Metro Manila (CNN Philippines, June 15) – A special hearing panel of the Securities and Exchange Commission (SEC) revoked the license of R&L Investments, Inc. more than a year since it was discovered that a rogue employee illegally transferred over ₱1 billion shares owned by existing clients to an account in another firm.
The unit of SEC’s Market and Securities Regulation Department also revoked the brokerage license of Venture Securities, Inc. (VSI), which received the equity trades under one account from 2012 to 2019.
In three separate decisions issued June 11 and published on Tuesday, the panel issued a ₱25-million fine against R&L and disqualified its president Joseph Lee, stocks salesman and general manager Lucy Linda Lee, and Jonathan Lee from further engaging in the stocks trading business.
The SEC also canceled the license of VSI and slapped a ₱32 million fine against its president Wilfred Racadio, associated person Adora Aguilar, salesman Loreto Balabis, and settlement head Teresita Mosenabre. They are also banned from acting as brokers and dealers.
R&L, a 50-year-old trading company, crashed after learning that a long-time settlement clerk named Marlo Moron siphoned some ₱1.13 billion worth of client shares to the account of a certain Julieto Sulapas in Venture Securities within a seven-year span.
The SEC found that the shares transferred to the Sulapas account did not exist and only “came from the accounts of other clients of R&L,” and that there was no written authority from other clients to carry out such transactions on their behalf.
This resulted in a ₱700 million loss to R&L and its investing clients, which was discovered only two years ago when the company was about to be sold and an audit was underway, according to the SEC probe.
The regulator added that Linda Lee gave Moron the authority to execute trades and allowed him to access the stock trading platform even if he is not a licensed stockbroker, which paved the way for the fraudulent scheme.
According to the SEC’s investigation, Moron was able to fabricate share sales either by borrowing shares from other broker dealers to be matched by a similar purchase under the Sulapas account then traded to R&L and returned, or by buying stocks to settle the transactions of selling clients.
Moron claimed in his affidavit that he would collect a commission worth 3% of the transaction each time with Lee’s approval. Lee also claimed Moron tampered with trading reports to hide the unauthorized transfers.
The SEC slapped a ₱2 million fine on Moron and ₱1 million for Sulapas for violating the Securities Regulation Code. R&L operations have been suspended since November 2019, when the watchdog arm of the Philippine Stock Exchange, the Capital Markets Integrity Corporation, took over the company.
In a statement, the financial regulator said it does not tolerate acts that “endanger the integrity of the entire securities markets.” Last year, the SEC disqualified R&L’s external auditor KL Siy & Associates for gross negligence in its failure to detect the years-long fraud.
The findings, along with the fines, may still be appealed before the SEC en banc.
