What’s DOJ up to in suits against bank officials?

Something is not right in the Department of Justice. In December 2012, after finishing its preliminary investigation of two criminal suits against top officials of the Standard Chartered Bank, the Makati prosecutor filed the cases. The DOJ took over jurisdiction of the cases, only to send them back to the Makati prosecutor, then take them back again.  What were the DOJ officials thinking?

Justice Secretary Leila de Lima herself signed Department Order No. 347, dated May 20, 2013, designating DOJ prosecution lawyer Caterina Isabel Caeg to conduct the preliminary investigation of the two related cases. But seven days later, on May 27, De Lima issued DO 417 sending them back to the Makati prosecutor and designating senior assistant city prosecutor Amador Pineda to conduct the preliminary investigation. Then, on June 18, De Lima issued a third order, DO 460, revoking DO 417 and reinstating DO 347. In all three instances, she gave no explanation for the orders.

Lawyers are asking why the DOJ was so keen on intervening in the cases such that it issued three conflicting orders, when the findings on the preliminary investigation are subject to review by the justice secretary anyway before their filing in court.

Moreover, the cases were filed in court in December 2012 and the Makati Prosecutor’s Office admitted it had already finished its investigation before the DOJ orders were issued.

Although the Makati prosecutor’s findings had not been promulgated, his recommendations had already been approved and would have been signed were it not for De Lima’s orders.

Lawyers are puzzled why the justice secretary would subject herself to such a herky-jerky process and even spark suspicions that she, or someone in her staff, was influenced to issue the orders. What kind of confidence would that arouse in people?

What are these cases that attracted so much attention from people at the DOJ?

The two criminal suits stem from a corporate rehabilitation proceeding where top executives of Standard Chartered Bank are accused of withholding information to the detriment of the asset management company Philippine Investments Two Inc. (PI II), the local unit of the defunct Lehman Brothers of New York.

Based on case records, beginning in 2007, Standard Chartered extended P819 million in loans to PI II, for which it got $90 million in securities from Lehman Brothers, and the market value of which is now some $100 million.

The US financial crisis of 2007 brought Lehman Brothers to bankruptcy and PI II was placed under the receivership of the Makati court with former SEC (Securities and Exchange Commission) chair Monico Jacob as its administrator. The company’s creditors, including Standard Chartered and Metrobank, were made part of the management committee.

Allegedly, Standard Chartered forgot to inform the court and the other creditors that it was already holding more than enough collateral for its exposure. It could have foreclosed on the collateral, sold it and returned the excess to PI II. Instead, it played dumb and was able to collect some P240 million in payments from PI II.

Worse, a PI II complaint states, Standard Chartered’s parent in New York also applied for and got relief for the same PI II loan with the New York bankruptcy court for Lehman Brothers. In effect, the bank allegedly got double payments for the same loan; Standard Chartered withheld this information and in fact denied this in pleadings and testimony submitted to the local court, prompting PI II to file the criminal charges.

Metrobank said the situation suggested that there was indeed double payment on a single loan and it urged the court to disqualify Standard Chartered from the rehabilitation process, and it was removed from the management committee.

Metrobank is claiming an exposure of more than P400 million. There are no complaints that the loans were over-collateralized. No one has accused the bank of trying to collect double payments.

Unlike Standard Chartered, Metrobank has never been sanctioned by US regulators for concealing transactions with rogue nations over 10 years, nor is it under investigation by Singapore for colluding with other banks to fix bank rates.

PI II’s rehabilitation process is still ongoing, but it has derailed the company’s program to settle all its debts. As expected, the litigants are represented by some of the most expensive lawyers in the country.

So the case is not just about the questionable dealings of one of the largest banks in the world and some senior bankers. It is also about the struggle of a company undergoing rehabilitation. It is also about fairness and justice.

De Lima should dispel suspicions that she is favoring litigants or, worse, delaying justice. This could have been done simply at the start through formal replies to lawyers’ questions, but there were none. President Aquino keeps talking about reforms. The DOJ is still doing things the way they have always been done. So what reforms are we to talk about?

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Margaux sings old favorites popularized by some of the world’s most acclaimed singers.