SEC Philippines Files Criminal Complaint Against Abra Mining & Industrial Corporation

The Securities and Exchange Commission (SEC) has filed a criminal complaint against Abra Mining & Industrial Corporation (AR), its directors, officers, transfer agent and certain stockholders for the unauthorized and fraudulent trading of shares from 2015 to 2019.

In a complaint-affidavit filed with the Department of Justice (DOJ) on May 3, the SEC charged the respondents with 441 counts of violations of Sections 8 and 26 of Republic Act No. 8799, or the Securities Regulation Code (SRC), and Sections 61, 62 and 63 of Republic Act No. 11232, or the Revised Corporation Code (RCC).

The SEC also asked the DOJ to institute civil and criminal forfeiture, including the accessory penalty of asset preservation, and other appropriate action against the respondents under Republic Act No. 9160, or the Anti-Money Laundering Act of 2001, as amended.

The SEC included as respondents AR president James G. Beloy; corporate secretary Amelia G. Beloy; directors Conde Claro C. Venus, Carmelo Rafael D. Tansengco, Joel Albert G. Beloy, and Ma. Belinda T. Gaskell.

The Commission also named as respondents Asian Transfer & Registry Corporation; its chairperson and president Arline B. Adeva; corporate secretary Premy Ann G. Beloy and treasurer Joel Albert G. Beloy, who concurrently serve as directors at AR; assistant corporate secretary Joseph M. Acuesta; and director Ma. Agnes B. Hoffman.

The SEC charged the stockholders who colluded in: Jubileum Air and Sea Logistics, Inc., Andrei Vincent Freight Services Corp., Ferdinand U. Collado, Leila V. Collado, and Susan May I. Gacelo. The Collados are incorporators, beneficial owners and officers of Jubileum and Andrei, while Gacelo serves as a marketing representative of Andrei.

“Respondents AR and Asian Transfer, through their respective Board of Directors, and the Collados, were, acting in concert, engaged in the offering and selling of unregistered AR shares in violation of Sections 8 and 26 of the SRC in connection with Sections 61, 62 and 63 of the [RCC] of the Philippines to the prejudice of the investing public,” the complaint read. 

The criminal complaint stemmed from discrepancies in the number of AR shares registered with the SEC for public offering, those listed in the Philippine Stock Exchange (PSE), and those lodged with Philippine Depositary and Trust Corp. (PDTC).

In its investigation, the SEC Markets and Securities Regulation Department (MSRD) found that the number of AR shares lodged with PDTC totaled 258,957,666,755 as of February 16, 2021.

However, the registration statement rendered effective by the SEC covered 95,000,000,000 AR shares only, while the number of shares authorized for listing in the PSE totaled 72,946,882,574 AR shares only. 

The number of AR shares lodged with PDTC also exceeded the 99,294,584,200 issued shares, and 199,294,584,200 outstanding shares indicated in the company’s financial statements.

The discrepancies stemmed from the issuance of AR shares totaling 169,050,000,000 under 474 stock certificates in favor of the Collados, Gacelo, Jubileum and Andrei between 2015 and 2019.

In an April 8 decision, the MSRD found the respondents guilty of violating the SRC and RCC. It accordingly imposed fines totaling more than P560 million on the respondents, revoked the registration statement and permit to sell securities of AR, disqualified the officers and directors of AR and Asian Transfer from performing similar functions in SEC-supervised financial intermediaries and issuers of securities.

Unregistered AR shares

In the complaint, the SEC alleged that AR issued shares in excess of the shares registered with the Commission for the purpose of public offering, in violation of Section 8 of the SRC. 

Section 8.1 of the SRC provides that securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the SEC.

A company seeking to offer its shares to the public and subsequently make them available for trading in the PSE must first register such shares with the SEC pursuant to Section 8 of the SRC and comply with the listing requirements pursuant to the rules of the PSE.

The company, however, may register with the SEC only a portion of its authorized capital stock for public offering and list in the exchange a portion of such registered shares for trading.

All shares traded in the PSE are deposited with PDTC under the accounts of broker dealers, through which stockholders or investors buy and sell such shares. The number of shares lodged or deposited with the PDTC must have therefore been offered to the public and made available for the entire market to be bought and sold.

In this case, AR was fully cognizant of, acquiesced to and tolerated the over issuance of its shares as the same was contained repeatedly over the years in the reports submitted by the company to the SEC and the PSE.

