SEC orders CAP: Stop selling plans
By JENNEE GRACE U. RUBRICO, Senior Reporter
The Securities and Exchange Commission (SEC) has suspended the dealer's license of pre-need company College Assurance Plans Philippines Inc.This was after it found out that the company had sold unregistered securities or pre-need plans to the public.
SEC has also directed CAP to explain why it should not be put under receivership when its trust fund was found to have an "under-deposit" amounting to PhP201.8 million as of July 2004.
In a show cause order issued during the last few days in office of SEC Chairman Lilia R. Bautista, SEC said that CAP was no longer allowed to sell new plans since it no longer had registered plans to sell.
"An order is hereby issued suspending the dealer's license of [CAP] effective immediately. Accordingly, [CAP] is hereby enjoined to from further selling new plans," the order, dated August 13, stated.
CAP got authority from SEC last May to sell PhP5 billion worth of plans. But SEC found out from CAP's sales and collection report that while it had already sold the PhP5 billion worth of plans it was authorized to sell, it still unlawfully sold additional securities amounting to PhP64.273 million as of June 2004.
Since the securities or plans sold were in excess of the PhP5 billion that was authorized by SEC, and since these were unregistered, CAP effectively violated the rules of the Securities Regulation Code.
The show cause order also directed CAP to explain why it should not be placed under receivership for under-deposits in its trust fund.
This was after SEC, also through the sales and collection report of the company for March-June 2004, found out that CAP "failed" and "continued to fail" to make timely and sufficient trust fund deposits to the Philippine Veterans Bank, one of its trustee banks, in violation of pre-need rules.
SEC said that CAP also failed to make adequate trust fund deposits from collections from its old plans.
Quoting the report, SEC said in the show cause order that for the four-month period, CAP's deficiency for deposits for new plans amounted to PhP90.313 million, while its deficiency in trust deposits for old plans totaled PhP111.5 million.
SEC also said that CAP's attention had already been called on its accumulated deficiencies, and added that CAP had already said it would correct this through depositing an amount that would cover the deficiency by August 13.
"As of the date of the order, the company has not complied with its commitment," SEC said.
SEC also noted that CAP's sales for the first half of 2004 increased by 13% to PhP153 million, or 28% less the number of plans it sold for the same period last year.
But it added that CAP's net loss for the first half of 2004 ballooned to PhP1.68 billion, compared to the registered net loss of PhP330 million for the same period last year.
SEC also said that the net loss was 12% higher, or PhP1.68 billion over CAP's projected net loss of PhP1.5 billion for the period.
SEC also noted that CAP failed to "attain its budgeted collection by 25% or by about PhP349 million."
"Likewise, it exceeded its budgeted provision for VAT by PhP13 million or 71%. It also exceeded administrative expense by two percent or PhP3 million," SEC said.
SEC also said that CAP's "over-issuance" of securities made CAP's case even more "inexcusable."
But an official of the SEC told reporters that the sale of plans in excess of the amount allowed by the commission was being remedied by CAP through its application to sell an additional PhP1 billion worth of plans.
"To remedy this, they asked the commission for additional license to sell securities. But the application has not yet been accepted because of the deficiencies which CAP is trying to address," said the official, who is a member of the oversight committee for CAP.
He also said that CAP was expected to have stopped its sale of unregistered securities, and added that the sale of the unregistered plans by the company "must have been an oversight."
Nevertheless, CAP will be penalized for the sale of the unregistered securities, and if SEC finds out that the company disregarded its order for the pre-need firm to stop selling additional plans currently unregistered, CAP will face more sanctions, the official said.
He also said the oversight committee was awaiting the report of the audit committee, since this would determine if CAP continued to sell unregistered plans even after SEC stopped it.
The official also said that although CAP sold unregistered securities, planholders who purchased those plans were safe because CAP would still be required to honor the plans when these mature. "While these contracts were sold in violation of SEC rules, as far as the planholders are concerned, these are valid and legal contracts which CAP will have to honor. Of course, this is without prejudice to the administrative sanctions that the commission might impose... It will be valid and existing obligations and the commission will ensure that the CAP will honor these obligations," the official said.
The official added that SEC has not received complaints from the public of CAP's failure to make good its contracts.
SEC had given CAP 20 working days from August 18 to explain why it should not be placed under receivership and why its dealer's license should not be revoked.
Meanwhile, CAP first vice-president Bobby Cafe said, "our dealer's license, as far as I know, is good until September 30, 2004. Our problem is more on what to sell -- a reason why we are applying for PhP1 billion in securities. We're running out. There could be a misunderstanding somewhere."
CAP, one of the largest pre-need companies in the country, is under regulatory leeway. It earlier reported a PhP17-billion deficiency in its trust assets as of end-2003. It had PhP8.4 billion in trust assets, compared with an actuarial reserve liability, or projected future obligations, of PhP25.5 billion.
Regulatory leeway is intended primarily to give pre-need companies a reasonable transition to address the discrepancy between actuarial liability and trust fund or assets.
CAP is now in talks with investors that will put in $227 million in cash and PhP6 billion in real estate assets.
Should the investors go ahead with their plan to help the pre-need company, CAP will have to cede five of 11 board seats to them.
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