MARKET regulators have teamed up to look into the case of Abra Mining and Industrial Corp., which the stock exchange earlier found to be selling shares beyond the number listed on the local bourse.
“The Securities and Exchange Commission (SEC), The Philippine Stock Exchange, Inc. (PSE) and Philippine Depository & Trust Corp. (PDTC) are working closely together to investigate the trading of unissued and unlisted shares of Abra Mining and Industrial Corporation (AR), and to pursue the necessary actions to protect investors,” the market regulators said in a joint statement released on Saturday.
The PSE suspended the trading of Abra Mining shares on Thursday, after the company was found to be violating three rules based on reports and disclosures.
The number of the company’s fully paid issued and outstanding shares is over Abra Mining’s listed shares, which is not allowed according to PSE rules as all fully paid issued and outstanding shares should be listed.
Abra Mining’s lodged PDTC shares also outnumber the company’s listed shares when only approved securities should be lodged with the registry for trading.
“In a parallel preliminary fact-finding investigation, the SEC found that AR had 258.96 billion shares lodged with PDTC as of February 16, 2021. The number exceeds by 186.01 billion shares the 72.95 billion shares the company has listed with PSE,” regulators said.
In their statement, the regulators said they had found more discrepancies.
“In its 2019 audited financial statements, AR only reported an issued and outstanding capital stock comprising 99.29 billion shares,” the market regulators added.
Finally, the company was found selling issued and outstanding shares despite not being reported on the company’s PDTC books, violating the provisions of Republic Act No. 11232 or the Revised Corporation Code (RCC) of the Philippines.
The RCC provides that shares, even if not fully paid, should be reflected in the company’s books.
Stock certificates must also be signed by the president or vice-president of the corporation, to be supported by a signature from the secretary or assistant secretary, before being set with the corporation’s seal.
Certificates are issued only when the subscription has been paid. This already includes interest and, for delinquent shares, the expense.
To lodge securities with PDTC, certificates must be delivered to the transfer agent.
Transfer agents act as the extension of the corporation’s corporate secretary, and are the only officials who have the authority and responsibility to certify that all of the company’s shares qualify for the lodging requirements of PDTC and the PSE.
The securities will only be deemed fungible and may be used to settle trades if these are lodged in the central depository.
“Among the requirements is that the transfer agent must issue or register only those securities of the corporation that are authorized for issuance and listing by the PSE, and must timely notify PDTC if the shares delivered are found not valid or defective,” the market regulators explain.
Defective securities are defined as those “which are counterfeit, invalid, forged, improperly altered, nonnegotiable, subject to an adverse claim, not free from any liens, encumbrances, assessments or charges of any kind, subject to any restriction or prohibition on transfer through the PDTC system.”
However, the market regulators also said that Abra Mining’s transfer agent confirmed and cleared every single one of its shares listed on the system.
“The SEC, in coordination with the PSE and PDTC, will continue investigating the issue not only to resolve the current incident, but also to find system-wide measures to prevent its recurrence. In the meantime, AR was ordered to submit its proposed actions to address the discrepancies in its issued, outstanding, listed and lodged shares,” the market regulators said. — Keren Concepcion G. Valmonte