The president of a brokerage firm involved in the illegal trade transactions of then listed gaming firm Best World (BW) Resources Corp. has been found guilty of violating the Securities Regulation Code (SRC) by a Pasig court.
In a decision dated May 7, the Pasig City Regional Trial Court Branch 67 found Johnny S. Yap of Solar Securities Inc. guilty of violating several provisions of the SRC.
The case of BW Resources was one of the factors that led to the ouster of former President Joseph E. Estrada, who was removed from office via a popular revolt. The issue also rocked the entire Philippine Stock Exchange.
The court sentenced Yap to be imprisoned for 14 years and to pay a fine of P1 million. It also ordered the issuance of a warrant of arrest against Yap.
The SEC filed a criminal complaint against Yap, who was then the president, sales manager and director of Solar, after the broker was found to have committed wash sale transactions composed of 142 buy and sell orders for stocks of BW in June and October 1999.
Wash sales are transactions in which the buyer and seller of the stock share a beneficial owner, a transaction not allowed even before reforms were instituted at the PSE.
A beneficial owner is any person who, directly or indirectly, has or shares voting power, which includes the power to vote.
In August 2000, the SEC formed a special operations group to investigate the matter and found that Solar’s transactions were wash sales not only because the brokerage was both the buyer and the seller in all the 71 buy order and 71 sell order transactions, but also because the offers and bids were made at very close intervals.
The court ruled that Yap, as Solar’s compliance officer, had the duty to ensure that the company was compliant with the regulations and legal requirements for its trading transactions. Yap was deemed to have directly or indirectly executed transactions, also admitting that he himself executed some of the transactions.
The court concluded that the transactions involved no change in the beneficial ownership.
Evidence showed that Solar Securities paid itself at the price it offered to sell the BW shares. If Solar and Yap were selling shares for clients different from the bidding or buying clients, the court noted that no allegation or evidence was ever presented to show the circumstance.
“In fact, no commission was paid and/or earned in all these transactions, which totally negates any appearance that Solar was transacting for its clients,” the court said.
The court also ruled that the transactions were entered into for the purpose of creating a false or misleading appearance of active trading or misleading appearance with respect to the market of such security.
BW shares were trading for 80 centavos each at the start of 1999. Shares in the company steadily increased in that year and by October, BW shares had reached a price of P12.50 each, the same time when Solar executed its wash sale transactions.
This despite the fact that BW posted losses of P10.84 million in 1999 and had no corporate fundamentals.
“[N]o other conclusion may be reached but that these series of trade transactions were executed with the intention of creating a false or misleading appearance of active trading or misleading appearance with respect to the market of BW shares,” the court said.
“Indubitably, the subject transactions were knowingly executed by Solar with no other purpose but to manipulate the market.”
The case marks the fifth conviction under the SRC since its enactment in 2000. Previous convictions mostly involved fraudulent investment scams, including a 2015 decision against Rosario and Saturnino Baladjay, who were ordered to a total of 455 years in prison and made to pay a total of P8 million to complainants.