SEC uncovers more BW anomalies

The Securities and Exchange Commission (SEC) has uncovered more trading anomalies that would strengthen its case against those involved in the BW Resources Corp. stock manipulation scheme.

In its 80-page report submitted to the Department of Justice last Friday, the SEC’s Special Operations Group said among the new violations unearthed in their probe include hyping the stock, free riding, and a combination of wash sales and matched orders involving dealer accounts of the same broker.

The report was a result of a more comprehensive probe undertaken by the SEC following the DOJ’s dismissal of two earlier versions last year in which only three persons (Dante Tan, Jimmy Juan and Eduardo Lim Jr.) were charged in court.

The probe covered the period from Oct. 1998 to Oct. 1999 during which BW stocks grew astronomically from only 80 centavos to a mind-boggling quoted price of P145 per share, an increase of approximately 18,000 percent.

Tan and Juan both own substantial shares of BW while Lim was the company’s president at the time. In the DOJ charge sheet, Tan, the owner of the online bingo franchise and a close associate of former President Joseph Estrada, was charged with two counts of non-disclosure of beneficial ownership and engaging in a manipulative device known as "squeezing the float."

Juan was also cited for non-disclosure of beneficial ownership while Lim was charged with violation of the broker-director rule.

But in its latest report, the SEC team emphasized that Tan – the biggest individual stockholder in BW (now known as Fairmont Holdings) – acted in collusion with brokers and other associates in manipulating the price of BW notwithstanding the stock’s lack of corporate fundamentals.

"For BW Resources, hype and expectations, and the use of manipulative schemes and devices, accounted for much of the frenzy in the increase of BWRC trading prices. And because BWRC had no corporate fundamentals, the phenomenal trading of BWRC shares was predatory gambling in its purest sense," the SEC said.

The SEC said Tan and Lim, along with BW corporate information officer Agnes Maranan and PCCI Securities and Brokers Corp. officials Francisco Liboro and Gonzalo Bongolan, are liable for "hyping the stock," which means hyping the virtues of the company, its products and the stock through news releases, publications and press statements attempting to show the bright future of BW.

"What BWRC did was to use media to disseminate information about the company, which information built up BWRC to be a profitable entity with many projects, which in turn will earn for the company huge amounts of profits in the future," the SEC said.

The corporate watchdog noted that since end-1998, BW’s financial statements showed the company continued to reflect a very weak condition in terms of profitability, liquidity and stability, yet its stock continued to be among the most active listed at the Philippine Stock Exchange, alongside corporate giants PLDT, San Miguel, Ayala Corp., SM Prime and Meralco.

"BWRC had succeeded in making itself look like the greatest thing since sliced bread. By cheerleading the stock, the stage was set for the market manipulation of BWRC shares," the SEC said.

With very little assets to its name, BW created a trading frenzy on account of news that Tan would merge his profitable bingo business with the company’s operations and pave the way for the entry of Macau gaming king Stanley Ho for the firm’s eventual expansion into a gaming conglomerate.

Another new violation in the SEC’s third report involves free riding and the improper extension of credit which interestingly, cited Wealth Securities chairman Wilson Sy, manager Debbie Cua and dealer Jeannette Que.

Wealth, despite having cornered the largest block of BW transactions, denied it had participated in the BW scandal and was not among the eight brokers initially listed as liable for trade violations.

Tan had also accused Sy as having led a group of the so-called "Black Samurai" who rigged BW’s price and profited heavily from these transactions. Tan had claimed he himself was a victim having lost about P2 billion when the stock price started its plunge in October 1999.

Free riding is the purchasing of shares without the intent of paying at all or with the intent of paying for the bought shares only if the price goes up by settlement date, so that the shares can be sold at a price higher than the purchase price.

Wealth customers’ ledgers also showed the improper extension of credit since despite having debit balances or payables to Wealth, clients under private placement agreements continued to withdraw certain amounts from their accounts every first day of the month.

Two other brokerage companies not previously cited were Abacus Securities and Solar Securities, which the SEC said engaged in wash sales and matched orders involving dealer accounts of the same broker.

A wash sale involves the buying and selling of stocks without a beneficial change in ownership while a matched order transaction is one whereby a person or a broker enters into a transaction with the knowledge that a simultaneous order of the same size, time and price will be entered by another party.

Both schemes tend to create a false or misleading appearance of active trading in any listed security.