Congress urged to probe wild swings in Calata share prices

MANILA, Philippines - The House of Representatives is being urged to look into the reported manipulation of the stock price of Bulacan-based agricultural firm Calata Corp.

Eastern Samar Rep. Ben Evardone who made the appeal through House Resolution 2647, said the House Committee on Banks and Financial Intermediaries should tackle the issue and recommend remedial measures “to further protect stock market investors and deter fraudulent schemes relative to stock trading.”

He said such measures should include proposed legislation that would make it easier for the government to prosecute and for courts to convict suspected stock manipulators.

He said as far as he knew, no stock manipulator has been jailed since the BW Resources trading scandal that nearly brought down the stock market in the 1990s.

Calata Corp. is the largest distributor of agro-chemicals, feeds, fertilizers, veterinary medicine and agricultural products.

The brands it distributes include B-Meg, Syngenta, Bayer, Jardine, DuPont Monsanto, Swire, Yara, Viking and East West seeds.

The Philippine Stock Exchange (PSE) had approved Calata’s initial public offering (IPO) of up to 36.01 million primary shares at an offer price of P7.50 per share, or an IPO size of P270 million, equivalent to 10 percent of the company.

Despite weak market conditions, Calata’s share price closed higher at P7.70 on the first day the stock was traded.

Two weeks later, Evardone said while share prices generally fell, Calata became the darling of the market, bucking the downward trend, with its stock price surging to P23.95 per share.

Evardone said the PSE and its market watchdog Capital Markets Integrity Corp. (CMIC) noticed the firm’s “volatile price swings” and quietly started an inquiry, which sent the company’s share price falling to P5.70, below its IPO price.

He said based on the PSE’s and CMIC’s initial findings, there were indications of stock manipulation.

“There were many suspicious transactions handled by a few brokers for investor-clients who used dummies, several of whom are Bulacan residents who did not know much about stock market investing,” he added.    

“These people who traded it were mostly from Bulacan and didn’t seem to have the financial capacity to enforce such trades. What is more boggling is that the payments emanated from a single checking account allegedly connected to this group,” a source at the Securities and Exchange Commission said.

“The trades were done to create a false impression of volume or liquid market for the stock,” the source added.

Sources said the probe continues as the agency aims to build an airtight case against those responsible for the alleged trading infractions.

“We are going through all data and reviewing all options available. We don’t want to leave any stone unturned,” an SEC source said.

The same source said the SEC began its investigation even before the PSE’s CMIC conducted its own.

The SEC regularly monitors market trades to identify suspicious issues of abnormal trading. When it is deemed necessary, the corporate watchdog agency will bring a case to court.

Price manipulation refers to any deliberate attempt to interfere with the free and fair operation of a stock and create an impression that there is increased interest in the security. Smaller stocks are more susceptible to manipulation.

Company chairman Joseph Calata has promised full cooperation with the ongoing probe, noting that it was the company which alerted the PSE of the wild swings in share prices.

As far as the PSE is concerned, the ball is now in the hands of the SEC after the CMIC, an independent PSE unit mandated to spot trading irregularities, turned over the results of its investigation to the corporate watchdog agency.

Any findings that will be endorsed for court prosecution must be referred to the SEC as the CMIC’s powers are limited to penalizing erring member-brokers.

To date, no individual has ever been successfully convicted for insider trading or stock manipulation.

Calata is the third company to go public this year. In the first semester of the year, Calata posted a net income of P59.22 million, up seven percent from the same period in 2011. Total revenues grew 40 percent to P1.17 billion, the highest ever recorded for a half year, mainly due to more stable hog and poultry prices and increased market penetration.