SECURITIES AND EXCHANGE COMMISSION v. PRICE RICHARDSON CORPORATION, CONSUELO VELARDE-ALBERT, AND
GORDON RESNICK
FACTS: Respondent Price Richardson is a Philippine corporation which provides administrative services. Its former
employee Avelino alleged that Price Richardson was engaged in boiler room operations, wherein the company sells
non-existent stocks to investors using high pressure sales tactics. Rillo corroborated Avelino's claims. She was a former
employee of Capital International, a corporation that allegedly merged with Price Richardson.
The RTC issued three (3) search warrants against Capital International and Price Richardson. Price Richardson's office
equipment and documents were seized.
The SEC filed before the Department of Justice its complaint against Price Richardson, the incorporators and directors.
The SEC alleged that Price Richardson was neither licensed nor registered "to engage in the business of buying and
selling securities within the Philippines or act as salesman, or an associated person of any broker or dealer. As shown
by the seized documents and equipment, Price Richardson engaged in seeking clients for the buying and selling of
securities, thereby violating Sections 26.3 and 28 of the Securities Regulation Code.
The Securities and Exchange Commission claimed that Velarde-Albert and Resnick should be liable for acting as
brokers or salesmen despite not being registered. Meanwhile, the incorporators and directors' liability was based on
being responsible "for the corporate management with the obligation to ensure that Price Richardson operated within
the bounds of law.
The State Prosecutor Reyes issued a Resolution, dismissing the Securities and Exchange Commission's complaint for
lack of probable cause.
The SEC filed before the DOJ a Petition for Review of State Prosecutor Reyes Resolutions. This was denied by
Department of Justice Secretary Gonzalez. SEC filed a Petition for Certiorari Resolutions. CA affirmed the assailed
Resolutions. Hence, the SEC filed a Petition for Review before this Court against Price Richardson, Velarde-Albert, and
Resnick.
Respondent Price Richardson insists that Section 28 of the Securities Regulation Code prohibits anyone from engaging
in the business of buying and selling securities without registration from the Securities and Exchange Commission if
those transactions are offered "to the public within the Philippines." This provision does not apply in this case because
the alleged buyers of securities were not citizens of or resided in the Philippines. Additionally, the allegedly sold or
offered securities were registered outside the Philippines, where the alleged sales also transpired. Hence, these sales
are not under the Philippine jurisdiction.
ISSUE: Whether there is probable cause to indict respondents for violation of Sections 26.3 and 28 of the Securities
Regulation Code.
HELD: Petitioner provided sufficient bases to form a belief that a crime was possibly committed by respondent Price
Richardson.
The complaint alleged that respondents committed violations of the following:
SRC, Section 26. Fraudulent Transactions. – It shall be unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to: 26.3. Engage in any act, transaction, practice or course of business
which operates or would operate as a fraud or deceit upon any person.
Section 28. Registration of Brokers, Dealers, Salesmen and Associated Persons. – 28.1. No person shall engage in the
business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated
person of any broker or dealer unless registered as such with the Commission.
Petitioner further supports its charges by submitting the complaint-affidavits and letters of individuals who transacted
with Price Richardson:
The SEC has submitted the complaint of Mr. Don Sextus Nilantha, a citizen of Sri Lanka who clearly named Price
Richardson as selling him 1000 shares of Hugo Intl. Telecom, Inc. sometime in April 2001. At such time, and until today,
Price Richardson was not authorized to act as traders or brokers o[f] securities in the Philippines.
Furthermore, there are other complainants against Price Richardson who deserve to have their complaints aired and
tried before the proper court. Mr. Johannes Jacob Van Prooyen filed a complaint against Price Richardson with the
National Bureau of Investigation . . . In the said complaint, Mr. Van Prooyen clearly pointed to Price Richardson as the
ones who contacted him on June 12, 2001 to buy 2000 shares of Hugo Intl. Telecom, Inc. and on July 10, 2001 to buy
2000 shares of GeoAlert. At no time at such relevant dates was Price Richardson licensed to act as traders or brokers
of securities in the Philippines.
