SM Investments faces SEC sanctions over disclosure violations

SM Investments Corp. (SMIC)., the listed investment holding company of retail tycoon Henry Sy, faces possible sanctions from the Securities and Exchange Commission (SEC), which include the revocation of its registration statement and the imposition of administrative fines, for alleged violation of the agency’s disclosure rules.

An SEC official said an investigation conducted by an SEC unit showed that SMIC failed to disclose a court case involving a property owned by its 93 percent-owned subsidiary Manila Southcoast Development Corp. (MSDC).

"It was learned that SMIC committed gross violations through misrepresentation and non-disclosure of material facts in its registration statement or prospectus," the SEC official said.

The property, valued at P12.3 billion, is SMIC’s fourth largest asset in terms of value.

The investigation stemmed from a complaint filed by Domingo Villafranca and Nomer Del Mundo, who claim ownership of MSDC’s Hacienda Looc, a 57.5-hectare seaside property in Nasugbu, Batangas.

The complainants alleged that SMIC misrepresented that unit MSDC holds clean land titles on the Batangas property.

The complainants said Hacienda Looc is under a legal tussle, with its titles faced with a pending lawsuit.

They added that the undisclosed information are material facts that "will materially affect the value and marketability of the shares of the SM Group."

The SEC official said the investigating department has recommended the imposition of a fine amounting to P5.35 million for violation of disclosure rules. The same unit also recommended the cancellation of SMIC’s permit to sell securities and that the Compliance Surveillance Department, the surveillance unit of the SEC, conduct an in-depth investigation into the case.

Under the Securities Regulation Code (SRC), the SEC may reject or revoke effectivity of a registration statement if the issuer has made any false or misleading representation of material facts.

The recommendations, however, are still subject to the approval of the commission en banc, the SEC’s highest decision-making body.

Should the findings be upheld by the collegial body, SMIC would be delisted from the exchange and required to return the money to those who bought shares of the company.

SMIC, which holds the Sy family’s interests in commercial centers, financial services, retailing, and real estate development and tourism, raised a total of $528 million from the maiden offering of its shares to the public last March.

The same official, however, expressed doubts whether the SEC would go to the extent of cancelling SMIC’s registration statement considering the public interest involved.

"It’s really up to the en banc to decide on this matter. But I don’t think they would go this far knowing that the interest of the investing public is at stake. Another consideration is that most of the investors that subcribed to SMIC’s shares were foreigners. On the other hand, should the case filed by the complainants in the courts prosper, SMIC’s asset value is seen to diminish and could result in the decline of its share price," the SEC official said.

The SRC states that any person who acquired a security of a company that omitted a material fact in its registration statement may sue and recover damages unless it is proven that at the time of such acquisition, he knew of such untrue statement or omission. All suits to recover damages must be brought before the regional trial court which is authorized to award damages in an amount not exceeding triple the amount of investment plus actual damages.

SMIC, however, insists that the cases involving MSDC’s property had already been dismissed by the Nasugbu Regional Trial Court due to forum shopping and lack of jurisdiction over the issue.

Jurisdiction on the property reportedly belongs to the Department of Land Reform, the court said.

SMIC said MSDC was granted a permit in November last year to develop the property for leisure and tourism activities. The property was acquired from the government through a public bidding in 1994.

The SEC approved SMIC’s registration statement in February, which paved the way for the listing of the company’s shares last March 22. Proceeds from the offering had been earmarked for the development of the final phase of the Mall of Asia in Manila and leisure resorts.

In the nine months ending Dec. 2004, SMIC posted a net income of P3.91 billion on revenues of P42.17 billion. Its assets stood at P111.89 billion while stockholders’ equity was P35.27 billion.

Sy, whom Forbes Magazine lists as the 14th richest man in Southeast Asia in 2004 with an estimated fortune of $1.4 billion, has three other companies listed in the stock exchange: Banco De Oro Universal Bank, SM Prime Holdings and SM Development Corp. in which it has ownership of 41.2 percent, 52.6 percent and 58 percent, respectively.