The Securities and Exchange Commission (SEC) has revoked the license of R&L Investments Inc. and disqualified its key officers and the owner of the account used to siphon off client shares from the stock brokerage.
The SEC also slapped fines amounting to P25 million on the brokerage, officers and the client involved in the fraudulent scheme that siphoned off some P700 million, which led to the collapse of one of the country’s oldest stock brokerages.
In a decision dated June 11, the SEC’s special hearing panel found R&L, along with its president Joseph Lee, nominee and salesman Lucy Linda Lee and associated person Jonathan Lee, liable for the fraudulent transfer of client shares to an account in another brokerage Venture Securities Inc. (VSI), which was also punished with a fine and revocation of its license in a separate decision.
In a series of decisions issued on June 11, the SEC found Marlo Moron and Julieto Sulapas liable for engaging in fraudulent transactions, in violation of Republic Act 8799, or the Securities Regulation Code (SRC).
Moron facilitated the transactions as a trading floor assistant and settlement clerk of R&L through EQ trades—the transfer of shares between brokers—while, at the same time, representing Sulapas in his transactions at Venture Securities.
Documents submitted by R&L and Venture Securities showed that a total of P1.13 billion worth of client shares in R&L were transferred to Sulapas’ account in Venture Securities through the EQ trades executed by Moron from 2012 to 2019.
However, Sulapas’ ledger in R&L revealed that no such shares existed, and that the shares transferred to VSI actually came from the accounts of other clients of R&L.
The scheme resulted in the loss of P700 million worth of client shares in R&L and in the consequent deterioration of the brokerage’s financial condition, to the extent that it cannot readily meet the demands of its clients for the delivery of securities and payment of sales proceeds.
An investigation conducted by the SEC Markets and Securities Regulation Department revealed that Linda Lee gave Moron the necessary credentials to execute EQ trades.
Moron also received viewing access to R&L’s back-office system. As a result, he was able to access and acquire information pertaining to the shareholdings of all R&L clients and to tamper with the business partner portfolio reports to match the back-office records, effectively hiding the fraudulent scheme.
Lee was the only registered salesman in R&L and the only person allowed to access the order and trade management tool provided by the Philippine Stock Exchange for use by trading participants in executing trades and accessing market data.
Jonathan Lee admitted to knowing the grant of authority to Moron, but did not take action on the matter.
Joseph Lee also failed to perform his duty as president of R&L, as he even admitted to having no knowledge of the daily operations of the brokerage, the SEC said.
R&L, Jonathan and Joseph Leee were slapped with a fine of P6 million each, while Linda Lee was fined P4 million. The agency also disqualified Joseph and Jonathan from being registered persons, as well as from being an officer, member of the board of directors, or persons performing similar functions.
Moron was found to have engaged in the buying and selling of securities without being registered or licensed as a trader, aside from fraudulently transferring shares from R&L to Venture Securities using Sulapas’ accounts.
“Thus, the respondent should not get away from the consequences of his intentional wrongful acts which resulted to the prejudice and damage of R&L’s investors in the present case,” the SEC said.
Sulapas was also found to have violated the SRC for his participation in the fraudulent scheme.
“He allowed himself and his accounts in R&L and Venture Securities to be used as a tool in the commission of the fraudulent scheme that resulted in the loss of large number securities that belonged to the clients of R&L,” SEC said.
The agency imposed a P2-million fine on Moron and P1 million on Sulapas and disqualified them from being registered persons and officers, directors or persons performing similar functions.