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SEC bans, fines R&L external auditor for negligence in brokerage collapse

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THE Securities and Exchange Commission (SEC) has disqualified the external auditor of R&L Investments, Inc. over its “gross negligence” that resulted in the emptying of the brokerage’s inventory of stocks.

The firm, KL Siy & Associates (KLSA), has also been asked to pay P314,570.65 for deficiencies in material disclosures, misstatements and violation of independence rules.

In a statement on Monday, the SEC said it issued a July 21 order to bar KLSA from becoming an external auditor of any of the entities it regulates.

The order covers KLSA managing partner Kathleen Mary L. Siy and partner Arturo D. Sabino. Ms. Siy’s accreditation has been nullified despite its effectiveness supposedly lasting until Sept. 6.

“The failure to flag the misappropriation of securities through the conduct of appropriate audit procedures contributed to the continuation of the illegal acts which resulted to the massive loss of securities… belonging to numerous number of investors,” the SEC quoted its general accountant office as saying in the statement.

To recall, brokerage R&L Investments reported last year that a rogue employee had been stealing from its inventory of stocks during the past eight years. The loss of securities amounted to P606.64 million as of end-December.

R&L Investments’ 2018 audited financial statements showed it had client securities worth P738.9 million, while its Business Partner (BP) Portfolio Report from the Philippine Depositary & Trust Corp. showed a client portfolio worth P132.26 million.

The SEC said when it reached out to KLSA for its investigation of the case, the firm admitted it relied on the BP Portfolio Report provided by R&L Investments, which was apparently altered.

“KLSA should have rejected the documents as audit evidence and initiated additional audit procedures, considering it has identified weaknesses in R&L Investments’ control environment,” the SEC said.

The regulator also found that KLSA prepared the audited financial statements of R&L Investments, which violates the independence that external auditors should be exercising from its clients.

“KLSA’s inability to exhibit impartiality hindered the early detection or prevention of fraud which has caused substantial losses to investors,” the SEC said.

The disqualification of KLSA, Ms. Siy and Mr. Sabino prohibits them from acting as external auditors of issuers of registered securities, public companies, clearing agencies and exchanges, and entities such as investment houses, brokers and dealers of securities, government securities eligible dealers and investment company advisers.

R&L Investments has been under the control of the Capital Markets Integrity Corp. since November 2019 to handle its outstanding contracts and protect affected customer accounts. — Denise A. Valdez





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