Mr. Bjorn L. Nymann of Oslo, Norway wrote about Price Richardson to this very same Department of Justice, which
letter was received on July 9, 2002. In his letter Mr. Nymann admitted dealing with Price Richardson. He admitted to
having bought 3000 shares of Hugo Intl. Telecom, Inc. . . . Although Mr. Nymann is not a complaining witness against
Price Richardson, his letter is relevant as at no time at such relevant date was Price Richardson licensed to act as
traders or brokers of securities in the Philippines.114
In addition, respondent Price Richardson stated in its Memorandum:
If this Honorable Court were to consider the set-up of Price Richardson, it was as if it engaged in outsourced operations
wherein persons located in the Philippines called up persons located in foreign locations to inform them of certain
securities available in certain locations, and to determine if they wanted to buy these securities which are offered in
a different country.
The evidence gathered by petitioner and the statement of respondent Price Richardson are facts sufficient enough to
support a reasonable belief that respondent is probably guilty of the offense charged.
However, respondents Velarde-Albert and Resnick cannot be indicted for violations of the Securities Regulation Code
and the Revised Penal Code.
Petitioner failed to allege the specific acts of respondents Velarde-Albert and Resnick that could be interpreted as
participation in the alleged violations. There was also no showing, based on the complaints, that they were deemed
responsible for Price Richardson's violations. As found by State Prosecutor Reyes in his March 13, 2002 Resolution:
[T]here is no sufficient evidence to substantiate SEC's allegation that individual respondents, Connie Albert and
Gordon Resnick, acted as broker, salesman or associated person without prior registration with the Commission. The
evidence at hand merely proves that the above-named respondents were not licensed to act as broker, salesman or
associated person. No further proof, however, was presented showing that said respondents have indeed acted as
such in trading securities. Although complainant SEC presented several confirmation of trade receipts and documents
intended to establish respondents Albert and Resnick illegal activities, the said documents, standing alone as
heretofore stated, could not warrant the indictment of the two respondents for the offense charged. 116
A corporation's personality is separate and distinct from its officers, directors, and shareholders. To be held criminally
liable for the acts of a corporation, there must be a showing that its officers, directors, and shareholders actively
participated in or had the power to prevent the wrongful act.
G.R. No. 135808
October 6, 2008
SECURITIES AND EXCHANGE COMMISSION vs. INTERPORT RESOURCES CORPORATION
CHICO-NAZARIO, J.:
FACTS: The Board of Directors of IRC approved a Memorandum of Agreement with Ganda Holdings Berhad (GHB).
Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda Energy Holdings, Inc.
(GEHI). The agreement also stipulates that GEHI would assume a five-year power purchase contract with National
Power Corporation. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to 40.88
billion shares which had a total par value of P488.44 million.
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724
hectares of real estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group of
Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of PRCI.
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through
facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of the SEC could
not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994. 5
The SEC averred that it received reports that IRC failed to make timely public disclosures of its negotiations with GHB
and that some of its directors, respondents herein, heavily traded IRC shares utilizing this material insider information.
SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts. The Court of Appeals
ruled that absent any implementing rules for Sections 8, 30 and 36 of the Revised Securities Act, no civil, criminal or
administrative actions can possibly be had against the respondents without violating their right to due process and
equal protection, citing as its basis the case Yick Wo v. Hopkins.26 This is untenable.
ISSUE: Whether the court of appeals erred when it ruled that there is no statutory authority whatsoever for petitioner
SEC to initiate and file any suit be they civil, criminal or administrative against respondent corporation and its directors
with respect to section 30 (insider's duty to disclosed when trading) and 36 (directors officers and principal stockholders)
of the revised securities act.
HELD: I. Sections 8, 30 and 36 of the Revised Securities Act do not require the enactment of implementing rules to make
them binding and effective.
