The Securities and Exchange Commission (SEC) announced that it 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.
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 the Securities Regulation Code (SRC), and Sections 61, 62 and 63 of 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 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 allegedly colluded in the fraud: 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 alleged 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 258.96 billion as of February 16, 2021 even though the registration statement rendered effective by the SEC covered only 95 billion AR shares, while the number of shares authorized for listing in the PSE totaled 72.95 billion AR shares only.
The number of AR shares lodged with PDTC also exceeded the 99.29 billion issued shares, and 199.29 billion outstanding shares indicated in the company’s financial statements.
The discrepancies stemmed from the issuance of AR shares totaling 169.05 billion shares 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 and 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.
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.
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.
In this case, the SEC said “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.
“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,” said the SEC.
Under Section 61 of the RCC, stocks shall not be issued for a consideration less than the par or issued price thereof while Section 63 provides that no certificate of stock shall be issued to a subscriber until the full amount of the subscription has been paid.
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 adding that, “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.”
The commission said that, “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.