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Editorial

Probe stock scam swiftly

/ 04:07 AM November 11, 2019

Just when everyone thought all those financial and capital market reforms in the past have plugged every possible avenue for fraud, here comes another stock scam involving more than P700 million of investors’ money.

R&L Investments Inc., one of the oldest stockbrokerage firms in the country, had to close shop last week after its owners allegedly found out that a “trusted employee” had stolen its entire inventory of clients’ shares of stock.

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Marlo Moron, a settlement clerk who reportedly started stealing from the company in 2011, is said to have confessed to the crime and is now in jail.

A copy of the letter of R&L Investments owner Lucy Linda Lee to Philippine Stock Exchange (PSE) director Alejandro Yu obtained by the Inquirer, narrating the details of the alleged theft, has raised many questions and exposed how some trading companies remain vulnerable to rogue employees.

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For instance, the theft was undetected over the years because the settlement clerk was the same person in charge of preparing the daily stock position reports for the owners — reports that Moron confessed to have falsified. Herein lies R&L’s main problem.

The PSE is a self-regulatory organization, which means it is allowed to police its own ranks through its independent audit, surveillance and compliance arm, the Capital Markets Integrity Corp. (CMIC). It is no longer supervised by the Securities and Exchange Commission (SEC).

CMIC is tasked to enforce the Securities Regulation Code (SRC) and is mandated to investigate and resolve violations by trading participants of the securities law as well as trading-related irregularities and unusual trading activities involving issuers.

How then did Moron’s transactions slip past multiple control measures provided in the SRC?

For one, the 2015 SRC required broker-dealers to conduct monthly securities examination, count and verification to account for discrepancies. R&L Investments obviously violated this provision of the law.

Per the perpetrator’s admission, he began stealing from the company eight years ago, transferring the shares to another account under the name of one Julieta Sulapas with another stockbroker, Venture Securities.

From there the shares were sold, and 3 percent of the proceeds were paid to Sulapas’ account with Union Bank of the Philippines, and the balance went to Moron. He claimed to have acted alone. Who then is Sulapas?

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Moron also claimed he was forced to steal in bigger amounts over time because of a growing casino habit. Which raises another issue: It should seem elementary that companies in the financial sector need to regularly check on their employees to ensure that they don’t have in their payroll people with a penchant for gambling.

This incident has given PSE president Ramon Monzon the opportunity to once again stress the PSE position that the securities depository should be under the control of the PSE for risk management reasons, pointing out that the PSE is the only exchange in the world that does not manage or control the depository for equities. (The PSE move to acquire the Philippine Dealing System from the Bankers Association of the Philippines is actually aimed at addressing this issue, but its plan has often hit a snag.)

Stock market authorities are also investigating additional equity transactions on the bourse in recent weeks that might be linked to R&L’s rogue employee. The Inquirer learned that several brokerage firms that might have dealt with the 50-year-old stock brokerage are now poring over their books to determine if they, too, were affected by the fraudulent transactions.

All these questions indicate that a clearer probe of how this happened should be conducted and expedited. As the SEC put it, the investing public now expects CMIC to start a thorough and transparent investigation to unearth the truth behind the transactions in question, identify all parties involved and uncover the extent of the damage to the stockbrokerage, its clients and the overall market. The investing public expects nothing less.

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TAGS: Inquirer editorial, Marlo Moron, PSE, R&L Investments Inc., SEC, stock scam
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