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins shows a glaring error. In the cited case, this Court
found unconstitutional an ordinance which gave the board of supervisors authority to refuse permission to carry on
laundries located in buildings that were not made of brick and stone, because it violated the equal protection clause
and was highly discriminatory and hostile to Chinese residents and not because the standards provided therein were
vague or ambiguous.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities Act, such that
the acts proscribed and/or required would not be understood by a person of ordinary intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for an insider to sell or buy a security
of the issuer, if he knows a fact of special significance with respect to the issuer or the security that is not
generally available, unless (1) the insider proves that the fact is generally available or (2) if the other party to
the transaction (or his agent) is identified, (a) the insider proves that the other party knows it, or (b) that
other party in fact knows it from the insider or otherwise.
(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or under
common control with, the issuer, (3) a person whose relationship or former relationship to the issuer gives
or gave him access to a fact of special significance about the issuer or the security that is not generally
available, or (4) a person who learns such a fact from any of the foregoing insiders as defined in this
subsection, with knowledge that the person from whom he learns the fact is such an insider.
(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable person
would consider it especially important under the circumstances in determining his course of action in the
light of such factors as the degree of its specificity, the extent of its difference from information generally
available previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he
knows of a fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an
insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose
material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or
abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to information
intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the
inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with
whom he is dealing.
In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on corporate "insiders,"
particularly officers, directors, or controlling stockholders, but that definition has since been expanded. The term
"insiders" now includes persons whose relationship or former relationship to the issuer gives or gave them access to a
fact of special significance about the issuer or the security that is not generally available, and one who learns such a fact
from an insider knowing that the person from whom he learns the fact is such an insider. Insiders have the duty to
disclose material facts which are known to them by virtue of their position but which are not known to persons with
whom they deal and which, if known, would affect their investment judgment. In some cases, however, there may be
valid corporate reasons for the nondisclosure of material information. Where such reasons exist, an issuer's decision
not to make any public disclosures is not ordinarily considered as a violation of insider trading. At the same time, the
undisclosed information should not be improperly used for non-corporate purposes, particularly to disadvantage
other persons with whom an insider might transact, and therefore the insider must abstain from entering into
transactions involving such securities.
Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed to define the
following terms: "material fact," "reasonable person," "nature and reliability" and "generally available." 37 In
determining whether or not these terms are vague, these terms must be evaluated in the context of Section 30 of the
Revised Securties Act. To fully understand how the terms were used in the aforementioned provision, a discussion of
what the law recognizes as a fact of special significance is required, since the duty to disclose such fact or to abstain
from any transaction is imposed on the insider only in connection with a fact of special significance.
Under the law, what is required to be disclosed is a fact of "special significance" which may be (a) a material fact which
would be likely, on being made generally available, to affect the market price of a security to a significant extent, or
(b) one which a reasonable person would consider especially important in determining his course of action with regard
to the shares of stock.
(a) Material Fact - The concept of a "material fact" is not a new one. As early as 1973, the Rules Requiring Disclosure
of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or Registered/Licensed Under
the Securities Act, issued by the SEC on 29 January 1973, explained that "[a] fact is material if it induces or tends to
induce or otherwise affect the sale or purchase of its securities." Thus, Section 30 of the Revised Securities Act
provides that if a fact affects the sale or purchase of securities, as well as its price, then the insider would be required
to disclose such information to the other party to the transaction involving the securities. This is the first definition
given to a "fact of special significance."
(b.1) Reasonable Person - The second definition given to a fact of special significance involves the judgment of a
"reasonable person." Contrary to the allegations of the respondents, a "reasonable person" is not a problematic legal
concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the standard on which most
of our legal doctrines stand. The doctrine on negligence uses the discretion of the "reasonable man" as the
standard.38 A purchaser in good faith must also take into account facts which put a "reasonable man" on his guard.39 In
addition, it is the belief of the reasonable and prudent man that an offense was committed that sets the criteria for
probable cause for a warrant of arrest.40 This Court, in such cases, differentiated the reasonable and prudent man
from "a person with training in the law such as a prosecutor or a judge," and identified him as "the average man on
the street," who weighs facts and circumstances without resorting to the calibrations of our technical rules of evidence
of which his knowledge is nil. Rather, he relies on the calculus of common sense of which all reasonable men have in
abundance.41 In the same vein, the U.S. Supreme Court similarly determined its standards by the actual significance
in the deliberations of a "reasonable investor," when it ruled in TSC Industries, Inc. v. Northway, Inc., 42 that the
determination of materiality "requires delicate assessments of the inferences a ‘reasonable shareholder' would draw
from a given set of facts and the significance of those inferences to him."
