One born every minute - My Viewpoint

The 69-page investigation report submitted by the Compliance and Surveillance Group of the Philippine Stock Exchange basically confirms what the whole town had already known from leaks of an earlier preliminary report of the same group. The report found sufficient evidence of stock price manipulation on the part of Mr. Dante Tan, major stockholder of BW Resources Corporation. Eight member-brokerage firms of the exchange were also accused of complicity in the price manipulation, in violation of PSE and Securities and Exchange Commission rules.

Mr. Tan expressed "complete and utter surprise, amazement and disbelief at the findings." He claims he wasn't given a chance to be heard on the charges against him. BW Resources president Eduardo "Moonie" Lim, Jr., who also allegedly violated PSE and SEC rules, took a leave of absence from the company and is hunkered down for a long legal siege. But this report is apparently not the final word from the PSE on the matter. Another PSE internal body, the Business Conduct and Ethics Committee, will prepare its own report. Enforcement action, including any possible criminal cases, will be undertaken by the SEC, on the basis of its own findings.

Mr. Tan and the brokerage firms under fire decry the supposedly premature release of the report by Senator Raul Roco, chair of the Senate committee on banks, financial institutions and currencies, despite the request of the PSE that the report be kept confidential. But apart from the fact that the entire issue is of legitimate public concern, which constitutionally entitles citizens to the information contained in the report, it would have been absolutely futile to hide the report. As noted earlier, the preliminary report of the PSE had already been leaked. Moreover, the stormy discussions of the PSE board of governors on the contents of the report had become public knowledge, including shouting matches between officers of the exchange, through the same aforesaid leaks from exchange officials and the assiduous sleuthing of members of media.

The fear was of an impending cover-up. Any delay in the public disclosure of the contents of the report could have been damaging, perhaps irreparably so, especially since the underlying issue in this controversy was widely known -- full disclosure or, more accurately, the lack thereof by persons who were allegedly engaged in an elaborate scheme to pump up the stock and gain enormous profits from artificial trading activity.

Besides, precisely because Messrs. Tan, Lim and those personalities (some prominent, others a tinge shady) will still have to go through various investigations to be launched by separate regulatory groups, this matter is a long way from final solution. They, and the brokers in the soup with them, will have ample opportunity to defend themselves. I, for one, am prepared to afford them a legal presumption of innocence, even as the facts so far developed by their own colleagues in the stock exchange appear to make up a devastating case against them. It would be interesting to see the Tan/Lim side. I'm sure it will reveal a whole lot about how the stock market in this country operates.

The crux of the PSE investigation is that Tan et. al. allegedly created "the illusion of active trading." That is classic manipulation. The ways they're supposed to have done it were complex and possibly novel but we shouldn't be sidetracked from the main objectives of the exercise. Terms like wash sales, private placements, buy-back arrangements, nominee accounts with multiple brokers, and over-the-counter transactions might sound Greek to ordinary investors, even those with some experience in stock trading. But the common purpose of all these devices, if part of a grand conspiracy, was to con people and institutions that were not among the insider group into thinking that there was a genuine active market in the shares and that the reason for market interest was the informed and independent opinion of reputable brokers that the stock was a good investment. If this was the game they played, they indeed bought and sold from one another, sold shares through one broker and bought through another, and used a lot of tricks to get money up front to buy more shares and continue to portray the stock as a professional investor's favorite.

Still, this is a positive development for the entire stock market whose credibility has been severely tested by this episode. Whatever happens to Dante Tan, Moonie Lim and the brokerage firms, the real priority is to convince investors that the PSE and the SEC are bent on maintaining a reliable, world-class capital market, not a trap for the naïve, the uninformed or that special species of the clueless whose tribe increases with each passing minute.