COA suspects insider trading in DBP-Philex deal

by Judith Balea,

Posted at Oct 07 2011 01:57 PM | Updated as of Oct 07 2011 10:15 PM

MANILA, Philippines - The Commission on Audit (COA) said Friday there might have been insider trading or fraud in the Philex Mining Corp. transactions involving businessman Roberto V. Ongpin, state-run Development Bank of the Philippines (DBP), and the First Pacific group two years ago.

This comes as former officials of the DBP faced current executives of the government-owned and -controlled corporation (GOCC) who have accused them of approving alleged "behest loans" to a company owned by Ongpin, during a Senate Blue Ribbon Committee hearing.

The committee on Friday began its investigation into alleged "behest" loans amounting to P660 million that were granted to Ongpin’s company, Delta Ventures Resources Inc. (DVRI), to finance the latter’s acquisition of Philex Mining shares held by the government.

The current DBP leadership has filed criminal and administrative charges against the past DBP board of directors, including president Rey David, in connection with the deal.

The COA chairperson told the committee it suspects there may have been "insider trading" in the sale of Philex Mining shares by the DBP to Ongpin's company.

Commission on Audit chairperson Gracia Pulido-Tan cited several "alarm bells" in the case that raised concern for the COA, which began its audit into the DBP deal last April. 

"The finding of our auditor is because of time, in less than 30 days, there was a such an appreciation of the (share) price, and considering the amount of money that could have been incurred as a profit by government, there are certain implications that some form of insider trading may have happened or some fraud may have happened, which at this point we are not saying to be a fact," Pulido-Tan said.

Ongpin had bought shares held by DBP in Philex for P12.75 each, and later sold these at P21 to the group of businessman Manuel Pangilinan. The sale allowed Pangilinan to take control of the mining company.

Pulido-Tan said the steep rise in the price of Philex shares within the time frame of the deals pointed to the possibility of insider trading.

"The price had almost doubled that, had DBP been the seller of the shares to Two Rivers, DBP would have made P400 million more than what it did when it first sold shares to DVRI... DBP could have made a profit based on P21 per share if it had sold directly to Two Rivers," Pulido-Tan said..

"On the relevant dates, there was interlocking directorship between DBP and Philex. Mr. Rey David was independent director and chairman of the audit committee of Philex, while Mr. Ongpin was vice chair. Manny Pangilinan (of First Pacific) at that time was chair," she said. David was also president of DBP at that time.

Pulido-Tan said COA will release its final report within a month. She said among their recommendations will be for the Securities and Exchange Commission to look into the matter more closely. "SEC has the mandate to look into insider trading."

However, on the allegation that the loans DBP granted Ongpin were "behest," Pulido-Tan said, "at this point in time, we have not used the term (in the report)."

David accused the present DBP board of instructing the COA to investigate the loan made to DVRI, which was under his term as DBP president. Several senators also pressed the COA on why it started an audit into the DBP-Philex deal, but Pulido-Tan said the COA initiates its own investigations.

What is a behest loan?
David, former DBP president, reiterated there was no behest loan granted to Ongpin's company.

"We are ready to prove that DBP's deals with DVRI and Two Rivers are in accordance to DBP's policies and guidelines and are not tainted with any anomaly, irregularities and any violation of laws," David said.

However, Ongpin was unable to attend the Senate hearing, since he is still out of the country.

Solicitor General Jose Cadiz pointed out that DVRI's second loan of P510 million from the DBP may have been under-collateralized, thus falling under the definition of "behest" loan.

Cadiz cited a Memorandum Order no. 61 dated November 9, 1992, that defined a behest loan as having at least two of the following criteria:

1. It is under-collateralized;
2. The borrower corporation is undercapitalized;
3. Direct or indirect endorsement by high gov't officials like the presence of marginal notes;
4. Stockholders, officers or agents of the borrower corporation are identified as cronies;
5. Deviation of use of loan proceeds from the purpose intended;
6. Use of corporate layering;
7. Non-feasibility of the project for which financing is being sought; and
8. Extraordinary speed in which the loan release was made.

David denied this, saying the second loan not only had Philex shares as collateral but also shares of PhilWeb, also owned by Ongpin.

But Cadiz noted that based on the loan agreement, it was only secured by Philex shares, not PhilWeb, as David claimed.

 "The additional P510 million shall be securely solely by the Philex shares of stock.....Bakit hindi nakalagay...if you're a prudent banker at sasabihin nating hindi sapat yun collateral, sama natin yun Philweb shares," Cadiz said.