Pichay seeks dismissal of bank buyout case
Surigao Del Sur Rep. Prospero Pichay has asked the Sandiganbayan to dismiss the criminal charges filed against him in connection with the anomalous buyout by the Local Water Utilities Administration (LWUA) of an insolvent bank in 2009 when he was then LWUA chair.
In his motion for judicial determination of probable cause, Pichay asked the anti-graft court Fourth Division to dismiss the three counts of graft, three counts of malversation, one count of violation of Manual of Regulation for Banks, and one count of violation of Republic Act 8791 or General Banking Law of 2000.
Pichay was accused of leading the purchase by LWUA of 60 percent equity in Express Savings Bank Inc. (Esbi) to save the insolvent bank from the brink of bankruptcy.
The Laguna-based thrift bank is owned by Forum Pacific Inc. (FPI) as well as the Wellex Group, the company of the family of Senator Sherwin Gatchalian. He and the members of his family also faced charges over the buy-out.
In his motion, Pichay said he could not be charged with graft for having bad faith because he did not violate any banking regulations.
He said the acquisition of ESBI shares was not opposed and was in fact approved by the Monetary Board.
Pichay said the LWUA relied on good faith on the Bangko Sentral ng Pilipinas’ orders that gave the “impression” LWUA could continue with the ESBI transaction.
He said the BSP did not state that LWUA disregarded the law in the purchase of the insolvent bank.
“In none of the exchanges did the BSP ever state, nay intimidated that LWUA was disregarding or was in danger of violating any applicable law or rule,” Pichay said in his motion through his lawyers.
“Thus, by allowing LWUA to continue with the infusion, it is unfair to penalize the accused for believing in good faith on the BSP’s orders and suggestions,” he added.
Pichay also said the Ombudsman’s allegation that LWUA failed to secure the consent of the Department of Finance is “beside the point” because no executive issuance require the department’s favorable endorsement.
He added that though the finance department gave unfavorable comments about the ESBI purchase, the BSP gave a “tacit approval” for LWUA to buy ESBI’s equity.
Pichay maintained that there is no probable cause to charge him for graft on the allegation he caused undue advantage to ESBI officers when LWUA purchased the bank’s 60 percent equity in a form of financial rescue.
He said to claim that LWUA paid half of the purchase price of ESBI because of the bank’s financial issues “reflects a poor understanding of the dynamics and intricacies of contract negotiation.”
He added that as early as 2008, LWUA already needed a bank as its financial arm.
“The Ombudsman’s attempt to characterize this ‘benefit’ as unwarranted…must fail for the same reasons that its discussion on the existence of bad faith and manifest partiality must fail,” Pichay said.
Pichay said there is also no probable cause to charge him with three counts of malversation or the criminal charge of misappropriating public funds under the Revised Penal Code.
Pichay said he as LWUA chair had no custody or control over LWUA’s funds, pointing instead to the LWUA treasurer.
He said there could not have been misappropriation of funds because he did not violate any law or regulation in connection with the ESBI buy-out.
Pichay said the P400 million capital infusion and P300 capital deposit were still intact in the savings and asset accounts, and thus these funds could not be considered missing that would constitute the charge of malversation.
“How the Ombudsman could conclude that there was misappropriation is a complete mystery,” Pichay said.
Pichay said he also could not be charged for violation of manual of regulation for banks because under the manual, only banks engaged in lending are required to secure approval from the BSP.
“LWUA, as the investor and non-bank party, is not obliged to secure such Monetary Board approval,” Pichay said.
Lastly, Pichay said he could not be held liable for violating Republic Act 8791 or the General Banking Law which prohibits appointive public officials from holding any office in a private bank.
He said because of the acquisition of the ESBI majority shares, the bank ceased to become a private bank and has thus been converted as a government-owned bank.
He added that officials from the government agency which bought the shares and made deposits and capital infusion to ESBI are bound to hold positions in the bank as a matter of law and public interest.
“Considering that the present case filed against accused is bereft of factual and legal bases, the Honorable Court ought to dismiss the case,” Pichay said.
In support of his motion to dismiss, Pichay said the Ombudsman also took six years to conclude its fact-finding investigation and preliminary investigation, and thus a “blatant violation” of his constitutional right to speedy disposition of cases.
The Ombudsman’s purported violation of his constitutional right should compel the court to dismiss the case, Pichay added.
According to the Ombudsman, Pichay and other LWUA officials approved the acquisition of the insolvent bank in 2009 despite audit findings that show that the bank suffered net losses and capital deficits for five straight years from 2005 to 2009.
The acquisition took the effect of a financial rescue, as the LWUA officials bought 445,377 ESBI shares worth P101.363 million from the Gatchalian group that gave the agency 60-percent equity in the bankrupt bank.
Pichay and the other officials later injected P780 million LWUA funds to the bank to increase its authorized capital stock.
The Gatchalians of Wellex and other owners of the bank were also paid P80 million in the acquisition.
The LWUA made the acquisition and transactions despite warnings by the Bangko Sentral ng Pilipinas (BSP), the Monetary Board of the BSP, and the Department of Finance (DOF) about the ESBI’s fragile financial condition following a due diligence review that showed high liquidity and credit risks.
The acquisition was also made without the requisite regulatory approvals from the BSP, its Monetary Board, the DOF and the Office of the President.
In ordering the filing of charges to the Sandiganbayan, Ombudsman Conchita Carpio Morales said “in view of the bank’s precarious financial standing at the time of the sale, the windfall received by herein private respondents must be deemed unwarranted benefit, advantage or preference.”
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