Men in Black

In my last piece I alluded to the P 7.5 billion IPO of a businessman said to be one of the biggest smugglers in the country. Lucio Co, founder of Puregold Price Club, arrogantly refuted these allegations at the formal listing of the shares last week: “So much has been said about my person … in some irregularities I did not commit. The upside is I guess my name is full of color and therefore newsworthy”. Dismissive but obviously not enough: The stock fell 12% that day, inflicting a loss of P 900 million to investors.

Leonardo Dayao, President of Puregold was unfazed: “ Pricing is only incidental as it’s driven by the market situation”. The overall market was only down 0.86% so his cavalier attitude is not promising.

In truth one should not blame the Puregold officials for the outcome: They are who they are. The onus for protecting investors in an IPO is primarily with the underwriters (and their lawyers), the Stock Exchange and the SEC.

The lead underwriters were HSBC, UBS, BDO Capital and First Metro Investment; giants all. The quality of their vetting helps explain why the international banking system is in trouble.

Their lawyers were Romulo, Mabanta, Buenaventura, Sayoc and de los Angeles. Atty. Romulo is, incidentally, past Chairman of the Makati Business Club which is spearheading the Integrity Pledge for good governance.

The regulators, the PSE and the SEC, went along with the charade.

To its credit, Puregold disclosed in its prospectus: “The Company has been the subject of media reports and statements in the Philippine House of Representatives that household goods such as… appliances, building materials, plastics and resins were allegedly diverted from custom channels to the company and their retail stores. The Company has publicly denied the reports… although the Bureau of Customs …planned to conduct an investigation of the diverted goods. The Company has secured various certificates from the Bureau of Customs…attesting the Company had ‘no outstanding account’ (my emphasis) with the Bureau and that the Company and certain of its shareholders were not subject of any pending cases”.

In plain language, the company is widely rumored to have smuggled goods, a strong enough allegation to warrant what is a highly unusual disclaimer in a stock offering.

In their convoluted way, customs officials stated there was no fire but there was enough smoke to justify an investigation (But is smuggling not defined as importing goods without leaving “an outstanding account” with Customs?). Coming as it does from a bunch not known for their transparency or probity, the statement hardly qualifies as comforting, let alone as due diligence.

The bankers even disregarded the howls from Congress which for once had something to say. That is how diminished is its credibility.

The underwriting fees were P150 million, the PSE and local brokers fees P35 million, and professional and legal fees P108.7 million; so everybody was ecstatic with the deal except, I suppose, the clueless investors (70% foreign, 30% local) who ended up choking on the offering.

The Puregold IPO is only one of many controversial transactions that have haunted the banking industry worldwide. In the U.S. so-called blue-chip financial institutions have been found culpable (or, more exactly, have paid enormous fines rather than be found culpable) of pushing billions of dubious sub-prime mortgages to unsuspecting investors.

In another instance, a prominent investment bank sold securities to trusting clients even as it was positioning for their price to fall.

Meanwhile the men in expensive black suits, the bankers and their lawyers, the so-called pillars of society, have walked away with millions of dollars in bonuses from questionable transactions peddled to hard-working citizens, widows and orphans. The banks have had to pay restitution (and their shareholders take the hit) even as their officers sailed into the sunset in their designer yachts. No wonder protesters are now camping out on Wall Street and numerous cities to demand personal accountability from these “professionals’ who in other circumstances would have been run out of town.

Incidentally, these are the same officials who after having gone on bended knees to the U.S. Government for a rescue during the ’08 financial crisis -and received it- are now railing against measures to curtail their activities.

The death of Steve Jobs reminds us of the difference between people who create products of value to society; and those that don’t.

So beware of the men in black.

I should know. I used to be one of them.

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About Leo Alejandrino

The blog is principally a commentary on Philippine politics and economics.
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One Response to Men in Black

  1. Do write about your adventures as a Man in Black. It would make good reading.

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