THE Court of Appeals has affirmed the decision issued by the Securities and Exchange Commission (SEC) imposing a fine of P1 million and suspending billionaire businessman Roberto Ongpin and other officers of Alphaland Corporation for five years from holding positions in the board of directors after finding them administratively liable for violation of the Securities Regulation Code. The SRC provision in question prohibits fraudulent transactions involving the purchase or sale of securities.
In a 19-page decision penned by Associate Justice Mary Charlene Hernandez-Azura, the CA’s Fourteenth Division denied the petition filed by Ongpin, chairman of high-end property developer firm Alphaland, and its other officers, namely, Dennis Valdez, Cyrano Austria and Michael Asperin, seeking to set aside the SEC decision issued on December 15, 2020.
The SEC said Ongpin and his co-petitioners employed fraudulent schemes in the issuance of Alphaland shares in the “Property-for-Share Swap, Capital Call and Stock rights Offering.”
“All told, we are convinced that the SEC en banc did not commit reversible error in affirming the findings of the EIPD [Enforcement and Investor Protection Department EIPD-SEC] that bad faith attended the approval, ratification and implementation of the above-discussed corporate acts subject of Board Resolution No. 2014-01-001 and related resolution/s as the same clearly prejudiced not only ALPHA and its stockholders but the investing public as well,” the CA ruled.
Ongpin beneficially owns all the shares of Boerstar Corporation, RVO Capital Ventures Corporation, and Azurestar Corporation (collectively, the RVO Group).
The businessman directly controls 22.1 percent of Alpha through the RVO. Prior to the controversy, Alpha’s board of directors dominated by the Ongpin-led RVO Group held a special meeting to undertake property-for-share swap in exchange for parcels of land in Itogon, Benguet.
The capital call was limited to major shareholders, or those holding/owning at least 10 percent of the capital; and stocks rights offering to minority stockholders, all based on a P2.50 per share issue price, allegedly in view of Alpha’s “inability to borrow from local banks,” as a result of which “the company will run out of cash and become insolvent and its shares will be worth zero.”
The January 2, 2014 resolutions were adopted over the objection of Craig Webster, a nominee of Alphaland Holdings (Singapore Pte. Ltd.) who insisted that the issue price must be supported by a study made by investment banks.
Webster also asked that the claim of the alleged bankruptcy must be substantiated; however, the board pushed through with the capital call without heeding his suggestion.
The board approved the issuance of Alpha shares in the property-for-share swap in exchange for the parcels of land in Itogon, Benguet (for the Baguio Mountain Log Homes Project) beneficially owned by Ongpin and valued at P1.39 billion at the issue price of P2.50 per share.
As a result of the property-for-share swap, 557,567,000 new Alpha shares were issued to the RVO Group, being the owners of the parcels of land. This resulted in the increase of RVO Group’s shares in Alpha to 996,074,809 or 39.19 percent from 438,507,809 shares amounting to 22.1 percent of Alpha. Ongpin’s pro rata share in the capital call of P4 billion consequently rose from P880 million to P1.66 billion, giving him the opportunity to purchase more shares.
Through RVO Capital, Ongpin subscribed to 600,000,000 new Alpha shares worth P1.5 billion, giving him a total of 50.7 percent shareholdings in Alpha and securing control over the corporation.
However, instead of case, the shares were issued in exchange for supposed advances made by RVO Capital to Alpha.
On January 30, 2014, Alpha filed with the SEC attaching its letter to the Philippine Stock Exchange (PSE) stating that it will undertake the stock rights offering to ensure that the shareholdings of the minority stockholders prior to the capital call will not be diluted.
The PSE subsequently submitted to the SEC relevant documents in relation to Alpha’s disclosure which showed, among others, its non-compliance with the minimum public ownership requirement, the property-for-share swap for the Alphaland Baguio Mountain Log Homes Project, the capital call made to Alpha’s major stockholders, the determination of the P2.50 issue price for the capital call, the case filed by Alphaland Holdings (Singapore) Pte. Ltd. (AHSPL) against Alpha to enjoin the implementation of the capital call, the case filed by Alpha against AHSPL with the SEC, and the rights offering to minority stockholders.
AHSPL questioned, among others, the issuance of new common shares at the issue price of P2.50 per share by ALPHA to RVO Capital Ventures Corporation (RVO Capital) and the owners of the real property of Benguet Province.
This prompted the SEC’s Markets and Securities Regulation Department (MSRD) to endorse the matter to the EIPD for investigation of possible violations of SRC provisions by Alpha.
In its ruling, the CA held that the EIPD has jurisdiction to conduct an investigation and issue the order which the SEC en banc affirmed.
The appellate court also denied the respondents’ claim that they were denied the right to due process when SEC-EIPD ruled against them. “Indeed, petitioners were afforded with all the opportunities to explain their side of the story.
“The evidence are too obvious to be ignored,” the CA pointed out.
The CA said the SEC en banc did not commit any error in affirming the findings of EIPD that there is sufficient ground to hold petitioners and other directors and officers of Alpha for violation of Section 26 (3) of the SRC for having engaged in fraudulent acts and transactions.
The CA noted that among the irregularities committed by the respondents as established by the SEC-EIPD, were: the issuance of shares at the grossly undervalued price of P2.50 considering that the market price of the share closed at P15.50 per share on January 2, 2014; the issuance of the shares in the property-for-share swap and the conversion of RVO Capital Ventures Corporations to equity without approval by the SEC; the issuance of shares at the grossly undervalued price of P2.50 per share in exchange for supposed advances made by the RVO group to Alpha which enabled the former to acquire majority shareholding of the latter; the issuance of shares in exchange for property belonging to Ongpin and his co-owners at the undervalued price of P2.50 per share, for the obvious purpose of giving the RVO Group a higher pro rata participation in the total number of shares issued under the capital call; the misrepresentation that the capital call was for the purpose of raising additional funding that the company claimed it needed badly to settle maturing obligations; the fraudulent “stock rights” or “minority” offering which was allegedly intended to protect the interest of the minority stockholders.
The CA noted these were not actually subscribed by the minority stockholders but were issued in private placement transactions at a discount of 85.70 percent of Alpha shares’ last closing price on January 20, 2014 of P17.48 per share.
“Wherefore, premises considered, the instant petition for review is hereby denied. The assailed decision dated 15 December 2020 rendered by the Securities and Exchange Commission En Banc is hereby sustained,” the CA declared.