Market regulators led by the Securities and Exchange Commission (SEC) will investigate the unfolding stock market scandal involving dormant firm Abra Mining and Industrial (AR) owned by the Beloy family.
The goal is to determine how AR had lodged 259 billion shares with the Philippine Depository & Trust Corp. (PDTC) as of February 16, 2021.
This is 186 billion shares or 254 percent more than the 73 billion shares the company has listed with Philippine Stock exchange.
When Bilyonaryo first stumbled on the issue, AR was trading roughly 127 billion shares over its listed shares of 73 billion as of December 2020.
AR only had 99M issued and outstanding capital stock comprising 99 billion shares based on its 2019 annual report.
The joint investigative team of the SEC, PSE and PDTC will also look into the validity of the unlisted shares certified by AR’s stock transfer agent, Asian Transfer & Registry Corp., which holds office in the same building as AR and has only one client, AR.
In a statement, SEC, PSE and PDTC said they were “working closely together to investigate the trading of unissued and unlisted shares of AR “ to pursue the necessary actions to protect investors.
Last March 4, the SEC and PSE suspended trading of shares of AR, which was the most traded stock in the market so far this year, after it discovered that the number of fully paid issued and outstanding AR shares exceeded the number of the company’s listed shares.
The regulators said they would seek “to find system-wide measures to prevent its recurrence.”
They have asked AR to submit its proposed actions to address the discrepancies in its issued, outstanding, listed and lodged shares.
Under Section 173 of the Revised Corporation Code, a firm’s outstanding capital stock is “the total shares of stock issued under binding subscription contracts to subscribers or stockholders, whether fully or partially paid, except treasury shares.”
This means that even shares that have not been fully paid were considered issued and must be reflected on the company’s books.
The SEC and PSEC explained that before AR could lodge its securities with PDTC, the certificates covering the securities must be delivered to the transfer agent before it could be deemed fungible and used for settlement of exchange trades.
The transfer agent, as an extension of AR’s corporate secretary (Amelia G. Beloy who is also CFO, treasurer and VP for administration, and the mother of the company chairman and president, James Beloy), “has the sole authority and duty to certify that each share meets PDTC’s and the PSE’s respective requirements for lodgment.”
The transfer agent is required to issue or register only those securities of the corporation that are authorized for issuance and llisting by the PSE, and must timely notify PDTC if the shares delivered are found defective.
Defective securities are those, whether or not evidenced by a certificate, that are counterfeit, invalid, forged, improperly altered, non-negotiable, 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, or otherwise defective.
The SEC and PSE said records showed that each and every AR share that had entered the system was confirmed and cleared by the transfer agent for lodgment.
Section 63 of the RCC, however, 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.”
Section 62 of the RCC further provides that the certificate should be signed by the president or vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation.