Suspect $30 million bond issue shakes financial system

A $30 MILLION bond issue by   a company that allegedly manipulated information about its finances has shaken Panama’s financial system.

The money received by bankrupt R.G. Hotels may never be paid back.

The most serious allegation is that the company mislead investors into thinking that the company had sufficient assets to cover the bonds issue, when in fact this was not the case reports La Prensa.

According to existing regulations, the issuer must provide details of the company to investors, including any risks that may affect its ability to pay its debts.

The stock market is composed of various entities, each of which plays a role and has a level of responsibility.

. According to lawyer Carlos Barsallo, the issuer, namely its directors, officers, management and key executives, are responsible for providing accurate information. The market is governed under the principles of transparency and comprehensive information. Investors must have access to accurate and timely information about entities that intend to issue bonds.

The company also has the obligation to submit reports and financial statements quarterly and annually, both with the regulator and investors.

It also has to communicate immediately to shareholders, investors and the general public all relevant information that may affect its financial situation. Failure to comply with these demands could result in fines or the loss of privileges to operate as a public entity.

Another entity is the company that helps structuring the issue. According to Barsallo, in the event of a default by the issuer, investors could claim that this entity was at fault.

The issuer also needs a legal adviser to file all the required documentation and render opinions on key legal documents.

A company also needs to undergo an external audit to verify its submissions are accurate. If it is proved that an auditor has endorsed financial statements without meeting technical auditing standards, they could be held responsible and face a possible criminal investigation.

Often a company will offer a guarantee through a trust company to give a level of security to investors. These companies, which are regulated by the Superintendency of Banks, make sure the assets being used to guarantee the bonds actually exist.

The issuer, through a lawyer, must register the emission in the Superintendence of securities market (SMV). The controller has a period of 30 days to process the application for registration.

The regulator requires information to make it available to brokers and analysts, in order to take an informed decision.

The information received “is presumed true, certain and timely, whenever that is based on affidavits of the issuer as well as their managers, lawyers and auditors”, notes the SMV. The law limits the responsibility of the regulator in regards to the veracity of the information provided by the issuer.

On the first page of the prescribing information is included, a prominent warning that issuing authorization does not recommend investment and that it is not responsible for the accuracy of the information presented.

Olga Cantillo, general manager of the authority, said that documentation prepared by the issuer is subject to review by an independent public accountant.

“The auditors should have reasonable assurance that products are free of significant errors. Therefore, we require financial information that has been examined by external auditors,” she said.

Barsallo said that the entity could reject a company’s request if it considers it unsuitable for the market, though this would hurt its bottom line.