Coquilla, Kent I.

BS Finance 4B

Case Analysis of the “BW Resources” Stock Manipulation Scandal

Stock Market or stock trading in general is a concept that not a lot of Filipinos, then
and now, fully comprehend. It is because of this that numerous companies can and will
use every avenue and plan to gain as much money by giving fake promises and
sometimes, outright deception. The case today is a famous Financial Scandal that
nearly toppled the Philippine Stock Exchange back in 2001. Perpetuated by Dante Tan,
founder of the Best World Gaming and Entertainment Corporation (BWGE) in 1998. In
1999, Tan became a majority shareholder of a tourism and leisure company called BW
Resources and BWGE became a wholly-owned subsidiary of BW. This man has set in
motion one of the greatest and most impactful Financial Scandals in the Philippines of
the late 20th century to the early 21st century. With ramifications and consequences still
felt up to this day.

It all begins with then the current President of the Republic of the Philippines,
Joseph Estrada. Estrada and Tan were close friends even before the former ran for
presidency. During the election period, Tan has financed Estrada’s campaign which
Estrada won at the end. Due to this close friendship, Tan was able to gain many favors
that benefitted him and his company through endorsements from the Office of the
President. One such favor was the acquisition of the licenses to gamble from the
Philippine Amusement and Gaming Corp. (PAGCOR). On December 1998, BWGE won
the exclusive contract to operate a nationwide online bingo franchise as well as the
jueteng-like Quick Pick-2 gambling game.

With all the massive gains from the licenses and the news of such massive
undertakings, BW Resources’ stock prices were rapidly increasing. This is due to the
sudden and numerous stock purchases from different companies and individuals who
saw the potential of the BW Resource Stocks. Furthermore, news and speculations that
Macau’s gambling mogul, Stanley Ho, was coming in as BW Chairman also fueled
further stock-buying. Alice Reyes, then chair of PAGCOR, later told a congressional
hearing that BWGE got the online bingo license because “it had the endorsement of the
Office of the President.” In 1999, BW and BWGE was also able to co-borrow P600
million from the Philippine National Bank (PNB), then a government-owned bank.
 All of these developments fueled the sudden surge of Stock value of the company,
earning them millions of capital and higher price for their stocks. The value raised by a
whooping, and frankly unrealistic 18,025% — from P0.80 (US$0.0166) to P145.00
(US$3.01) in just a single year. At one point, it even became the most traded stock in
the Philippine Stock Exchange, beating perennial blue chip stock TEL (Philippine Long
Distance Telephone Co.).

Yet, with this crazy rise in value, the fall was even more devastating. Stanley Ho
visited the Philippines in 1999, with plans to open up gambling casinos and operate
them, yet this plan never came to fruition for the Catholic Church heavily opposed the
plans of Ho, going as far as accusing the mogul as part of the Chinese Triad. Due to
this, the major plans of Ho never materialized and it resulted to the sharp drop of the
BW Resources’ stocks prices to below of 30 pesos. The decline continued until the
value of the stock reached way below 1 peso. This sudden rise and subsequent fall
resulted with the PSE to step in and investigate the matter.

From the investigations the PSE conducted, they have reached to the conclusion
that several stock price manipulation strategies were conducted by Tan and his cohorts.
One such strategy was Tan’s sale of his shares to friends and clients at discounted
rates. These transactions were then reported to the PSE as twice the amount actually
paid. This was made to create an impression that the stock was being traded actively. It
was also found out that the daily turnover of the BW Resources stock circulated among
10 brokerage firms only. In addition, the PSE accused BW Resources of engaging in
“wash sales” or a sale transaction wherein the buyer and seller of the stock is the same.
Tan and Juan both own substantial shares of BW while Lim was the company’s
president at the time. In the DOJ charge sheet, Tan, the owner of the online bingo
franchise and a close associate of former President Joseph Estrada, was charged with
two counts of non-disclosure of beneficial ownership and engaging in a manipulative
device known as "squeezing the float." "What BWRC did was to use media to
disseminate information about the company, which information built up BWRC to be a
profitable entity with many projects, which in turn will earn for the company huge
amounts of profits in the future," the SEC said. "BWRC had succeeded in making itself
look like the greatest thing since sliced bread. By cheerleading the stock, the stage was
set for the market manipulation of BWRC shares," the SEC said.

With very little assets to its name, BW created a trading frenzy on account of
news that Tan would merge his profitable bingo business with the company’s operations
and pave the way for the entry of Macau gaming king Stanley Ho for the firm’s eventual
expansion into a gaming conglomerate. Another new violation in the SEC’s third report
involves free riding and the improper extension of credit. Free riding is the purchasing of
shares without the intent of paying at all or with the intent of paying for the bought
shares only if the price goes up by settlement date, so that the shares can be sold at a
price higher than the purchase price.

Two other brokerage companies not previously cited were Abacus Securities
and Solar Securities, which the SEC said engaged in wash sales and matched orders
involving dealer accounts of the same broker. A wash sale involves the buying and
selling of stocks without a beneficial change in ownership while a matched order
transaction is one whereby a person or a broker enters into a transaction with the
knowledge that a simultaneous order of the same size, time and price will be entered by
another party. Both schemes tend to create a false or misleading appearance of active
trading in any listed security.

The leading players of the entire fiasco were then charged under court. So, what
happened afterwards? Until now, we still feel the reeling effects of the financial
catastrophe. Many distrusted the stock exchange and further dissatisfaction of the
government. Market participants say the losses suffered by many small investors from
BW stock price manipulation and insider trading, and the resulting loss of market
confidence then, have helped shape the way companies are directed and controlled at
present. Now, BW Resources has been renamed numeral times to the Suntrust Home
Developers Inc. (Stock Code: SUN) to supposedly reflect a change in the company’s
line of business from a holdings firm to real estate development.

What initially was thought to be the biggest blow of the Philippine Stock Exchange
and the Philippine Economy, is now a painful reminder of all parties involved to be more
strict when it comes with the different plans and methods of gaining capital through legal
means. Furthermore, this made investors even more cautious and force them to dive
into more indepth research of the companies they wish to invest. This single event has
damaged and nearly crippled the market but it also made it wiser and stronger, and now
it is soaring high beyond any wild expectations. PSE is now one of the most sought after
markets in the entire world with consistent growth that will bring positive change to the
entire Philippines.
References:
https://www.bartleby.com/essay/Final-Paper-on-Bw-Resources-Corporation-
PKPZ3CZDK86TS
https://www.pinoymoneytalk.com/bw-resources-stock-price-manipulation/
https://www.philstar.com/headlines/2001/02/26/89896/sec-uncovers-more-bw-
anomalies
https://www.slideshare.net/lawrence0492/president-estradas-bw-resources-scandal
https://business.inquirer.net/87716/stronger-corporate-ph-rising-from-ashes-of-bw-
scandal
http://www.financemanila.advfn.com/2008/07/flashback-the-bw-controversy/