While trust and confidence are the cornerstones of every business relationship, stock market investors should do their own “due diligence” before putting their hard earned money in the equities market, stock market experts told The Manila Times.
Jun Calaycay, head of research and marketing at A&A Securities Inc., in a phone interview said that potential equities investors should make their own “due diligence” in dealing with brokerage firms and their respective sales agents.
“The problem with the people who have supposedly invested their money in the stock market through [Cecilio] Jay Peñaflor is that they are close friends. The relationship was based on implicit trust. Although it is of utmost importance in this kind of business to have the trust and confidence of your clients, clients should likewise do their own due diligence,” Calaycay said.
He pointed out that even if an investor personally knows the person who is representing himself as sales agent, broker or trader of a legitimate trading participant, the investor should likewise conduct his own investigation and make his own verification of the legitimacy of any transaction that he or she is about to enter into.
“You have to make sure that the person you are dealing with is a legitimate agent of a legitimate trading participant, who in turn is licensed and authorized by the SEC [Securities and Exchange Commission] and the PSE [Philippine Stock Exchange] to sell equities and securities,” Calaycay noted.
He added that investors should neither give their money directly to nor issue a check that is payable to the sales agent or broker. “They [investors]should draw a check in the name of the brokerage firm itself, and never in the name of the sales agent.”
He said that in the case of A&A Securities Inc., sales agents do not get to physically hold the money or checks from clients.
“We inform our clients that none of us, not even our sales agents can physically get hold of their money or check. The investor should deposit the money or the check directly through banks, which shall be payable to A&A Securities. That way, the investors are assured that their money would go directly to their intended investment without any intervention of a third person,” he said.
Calacay advises that investors “should at the very least always demand for a provisional receipt the moment payment is made.”
‘Too good to be true’
Meanwhile, Leonardo Arguelles Jr., president and chief executive officer of Unicapital Securities Inc., in an interview said that “when the sales agent, or any person for that matter, promises an investment that is too good to be true, then you have to be extra cautious about it.”
“The problem with Jay Peñaflor is that he promised to buy shares on behalf of his clients at a discount. Meaning, he was promising that he could get certain high valued shares of stocks at 40 or even 50 percent discount and at the same time, pay high returns. Don’t you think that is too good to be true?” Arguelles said.
“How in heaven’s name can he or she or any broker for that matter get that much discount? The stock market is transparent, you check the price of such stocks at the PSE website. If a discount is being offered to you, then you ask the issuer company directly whether it is true that their shares can be bought at a discount. Study what you are getting into. That kind of promise [big discount]is similar to the Ponzi scheme.”
A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.
Arguelles also explained that investors should be selective about the brokerage firm that they intend to deal with.
“Investors should be selective about the people and brokerage firms that they would deal with. They have to make sure the broker is duly licensed and authorized by the SEC and the PSE. If possible, go to the brokerage firm’s office, and conduct business directly with them,” he said.
The executive said that the investor should not allow his investment to be registered under the name of another person.
“If you do that, para kang nag pa utang ng pera na nilista mo sa tubig [It is as though you lend money without expecting to be paid because you wrote that loan contract in water],” he said.
In Unicapital Securities Inc.’s case, Arguelles noted that clients are notified that their brokers are neither authorized to collect money or checks nor issue invoices on behalf of the brokerage firm.
“Rules are there, it is expressly stated in the Securities Regulations Code, it is only the brokerage firm [trading participant]itself which could collect and issue invoices or receipts to clients. We strictly follow the rules,” Arguelles said.
In addition, Aniceto Pangan, trader at Diversified Securities Inc., said that although in practice buying shares under the name of another person is acceptable, it is strongly advisable that any investment in the stock market should be under the name of the real investor.
“If you do that [register stock purchases under the name other than yours]it will complicate the whole thing. What if that person runs away? No. So it is not advisable. Also, you always have to pay in check so there is traceability [of your transaction],” Pangan said.
Pangan said that he personally knew Peñaflor, as both of them are members of the Rotary Club Inc.
“He told me that after his market education talk at the Rotary Club of San Juan, when he was still representing himself as PSE official when he was in fact, no longer connected with the PSE, he was immediately invited to be a member [of the Rotary Club San Juan]. See, how good a speaker he is,” Pangan said, noting that membership in the club is a “big deal” since it is only by invitation by which a person may be a member of the club, and only after the Rotary Club conducts a background investigation as to the status, credibility and ability of the prospective member.