SEC issues permanent CDO vs Citicapital, Inc.

The Securities and Exchange Commission (SEC) has made permanent the cease-and-desist order (CDO) it issued against lending firm Citicapital, Inc. for selling securities to the public without prior registration.

This as the SEC denied Citicapital’s motion to lift the CDO for lack of merit. With the CDO made permanent, the officers, directors, agents, and representatives of Citicapital are prohibited from further soliciting investments from the public.

The issuance of the CDO followed an investigation conducted by the SEC’s Compliance and Enforcement Department (CED) which showed that Citicapital sold preferred shares to more than 19 persons, in violation of the 19-lender rule.

The CED said the shares were sold without prior approval of the company’s registration statement by the SEC.

Citicapital, a leading player in the highly-competitive microcredit sector in the Philippines, was assessed a P1.41-million penalty by the SEC which to date has not yet been complied with.

The SEC had earlier formed a committee to look into the operations of financing and lending companies on concerns that some of these firms are engaged in fraudulent activities.

The commission has received reports that several lending and financing firms have been soliciting funds from the public in violation of their primary purpose which is to grant loans to the public.

The SEC said while it recognized the role of microfinance in the fight against poverty, it could not close its eyes to the dangers of thousands of unregulated lending investors who derive their funding requirements from the investing public.

The SEC admitted that it is helpless in regulating the activities of the close to 400 finance companies and about 7,000 lending corporations in the country. In view of this, the commission has warned the public against placing their money in financing and lending companies that promise high investment returns.

A bill seeking to regulate the establishment and operations of lending companies has been pending before Congress. The bill, filed by Bacolod City Rep. Monico Puentevella in 2002, is part of efforts to protect the public against deceptive schemes and fly-by-night lending operators.

Puentevella said while there are special laws such as the Financing Company Act that govern most non-bank financial companies, there is no specific law that covers lending firms. The bill will lay down the minimum requirements and standards for the creation of lending firms.

The proposed measure also gives the Department of Trade and Industry the authority to supervise the operations of lending companies.

Under the bill, corporations will be required to register as a corporation and mandated to file with the DTI a schedule of liabilities, identifying debtors and indicating the maturity pattern of transactions as well as other reports that the DTI may require. These reports shall be signed under oath by the company’s principal executive officer and principal financial officer.

The bill also provides stiffer penalties for erring lending firms. Violators would be fined not less than P10,000 or a maximum imprisonment of 10 years.