SEC orders takeover of collapsed stock brokerage

MANILA — The Securities and Exchange Commission (SEC) has ordered Capital Markets Integrity Corp. (CMIC), the independent audit, surveillance and compliance arm of the Philippine Stock Exchange (PSE), to take over the operations of R&L Investments, Inc. to protect affected customer accounts.

The commission issued the order on November 14 following the stock brokerage’s collapse allegedly due to unauthorized transfers of proprietary and client shares worth more than PHP700 million into an account of another brokerage.

The order is in line with Section 33.1 of Republic Act 8799, or the Securities Regulation Code (SRC), providing that the Exchange shall, upon order of the commission, take over the operation of the insolvent firm and immediately proceed to settle the member firm’s liabilities to its customers.

This after the Exchange shall have found that the financial condition of its member firm has so deteriorated that it cannot readily meet the demands of customers for the delivery of securities and/or payment of sales proceeds.

The SRC rules also allow the SEC to compel an insolvent or failed trading participant and the exchange or pertinent self-regulatory organization (SRO).

In this case, CMIC shall take the necessary action to protect customer accounts including, but not limited to, the preservation of the failed trading participant’s books and records.

The SEC also ordered CMIC to take other necessary actions to protect customer accounts including, but not limited to, the preservation of the assets and books and records of R&L investments, and to execute acts or documents necessary or appropriate in carrying out its powers.

In addition, the commission directed CMIC to determine the various violations of the provisions of the SRC and its implementing rules and regulations possibly committed by R&L Investments, its officers and employees.

The CMIC shall submit a report and recommendation to the SEC Markets and Securities Regulation Department within seven days from the conclusion of its audit, but not later than Dec. 20, 2019, for the purpose of instituting administrative or criminal action against responsible persons when warranted.

The commission will continue monitoring the investigation conducted by CMIC and will remain prepared to take the necessary actions to unearth the truth behind the collapse of the 50-year-old brokerage.