The Capital Markets Integrity Corp. (CMIC), the regulatory arm of the Philippine Stock Exchange (PSE), said that the audit it conducts seeks to determine the compliance of trading participants, including brokers, with its rules.
“The objective of CMIC’s regular examinations is to determine the compliance by trading participants with the CMIC rules and other relevant securities laws. It is a compliance audit, not a fraud audit,” it said.
“While detection of fraud may occur in a compliance audit, the regular examinations by CMIC are not specifically conducted to uncover fraudulent transactions. An auditor is not responsible for the detection of all classes of fraud.”
CMIC was reacting to the statements made by businessman Eusebio H. Tanco, currently one of the directors of the PSE and chairman of the brokerage firm Venture Securities Inc. (VSI). He said the body should have detected that Marlo Moron of R&L Investments Inc. was acting as trader, settlement clerk, and keeper of the books of accounts of the broker that helped him cart away some P700 million that were made through EQ trades or the transfer of shares from one broker to another.
“These machinations of Moron have been going on for over seven years and have apparently escaped the attention of the Capital Markets Integrity Corp., the guardian of the morals of the brokerage community. Had the CMIC bothered to look at R&L and its activities, the CMIC would have easily noticed what was happening as they are better equipped to detect this kind of transactions violative of the rules of the exchange,” Tanco said.
The CMIC said Tanco’s contention “is without basis.”“This concurrent holding of conflicting positions, being violative of the rules, was willfully concealed from the books and records of R&L, and was part of the venture of fraud carried out by Moron,” the CMIC said.
“Upon knowledge of the fraudulent machinations of Moron, CMIC immediately initiated a full-blown investigation. In its investigation, CMIC found Venture [Securities Inc.] to be in violation of the securities laws. This finding was confirmed by SEC in its decision of June 15, 2021 denying the appeal of Venture to reverse and set aside the resolutions issued by CMIC.”
Venture Securities is owned by Tanco and was involved in the R&L case. The two brokerage firms were stripped of their license by the Securities and Exchange Commission (SEC). VSI and its employees, with the exception of Tanco, were fined by the SEC and CMIC.
Tanco said for years, his brokerage has been audited by the CMIC and it has found no evidence of any wrongdoing. As a broker, VSI had every right to be protected by the CMIC and to rely on CMIC’s findings, he said.
“It is truly incomprehensible that CMIC—for all of over seven years—was not able to discover the discrepancies/anomalies in R&L’s clients’ position vis-a-vis the balances in the PCD [Philippine Central Depository] system, something which a standard auditing procedure called ‘confirmation’ would have easily shown,” Tanco said.
“Venture’s actions laying blame on CMIC are mere squid tactics meant to divert attention from the real issues…. The infringements of the securities laws were committed within and by Venture itself,” the CMIC said.