The Supreme Court (SC) has affirmed the P2 million fine imposed by the Securities and Exchange Commission (SEC) on a corporation which failed to fully disclose the true value of its assets in its Audited Financial Statements (AFS) for 2008 and 2009.

The P2 million fine imposed on Abacus Coal Exploration and Development Corporation had earlier been upheld by the Court of Appeals (CA). The firm elevated the issue on appeal before the SC.

Affirming the CA’s ruling, the SC – in a decision written by Associate Justice Maria Filomena D. Singh – said “the omissions committed by Abacus Coal are deemed material precisely because of their potential impact on the investing public.”

The SC pointed out that as defined under Rule 68 of the Securities Regulations Code (SRC), “information is material if its omission or misstatement could influence the economic decision of users taken on the basis of the financial statements.”

A summary of the decision issued by the SC’s Office of the Spokesperson stated that in 2008, Abacus Coal increased its capital stock from P20 million to P300 million after acquiring coal mining rights from Abacus Consolidated Resources & Holdings, Inc. worth P2.7 billion.

However, in its 2008 and 2009 AFS, Abacus Coal did not reflect the acquired assets in its Balance Sheet and showed them only in the Notes to the AFS.

When asked to explain, the company claimed the omission was due to a supposed conflict between accounting standards and the pending SEC approval of its capital increase.

The SEC rejected Abacus Coal’s explanation and held that the omission caused the company to understate its total assets, in violation of SEC Memorandum Circular (MC) No. 08-09.

The commission pointed out that the information was readily available because the capital increase had already been approved in December 2008 before the AFS were issued.

The SEC imposed a P2 million fine. The CA affirmed the SEC’s ruling as the appellate court stressed that the disclosures in the Notes alone were not enough to provide a complete picture of the corporation’s financial condition.

Affirming the CA’s 2021 decision and denying Abacus Coal’s petition, the SC held that the corporation violated Rule 68 of the SRC which requires corporations to include in their balance sheets all intangible assets, capital, and reserves.

The SC said that not disclosing the required items results in material deficiencies and misstatements which are subject to fines under SEC MC No. 08-09.

It also said that the revised AFS the corporation later submitted still did not cure the deficiencies, as it continued to omit the appraised value of the mining rights amounting to P2.7 billion.

It upheld the SEC’s computation of the penalty under SEC MC No. 08- 09, which imposes a fine equivalent to 1/10 of one percent of the appraised value of the omitted amount, subject to a maximum of P1 million per year of misstatement.

The dispositive portion of the SC decision which was made public on Monday, March 9:

“Accordingly, the Petition for Review on Certiorari is denied. The Decision, dated Sept. 28, 2021, and the Resolution, dated Aug. 3, 2022, of the Court of Appeals in CA-G.R. SP No. 161839 are affirmed. So ordered.”