The public ownership reports of AR showed that the number of publicly owned AR shares started to exceed the number of AR shares registered with the SEC on March 31, 2015. Accordingly, the AR shares represented in the certificates lodged or cancelled thereafter were issued in excess of those registered with the Commission.

“Evidently, the offering of the unregistered AR shares to the public in violation of Section 8 of the SRC formed part of a bigger fraudulent scheme in violation of Section 26 of the same Code,” the SEC said.

“Such bigger scheme involves violations of Sections 61 (on consideration for shares of stocks) and Section 63 (on issuance of stock certificates) of the RCC by respondents AR and the Asian Transfer as its stock transfer agent and the subsequent offering and selling of the subject AR shares through the PSE by the Collados.”

Worthless AR shares

Under Section 61 of the RCC, stocks shall not be issued for a consideration less than the par or issued price thereof.

Section 63 further provides that no certificate of stock shall be issued to a subscriber until the full amount of the subscription together with interest and expenses, in case of delinquent shares, if any is due, has been paid.

Under Section 62 of the RCC, the stock certificates must be signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the bylaws.

In the case of AR, the MSRD found that the Collados never made full payment of the shares issued to them. Yet, AR proceeded with the issuance of the corresponding stock certificates. 

Notably, the recipients of the over-issued and worthless shares were all related. Gacelo was an employee of Ferdinand Collado, who, along with his wife Leila Collado, had ownership interests in Jubileum and Andrei. 

“[T]he nonpayment of the Collados of the shares of stocks issued in their names by Abra Mining cannot be taken lightly,” the SEC said. “The same does not simply constitute violation of the RCC but instead, establishes a clear connection and collusion between Abra Mining and the Collados in relation with the fraudulent scheme to circumvent the provisions of the SRC.”

Fraudulent scheme

Shares available in the market and being traded in the PSE are deposited in the PDTC under the account of broker dealer. When shares are sold, the corresponding number of shares is deducted from the account of the selling broker dealer and added to that of the buying broker dealer. Consequently, the buying and selling broker dealers add to or deduct from the respective accounts of their clients the same number of shares.

The lodgment procedure is commenced upon request by a stockholder or investor to his/her broker dealer to convert into electronic or scripless format the certificate of stocks under his/her name. The broker dealer, on behalf of the client, will execute the request through the account of the broker dealer in the PDTC system where the lodgment report is generated.

The lodgment report containing the request, together with the certificate of stock is submitted to the listed company’s stock transfer agent for its verification as to the authenticity of the certificate. If no issue will arise, the stock transfer agent will approve the lodgment request. 

As a consequence of the transfer agent’s approval, the certificate shall be cancelled and the corresponding shares of stocks shall then be transferred from the name of the stockholder to the PCD/PDTC Nominee Corp. Correspondingly, the PDTC shall credit or add the corresponding number of shares under the account of the requesting broker dealer, which will then credit or add the number of shares to the account of his/her client who initiated the request for lodgment.

In this case, after AR issued the stock certificates without consideration, the corresponding AR shares were credited to the account of the Collados with their respective brokers. Considering that the shares of stocks are fungible in nature, the over-issued and worthless AR shares formed part of the AR shares offered and sold by the Collados through the PSE.

The SEC found that Asian Transfer approved the lodgment of the AR shares issued without consideration despite knowledge that said shares were already in excess of those registered with the Commission.

“The act of the Asian Transfer of fraudulently issuing certificates of stocks representing unregistered AR shares is inextricably linked to the offering of AR shares to the public through the PSE by the Collados,” the SEC said. 

“The issuance of unregistered AR shares and the offering of such shares through the PSE is a continuous action that constitutes the bigger fraudulent scheme in relation to the buying and selling of AR shares in violation of Section 26 of the SRC.”

Section 26 of the SRC penalizes any person who, directly or indirectly, in connection with the purchase or sale of any securities, employ any device, scheme, or artifice to defraud; obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person.

“The gravity of the violation committed by respondent AR for the issuance of certificates representing unregistered AR shares, Asian Transfer, as the Transfer Agent for allowing the unregistered shares to be offered to the public and by the Collados for offering the unregistered AR shares to the public, has been sufficiently proven,” the SEC said.

​“The violation committed by the respondents is so grave and serious as it amounts to circulating worthless AR shares to the prejudice of the investing public,” it added.