Untrue Statements Under the Securities Regulation Code: What Counts as Fraud

The Securities Regulation Code punishes anyone who makes an untrue statement of a material fact in a registration statement filed with the Securities and Exchange Commission (SEC). But what exactly counts as an "untrue statement"? In People of the Philippines v. Cariño (G.R. No. 230649, April 26, 2023), the Supreme Court clarified that a projected or estimated completion date is not an untrue statement at the time it is made—even if the project later fails to meet that date. The case also offers important guidance on when corporate officers may be held personally liable for such violations.

The Case: A Delayed Golf Course Project

Caliraya Springs Golf Club, Inc. filed a Registration Statement with the SEC in 1997 to sell shares and finance the construction of two 18-hole golf courses and a clubhouse in Caliraya, Laguna. The company declared that the project would be completed by July 1999. The respondents—incorporators, directors, and officers of the corporation—were named in the statement.

The project was not completed by the projected date. In 2003, the SEC discovered the delay and ordered Caliraya to amend its Registration Statement. The company failed to comply, and the SEC eventually revoked its registration. By 2010, an ocular inspection showed the clubhouse was 100% complete, but only the first 18-hole course was finished.

The SEC filed a complaint against the respondents for violating Section 12.7, in relation to Section 73, of the Securities Regulation Code (RA No. 8799). The Information alleged that the respondents fraudulently made an untrue statement by declaring July 1999 as the expected completion date when the project remained incomplete.

The Issue: Is a Projected Completion Date an Untrue Statement?

The trial court dismissed the case for lack of probable cause, ruling that July 1999 was merely an approximate completion date. The Court of Appeals affirmed. The prosecution then elevated the case to the Supreme Court.

The central question: does a contingent or projected date of completion fall under the definition of "making an untrue statement" if the project is not finished by that date?

The Ruling: Forward-Looking Statements Are Not Untrue at the Time Made

The Supreme Court answered in the negative. The Court reasoned that an untruthful statement means one not in accord with facts or one made in deceit for ulterior motives. However, the very nature of contingent or forward-looking statements means that, at the time they are made, their truth or falsity is not evident even to the issuer itself.

The law punishes making an untruthful statement at the time the registration statement is filed. For projected events that rely on external factors beyond the issuer's control, it is impossible to determine their truth or falsity at that moment. Thus, when the Registration Statement was filed in April 1997, there could have been no untruthful statement regarding the completion date.

However, the Court noted that Caliraya was not without fault. Its failure to amend the Registration Statement after the projected date lapsed—despite repeated notices from the SEC—could have rendered it liable under a separate clause of Section 12.7: omitting to state a material fact necessary to make the statements not misleading. When it became clear the estimate would not be met, the issuer was duty-bound to correct the statement to protect the investing public.

Corporate Officers Are Not Automatically Liable

Even assuming a violation occurred, the Court found three barriers to holding the respondents personally liable:

1. The Information charged them with making an untrue statement, which was not the proper mode of violation in this case.
2. The Information did not charge the corporation itself, only the individual respondents.
3. Nothing in the record directly linked the respondents to the alleged violation.

The Court reiterated the general rule: corporate agents are not personally liable for violations of the corporation unless they willfully and knowingly vote for or assent to a patently unlawful act, or are guilty of gross negligence or bad faith. Section 73 of the Securities Regulation Code itself only penalizes officers "responsible for the violation." Their liability must be proved, not presumed.

Practical Takeaways

• Projected dates are not fraud. A completion date or other forward-looking estimate in a registration statement is not an "untrue statement" merely because it is not met. The truth or falsity of such statements cannot be determined at the time they are made.
• Duty to amend is real. Issuers must amend their registration statements when it becomes clear that earlier projections will not be met. Failure to do so may constitute a separate violation under Section 12.7.
• Corporate officers are not automatically liable. Personal criminal liability requires proof that the officer was directly responsible for the violation—not merely that they held a position in the corporation.
• Probable cause requires specific evidence. A judge may dismiss a criminal case if the evidence fails to establish probable cause, and such dismissal is a final order that must be appealed, not assailed via certiorari.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.