Stock manipulation

The discovery of stock price manipulation involving shares of the recently listed agricultural trading firm Calata Corp. indicates that it’s not “business as usual” in the local bourse. The Philippine Stock Exchange has indeed evolved from the old boys’ club of the 1980s to a professionally run exchange.

Taking center stage in the stock exchange’s drive to prevent unscrupulous trading is the independently run Capital Markets Integrity Corp. (CMIC), a unit of the Philippine Stock Exchange mandated to curb price manipulation and insider trading. Armed with a self-regulatory status, the CMIC has the power to sanction erring member-brokers with suspension, fines or a revocation of license. However, recommendations for court prosecution must still be referred to the Securities and Exchange Commission, which may draft a criminal complaint that, in turn, is to be submitted to the Department of Justice for legal action.

Last May 8, the CMIC launched a state-of-the-art surveillance system called “Total Market Surveillance” or TMS, which was developed by the Korea Exchange (KRX). CMIC said it was very advanced and customized to Philippine conditions that even the Korean bourse commented that after the PSE’s enhancements, the local system was now “even better” than the original.

The private-sector watchdog acquired the new surveillance system just before Calata’s P270-million initial public offering (IPO) and subsequent listing on May 23. Calata shares rose on its first day as a public firm to P7.70 each from an initial offer price of P7.50. In two weeks after listing, however, trades of Calata shares reached P4 billion and the stock price soared to P23.95, only to plummet to P8 in just four days.

The SEC was furnished late last month with the CMIC investigation results that reportedly presented a “clear case” of manipulation of the stock price of Calata. The Inquirer quoted sources who saw the report as saying that the CMIC had identified several persons who engaged in the unscrupulous trading of Calata shares. The CMIC believed they were only “dummies” (some of them live in Bulacan where Calata’s operations are located) who were not sophisticated or moneyed enough to do such trades. The investigation has also traced those who had given money to finance those transactions, and it believes this is not the first time that this group has committed such infraction.

“We trust that, with the establishment of the [surveillance] system, together with the essential collaboration of trading participants, the confidence of the investing public in capital market institutions shall be reinforced further and a more active and vibrant market participation will be truly promoted,” said CMIC chair Jose Luis Javier.

That confidence was shattered by the infamous BW Resources scandal in 1999 involving businessman Dante Tan, a friend of ousted President Joseph Estrada, and a number of stockbrokers. Capitalizing on his close relations with Estrada, Tan was able to secure gambling licenses for BW from the state-owned Philippine Amusement and Gaming Corp. This aroused interest among brokers and investors in BW. Then came reports that Macau’s gambling tycoon Stanley Ho was investing in the company. BW defied the depressed sentiment in the stock market arising from the financial crisis of 1997 such that in just a year (from October 1998 to October 1999), BW shares surged a mind-boggling 18,000 percent to P145 from only 80 centavos.

This irregular price movement triggered investigations and a PSE probe found enough evidence to build a case against Tan and a number of local brokerage firms that allegedly helped the BW owner manipulate the company’s stock price.

In December 2000, the justice department charged Tan and several other cohorts with price manipulation. It said Tan violated the Revised Securities Act for engineering the rise in BW’s share price in 1999 and failing to disclose his “beneficial ownership” in the gaming company. Sadly, the lower court dismissed the criminal complaint. But in 2009, the Court of Appeals reversed the lower court’s decision and ordered the criminal prosecution of Tan and company for the insider trading and stock price manipulation scandal. Tan has reportedly fled the country and the case remains pending in court.

More than a decade since the BW scandal nearly caused the collapse of the local stock market, the government has yet to convict anyone of insider trading or price manipulation.

In the current case of Calata, the ball is again in the hands of the SEC. This gives it a big opportunity to show that it too can be part of the Aquino administration’s “matuwid na daan” crusade.