SEC fines EPCI Bank for rules violations

The Securities and Exchange Commission (SEC) has fined Equitable PCI Bank (EPCIB) P1.8 million for its failure to comply with its manual on corporate governance despite previous warnings.

SEC officer-in-charge Gracia F. Casals said the SEC also rejected the motion for reconsideration of the commission’s earlier ruling disqualifying Roberto R. Romulo as independent bank director.

The SEC directed EPCIB, through its corporate secretary, Nilo T. Divina, to pay the fine within 15 days from receipt of notice. The bank was also directed to "immediately submit the company’s final list of nominees for independent directors, which shall exclude Mr. Roberto Romulo, with the corresponding required information on each nominee."

The EPCIB is scheduled to hold its general stockholders meeting and election of members of the board of directors today at the bank’s offices in Makati City. The Social Security System (SSS) and the Government Service Insurance System (GSIS), which own more than 41 percent of the bank, have served notice they would not agree to any postponement of the scheduled meeting.

In a letter dated July 15, 2005, the SEC also held that "the non-disclosure of the final list of nominees for independent directors in its information statement which was already distributed to the stockholders and the fact that such list is not yet available up to this date as a valid basis for the imposition of penalty due to violation of [the] SRC [Securities Regulations Code]."

The SEC pointed out that Romulo is chairman of Equicom Systems Management Inc. (ESMI), which is a subsidiary of Equitable Computer Services Inc. (ECSI), a company controlled by the Go family. "The fact that Mr. Antonio Go, the majority owner of ECSI, is `not a substantial shareholder of the Bank‚ ... has no bearing on the exercise of his [Romulo’s] exercise of independent judgment as director of the Bank," the SEC said.

The SEC stressed that Go "is not a mere stockholder of the Bank but is in fact chairman of its board of directors. Ultimately, the situation that presents itself here is one wherein the supposed independent director of a covered company also happens to be chairman of another company, majority-owned by yet another company, which is in turn majority-owned by the chairman of the covered company."

The SEC continued, "In fact, this setup can still, within the purview of the law, encompass a business relationship that could, or could reasonably be perceived, to materially interfere with the supposed independent director’s exercise of independent judgment."

Romulo was also earlier disqualified by the Monetary Board of the Central Bank for having been chairman from 1997 up to 2004 of the board of Equitable Bank Network Inc. and concurrent chairman of ESMI. "He is considered to be acting as representative of the Go family, a substantial shareholder of EPCI, since he concurrently is chairman of ESMI and had been chairman of ECNI, which are both Go family-controlled corporations," said Leny I. Silvestre, acting director of the Central Bank’s Supervision and Examination Department.

GSIS president and general manager Winston F. Garcia had petitioned for the disqualification of Romulo. At the same time, he filed criminal charges against Romulo, Go, Divina and two other directors of EPCIB for alleged violation of SEC rules and regulations and of the Revised Penal Code.

The SEC said it was considering the filing of criminal charges against the bank officials based on Garcia’s complaint.

The SSS and GSIS together hold more than 41 percent of total issued shares of stock of EPCIB. SSS president Cora dela Paz and GSIS president Garcia are claiming at least seven seats in the 15-man EPCIB board of directors in today’s meeting. At present, they have only five directors.

Dela Paz and Garcia complained that because of Go’s "artificial majority" in the board, through the election of unqualified independent directors, he has been able to control the bank’s policies. As a result, they said, the millions of SSS and GSIS members have been deprived of expected investment income amounting to around P2 billion. The SSS has a 29 percent stake in the bank, while the GSIS holds more than 12 percent of the total bank shares of stock.