sorporation 7 Cc R1 BW Resources Corporation: The Scandal That Rocked A Presidency * You can fool some of the prople all of the time, and all of the people some of the time, but not all of the people all of the time." ) = Abraham Lincola {attributed : Meng, an industrious Filipino-Indian, made a small fortune inthe textile trading business and was amazed to hear from his relatives ata family gathering in January 1998 that his monetary wealth could grow invariably further if he participated in the stock market. Taking his relatives’ advice; he started his venture into the stock exchange on 3 February 1998. He decided to make an initial maximum investment of P1 million and, to play safe, opted for diversification. He consequently made the habit of tuning in to 104.3 FM radio and to ‘ANC Channel 21 to make sure that he got the larest stock market reports. He was pleasantly surprised to discover how apparently easy and simple it was to make more money in the stock market, especially ‘when the prices of all the stocks he bought rocketed up the following day. Following the advice of his broker a¢ religiously as one follows a ‘minister, he sold everything by 31 March 1998 and made handsome profits.' His stockbroker, Bernie, gleefully told him: "You'rea genius, sir!” the habit of reading the business sections of the four major daily spreadsheets and regularly sought ° saversations with his uncles concerning market information. His winning ways in the market carried over 10 the following year. In the process, he realized that the fundamental cbjective in playing the aeerket avas simply to buy low and sell high, ‘and that sticking to this entrepreneurial regularity would ensure consistent stock market victory, On 11 October 1999, he bought 4,000 shares of BW at P1005 Meng then started "See Annex BW-1.another 5,000at P99. Heboyyp, 59; and nn P95 50008 rating ee mpiiance at the Surveillang, he Head of COME change (PSE). The Psp jviduals and is tasked nent consist eillance Depart lies. Under PSE rules, sarge te OFT ot tne Publi, ahi and dow 0% nog es ek ep being a trading day. Another ule EST pics oficers of 2 company the “insider wading le" jout which they have material from invesing i a0 SOP share price t0 £0 UP oF down information that mY Cor companies to disclose any material Moreover, the PSE reqs yading of its shares. Rene’s team information hat may =f jc movement of B shares and could ad en ei eet ak erin Conran Pie shares? Rene was the Heat Deparement of the PhilipPine of fou appreciation of such ch at local brokerage house, Hewat }liptwaref the exods of foreign funds inthe stock marker Th of the Asan financial erss. He was now intrigued Ik market cornering close to 4 alot of inquiries from ly did some price- James was the Head of Resear 52% of all tedes, Moreover, he had receive ‘ks brokerage clients about the BW Compaay. He q research and realized that the company was trading at 18,000 Cernngs rato (PE) versus the market PE of less than 20x. His ‘aluation models all pointed to something terribly wrong. In June, hee told his clients to stay away from the stozk, which was trading at P28, He was dead wrong. Clients who did not follow his advice were all happy by September when BW shares traded at P80. After that, bebeceme the subjectof constant ridiculeby office traders and clients, Ben Sena ‘of BW. He satin the Board because of his ‘astexperence in thefelds of manufacturing and rea estate. Duin Beard meciog ten iment linened tothe discussion of profess ina for ‘BW. He believed that the projects were very. ambitious spltineconsuning, eovheard that other directors were buyin res, Ben himself started trading heavily in BW shares, “Why ids’ I do this six months earlee?” he wondered, a ae Meng, Ber 2: ie, Rene, comncy ak oe eae ey pepgest stock maninaeo™ i the apy 8 bi ock manipulation scp #mals of Thesis ther story, AY” Scher, u ea that rocked aig hisory ashe 8 ver witnessed Company Profile 1g Intere company primarily engaged 15 0%4 Franch any primarily engaged ine ance Technologies,» autora i "ctl Ps ee increased its aie eater Asia Resources Comer ion and changed