Gatchalian, Pichay face graft for illegal takeover of bank

April 17 2015 5:59 PM

Representative Sherwin Gatchalian of Valenzuela City and former Rep. Prospero Pichay Jr. of Surigao del Sur are facing graft cases for an allegedly illegal acquisition of a bank in Laguna, depriving the government of some P80 million in regulatory fees.

The Office of the Ombudsman named the two in an investigation report, a copy of which was released on Friday, April 17, on the sale of the Gatchalian family-owned Express Savings Bank, Inc. (ESBI) to the Local Water Utilities Administration (LWUA) without approval of the Bangko Sentral ng Pilipinas (BSP).

Pichay was chairman of the board of LWUA while Gatchalian was a board member of the Wellex Group Inc. (WGI), one of two companies owned by his family, the other being the Forum Pacific Inc. (FPI) which, in turn, owned ESBI.

Also facing graft cases with Gatchalian and Pichay, who assumed chairmanship of the LWUA in 2008, were former LWUA officers namely: Eduardo Bangaya, Aurelio Puentevella, Enrique Senen Montilla III, Wilfredo Feleo, Daniel Landingin, and Arnoldo Espinas.

Other corporate executives of the Gatchalian companies were also included in the suit:

* For WGI: Chairman William Gatchalian, Dee Hua Gatchalian, Elvira Ting, and Yolanda de la Cruz.

* For FPI: Weslie Gatchalian, Peter Salud, Geronimo Velasco, Rogelio Garcia, Lamberto Mercado, Evelyn de la Rosa, Arthur Ponsaran, and Joaquin Obieta.

At the time of the transaction, Sherwin Gatchalian was mayor of Valenzuela City.

ESBI executives George Chua, Gregorio Ipong, Generoso Tulagan, Wilfred Bilena and Editha Buena, were also charged.

Ombudsman Conchita Carpio-Morales said that Pichay and other LWUA board officers passed a resolution in March 2009 approving the acquisition of the ESBI by the LWUA without the necessary authorization documents from the central bank.

“[The] LWUA board passed Resolution No. 56, series of 2009, approving the acquisition of ESBI without the requisite regulatory approvals from the Monetary Board (MB) of the Bangko Sentral ng Pilipinas, Department of Finance, and Office of the President,” the Ombudsman said.

All the respondents are criminally liable for three counts of graft, three counts of malversation, and violation of the General Banking Law of 2000.

“The injury suffered by the government due to the respondents’ actions is undeniable, as it deprived the government of the opportunity to use the illegally expended funds to instead fund the agency’s lawful projects, not to mention the shares purchased by LWUA from FPI and WGI are now worthless, ESBI having been shuttered due to severe financial distress,” the Ombudsman said.

The Ombudsman said the government lost at least P80 million in the acquisition.

DOF objection

The Ombudsman said LWUA proceeded with the takeover of the bank despite the objection of the DOF, as such move was inconsistent with rationalization and streamlining of the government corporate sector.

“The acquisition was also made in contravention of the legal opinion rendered by the Office of the Government Corporate Counsel (OGCC) that opined it is subject to review by the DOF and approval by the OP, including compliance with applicable banking laws, rules and regulations,” the Ombudsman noted.

The Ombudsman said Pichay “compounded the problem” by approving the acquisition despite “substantial negative audit findings uncovered during the diligence stage.”

The Ombudsman was referring to an audit report by a private accounting firm that revealed that the bank was actually insolvent after suffering from substantial net losses and capital deficits for five consecutive years from 2005 to 2009.

Pichay was also found to have authorized the transfer of no less than P70 million of LWUA funds to ESBI to bankroll the bank’s authorized capital stock.

Pichay subsequently paid the bank owners a total of P80 million, with both transactions made without the approval of the Monetary Board.

The bank was foreclosed in 2011 and placed under receivership of the Philippine Deposit Insurance Corporation (PDIC), which is presently processing the liquidation of the bank’s assets.