BW Controversy

John Mark Ranillo
BSA 311
BW Controversy
The largest insider trading scandal was the Best World Resources (BWR) Stock
Scandal of 1999. The latest trading controversy to rock the Philippine Stock Exchange
(PSE). The shambles were so huge and contentious that the bourse's closure was
considered in its aftereffects The BWR stock issue was also a major reason why a
previous executive was fired. In January 2001, Philippine President Joseph Estrada was
compelled to resign. Conflicts of interest were discovered during the independent
government probe. The past President's participation in the issuing of casino licenses
Scam of insider trading The Securities Regulation Code (SRC) of the Philippines was
enacted in 2000. was a good result of the incident, undertaken to reestablish public faith
in the PSE's
According to Aggaral and Wu, Strong regulations should be adopted to reduce, if

not completely eradicate, the transmission of private knowledge to the prejudice of
public investors as all informed insider parties in a firm are likely to be manipulators. In
order to avoid market abuse and fraud, the SRC included additional restrictions on
insider trading and associated activities. These restrictions further separated the roles of
broker and dealer. The BWR affair served as a reminder of the need to comply with
regulations and the value of investing in companies with strong foundations versus
those that manipulate markets in order to make short-term gains.
The greatest stock trading controversy on the Philippine stock exchange and
shows how market reforms were able to win back the confidence of both domestic and
global investors. It begins by outlining the circumstances leading up to the BWR insider
trading incident and how conflicts of interest amongst important actors aided in the
stock market fraud. The incident also demonstrates how the SRC gave the Securities
and Exchange Commission (SEC) the authority to stop market manipulation and look
into market anomalies. Finally, the case addresses the sanctions meted out to the
accused parties and gives takeaways for all investors from this affair.
Early in 1998, Mr. Dante Tan founded the Best World Gaming and Entertainment
Corporation (BWGE). Around the same time, the name of a future business partner's
leisure and tourist organization, Greater Asia Resources, was changed to BWR. The
exclusive 10-year contract to run a countrywide online bingo franchise and the more
well-known Quick-Pick-2, a two-number lottery game, were given to BWGE in
December 1998. Because of their strong friendship, Mr. Tan and Mr. Joseph Estrada,
the former president of the Philippines, received the government contract through the
Office of the President. When Mr. Tan acquired a majority ownership position in the
business and was granted complete control over the gaming firm in the first half of
1999, BWGE was converted into a BWR subsidiary. The previous PSE Chairman, Mr.
Jose Pardo, described BWR as an exciting offering since it possessed all the necessary
components for a successful listing when Mr. Tan chose to make BWR public. BWR's
business endeavors were anticipated to be highly profitable in 1999 since they were
considered as a sign of the local gaming industry's impending new era.
In the middle of 1999, Mr. Tan's firms' Sheraton Marina Square hotel, which
located near Manila Bay, and was owned by the Philippine government-owned
enterprise Philippine Amusement and Gaming Corporation (PAGCOR), declared their
plan to open a casino there. Additionally, around this time, both The Philippine National
Bank, which at the time was a government-owned bank, loaned BWR and BWGE
PHP600 million. When it was revealed that Macau's casino magnate, Mr. Stanley Ho,
would lead BWR, other investments were also anticipated to flow in. These encouraging
developments, which began in the fourth quarter of 1998, sparked a lot of investor
interest in BWR stock and led to more stock purchases.
The lack of adequate protection for small investors or the investing public in a
stock market with highly concentrated ownership is a severe issue in financial markets,
especially those that are still developing. As stated by De Ocampo (2000) that the on
corporate governance and ownership states that insider trading is a particular instance
of conflict of interest that should be avoided by clear trading restrictions. The BWR stock
was a profitable investment for many public investors in the Philippines, who were able
to exit at or around peak prices. Nevertheless, the majority of naive foreign investors
also participated in the trend and bought at or near the top, only to suffer losses.
When the price of BWR's shares kept soaring, greed was undoubtedly at play.
Despite the fact that a basic study showed that the value of BWR was inextricably linked
to Mr. Tan's connection with Mr. Estrada and that follow-up initiatives lacked a
promising future, the rising stock trading as a result of "wash sales" and phony volumes
was more important. On BWR's cash flow, the Net Present Value even went negative at
one time. Relative Strength Index data for BWR exhibited significant overbought
indications indicating the stock was expensive, according to technical analysis. Nothing,
however, surpasses the profits investors see in the short-term, and a climate of careless
optimism and greed seized control.
In accordance with Bainbridge (2000) argues that the property right to inside
stock information should be transparent. Both insiders from the corporation and
investing public should mutually benefit. The BWR insider trading scandal served as a
lesson to the value of being a regulatory-compliant company, and that corporate
insiders should be ethically driven. The case further illuminates the long-term investing
potential of solid fundamentals over the short-term gains of hype and unethical financial
market schemes.
Aggarwal, & Wu, G. (2002, December). Stock Market Manipulation — Theory and
Evidence. Retrieved December 1, 2022, from
https://www.bus.umich.edu/pdf/mitsui/workshopdocs/wupaperrevision.pdf
Bainbridge, S. (2000) Encyclopedia of Law & Economics - 5650 Insider Trading,
Findlaw. Available at: https://reference.findlaw.com/lawandeconomics/literature-
reviews/5650-insider-trading.html (Accessed: December 3, 2022).
Bautista Follow Student at University of Santo Tomas, L. et al. (2013) President

Estrada's BW Resources scandal, Share and Discover Knowledge on SlideShare.
Available at: https://www.slideshare.net/lawrence0492/president-estradas-bw-
resources-scandal (Accessed: December 6, 2022).
De Ocampo, R. (2000) A country paper on issues and concerns in the Philippines -

OECD,. Available at:
https://www.oecd.org/corporate/ca/corporategovernanceprinciples/193118 3.pdf
(Accessed: December 2, 2022).
Pascual, C. and Lim, J. (2001) Corruption and weak markets: The BW Resources Stock
Market Scam. Available at:
https://cids.up.edu.ph/wp-content/uploads/2022/03/Corruption-and-Weak-Markets-
vol.5-no.1-Jan-June-2001-5.pdf (Accessed: December 2, 2022).

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John Mark Ranillo

According to Aggaral and Wu, Strong regulations should be adopted to reduce, if

Bautista Follow Student at University of Santo Tomas, L. et al. (2013) President

De Ocampo, R. (2000) A country paper on issues and concerns in the Philippines -

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