora Securities for having engaged in wash sales in violation of Section 26 of the Revised Securities Act.

Those found to have engaged in matched orders for the purpose of creating the appearance of active trading in BW shares were Tan, De Castro, Jimmy Juan, Mario Juan, Hermogenes Laddaran, Eduardo Lim Jr., of Securities 2000 and Belson Securities Inc.

Tan and De Castro were likewise charged with violation of Section 27 of the RSA through a marking the close scheme.

Tan, Lim, Laddaran and Mario Juan were also cited for abusing the EQ Trade Facility in trading BW shares.

The resolution handed down by the Justice Department said that "from the very start, Tan was assisted by his associates and co-conspirators…to cause a massive manipulation of the market in BW shares."

As a result of their acts, the Justice Department said numerous investors were tricked and deceived into buying BW shares only to lose their investments and suffer damage when the price of the BW shares collapsed for lack of corporate fundamentals to support investments in said shares.