SSS execs in behest investment still there

In July 2001 then-SSS chief Vitaliano Nañagas received a damning report from external auditors. Top executives had squandered billions of pesos in behest investments during the Estrada tenure. Something had to be done to recover the money. SSS was in the hole, with hardly enough cash to pay benefits to members or pensions to retirees. Nañagas quietly called in the Office of the Government Corporate Counsel (OGCC) to look into the mess. Weeks later SSS executives led employees in a strike against his strict management style. Out Nañagas went, replaced by Corazon de la Paz. The Laya-Mananghaya-KPMG report was shelved.

Eight lowly officers couldn’t take it, though. If the new Malacañang trustees wouldn’t lift a finger after the fall of Joseph Estrada @ Jose Velarde, then they will. Aided by the OGCC, they sued five high executives and nine Estrada trustees before the Ombudsman in August 2001. Two cases were filed, one criminal for graft, the other administrative for grave misconduct. Of the many items in the audit report, they picked out the most glaring: The overpriced purchase of P7.5 billion worth of PCIBank stocks on the behest of Estrada for Jose Velarde’s kitty.

The criminal complaint was supposed to be an open and shut case. The 14 respondents had bought PCIBank shares at P290.08 apiece in May 1999 when the book value was only P161.54 and the market price was P245 – for a whopping P1.2-billion overprice. Estrada’s SSS chief Carlos Arellano earlier had confessed, for immunity from plunder suit, that his patron had pressured him to help Equitable Bank acquire PCIBank with the P7.5 billion. The case didn’t reach first base, though. The Ombudsman’s evaluation and preliminary investigation bureau (EPIB) dismissed all 101 pages of accounts and annexes for insufficient evidence.

The EPIB gave merit to the respondents’ claim that the P1.2 billion was not an overprice but a premium for the block purchase of shares in the country’s third largest bank at the time. It was standard corporate practice, the EPIB ruled, for any party that wanted controlling interest.

Strangely, however, the respondents never showed proof that they had seriously studied the purchase price. Arellano, in his defense plea, admitted that no due diligence was made. On the contrary, there was apparent haste in buying the shares. On 19 April 1999 the SSS executives earmarked P11 billion for investing in three banks. On 27 Apr. the trustees approved the allocation. On 10 May officer Lilia Marquez, whose office has nothing to do with studies on SSS investments, was asked by senior vice president Edgardo Solilapsi to recommend P7.5 billion for PCIBank alone. The executives approved and endorsed the recommendation to the trustees on the same day. On 11 May the trustees okayed the P7.5-billion purchase.

Despite the supposed P1.2-billion "premium", SSS never got control of PCIBank. In fact, it threw another P8.1 billion into the bank months later, for a total of P15.6 billion, yet still did not get control. (GSIS plunked in billions of pesos more in government employees’ money. Yet together with SSS, they have only minority board seats.)

The EPIB report was the exact opposite of the findings of the preliminary adjudication and monitoring office (PAMO), which handled the parallel administrative case. "There was no due diligence or other study regarding the proposed investment and at that particular price," the PAMO concluded. Marquez’s duties did not include diligence studies. Solilapsi and SVP Amador Monteiro nonetheless approved her purchase price recommendation of P270.08 per share. So did EVPs Horacio Templo and Leopoldo Veroy. The PAMO thus ruled that the five executives be dismissed from the service, with forfeiture of all benefits.

The administrative case also took strange twists and turns, however. On 25 June 2002, after ten long months of study, PAMO issued its decision to fire the five executives. Director Susan Guillermo of the administrative adjudication bureau took another two weeks to review the ruling and endorse it to Assistant Ombudsman Pelagio Apostol on 1 July. That same day Apostol, in a handwritten note, ordered Guillermo to "restudy the case in compliance with the verbal directive of the Honorable Ombudsman." The following day, 2 July, without waiting for Guillermo’s "restudy", Apostol wrote to Ombudsman Aniano Desierto that "the purchase of shares was done with haste, thereby foreclosing a diligent and independent study." But he recommended that the complaint against the executives be reduced to conduct prejudicial to the best interest of the service. On 3 July Desierto okayed Apostol’s recommended and meted a punishment of six months’ suspension without pay.

The respondent executives filed a motion for reconsideration. So did the eight complainant managers. The punishment was held in abeyance. Aside from Veroy who has since retired, Templo, Solilapsi, Monteiro and Marquez continue to report for work at SSS. They even continue to invest SSS money in whatever company they prefer – and draw salaries ranging from P100,000 to P350,000 per month for it.

In the P7.5-billion PCIBank purchase, SSS lost not only P1.2 billion for the "premium", but also P10 billion since the share values have dipped. Plus, another P5 billion in foregone earnings had the money been invested in government securities instead. That’s only for the first purchase. SSS also lost in the subsequent P8.1-billion buy-in because it had to sell blue-chip shares of Ayala Corp., Benpres Holdings and Globe Telecoms to raise the amount. The total P15.6-billion waste, along with behest investments in other stocks, put SSS in hock during Arellano’s watch. SSS had to borrow P7.9 billion, at P1.3-billion interest, to meet benefit payments to members and pensioners.

SSS is still in the hole. Dela Paz’s new board of trustees believe the mutual fund of 25 million members and pensioners could keel over in six years. To avert it, they increased employers’ contributions last January, to be followed soon by an increase in employees’ shares. They haven’t looked to recovering the tens of billions of pesos in behest investments.

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