The SEC, however, was silent on its actions on Venture Securities owned by Philippine Stock Exchange Director Eusebio “Yosi” Tanco where Moron funneled the purloined stocks.
In an order issued on July 21, the SEC Office of the General Accountant (OGA) effectively barred KLSA, along with its managing partner Kathleen Mary L. Siy and partner Arturo D. Sabino, from acting as external auditor of entities such as securities, public companies, clearing agencies, exchanges, investment houses, brokers and dealers of securities, government securities eligible dealers, and investment company advisers.
KLSA was found guilty of failing to comply with the auditing standards and other rules adopted by the SEC under the Securities Regulation Code (SRC) Rule 68, resulting in gross negligence in the audit of R&L Investments’ financial statements for the year 2018.
The SEC ordered KLSA to pay P314,570.65 as penalty for material disclosure deficiencies and misstatements, as well as for violation of independence rules, that led to the loss of P606 million worth of stocks held by R&L for its clients.
In its 2018 audited financial statements, R&L Investments booked client securities worth P738,897,290. However, the Business Partner (BP) Portfolio Report provided by the Philippine Depositary & Trust Corp. (PDTC) showed the brokerage’s client portfolio only amounted to P132,255,939.
“The misappropriation of the said securities under the custody of R&L Investments did not only cause damage to the concerned investors but also created a negative impact on investors’ confidence to the Philippine stock market,” the SEC said.
R&L Investments nominee Lucy Linda D. Lee claimed that Moron confessed in November 1, 2018 to making “unauthorized transfer of shares to Venture Securities, Inc. using the account name Julieto Sulapas.”
Moron also supposedly admitted to forging reports to conceal his actions from the management, as well as from the audits conducted.
KLSA admitted that it relied on the portfolio report furnished by R&L Investments, which turned out to be altered, and accepted the same as audit evidence to validate the information in the brokerage’s Inventory Report.
The SEC said KLSA should have rejected the documents as audit evidence and initiated additional audit procedures, considering it has identified weaknesses in R&L Investments’ control environment.
The OGA also found that KLSA itself prepared the audited financial statements of R&L Investments, in violation of the independence requirement for external auditors.
“KLSA’s responsibility is confined to the expression of an opinion on the fairness of the financial statements. KLSA’s inability to exhibit impartiality hindered the early detection or prevention of fraud which has caused substantial losses to investors,” said KLSA.