It’s time for SEC to flex its muscles

posted February 20, 2019 at 09:40 pm
by  Ray S. Eñano
The Securities and Exchange Commission, as the country’s corporate watchdog, must show its teeth to assure investors they can compete in a level playing field in the Philippines. 

Fair competition and adherence to investment rules are what entice investors to do business in the Philippines. Investor confidence, along with stable macro-economic policies, is critical in luring local and foreign capital. In the corporate world, businessmen must be assured that they are protected in the complex processes involved in the buying and selling of shares.

The SEC will be put to another test when it rules on the shareholder row hounding The Medical City. Speculation is now focused on the elements of the decision. 

Having charged an investor group identified with Singapore-based firm Clermont with violations of key provisions of the country’s Securities Regulation Code (SRC), observers are now watching out for the possible penalties that may be imposed for these infractions.

The SEC now has the chance to further cement the respect of the business and investor communities–both local and international. Its ruling will impart a lesson that even big investors will never forget—never take Philippine investment laws and regulatory bodies for granted.

The SEC earlier charged Singapore-registered Viva Holdings Inc. and its local partner Fountel Inc. with fraud. The body found that the group may have “misrepresented their independence from each other” as they went on a buying spree of Medical City shares.

The SEC charged that the misrepresentation prejudiced “the unsuspecting stockholders whose share value and voting power have declined” as a result of the fraud.

The SEC cited an alleged “funding scheme” employed by the group, in which foreign funds were channeled from the Singaporean company to several local firms either owned or identified with Jose Xavier “Eckie” Gonzales.    

But the game plan shocked many, considering that Gonzales then was the trusted director–treasurer of the Medical City, and nephew of the hospital’s founder and chief executive officer Dr. Alfredo “Alran” Bengzon

The SEC said the acts constituted violations of provisions of the Securities Regulation Code, which prohibit “fraudulent, manipulative and deceptive act or practice in connection with any tender offer.” The seriousness of the violations will likely deserve severe penalties.

With the SEC being the recognized expert and empowered authority on all laws regarding securities and investments, its decision will be respected and upheld by the courts.

A lawyer friends told this writer that the Philippine SEC’s mandate and structure is closely patterned after that of the United States Securities and Exchange Commission (US SEC). The same is true for our laws covering investments and the capital markets contained in the country’s SRC. The Philippine SEC was established in 1936—two years after the creation of the US SEC.

The US SEC has no compunctions about exercising its regulatory muscles, making it a highly respected agency and one of the most feared watchdogs in America. Investors in the US know that you do not mess with the US SEC.    

Take the case of Tesla CEO Elon Musk. He had to pay the US SEC a $20-million settlement after the corporate watchdog charged him with a securities fraud due to a misleading statement he made on Twitter that he could take his company private. The US SEC action resulted in what is now dubbed as the “most expensive tweet in history.”  

The Philippine SEC is gaining the same reputation as a fearless agency. On several occasions, the regulatory body slapped some of the richest businessmen in the country with hundreds of millions in fines for alleged violations of securities laws.

The country’s own SRC, meanwhile, is as rigorous and stringent as its US counterpart. The SRC, enacted in 2000, could not have come at a better time to finally replace the outdated Revised Securities Act of 1982. The SRC was in response to the biggest stock manipulation scandal in the Philippines involving BW Resources. The law designated the SEC as the primary enforcement agency.

The SRC enabled the SEC to crack down on pyramiding schemes, fraudulent investment contracts and defective share subscriptions. The SEC has shown that it is not afraid to use the power of that code. It is expected to act decisively on the The Medical City controversy.

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Topics: Securities and Exchange Commission , The Medical City , Securities Regulation Code , Jose Xavier “Eckie” Gonzales , Alfredo “Alran” Bengzon
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