DBP employees file admin, criminal complaint vs top execs

DBP employees file admin, criminal complaint vs top execs
The complaint is based on the ‘highly questionable sale’ of the bank’s P14.3 billion worth of government securities, resulting in actual government losses of P717.07 million

MANILA, Philippines – Development Bank of the Philippines employees on Friday, May 29, filed before Office of the Ombudsman an administrative and criminal complaint against 14 DBP executives who have allegedly caused the government to incur over P700 million ($16 million) in losses.

The complaint is anchored on the alleged “highly questionable sale” of DBP’s P14.3 billion ($320.90 million) worth of government securities holdings, based on a “strategy” implemented by the DBP treasury group.

Members of the DBP board of directors and Risk Oversight Committee (ROC), and senior management officials named in the complaint are:

  • Jose Luis L. Vera, board director; ROC vice chairman
  • Jose A. Nuñez J., board chairman; ROC ex-officio member
  • Gil A. Buenaventura, board vice-chairman and president; ROC ex-officio member
  • Cecilio B. Lorenzo, board director; ROC member 
  • Alberto Aldaba Lim, board director; ROC chairman 
  • Lydia B. Echauz, board director; ROC member 
  • Reynaldo G. Geronimo, board director; ROC member
  • Vaughn F. Montes, board director; ROC member
  • Daniel Y. Laogan, board director
  • Fe Susan Z. Prado, EVP; ROC ex-officio member
  • Fritzie P. Tangkia-Fabricante, SVP; ROC ex-officio member 
  • Mariquita L. Agena, SVP treasurer and group head
  • Rustum H. Corpuz, SAVP head, Department of Asset and Liability Management
  • Francis J. Delos Reyes, SAVP head, Local Bond Trading Unit

The sale was the subject of DBP-Commission on Audit (COA) Observation Memorandum No. 2014-Tro-01 (AOM) in January last year, which was transmitted to the DBP president.

The AOM seeks to ascertain the reasons behind the highly questionable sale, which resulted in actual government losses of P717.07 million ($16.09 million).

The DBP Employees Union (DBPEU) and the Association of DBP Career Officials (ADCO) accused the DBP officials of violating the Anti-Graft and Corrupt Practices Act, the Securities Regulation Code,  the Revised Penal Code, and the Government-Owned and Controlled Corporation Act of 2011.

The DBPEU and ADCO also accused the bank officials of administrative lapses, citing violations of the Administrative Code of 1987, Bangko Sentral ng Pilipinas (BSP) Circular Letter No. 2010-013, and BSP Circular Nos. 626 and 628, series of 2008.

‘Wash sales’

In their complaint, the petitioners said that in the AOM, the DBP-COA cited that the government securities holdings of the bank “were sold at various dates at a loss to one and the same counterparty” – the First Metro Investment Corporation (FMIC). 

It said that the same government securities series “were purchased on the same day at the same price and booked under Hold to Maturity (HTM) account when these were sold at a loss which may give an impression of unsound trading practices leading to market manipulation.”

The “wash sale” or a transaction where an investor sells a losing security to claim a capital loss, but repurchase it again for a bargain, was approved by the DBP ROC and “implemented by DBP Treasury Group,” the complaint said.

The DBP-COA noted that senior management and board members in the DBP-ROC approved the “strategy” to shift DBP’s P20 billion ($448.89 million) long-term government security holdings from Available-For-Sale (AFS) to Held-to-Maturity (HTM), implemented by the DBP Treasury Trading Group, with FMIC as the only counterparty in the series of buy and sell transactions at various dates done within the same day and at the same price.

The AOM recorded a total of 28 GS-AFS sales transactions between DBP and FMIC and 9 “reclassifications” to book the same GS series under the HTM account.

The DBP-COA likewise noted that this “strategy” may be a violation of the Securities Regulation Code resulting in government losses of P717 million ($16.09 million).

Independent investigation

With such findings, the DBP-COA recommended that DBP Management conduct an independent investigation on the strategy implemented by the trading group “and file appropriate charges, if the circumstances warrant, against the persons determined to be liable.”

In his letter in reply to the AOM, Buenaventura reported to DBP-COA that the executive committee of the DBP Board directed the DBP Corporate Governance Office (CGO) to conduct the initial fact-finding investigation.

The key results of the investigation showed that “there was no proof that the officers involved in the subject transactions profited personally” and that “there were no indication that the questioned trades caused any market disruption nor there were any findings of market manipulation.”

Following the investigation, the officers – Agena, Corpuz, and De Los Reyes – were also formally charged and given time to reply to the charges. The petitioners said that this alone “is already prima facie evidence” of violation of the Securities Regulation Code “or at least negligence in the performance of their duties.”

“The implementing officers were only following the orders of the DBP-ROC. The Board cannot now free themselves from any liability or responsibility by formally charging the implementing officers for the implementation of the ‘strategy,’ which they instructed and approved,” the petitioners said.

The wash sale transactions was also referred to the bank’s fraud division for further investigation, and the DBP-COA may be filing formal charges against the members of the DBP-ROC.

‘Not qualified’

The complaint also alleged that the treasury group officers who implemented the “strategy” do not have the professional licenses and lack the qualification standards required by law.

“This explains to a large extent their ignorance of BSP and SRC rules and regulations on account of EVP Prado’s statement and ‘assumption’ that their method of execution (wash sale) was ‘valid, acceptable and legitimate’ as well as done ‘in good faith,'” the petitioners said.

There are numerous other senior management employees of DBP who are likewise not qualified for their respective positions, the complaint added.

In its January 2014 complaint, ADCO had requested Civil Service Commission (CSC) chairman Francisco T. Duque III to investigate the acts of the DBP board and management in hiring a considerable number of external applicants to occupy senior management positions.

ADCO members in particular cited Agena, Prado, and Alexander A. Patricio, Donna P. Shotwell, and Cris S. Cabalatungan, who they said “were hired in spite of the fact that at the time of their hiring, most of them did not have the requisite civil service eligibility, as provided by law.”

The senior officials were also not Masters degree holders, a “minimum qualification required of the position they hold.”  Rappler.com

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