25 January 2012

In a Resolution released today, the three-women panel of prosecutors of the National Prosecution Service (NPS) of the Department of Justice (DOJ) found probable cause to charge former Representative and Local Water Utilities Administration (LWUA) Board of Trustees Chairman PROSPERO A. PICHAY and Acting LWUA Administrator DANIEL I. LANDINGIN for Malversation of Public Funds (defined and punishable under Article 217 of the Revised Penal Code), and for violations of the Anti-Graft and Corrupt Practices Act and the Manual for Regulations for Banks, in relation to Section 36 of the New Central Bank Act (Violation of [the New Central Bank Act]. and Other Banking Laws, Rules, Regulations, Orders or Instructions).

The case arose from the complaint filed by Secretary of Finance, CESAR V. PURISIMA, against Pichay, Landingin and other members of the LWUA Board of Trustees for the alleged anomalous transactions entered into by LWUA in acquiring shares of stocks of a financially troubled bank, Express Savings Bank, Inc. (ESBI), without obtaining the requisite approvals from the Department of Finance (DOF), the Office of the President (OP) and the Monetary Bank (MB). It appears that LWUA paid more than EIGHTY MILLION PESOS (Php 80,003,070.51) to acquire approximately 60% of the outstanding capital stock of ESBI, the alleged actual book value of which at the time of the purchase was negative Php 31,060,447.96.

Moreover, in further defiance of applicable regulations, respondents subsequently took out the amount of Php 400 MILLION from LWUA funds, again without obtaining required prior approval from the MB and BSP, and deposited the same with ESBI in order to cover up the bank's severe capital deficiency.

The MB has since unanimously approved the recommendations of the Integrated Supervision Department (ISD) II of the BSP to: (1) deny approval of the sale and transfer of stocks from the former owners (Gatchalian family group) to LWUA;(2) issue a cease and desist order (CDO) against ESBI; and (3) impose sanctions on ESBI for accepting government deposits without prior authority from the MB.

The bank's annual financial/audit reports, filed with the Securities and Exchange Commission (SEC), show that it had consistently been suffering from "long standing" problems and precarious financial condition for several years, even before the LWUA's acquisition. Despite such knowledge, however, Respondents Pichay and Landingin, went ahead and facilitated what is effectively a bailout of "an ailing bank on the verge of bankruptcy" at the expense of LWUA funds, thus exposing LWUA to great losses and dissipation of public funds, ultimately to the prejudice of the government.

The panel found that the manner by which respondents entered into transactions that are "irregular and, at the same time, manifestly and grossly disadvantageous to the government" - which was achieved by unlawfully taking procedural shortcuts and evading the required governmental approvals, and which, thus, caused undue injury to LWUA's funds and clientele - constitutes unlawful acts and corrupt practices.

As to the other respondents, the panel recommended the dismissal of the case against them, as it was found that they were not members of the Board of Trustees at the time the allegedly anomalous transactions were entered into and, thus, had no participation therein. The Resolution, along with the entire records of the case, is to be forwarded to the Office of the Ombudsman for appropriate action. Said Office may approve, disapprove or modify the Panel's findings and recommendations,' or may altogether decide to conduct a reinvestigation, should it be deemed necessary.

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