[ANALYSIS] Congress needs to enact more protection laws on Villar Land’s financial red flags 

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• Part 1: [ANALYSIS] Villar Land Holdings and its astonishing story
• Part 2: [ANALYSIS] SEC and PSE under suspicion of lapses over Villar Land revaluations
• Villar Land responds to trillion-peso valuation controversy, other issues

Just as we continue to pass legislations to encourage market interest and activity from both local and foreign investors, Congress has to further pass supplemental measures that will not just make the country’s stock market additionally attractive with extra incentives but with more protection laws against the still pervasive practice of “Let the buyer beware” or caveat emptor from the enterprise of listed companies to draw funding or investment interest.  

Essentially, caveat emptor places the buyer to assume the risk of any defect or problem that are vaguely or not explicitly disclosed by the seller, often deliberately done to inveigle the buyer. It places the responsibility on the buyer to carefully examine and verify the quality and suitability of the goods or services offered before deciding to buy it.  

Nowadays, even if the principle of “Let the buyer beware” or caveat emptor has been softened by many consumer protection laws and implied modern warranties, buyers are still forced to exercise due diligence like it was when originally introduced in the English commercial common law in the 16th or 17th century. 

Hence, the principle of caveat emptor is one of the explanations that came to light from the discussions I had with three experienced businessmen-investors and former co-board members of a listed company when we tried to search for the underlying factor behind the incredulous earnings reported by Villar Land Holdings Corporation (formerly Golden MV Holdings Incorporated), that helped catapult Manny Villar to snatch the title of the Philippines’ richest individual into Forbes Magazine’s list of billionaires for 2025.  

Controlling the fair market value usage 

Due to the critical call for anonymity considering ethical sensitivities about the allegations of financial statement manipulation and the business circumstances of these three gentlemen in relation to the parties concerned, I will just refer to them as Mr. AA, Mr. D and Mr. CPA.

According to Mr. AA, who is the most cynical of the three when it comes to the stock market and political outlook of the country that is why he is even contemplating of residing — or at least thinking of buying a fallback home — abroad, what led to the controversial VLC earnings report was because of the wholesale and unbridled use of the generally accepted accounting principle to adjust the value of hard assets into their fair market value in the books of the company.

Mr. AA  further went on to say that this is also the reason why we continue to have many listed paper-tiger companies disguised as solid investments in the market, at the same time, the very reason why his success in the local stock market remains to be still a rarity. 

Mr. D, the second of these three colleagues who is likewise quite wary but has not totally given up on our economic prospects despite the country’s skewed political prism that is why he still maintains considerable investment exposures locally, suggests “to put a cap” over the amount of the adjustments. More precisely, to place an upper limit to the amount of the adjustments to be made each time it is used.  

As proposed by my third colleague, fondly called Mr. CPA for his penchant for precise and unpretentious financial reporting and deep involvement with a Christian religious organization for businessmen and professionals whose moral compass is to “be honest even if others are not, to be honest even if others will not, and to be honest even if others cannot,” the use of fair market value adjustments should not exceed more than one trillion at a time, especially on real estate transactions where the practice of commerce in this sector is still greatly influenced by the principle of caveat emptor.  

For everyone, any amount beyond P1 trillion must get prior approval and imprimatur of the Securities and Exchange Commission (SEC) and the Philippine Stock Exchange (PSE), the specific procedures to be crafted along the principle of responsible business practices.  

Unravelling the trillion-peso earnings enigma

The issue of financial manipulation is linked to the revaluation of real estate properties owned by three other Villar-owned companies that Villar Land Holdings (stock symbol: VLC) acquired in September 2024. These companies were Althorp Land Holdings Incorporated, Chalgrove Properties Incorporated, and Los Valores Corporation, respectively purchased at P49.9 million, P5.12 billion and P24 million or for the total sum of about P5.194 billion.  

These companies own a total of 396.88 hectares of prime land in Villar City. These companies are in turn owned by Fine Properties Incorporated and Hollinger Holdings Corporation that are again both owned and controlled — don’t get upset — by Manny Villar and family.  

As a result of the acquisition of the real estate holdings, VLC reported a massive surge in net income for 2024, imputed primarily from a P1.33 trillion windfall from said properties which were recorded as investment properties and accounted for using the fair value method.  

Barring any request for another postponement for its annual stockholders meeting (ASM), the ordinary investor will finally see the audited financial statements of VLC for 2024 on September 3, 2025, the new deadline set by the company for its ASM. Companies have to present their annual report for review during the ASM.

From the simple extrapolations we’ve done, VLC may show the following selected financial numbers for the year 2024: 

• revenues may amount to P3.5 billion, down 25% from 2023
• a paltry operating profit of about P1.22 billion, down 29% from 2023
• a fair value gain of P1.33 trillion
• a net income of P1.0 trillion, up 68,000% (that is largely made up of paper gains)
• deferred taxes that will likely increase VLC’s total liabilities by about 2,4365.71% compared to that of 2023.

What could be “gorgeous or disgusting” in this case, depending on whose point of view you are looking at, the reported income from the investment property could be reversed into a loss so that the company — through the fiction of internationally accepted accounting principles and practices — can avail of a tax rebate when the time comes.  

Collateral casualties

It may not be likely but in the event that the sophisticated accounting maneuver turns out to be a sham, the company’s independent directors and external auditors become collateral casualties.  

For the independent directors, according to the Revised Code of Corporate Governance, their primary fiduciary duty is to exercise independence bearing in mind with utmost priority the interest of the general investing public.  

However, the present system of electing independent directors doesn’t seem to make them independent — as in really being independently minded — for they are ironically “elected independently but not to be independent” against management’s whims for they are actually the electing powers.  

This could be an interesting problem for the SEC and PSE to resolve with the help of Congress to legislate for the sake of the universal call to promote ethics, equality, and professionalism.

As for the external auditors, it has been shown time after time that in spite of the honest intentions of external auditors to uphold high ethical standards in the practice of their occupation, they are oftentimes unable to prevent the abuse of accounting technicalities for fraudulent motives by client-companies.  

External accounting firms sometimes balk, but in the end acquiesce to the whims of client-companies. This happens even in the US.    

My three colleagues are dead sure that this is the very reason why VLC’s external auditor, Punongbayan & Araullo, is taking so long to finalize the financial statements of the company for 2024, which have led to the further postponement of VLC’s ASM to September 3, 2025.  

Remember the then-highly reputable American multinational professional services firm, Arthur Andersen. It was unable to prevent Enron executives from orchestrating fraudulent accounting practices. This caused then the biggest corporate scandal in the US and Anderson’s downfall in 2001. The US Congress stepped in to restore market confidence.  

The US Congress enacted the Sarbanes-Oxley Act of 2002, which was basically about the creation of an auditing body to “audit the auditors” that would be under the US SEC.  

Congress did a splendid job in enacting the Philippine Securities Regulation Code of 2000 (Republic Act 8799) arising from the call of the time to resolve the damages triggered by the BW Resources market scam of 1999 that remains to be the biggest insider trading scandal to hit the market even to this day. It can do so — again.

Therefore, Congress is again called upon to step in. It needs to legislate more protection laws especially to:

• increase the accuracy and reliability of corporate disclosures
• enhance the responsibility of corporate officers
• reinforce the independence of auditors and independent board of directors
• increase further the protection of investors’ interests, particularly for the minority.

– Rappler.com

(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.  Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.com)