The Office of the Ombudsman on Friday recommended the filing of criminal charges against Prospero Pichay Jr., the former head of the Local Water Utilities Administration (LWUA), and several other incumbent public officials and private individuals—including five members of the Gatchalian family—for illegally funneling nearly P880 million of the state water utility agency’s funds to an insolvent thrift bank.
Also ordered indicted were Valenzuela City Rep. Sherwin Gatchalian and his brothers, Kenneth and Alay Buhay party-list Rep. Weslie Gatchalian, for graft and malversation.
The brothers’ father, plastics tycoon William Gatchalian, and his wife, Dee Hua, were also ordered charged for violations of the country’s banking laws.
The case stems from the questionable acquisition by the LWUA board, under the leadership of Pichay, of the Laguna-based thrift bank, Express Savings Bank Inc. (Esbi), despite the bank’s “precarious financial standing.”
The Ombudsman, however, dismissed the plunder case against the respondents for insufficiency of evidence.
Sherwin, who is a former mayor of Valenzuela, is reportedly planning to run for the Senate in the 2016 elections, under the United Nationalist Alliance of Vice President Jejomar Binay, who has announced his intention to run for President.
Pichay served for three terms as Surigao del Sur representative in the House of Representatives. He ran and lost in the Senate race in 2007 despite being the biggest campaign spender.
P80 million in profits
The Gatchalians are the executives and owners of Wellex Group (WGI) and Forum Pacific Inc. (FPI), which owned and operated Esbi when LWUA bought it in 2009.
According to the resolution issued on March 16 by Ombudsman Conchita Carpio Morales, the Gatchalians made more than P80 million in windfall profits from the sale of Esbi, which the Philippine Deposit Insurance Corp. placed under receivership in July 2011.
“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,” Morales said.
Speaking at a news briefing, Assistant Ombudsman Asryman Rafanan said the antigraft body will have to defer the official filing of the cases with the Sandiganbayan as the respondents have been given 10 days to file a motion for reconsideration.
As to the possible suspension from office of lawmakers Sherwin and Weslie, he said the prosecution may ask the Sandiganbayan to order the preventive suspension of the brothers pending the litigation of their cases.
He stressed that the Anti-Graft and Corrupt Practices Act did not “distinguish private individuals and incumbent public officials who could be indicted for violation of the law.”
“Regardless of their incumbent positions in the government, they (Gatchalians) will have to face criminal indictments. As former executives of these private companies, their incumbency is not a ground to dodge criminal cases,” Rafanan said.
“Even if they were just private individuals when they committed the criminal liabilities, what is important is that they are already public officials during the filing of the cases. So the prosecution can move for their suspension as stated under the law,” he added.
Besides Pichay and the Gatchalians, also facing charges are former LWUA board members Eduardo Bangayan, Aurelio Puentevella, Enrique Senen Montilla III, Wilfredo Feleo, Daniel Landingin and Arnaldo Espinas;
WGI officials Elvira Ting and Yolanda de la Cruz; FPI executives Peter Salud, Geronimo Velasco Jr., Rogelio Garcia, Lamberto Mercado Jr., Evelyn de la Rosa, Arthur Ponsaran and Joaquin Obieta; and Esbi officers George Chua, Gregorio Ipong, Generoso Tulagan, Wilfred Billena and Edita Bueno.
Shares purchased worthless
In a statement read by Rafanan, Morales said the profits earned by the private respondents “must be deemed unwarranted benefit, advantage or preference” since Esbi was acquired by LWUA in 2008 despite its “precarious financial standing.”
“(T)he shares purchased by LWUA from FPI and WGI are now worthless, Esbi having been shuttered due to severe financial distress,” Morales said.
Records show that the LWUA board, then headed by Pichay as LWUA administrator, approved Resolution No. 56 on March 24, 2009, to acquire 60-percent equity of the shuttered bank by buying 445,377 of its shares worth P101.4 million from the Gatchalian group.
The water utility agency also released P780 million to help beef up the bank’s authorized capital stock without the approval of the Bangko Sentral ng Pilipinas (BSP).
Pichay ordered buyout
It said Pichay proceeded with the buyout even without the approval of the BSP Monetary Board, the Department of Finance (DOF) and the Office of the President (OP).
“The acquisition was also made in contravention of the legal opinion rendered by the Office of the Government Corporate Counsel that opined (that) it is subject to review by the DOF and approval by the OP, including compliance with applicable banking laws, rules and regulations,” the Ombudsman said.
The finance department had opposed the acquisition of Esbi because it was “inconsistent” with the rationalization and streamlining of the government corporate sector under the Aquino administration.
The DOF also warned that the “financial health of the thrift bank must be closely examined and validated.”
Negative audit findings
“To compound the problem, Pichay et al. approved the acquisition despite substantial negative audit findings uncovered during the due diligence stage,” the Ombudsman said.
It noted that Esbi was already insolvent following the net losses it suffered from 2005 to 2009 as shown by an audit conduced by a private firm.
In a statement, Wellex Group on Friday said that the sale of Esbi shares to the LWUA was “done in good faith.”
In a press statement issued Firday, Wellex Group decried that the Ombudsman had not acted on its motion for reconsideration filed on April 5 and instead announced to the media the contents of the March 16 resolution finding probable cause against the respondents.
‘Sellers in good faith’
It said the conclusions reached in the Ombudsman’s resolution were that the private respondents (the Gatchalian companies, family members and company officials) had received unwarranted benefits from the transaction.
“In truth and in fact, however, private respondents never benefited at all from the sale, as there is no proof that they personally or actually received any part of the consideration for the subject shares,” it said.
It said that FPI, WGI and the other private respondents’ personal holdings in Esbi were “purely for investment. They are sellers in good faith.”
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