Despite SEC probe, insider trading remains prevalent

Special Report (Conclusion)

MANILA, Philippines — Insider trading remains a prevalent crime in the Philippines.

In fact, the Securities and Exchange Commission is investigating some possible insider trading cases at the moment, The STAR learned.

“I can definitely say the SEC is aggressively pursuing a number of insider trading investigations at the moment,” SEC commissioner Ephyro Luis Amatong said.

But in the Philippines where the wheels of justice turn so slow, the fight against insider trading, as with any crime, is an uphill battle. 

While regulators are doing what they can do to fight such white collar crimes, they don’t always win. 

According to the courts, the SEC’s cases were not strong enough.

For instance, the case against Dante Tan regarding the 1998 BW stock manipulation scandal was dismissed by the Court of Appeals in 2005. 

Tan, a businessman close to former president Joseph Estrada, was cleared of charges of stock manipulation and insider trading after the Court of Appeals affirmed a lower court decision declaring as inadmissible the government’s evidence against him. 

Last year, the Court of Appeals also junked with finality the multiple counts of insider trading cases against former trade minister Roberto Ongpin involving his shares in Philex Mining Corp. 

The special 13th Division of the appellate court reversed the 2016 ruling of the SEC that found Ongpin liable for 174 counts of insider trading.

The appellate court did not agree with SEC’s conclusion that all the elements of insider trading were established during its investigation and that Ongpin should be meted the penalty of a P174 million fine for 174 counts of insider trading.

Experts observe that it’s not an easy battle and several factors make it difficult for regulators to pin down those involved in insider trading. 

Evil in the market

Corporate lawyer Francis Lim, a former president of the Philippine Stock Exchange (PSE), admits insider trading still exists.

“Insider trading is an evil that our laws have long wanted to eradicate to shore up public confidence in our stock market. This is so essential that in 2000, the Securities Regulation Code even created a presumption of insider trading when insiders trade their company’s shares after material information comes into existence, but prior to its public dissemination and the lapse of reasonable time for the market to absorb the information,” Lim said. 

However, he lamented that the courts have yet to find one single individual guilty of insider trading.

“Yet, more than 18 years have passed and we are yet to see a conviction for insider trading,” Lim. 

At the mercy of the courts

Former SEC commission secretary Gerard Lukban said the SEC has been fighting the problem a long time, but it is at the mercy of the Department of Justice (DOJ). 

“The SEC can also lobby to have prosecutorial powers over these cases so that they will not be under the mercy of the DOJ. The Philippines is yet to convict its first insider trader. But we all know that the absence of anyone having been convicted of the crime does not really mean that the crime never happens in the Philippines,” Lukban said.

He also noted that people seem to tolerate insider trading despite knowing first hand that it is actually happening already. 

“Curbing this illegal and unethical practice has been the object of a number of SEC rules, circulars, and directives including requirements and reports in relation to corporate governance. But, if one takes a closer look at the root of what seems to be apathy toward this problem, we will see that people who would have knowledge of the wrongdoings do not realize the gravity of what was going on,” he said.

Thus, he said educating market players and companies on insider trading is important.

“We would need to first educate or further educate the people who would be in a position to know or witness these activities on the evil it brings to the market and then strengthen the whistle blowing machinery of the listed companies,” he said.

“This will be tricky though as these reforms and changes should emanate from the company’s higher ups and those in their ranks are the ones who would be capable of doing the deed,” Lukban added.

In all, he said, the board and management are the ones who set the tone, and usually the ones below would have no choice but to tow the line. 

“Given this, the Philippine SEC can only strengthen its surveillance and monitoring on suspicious tradings. But then again, once they have leads, they would still need further evidence and testimonies from witnesses who most likely are also connected to the company and under the control of the perpetrators,” Lukban explained. 

The president of a local investment house agreed that there should be more whistle blowers to help regulators in the fight against insider trading.

For its part, the Philippine Stock Exchange said it does not rest on its laurels when it comes to insider trading.

“The PSE, as a self-regulatory organization under under RA 8799, has rules and regulations such as the 10-minute disclosure rule for material non-public information and the black out rule prohibiting insiders from trading from the time they obtained material non-public information up to two full trading days after the said information has been disclosed through PSE’s disclosure systems,” PSE chief operating officer Roel Refran told The STAR.

Furthermore, Refran said that subsidiary Capital Markets Integrity Corp. (CMIC) also has its own system. 

“CMIC, a wholly owned subsidiary which functions as the regulatory authority over trading participants, likewise has surveillance rules and technology systems that will be crucial in monitoring trading that could be potential cases of insider trading. CMIC and SEC can then work with the DOJ for the prosecution of these securities fraud cases,” Refran said.

Never ending battle

Despite the challenges, the SEC assured the public that the fight continues.

The no non-sense SEC chairman Emilio Aquino, who was appointed to the position only in June but is a veteran SEC insider said the fight against insider, trading is among his priorities.

“Insider trading is one of the most difficult crimes to prosecute and prove. But it’s one transgression our SEC will seek to repress to ensure a fair, orderly and transparent capital market,” Aquino said.

How to improve the fight

Indeed, the fight may be uphill, but it continues. The SEC and PSE clearly need to further enhance their capabilities to win this never ending battle against insider tradings.

Amendments to the SRC or the SEC’s charter as Lukban said, may also include giving prosecutorial powers to the SEC. Enhancing the whistle-blowing capabilities of listed companies is also another measure that can help, said the head of a local investment house. 

Stricter audit of daily transactions, especially of listed company executives, will also help.

“There has to be more audits,” the source said.

Regulators may also learn a thing or two by turning on the television to catch the Netflix series Billions. It’s worth watching the moves of US Attorney Chuck Rhoades in fighting insider trading. 

Insider traders themselves, meanwhile, should also keep in mind that even if everyone else is doing it, it doesn’t make it right. And someday soon, who knows, the law may just catch up with you.