Former 2GO execs says claims of fraud “false and malicious”


The previous management of 2GO Group, Inc., led by former president and chief executive officer Sulficio Tagud, Jr., strongly denies any misstatement in the company’s financial reports for 2015 and 2016.

The former management team in a statement also branded any insinuations of fraud as “utterly false and malicious” and “an attack on the integrity of all officers of the company” who had held positions during those years.

In recent regulatory disclosures, the new owners of the integrated transport solutions provider, led by the group of new president Dennis Uy and by SM Investments Corp. (SMIC), claimed that the findings of their auditor, SGV & Co., would require the company to restate its financial statements for the years 2015-2016.

READ: 2GO set to revise income statements for 2015-16

According to the restated financial statements, the net income of 2GO in 2015 was only P109.131 million, as compared with the previously stated P1.081 billion. For 2016, the restated net income was P344.035 million from the previously declared P1.339 billion.

The special audit by SGV also showed a net loss of P264.86 million for the first quarter of 2017 instead of the earlier reported net income of P267.562 million.

“Unfortunately, the allegations have drawn confused reactions from the public, some even suggesting fraud or deception in the release of financial information,” Tagud, who retired from the company early this year following the entry of Uy and SMIC, said.

He also clarified that 2GO’s former chief finance officer Jeremias Cruzabra was not fired but voluntarily resigned because he refused to sign the restated financial statements.

No eyebrows raised earlier

Tagud said 2GO’s previous financial statements had been audited by a reputable auditing firm, KPMG R.G. Manabat & Co. and approved by the Audit Committee and by the Board of Directors. The 2015 statements were approved by the old board, and the 2016 statements were approved by the new board representing the new owners.

“In those years, KPMG issued clean or unqualified opinions, saying that the financial statements were fairly presented in accordance with Philippine Financial Reporting Standards. For the years in question, KPMG had even performed audit procedures on two cut-off periods, June 30 and December 31, and had found no irregularities whatsoever,” Tagud pointed out.

In a separate statement, KPMG maintained that it performed the audits of 2GO in compliance with the Philippine Standards on Auditing. Moreover, KPMG said it has requested but has yet to receive from SGV the full details of the 2015 and 2016 financial restatements.

As a courtesy procedure, when the financial statements audited by an auditor are to be restated by another, the current auditor should at least discuss and seek concurrence from the prior one.

“The fact is, the new owners and their affiliates had conducted an extensive due diligence review prior to acquiring majority interest in 2GO,” Tagud said.

BDO, the banking arm of SM Group, which includes SMIC, has been the principal bank of 2GO since 2011 and, as such, would periodically receive and review all of 2GO’s financial reports. Further, each year, BDO would conduct a financial evaluation of 2GO for the renewal of its credit facilities.

“BDO has never, in all these years, raised any question regarding the misstatement or mistreatment of any financial accounts,” Tagud remarked.

Highly illogical

He pointed out that the possibility that 2GO’s income was overstated “makes no logical sense since it would have only resulted in higher income tax payments by the company.”

In 2015 and 2016, Tagud said, he was already preparing to purchase the shareholdings of his then foreign partners in order to consolidate a majority interest in the company and, thus, “would have had no incentive to overstate the income of 2GO and, consequently, inflate the value of its shares.”

“In fact, the opposite move would have been the logical one—understate the company’s income in order to deflate the value of the shares he was intending to purchase,” said the statement.

In connection with that intended purchase, Tagud had negotiated with BDO in 2016 for a US$120 million loan to purchase the shares of his foreign partners (the very same shares that were purchased and are now owned by the SM Group and Uy).

He noted that the loan was approved by BDO after a thorough and detailed due diligence examination, which he said did not find any overstatement of income whatsoever in 2GO.

“It is significant also to note that 2GO’s new owners, when they were still negotiating with the principal shareholders of 2GO, issued a formal advisory that they would have to complete their due diligence examination of 2GO prior to proceeding with the acquisition. They in fact did this, obviously to their complete satisfaction,” Tagud said.

Additionally, he said, a Dubai-based private equity investor, ABRAAJ, not long ago showed interest in partnering with Tagud by acquiring a significant interest in 2GO.

Tagud said ABRAAJ conducted a thorough due diligence examination of 2GO, engaging Ernst & Young Singapore to do a financial audit. Ernst & Young, for its part, deputized SGV to assist it in this task. Over the course of this audit, Tagud said, neither Ernst & Young nor SGV ever raised any issue about any misstatement or overstatement of any amounts.

Tagud said the former management of 2GO welcomes any inquiry by the Securities and Exchange Commission and Philippine Stock Exchange into the allegations, adding it is a chance to clarify matters and set the record straight.