SEC Philippines Slaps Fines Totaling P560 Million on Abra Mining Officers, Transfer Agent, and Stockholders

The Securities and Exchange Commission (SEC) has imposed fines totaling more than P560 million on Abra Mining & Industrial Corporation (AR), its directors, officers, transfer agent and certain stockholders for the unauthorized and fraudulent trading of unissued and unlisted shares from 2015 to 2019.

In a decision promulgated on April 8, the SEC Markets and Securities Regulation Department (MSRD) found AR guilty of violating Section 26 of Republic Act No. 8799, or The Securities Regulation Code (SRC), and Section 61 of Republic Act No. 11232, or the Revised Corporation Code (RCC).

Also found liable were AR president James G. Beloy; corporate secretary Amelia G. Beloy; directors Conde Claro C. Venus, Carmelo Rafael D. Tansengco, Premy Ann G. Beloy, and Joel G. Beloy; and former director Belinda T. Gaskell.

Section 26 of the SRC provides that it shall be unlawful for any person, directly or indirectly, to employ any device, scheme, or artifice to defraud, or engage in any act, transaction, practice, or course of business which would operate as a fraud or deceit upon any person. Section 61 of the RCC, meanwhile, provides that stocks shall not be issued for a consideration less than the par or issued price thereof. 

In a separate decision, the MSRD also found AR’s transfer agent, Asian Transfer & Registry Corporation, as well as its president Arline B. Adeva, corporate secretary Premy Ann, assistant corporate secretary Joseph M. Acuesta, and treasurer Joel, guilty of violating Sections 26 and 52.1 of the SRC, and Section 36.4.3.2 of the 2015 Implementing Rules and Regulations of the SRC.

Section 52.1 of the SRC provides that a transfer agent shall make, keep and preserve records, furnish such copies thereof, and make such reports, as the SEC may prescribe. The SRC Rules further requires the transfer agent to make available any or all of its books and record upon the Commission’s request. 

In another decision, the MSRD also held several stockholders of Abra Mining, namely Ferdinand U. Collado, Leila V. Collado, Susan May I. Gacelo, Jubileum Air and Sea Logistics, Inc., and Andrei Vincent Freight Services Corp., liable for violations of Section 26 of the SRC.

The case stemmed from discrepancies in AR shares lodged with Philippine Depositary and Trust Corp. (PDTC), which were in excess of the number of listed, registered, issued and subscribed shares submitted in the company’s filings with the SEC.

The total number of AR shares lodged with the PDTC totaled 258,957,666,755, whereas the total number of the company’s listed shares in the Philippine Stock Exchange (PSE) was only 72,946,882,574. 

Further, the total shares indicated in AR’s latest approved registration statement stood at 95 billion, while the issued and subscribed shares indicated in its corporate documents only totaled 99,294,584,200 and 199,294,584,200, respectively.

Illegal issuances of AR shares totaling 169.05 billion shares covering 474 stock certificates were found to have been made from 2015 to 2019. These illegally issued shares were lodged and traded on the PSE in numerous transactions.

Liability of AR directors and officer

Under the RCC, stock corporations have the express and inherent power to issue or sell stocks. Such power is entrusted to the board of directors, who has a corresponding duty to ensure that the issuance of shares is properly executed in accordance with the law.

“[The officers and directors] necessarily had, or should have had, knowledge of the illegal circumstances regarding the issuances of the [illegal shares] during the years that they served as directors of respondent AR,” the MSRD held.

Had the officers and directors faithfully exercised their duties as imposed by law, they would have prevented the fraudulent scheme from being carried out, the MSRD added. 

The MSRD also held that the AR and its officers violated Section 61 of the RCC when it issued shares for less than their par or issued price, given that the company’s financial statements during the pertinent years did not reflect any inflow of cash as proceeds for the issuance of the shares. 

As members of the board, James Beloy, Venus, Premy Beloy, Joel Beloy, Gaskell and Tansengco were responsible for the accuracy of the representations in the company’s financial statements.

The MSRD dismissed the denials and lack of knowledge interposed by AR’s officers and directors, holding that their acts “can only be attributable to their gross negligence in the performance of their duties.” 

Liability of transfer agent

Meanwhile, the MSRD found Asian Transfer & Registry and its officers liable for the lodgment of the illegal shares into the PDTC, which paved the way for the trading of the shares in the stock market.

During the investigation, it was found that despite knowledge of the defects in the issuance of the illegal shares and their duty to prevent their lodgment, the transfer agent fraudulently warranted that such shares were not defective and eligible for lodgment. 

“The [transfer agent’s] actions allowed the [illegal shares] to be lodged and gave them the appearance of being eligible, properly issued shares of AR, thereby inducing investors to buy and trade the [shares]. Thus, [they] were freely traded on the exchange, to the prejudice of the unsuspecting public who purchased the [defective shares],” the MSRD found. 

The transfer agent also failed to comply with the Commission’s orders that it be furnished a copy of its books and records. Available records, on the other hand, revealed discrepancies related to the illegal shares, despite being certified by its officers as being true and correct. 

“These discrepancies in the [transfer agent]’s records show that the [transfer agent and its officers] changed and omitted key information in its records regarding the issuances and lodgment of the [shares], which may be taken as an attempt to cover up the fraud perpetrated in the approval of their lodgment,” the MSRD held. 

Liability of stockholders

Separately, stockholders who acquired the illegal AR shares were liable for their participation in the fraudulent scheme, as the MSRD found that the stockholders never paid the full price of the shares that they supposedly acquired via private placement facilitated through Jeremias Beloy.

Payment of the full price of subscription is a requirement for the issuance of a stock certificate. Assuming that the illegal shares totaling 169.05 million were issued at par value of P0.01 each, AR should have received P1.69 billion for their issuance.

Moreover, the records revealed that the stockholders were in control of, or at least had full access to, the account which belonged to Jeremias Beloy where supposed payments for the shares were transferred to, and the funds which flowed between both accounts.

“Correspondingly, as [the stockholders] never actually made full—if any— payment of stocks’ price, the [shares] were not valid and existing, and they ought to have known that [they] were illegally issued,” the MSRD held. 

“[T]his operates as fraud upon stockholders and creditors of the company which issued said shares. Even further, as [the stockholders] circulated the illegally issued shares on the market, this operates as fraud upon the investing public.”

Other administrative sanctions imposed

In addition to administrative sanctions, the MSRD has revoked AR’s registration statement and corresponding certificate of permit to sell.

All officers and directors of AR and its transfer agent, as well as the stockholders, are disqualified from being a registered person and are prohibited from serving or acting as an employee, officer, or director of a registered financial intermediary under the supervision of the SEC within five years.

Likewise, they are disqualified from being an officer, director, or person performing similar functions of an issuer of registered securities.