SEC probes deeper into controversy over First Resources Management

The Securities and Exchange Commission (SEC) is digging deeper into the controversy involving First Resources Management & Securities Corp., the stockbrokerage firm owned by influential broker Vivian Yuchengco.

In an Aug. 19 letter to the Philippine Stock Exchange (PSE), the SEC said it is pursuing its investigation into First Resources’ alleged monopoly of stock trades by the Government Service Insurance System (GSIS), one of the biggest institutional investors in the exchange.

The PSE earlier cleared First Resources of any wrongdoing in the transactions.

But the SEC said it has referred the case to its Compliance and Enforcement Department (CED) to conduct a more substantive probe.

The SEC said while the preliminary analysis conducted by its Markets Regulation Department was only based on the trading data and there appeared no indication of irregularity in First Resources’ transactions, the corporate regulator "did not make any conclusion on whether there were other violations of the Securities Regulation Code and its rules and regulations that can be established beyond the trading data available to us."

The CED had been asked to assess the trading data, beneficial ownership of shares, and other data received from concerned parties which indicate probable infractions.

The SEC also reprimanded the PSE for failing to submit its investigation report on First Resources at the same time that it submitted the report to the PSE governance committee.

The PSE’s Compliance and Surveillance Group (CSG) submitted to the governance committee its report on First Resources last July 21. However, a copy of the said report was only submitted to the SEC on July 22.

Under the SRC, the CSG is required to submit the said report to the SEC on or before the time it submits a copy to the governance committee or any other committee within the PSE.

The SEC said it is also holding the CSG responsible for monitoring compliance with the said rule.

In its report, the CSG said while there may have had several alerts during the period under review, those were conscientiously assessed and systematically filtered out on preliminary tests along with many other incidents on other securities that may have turned up.

Incoming PSE president Francis Lim earlier asked the SEC to give weight to the CSG report in deference to the SRO (self-regulatory organization) status of the PSE.

He said the SEC should finally put an end to this to prevent speculations that the corporate regulator is on a witch-hunt. He said this matter might aggravate the already deteriorating relationship between the SEC and the brokers, adding that "it is not conducive to the environment of cooperation that I intend to pursue as PSE president."

Lim sought the SEC’s cooperation in ongoing efforts to transform the local bourse into one of the country’s engines for growth to regain the confidence of the investing public.

"The earlier the SEC writes finished to this episode, the better for the stockmarket. We should focus our time and energy to substantive matters that are really needed to restore public trust and confidence in the system so that the stockmarket will improve the way other stockmarkets are growing," Lim said.

In his reform agenda, Lim said he wants to limit SEC’s interference to cases where grave abuse of discretion has been committed. As an SRO, the PSE has the autonomy to investigate and discipline its member-brokers. The SEC serves as the oversight body over the PSE.

As an oversight, the SEC, however, may, on its own initiative, conduct periodic or parallel examinations of PSE member-brokers to validate the exchange’s findings.

SEC chairperson Lilia R. Bautista earlier said this would never have been an issue had the commission not received any complaints against certain brokers using their powers to delay or halt investigations being conducted by the CSG.

This is primarily the reason why the SEC wants the PSE to establish an independent audit, compliance and surveillance office within a registered exchange or as an entity separate and distinct from the PSE to ensure the objectivity of audits.

The SEC said it wants the CSG to be independent from the exchange to avoid possible conflict of interest between the investigating group and the exchange’s member brokers, who are part-owners of the exchange.