The Ombudsman has initiated an investigation into alleged misdeals involving the Government Service Insurance System’s (GSIS) private investments worth more than P2.3 billion initiated by its president and general manager, Jose Arnulfo “Wick” Veloso.

The anti-graft agency directed Veloso and other GSIS officials to respond to an anonymous complaint that listed several investments of the pension fund that tanked. The Office of the Ombudsman is allowed to evaluate anonymous complaints if they contain sufficient leads or merit further investigation.

Along with Veloso, others named in the complaint were GSIS executive vice president Michael Praxedes, vice president Mary Abigail Cruz-Francisco, acting executive vice president Jason Teng, vice president Aaron Samuel Chan, and OIC officer III Jaime Leon Warren.

Among the complaints against the officials were GSIS investments of P1.44 billion in Alternergy, a renewable energy company led by former Energy Secretary Vicente “Vince” Perez.

On 7 November 2023, a memorandum of agreement was signed between the GSIS and Alternergy committing the social insurance fund to purchase P1.45 billion of the company’s preferred shares.

The complaint stated that the perpetual preferred shares were not listed on the stock exchange and were less liquid than common stock.

The GSIS is now holding onto the shares to the prejudice of its members’ funds, according to the complaint.

The GSIS Investment Policy Guidelines permit a portion of the GSIS funds to be invested in the Philippine Stock Exchange, subject to strict requirements.

Such securities may include common shares or preferred shares of any solvent corporation or financial institution created or existing under the laws of the Philippines. This includes warrants, Philippine Depository receipts (PDRs) and Exchange Traded Funds (ETFs).

Records provided to the stock exchange indicated the capitalization of Alternergy at the time it signed the MoA with GSIS was P3.029 billion.

GSIS Investment Policy Guidelines (IPG) Section III.3.a.v. states that “investments in stocks should only be made in companies with a market capitalization of at least P15 billion.

The IPG also limits investment in a single stock to not exceed 10 percent of the free float market capitalization.

When GSIS entered into the MoA, the free float market capitalization was at 29.27 percent, or 19.27 percentage points beyond the limit.

Other questionable transactions, which the Commission on Audit (CoA) also flagged in its 2024 report, included the accumulation of shares of Metro Pacific Investments Corp. (MPIC) during its delisting from the stock exchange.

From 23 August to 4 September 2024, GSIS acquired stocks of the private company to increase its stake from three percent to 3,438,549,038 common shares, representing approximately 11.98 percent of the total outstanding common shares of MPIC.

The CoA audit stated that GSIS had invested P34.5 billion to secure 11.56-percent ownership in MPIC.

Veloso bags MPIC board seat

The investment, based on the CoA report, represented the most significant exposure of GSIS in a private firm.

According to state auditors, before the 9 October 2023 voluntary delisting of MPIC, the GSIS acquired a significant number of additional shares that qualified it for a board seat. This paved the way for the election of GSIS president and general manager Veloso to represent the GSIS on the MPIC board.

An analyst said that “what the bigger chunk of GSIS infusions in MPIC meant is a board seat. In the end, GSIS played ball, saying it would neither oppose the buyout nor sell its shares.”

The maneuver resulted in huge gains, not for the state employees who are members of GSIS, but for Veloso, according to a GSIS insider.

It was a glowing public image coup for the GSIS boss with an analyst saying that “it is rare for a government institution to display such prowess in the realm of strategic market trading.”

A greater gain for GSIS members would have been achieved by calling the buyback after GSIS increased its stake.

GSIS, however, declined the buyback offer, leaving it with one seat on a 15-person board, which seemed to provide slim leverage overall, although such a seat would be a plum position.

GSIS can sell to the consortium at a later date at a higher price, and with significantly less public attention.

Early this year, a resolution was filed in the House of Representatives to investigate GSIS’ propensity to invest in companies with unprofitable records over the past three years, resulting in the accumulation of P2.308 billion worth of shares.

House Resolution (HR) 1705 was spurred by the P183.6 million in stock market losses in the risky investments in just three companies.

Proponents of the resolution stated that transparency in GSIS should be ensured and pension funds protected from inefficient and corrupt practices.

The CoA report, meanwhile, stated that GSIS spent P2.308 billion on stocks over the past three years, yet the fund gained nothing from the investment.

Aside from investments in Alternergy Holdings Corporation, P772 million was invested in SP New Energy Corp. and Bank of Commerce. All the investments were made in March 2022.

‘Usurious’

The House probe is being considered in conjunction with complaints from GSIS members of the state fund imposing too strict terms on borrowings against their contributions.

The members complained of unjust interest rates and penalties imposed on their loans, unreasonably reducing their retirement benefits.

House members called the terms that GSIS imposed on debts usurious.

The resolution cited the case of a retired public school teacher who claimed that she was credited with an Emergency Loan Assistance and a Summer One-Month Salary Loan of which she was not aware.

According to the resolution, the retired mentor received a letter from GSIS informing her that her debts had been paid out of deductions from her retirement benefits and the cash surrender value of her pension.

Based on the resolution, another poor teacher was denied a total of P638,172.59, which was her retirement benefits, mostly consisting of interest and penalties on P147,678.83 in loans that she failed to settle.