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Ombudsman Conchita Carpio Morales affirmed the finding  of probable cause to indict former officials of the Local Water Utilities Administration (LWUA), corporate executives of WELLEX Group Inc. (WGI), Forum Pacific Inc. (FPI) and Express Savings Bank Inc. (ESBI) in connection with the anomalous acquisition of ESBI in 2009.

Facing indictment are former LWUA officials Prospero Pichay Jr., Eduardo Bangayan, Aurelio Puentevella, Enrique Senen Montilla III, Wilfredo Feleo, Daniel Landingin, Arnaldo Espinas; WGI executives Sherwin Gatchalian, Dee Hua Gatchalian, William Gatchalian, Elvira Ting, Kenneth Gatchalian and Yolanda Dela Cruz; FPI executives Peter Salud, Geronimo Velasco, Jr., Weslie Gatchalian, Rogelio Garcia, Lamberto Mercado, Jr., Evelyn dela Rosa, Arthur Ponsaran, and Joaquin Obieta; and ESBI executives George Chua, Gregorio Ipong, Generoso Tulagan, Wilfred Billena and Edita Bueno for three counts of violation of Section 3(e) of Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act), three counts of Malversation, and violation of Republic Act No. 8791 (General Banking Law of 2000) and the Manual of Regulation for Banks.

The criminal charges involve the acquisition by the LWUA of ESBI, a local thrift bank based in Laguna owned by the Gatchalians, FPI and WGI.

On 24 March 2009, the LWUA Board composed of Pichay, Bangayan, Montilla, Puentevella and Landingin passed Resolution No. 56 (Series of 2009) approving the acquisition of ESBI without the requisite regulatory approvals from the Monetary Board (MB) of the Bangko Sentral ng Pilipinas, 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 it is subject to review by the DOF and approval by the OP, including compliance with applicable banking laws, rules and regulations.

The DOF also formally objected to the acquisition as it is inconsistent with the ongoing rationalization and streamlining of the government corporate sector and that the financial health of the thrift bank must be closely examined and validated.

To compound the problem, Pichay, et al. approved the acquisition despite substantial negative audit findings uncovered during the due diligence stage.  Audit findings made by a private firm revealed that the bank was insolvent after suffering substantial net losses and capital deficits for five straight years from 2005 to 2009.

Subsequent to the acquisition, Pichay, et al. approved the transfer of almost P780 million of LWUA funds to ESBI in order to increase the bank’s authorized capital stock. The transaction between LWUA and ESBI was once again made without the regulatory approval from the MB.  A total of P80 million was paid to Gatchalian, et al. as bank owners.

In July 2011, the MB placed ESBI under receivership, with the Philippine Deposit Insurance Corporation presently in the process of liquidating the bank’s assets.

According to Ombudsman Morales, “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.”   She added that “respondents defied banking laws and regulations in purchasing ESBI shares.”

Ombudsman Morales noted that “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, not to mention the shares purchased by LWUA from FPI and WGI are now worthless, ESBI having been shuttered due to severe financial distress” and that the “government effectively lost at least P80,003,070.51 in this questionable acquisition alone.” ###