rumors of a Danding Cojuangeo gsc? 7ton (GRC), tn 196, plant takeover he dee te7 MO the company awl the share price up from P1.30 , p3.19, | PrOPe*Y in Boracay seat (On 3 February 1997, G1 19 million, which eased charset 2 196 nt os of Rumors of joint venteres with the company confirmed) and the announced aequsiioe fo Peis ume NEE Petroleum & Minerals (3 lisied fin) prahed te gee 14.00 before tapering off toPl.20in September nf hone ore roller coaster ride of GRC shares continue or hereof ol Frog 0.60, it touched P3.00 in December and wert dew sean es Pek before the end of the yeu en agsin to PL. In February 1999, GRC changed its name to BW Resources Corporation (BW), The following month, it announced a property- for-share swap agreement with Megaworld Properties (another listed .). The series of name-and-venture changes since 1995 coincided ‘with frequent movements and changes in the ranks ofthe company's Board of Directors. ‘The Wild Ride With no official news and disclosures from BW, share price steadily rose and breached the P10 mark in May 1999. Mergers with the sole operator of the computerized online bingo (Bes HE Gaming and Entertainment Corporation) pushed share prices ii to over P20, In the next two-and-a-half months, various ne Se Annex BW,— ere easel? SHAE PICS mo, ag aout the omy meses a re 5 ). be on P2510 F ar ‘ sg wont fo BW Reported seen 18450 enon Sales He roped By tperween BW ‘and Macao amt yA ‘Ocrober, BV share ma hae prices esa gent over P70 pr share, Thy sa inane EN warnings Fon the Secu, anata ews teal Preparing eral eof BW SRE The aves he me Tg shares eventually Broke the for Bloch PSE for the company tp be invested : 9, Sante Ho, who would assume Sarthe day's wading the PSE, yor before closing at PY7 with over (On 11 October 19 caiemaaship of ths comps BW reached an all-time high $32 million shares traded that dy “The Succeeding Days’ Struggle “Thecolpe ofthe single mos speeacular isin share price ‘ever recorded at the PSE happened faster than its journey pwwards, ‘The threat of both SEC and PSE incestigetions dragged BW share prices down oF79{and below inthe days that followed 11 October 1998. The annouacement of an P817 million loss incurred from January to July 1999 further influenced the decrease in BW share Prices as it closed at a lowly P43.50 on 14 October 1999.* On 26 October, The Philippine Star reported that the PSE scnowldgdth stig of BW actin sh sackmark as well as it trading trend, as sil within the bounds ofthe known tradin les PSE ree Je Ll alo was uted inthe sme preset with ie ton "The dng ced i BW was ill October, Senator Ral Kose, Chaiman of te Seats Basking mais wa pred eae sed hs pon pl inside aig id iSight ata sven WY shares Facmore tte Seer of ane are Dante Tan busines ycoonand msjrfiguela BWyaeeeeen, ) wasa*victim” cathe BW episode, adding thirty, « is protest BW share pricy "Thies i nilions” tying ‘The following day ‘ois the value of tsahere ed 2b ec forBW fade tHe following ancouncerens go hath compan sma currently involved in corpora oh 485 publi: (1) BW Asan Investment Ltd. for theleaseof auia with Hong Kong’ @ BW intended ‘Operate 20 more bingo h, g's yas OD would buy Tivoli Royale’ Kh, alls before the end of the ra Monte Realty Development a eens eens complex of City an appraised value of P36 ilion for Pag Queen City Reporting, with Rightland Corp, for hey Silom and) twas purchase of 3 50 hectare emi Zein Papen, using estes ote OF orate disclosures somehow arte Se ea corr sit stabilized st P37, arresed the harp decline of BW asitanempred ‘The Succeeding Months’ Plunge ‘The PSE and the SEC intensified their she euspected corporate malfessance naw te ens che Soaspected tobe prevalent the company: (Illegal ations, ty col marker” transfers, 3) wash sles, hype and dump @) ocezng, the float, and (6) insider trading among it insides and brokers.” “The SEC questioned the failure of the PSE to monitor its rts with regard to possible violations of curt laws and issued caning that it might lse is self-regulatory status. SEC Chairman perfecto Yasay pointed out two clear examples of price masiplation in the company: (1) cross sales prices were significantly higher than in ket prices, and (2) they were settled direcly beeen the buyer and seller, by-passing the PSE settlement procedures. The PSE, in ater confirmed that Tan entered into “rivatplcemens” and “buy- buck” arrangements with several clients of PCCI Securities, Ine» making them commit not to sll ther shares anywhere within 600 160 days By December of the same yeu the Senate pursued the BY investigation after the SEC suspended its probs, legely duet he request of “higher ups.” This phenomenon would provide asparkin Shonen BW, 4 —SourcesCome so REE Corporation 81cow sloaes 00 loam F250 spy wre e087 STREE PES Moy for BW. Reported sinzling, month talks spent 281 alae FS see dre Ey cab oy a arpver P48 PS sac over P70 per share. Ty from the Securities share prices ee week's cimes broke P50ands if note mek iy wera fh was then already preparin ial rise of BW shares, The ane wna hs sage canon SE en coe te rp a8 A sey ke moment sorwithstanding SE for the company 19 Poa para, norwthsand be investiga On 11 October 199% chairmanship ofthe compa OF a an all-ime high ofP107 before clos prion shares raded that dy: and its 5 call of the Stanley Ho, who would assume ar ae day's trading at the PSE. ing at P97 with over ‘The Succeeding Days’ Struggle scracular rise in share price han its journey upwards. tions dragged BW share ‘The collapse of the single most spe ever recorded atthe PSE happened faster ‘The chreats of both SEC and PSE investiga prises downto P70 (and below) inthe days hat followed 11 October Poo guncement of an P3.17 milion loss incusred from January to July 1999 further influenced the decrease BW share Jaees 2st closed ata lowly P4330 on 14 October 1999. On 26 October, The Philippine Star reported that the PSE sstnonlege testing of BW activities inthe stock marker, as well 2g nd al win te ound fh own aig rl BE Presiden oe Ll Yala wa ated in the same ‘peks wi seio:“The aig edit BW was sl eee eas Inder wealing and price Bing Shing the eee tr Ric ener susal movements of ian busines tycoon and mjor figure ia BW) one tice jor igurein BW) was a “vietim” Sheena ‘Sec Amer Be and seller, by-passing — 7s BW episode, adding that Tay in the ect BW share prices. wate Tosthundreds of millions” tying so ie he folowing ansouncnen' ue we Steet! Le. frthele ose rede to opeate20 mors by Nyy would bay Tea Royle vith 29 4PP! Regotiating, with Rightland Corp. idjacent to the Clark Special Economic Zone in Pampanga 7 ark Speci mic Zone i profi the projects subject o tie howsing requirements of te er ts subj housing requis h for the purchase of a $0 hectare e in the 20: : on ployee i ine would be erected. the th 7 cite diclowrcs somehow sec he hs aetna corre asi stabilized at PO. ep decline of BW ‘The Succeeding Months’ Plunge ‘The PSE and the SEC intensifies she suspected corporate malfesence cients she Jeuspected to be prevalent in the company: (0 illegal wenosctions, oy Sottsmarker”eansfers, ©) was sles, (hype and donp. ceving the los, and (6) insider rating among is insider and sere SEC questioned the flue of the PSE to monitor i broke ah ogard to possible violations of secures laws and isued sank that i mightlose its sel-xegultory stars, SEC Chrmsn 2 mip Yasay pointed out two clear examples of prise masipulion Perce rompans (1) oss sales prices wre signifcamly higher tan in ae orices, and (2) they were seed dretly beween the buys the PSE settlement procedures. The PSE, in aa sep afeemed that Tan entered into “privateplacoments” aa Hy" aoe rengements with several clsmts of PCCI Securit es pang tem connmit not to sll thei shares anywhere within 601 180 days. Senate pursued the BW be allegedly due to the tld providea sparkin of the same year, the SEC suspended its pro ® This phenomenon Wo By December investigation after the request of “higher ups. palaeeteiensaeee oe ‘Se Annex BW7. ‘sg vould eventually: Culminate iy ple ip wep the bat wards spd DSS year 2000 00089 > in the Yea avin! jonsthat bound BW at the sta of investigations UP pic decline in the val incessant iO¥E508Y rastrophic ec ine 1 Teli pies et itherdot thee nga youd indubitably