Why was SEC absent in Medical City stockholders’ meeting?

"Legitimate investors will flock to an investment destination where the rules are clear, where the playing field is level, and where the government ensures both."

Remember the controversy hounding the Medical City which made business headlines last year?

Well, it looks like the beleaguered group currently controlling the boardroom of the hospital is set to face more headaches.

Heard from reliable sources: Professional Services Inc. aka The Medical City held its annual stockholders’ meeting last week. Noticeably absent were representatives from the Securities and Exchange Commission (SEC). This was despite a reported Court of Appeals order for the corporation to call on the SEC to “administer and control the conduct of the Annual Stockholders’ Meeting to ensure an orderly election and forestall possible controversies that may arise therein”.

 Could it be that the SEC’s conspicuous absence reflects its reluctance to lend a veneer of legitimacy to the stockholders’ meeting? It will be recalled that the SEC issued a resolution last year ordering the current majority owners of the hospital to explain why they should not be penalized for certain acts which the SEC said may constitute fraud under the country’s Securities Regulation Code.

According to our sources, this is the same Singaporean-backed group that assumed control over the hospital through a so-called special stockholders’ meeting last September, patently ignoring an SEC order, urging the parties to “maintain the status quo” until the SEC had “resolve(d) the rightful ownership of the shares of Professional Services, Inc.”

If this is the case, then the SEC is clearly signaling that it is seriously pursuing its investigation over charges that the groups Viva and Fountel “misrepresented their independence from each other” as they gobbled up Medical City shares. The SEC stated in its charge order that the misrepresentation prejudiced the “unsuspecting stockholders whose share value and voting power have declined”. The SEC found probable cause that the Viva-Fountel group’s take-over tactics constituted “fraud.”

The SEC specifically condemned the “funding scheme” used by the group. The SEC pointed out that millions of dollars in foreign funds were improperly channeled from the Singaporean firm to several local companies either owned or identified with a business executive who held top positions in the medical facility. It explained that these acts constituted violations of the Securities Regulation Code (SRC) which prohibit “fraudulent, manipulative and deceptive act or practices” in securities transactions.

Now that the SEC has effectively snubbed an attempt by the Viva-Fountel group to get the regulatory agency on its side, it is believed that a final ruling on this matter could be on the horizon,

While the Medical City row may on the surface appear to be a mere shareholder dispute, the issue has attracted significant attention particularly from the business community. The public knows that the steps that the SEC will take to resolve the matter will have far-reaching consequences on investor confidence in the country.

Many believe that the SEC will not allow giant business interests to get away with fraud, or escape with just a slap on the wrist. Based on its track record, the regulatory agency could instead be set to impose penalties that match the seriousness of the alleged violations of Philippine investment regulations, including nullification of the fraudulent transactions as provided by law.

If it does so, the SEC would have also sent powerful signals to big business—local and international—that it is not about to let the country’s investment laws, or the regulatory body charged with their safeguard, be taken for granted.  Rather, it would have made two things perfectly clear:  one, that our country’s laws governing investments are clearly defined; and two, that this government has the will and resolve to make sure that these laws are implemented fairly and are respected by all.

The SEC has clearly done so in its handling of the recent high-stakes, high-profile Kapa securities issue. It will be recalled that the SEC received a lot of kudos for its firm handling of the controversy involving this large religious group which began its operation in Mindanao.

SEC’s action stopping the group’s operations generated a backlash from the latter’s members, but it looks like the regulatory body is not about to blink.

 It is believed that the SEC will proceed with similar resolve in the Medical City case.

This would certainly be in fulfillment of the SEC’s mandate to enforce securities laws as contained in the SRC, whose clear purpose is to “ensure full and fair disclosure about securities, and minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market”.

The country will benefit immensely from such a move. Surely, legitimate investors will flock to an investment destination where the rules are clear, where the playing field is level, and where the government ensures both.

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Topics: Medical City , Securities and Exchange Commission , Professional Services , Court of Appeals , Viva-Fountel
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