be ete pew yet sean Me eet as the most br fllosing mont tes market a t brazen sore el he PIN iva (mostly fiends gf ian seme WHO ial eeport om the BW sag, as ait eset Esta nv + aly infem and could no sais i hat BW 82 the SEC sid tha cs i lgudity and stability Fe Sandan cots for PHASE 19 4 milion in 1999, ested ass of P1059 milion Oy dividends to shareholder, ‘Theconshsions — Se obligations with generally acceprable ecould non ning busines most from invested capital, ele and was seh eo Front Holdings (PAIR), hoping The company ne The company’s share price went below PL coarse he ene The downward price journey continued sa np is 20), POO in 202, and P26 in 2003. Meng's position was liquidated on 2 December 1999. He was begging his broker, Berne, to grant him a “nvargin line” in order to “average down” and toconsequently be granted latitude to recuperate fom his loses, But the brokerage house denied this request. Since the proceeds fom the sale were not enough to offset the losses, Meng 12s forced to give up his car and a proprietary club membership share Although these additonal collaterals were sold immediately, Meng was sil eft owing hs broker more than P2 million, Hleeding Se set of is lel counsels, he agreed to pay his obligation in lments ov rr asp n an ofstwo years. Mé ame disurbed and despondent man tosay the leage 8 Became @ Bernie still goes to the tra The BW price clip ad a uying and selling ides meant greater eof” 1, [ebecame clear to him cof the trade, Beenie rent at Mat real sing because he ver 20 Years. Weert proia vivorin he mad veteran. He has been we cene resigned a head of surye Feemeandal His a8 Wiig hometown. but his home we mes continued his work ash Jetiye BW phenomenon bol ead of research Istered his ied by ad forabrokerage safe ee peace conviction thar any com ange must mpanic sepia estas, ecg ad reson Whie anon eke rye ah ondition hardest financial test in the aver " nt {irae cr of them (both local snd oscil BW scandal i) closed down, el anu fed at James’ advi i pa and 2 Prrier scoffes es’ advice are again quiely seeking ba who ee d recommendations, ee ‘pin Meanwhile, Ben is discreetly dictanci Hie is unemployed and tees to mains oe eS sandal, Greles. With enough money 6 lasea a sin ompany of a religious group th in ceevhere in the South of Metco Manila ng himself from the BW lifetime, he seeks solace at meets at his villagegaps oussTiOns the Board of Dire h particular responsib the case? ipilicies of onsibilities the resP0"8? Oy whic! __mumerste OECD man enon in according oth proper at ven Cloiy ties aoe 00 i i “ cansensuson eights ofthe Shareholder, 2, TheOBCD re cosemartclar rights Were asst in th What are these ight5° case? saehoers in corporate governance? Der eel Soi have been done in BW vo Mpa ve stakeilders and players? sill have eaded BW shares while 4, Ifyou were ate \jnectorship of the same company? simultaneously re legal considerations would (and/or at ethical, technical a ic : Wat i ee cis act permissible? Discuss chese wot deraions in view of OECD principles on key ownership functions and che responsibilities of the board. 5. What are she long-term implications of the BW scandal on the SE and the Philippine capital markets? 6 Discuss the OECD principle on disclosure and transparency. What measures should have been taken within BW to ensure an adequate ai aceurate disclosure and transparency policy? wed ann? Sock Position ANNEXES ‘Number of Shares 100,000 50,000 25,000 100,000 100,000, 20,000 50,000 10,000 300,000 Cost P0.68 PL40 P190 P178 PO.46 P2.90 P142 P6.00 PO83 Sold Piss P232 4,00 P2.90 Poo P4.00 2.20 F650 PL76caw : x wv aw Resor eee ena _ XBW NEN tal Analysis of BW Resources (M=Milloins) 1999 (Forecast) 199% (Actual) 1997 (Actual) ne (1058) DP 25M (© 106M 5 6M) (P 53M) eel P445.0M, 1 455.0M " 0 ° (loss) per share P 0.0055 (P 0.024) (P0012) 1 Based on P100 per Share At P00 per share, BW’s price earnings multiple was 18,182, compared market multiple of 18x PF, ‘The total market capitalization of her than the country's largest Petron (P40 billion), and three times more valuable than the country’s Nor one bank, Metrobank (P14 billion), and the country’s number ore fast hain operator Jollibee (P15 billion). ANNEX BW-4 foard Membership Changes at BW from 1997-1999 bu with none of the 2s in the 1997 list appearing in that of 1998. In other words, the Board Members in 1997 relinquished their membership and a completely few group of members sat on the Board for 1998, The composition was also astonishingly different. The 1998 Board Member roster featured four Filipino names, three Chinese names, and three Malaysian names. Again, the Board roster axcommodated a new set of names for 1999. Only one director from the 1998 board stayed on, and the new Board became dominated by businessmen.x BS ysl ANNES and New esa ilo od pate - 1 | pois” le s}oly aw 4 August 9 Awgust aw Augen SE rsAopae STAR waAwpe STAR ‘September BW 1 Deceaber PDL 20 Shimsy ay Djawy ay ha pating BW Shave Prices pens Al News pislosure Stoxy ey, cite Pa 0 clos 10 Ay in Marikina) 850) Fh reo buy TV,” p: "0by 4 Teka kes way for new Gaming Fer chases Megawworld’s anes: ty tobe swapped for ne proper sy ofa forcgn investor at aN eon oie of P32 ome Sent PLL a sete lss forthe first half of 37439 million deficit 28.50 the period an seth end af the period Paso BW Reoures ees euraround P2850 this year CCI Securities Brokers Corp. srs that from a net loss of Pic milion in 1998, BW wil post prof of P18 million for the yn and tha exnigs wil jump up 0 P988 milion and 3.5 billion once the Sheraton Marina Complex Becomes flly operational BY crit agian wih New Zand Savoy Group and shared interes property, 28.50 “technology and financial sevice sectors in countie such as [New Zeaind, Aural Zeaind, Ausra, and the US 24,75 Sete pure BW investigation * Winvesigaion —* P3250 HR Jumbo . tne pee? anchors in Ps aor of easing ‘stealer ection P1380 wy NX , post? resident tad ay he didnt wy oend prubeimo Bi PAO io! peony STAR wre? SEC (0 press raps vs. 30n BW [eed ; AX Hse Megaworld converts BW oo (0% named Fairmont) ato” : AP, Femons Helin i Frirmon Hollings aque Poss :mpire East's low-cont property ANNEX BW-6 NNEX red Price Quotes from BW On and After 11 October 1999 ow pate Open High Low — Close. Volume at ‘October ‘P105.c0 P107.00 P96.00 P97.00 P32.0M ‘2 october P6150 P95.00 P6150 P6800: PIS-4M 4 October P72.00 72.00 P4350 —-:P43.50 PP 8.6M “1g October P53.00 53.00 P2650 ©—P29.00-P22.8M » October 35.00 P4150 35.00 35.00 P24.7M "ANNEX BW-7 Definition of Jargon for SRC Violations ‘The following are some of the unlawful price manipulation practices tackled in The Securities Regulation Code of 200 1. “Painting the ticker” - engaging in a series of illegal transactions in securities to give the impression of activity or price movement in a security 2. “Marking the close” ~ buying and selling securities when the market closes, in an effort to alter the closing price of security buying activity at increasingly higher 3. “Hype and dump” ~ engaging in prices and then selling securities in the market at much higher prices+ aking advantage of a shorts, eH prcontraling the demand sige eo tongeston dusing such shortage : to reign ease seit tual 0 seg orders” ~ engaging in transactions wi ilondersatthesame time with the same pr, th "ity diferent but colluding parties Price ANNEX BUS Update on Court Cases y 230th SEC rpored thatthe total settlement paid ‘ Hniiswative charges for the BW pri scandul reached P11.426 million. The SEC stated that 7! ixing 5 brokerages ninisative charges brought f i career tas nuh forhiby the commission ions of marking the close, sales, match orders, done- is ss es, done-thr deals, advancing the bids, fand] le among others.” cee 23, at a Files oumber 11980, wth Dance coav imal on the bss oftechneaies ofthe acused toa speedy tral was Pasi i ‘i ite Bin C.Yguna opined that the ered dc PONE or established,” and needed to support the SEC’s Corp. (BWGE) =e Sears pee *t ‘ANNEX BW-9 Many Losers, But Few Winners: BW Resources’ Tan says he also isavietim” 4 iy jonathan Sprague and Antonio Lopez (dsieweek, Vol. 26, No. 4, February 4, 700) BW Resources once looked like a sure thing. The Philippine gambling concern had the brcking of President Joseph Estrada. Ie Shares were rocketing on the stock market. And it had snagged a §$30-million investment from Macau casino mogul Stanley Ho and Signed him on as chairman, Then the lucky nag turned into a laggard. tee stock dropped like a stone, prompting investigations by market . Estrada found his previous support of the company had 10 a jina after he allegedly pressured the Securities and Exchange Commission (SEC) to ease off. And Ho found himself under fierce atiack from the Catholic Church, which opposes gambling, and from anti-crime activists, who accuse him of having inks with triad gangsters. “I have never keen attacked like this,” Ho complained to Philippine reporters last week. “If I am really unwelcome and if President Estrada says, ‘Stanley Ho, I am sorry 1 could not encourage you (o invest anymore,’ then I quit.” “Ar the center of it all is Dante Tan. Last year he was on way to becoming the Philippines’ gambling czar. Now he is beiag «das the man who nearly sank the nation’s stock market and still may sink the president. But Tan, 50, is having none of it. “Some c out to destroy me, and in the process attack the president,” week, “My business rivals are out to bring me down, while the president's opponents are out to embarrass him by hitting ine.” The would-be high roiler began his career as a small town accountarit and tire dealer in Quezon province, south of Manila. His friendship with Estrada dates back to the latter’ campaiga for the Senate in 1987. Tan formed Best World Gaming and Entertainment arly 1998 and applied for license to operate on, line bingo nationwide from the state-owned gambling agency and casino operator, PAGCOR. He was turned down, Aftet Estrada became president in June, Tan tried again. In December, he finally Gotit. 1 in carly 1998, Greater Asi "That was just the start. Als 8 oy Danes Resourees, listed leisure and tourism company ISi dung is MEO BW Reg, 3W Resources shares in ggcyoUy ; sae ble: BW Resources 9 2 ep 199 when i acquired the gheSBR ‘lex overlooking Manila Bay, then Bi read tt BW Resources wag yh pba BWGE, which had begun erat poe moth (Present Estrada was guggr infos PAGCOR id itwould operate ease sr Suu. Aain Ocober BW Resources broug’ Na evorznd chairman. To the drumbeat of theneet seeps drs mache from around 2 pesos in January «2 BE ESS oveber te Kind of gui usually confined 0 Interas Eb Tha shat afer Ho made 2 tumphant visit to Manis che share plunged to under 30 poses. Teale sued charges that che previous run-tip had ‘eo the sl of market manipuliton and insider trading, and the ‘SEC and che Pilpine Stock Exchange (PSE) began investigations, Preiinry rons found that hay buying by Tan from February t> May ly behind BW Resouices’ initial gains. Then from June to ‘Qsobes Ta sald share o fiends and clients at a discount - but or ade FS oud at prices that were sometimes sic the anoun:aewally pad, Trade in the shares, which counlja ont il of wal dy canover by valu, centered tte unde, ince ay brokerage officers and relatives were FOCSecuiesmangheome thinks to BW Resources, such as BY pride se esto Fzncico Liboro, who is martied 32 fs cregoay ene Eira. But did anyone break ion by naire ® 20t saying, only promising to mid-February I he has done a aa fe, Teane rr wore While he did sel some SDE cadng get ell ovng 1506 Sa Oe PeH0s each tame ea lion shares boug sr Geshe a Be Dough at sound tcl han an offends” he sourer i age mon buen Bt didnt doit Thave “ing abou fe pe co™PANY.” Meantime, vusiness, completing its BW Resources Corporation 93 of BWGE in December, continuing construction of the rina Square (due for completion in 2001), and. looking er elevision station to complement its bingo operations. “BW for 8 srces is still a very viable company with viable projects,” Tan i Maybe so Stanley Ho says he wl decide soon what todo about s8Y5 ing in the Philippines (Estrada, his fingers burned. says he wi invert avt of his way to woo Ho), but New Zealand-based Savoy nor Bp may pump in frech funds. BW Resources’ shares remain Girl, swinging between 8 and 12 pesos this week. Anybody care qo make a bet? acquisition Sheraton