(b.2) Nature and Reliability - The factors affecting the second definition of a "fact of special significance," which is of
such importance that it is expected to affect the judgment of a reasonable man, were substantially lifted from a test
of materiality pronounced in the case In the Matter of Investors Management Co., Inc.43:
Among the factors to be considered in determining whether information is material under this test are the
degree of its specificity, the extent to which it differs from information previously publicly disseminated, and
its reliability in light of its nature and source and the circumstances under which it was received.
It can be deduced from the foregoing that the "nature and reliability" of a significant fact in determining the course
of action a reasonable person takes regarding securities must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that would render the "nature and reliability" of a fact to be
of special significance is close to impossible. Nevertheless, the proper adjudicative body would undoubtedly be able
to determine if facts of a certain "nature and reliability" can influence a reasonable person's decision to retain, sell or
buy securities, and thereafter explain and justify its factual findings in its decision.
(c) Materiality Concept - A discussion of the "materiality concept" would be relevant to both a material fact which
would affect the market price of a security to a significant extent and/or a fact which a reasonable person would
consider in determining his or her cause of action with regard to the shares of stock. Significantly, what is referred to
in our laws as a fact of special significance is referred to in the U.S. as the "materiality concept" and the latter is
similarly not provided with a precise definition. In Basic v. Levinson,44 the U.S. Supreme Court cautioned against
confining materiality to a rigid formula, stating thus:
A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the light
of all the circumstances. But ease of application alone is not an excuse for ignoring the purposes of the
Securities Act and Congress' policy decisions. Any approach that designates a single fact or occurrence as
always determinative of an inherently fact-specific finding such as materiality, must necessarily be
overinclusive or underinclusive.
Moreover, materiality "will depend at any given time upon a balancing of both the indicated probability that the event
will occur and the anticipated magnitude of the event in light of the totality of the company activity." 45 In drafting the
Securities Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of materiality:
Although the Committee believes that ideally it would be desirable to have absolute certainty in the
application of the materiality concept, it is its view that such a goal is illusory and unrealistic. The materiality
concept is judgmental in nature and it is not possible to translate this into a numerical formula. The
Committee's advice to the [SEC] is to avoid this quest for certainty and to continue consideration of materiality
on a case-by-case basis as disclosure problems are identified." House Committee on Interstate and Foreign
Commerce, Report of the Advisory Committee on Corporate Disclosure to the Securities and Exchange
Commission, 95th Cong., 1st Sess., 327 (Comm.Print 1977). (Emphasis provided.)46
(d) Generally Available - Section 30 of the Revised Securities Act allows the insider the defense that in a transaction of
securities, where the insider is in possession of facts of special significance, such information is "generally available"
to the public. Whether information found in a newspaper, a specialized magazine, or any cyberspace media be
sufficient for the term "generally available" is a matter which may be adjudged given the particular circumstances of
the case. The standards cannot remain at a standstill. A medium, which is widely used today was, at some previous
point in time, inaccessible to most. Furthermore, it would be difficult to approximate how the rules may be applied to
the instant case, where investigation has not even been started. Respondents failed to allege that the negotiations of
their agreement with GHB were made known to the public through any form of media for there to be a proper
appreciation of the issue presented.
Section 36(a) of the Revised Securities Act
As regards Section 36(a) of the Revised Securities Act, respondents claim that the term "beneficial ownership" is vague
and that it requires implementing rules to give effect to the law. Section 36(a) of the Revised Securities Act is a
straightforward provision that imposes upon (1) a beneficial owner of more than ten percent of any class of any equity
security or (2) a director or any officer of the issuer of such security, the obligation to submit a statement indicating
his or her ownership of the issuer's securities and such changes in his or her ownership thereof. The said provision
reads:
Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is directly or indirectly the
beneficial owner of more than ten per centum of any [class] of any equity security which is registered
pursuant to this Act, or who is [a] director or an officer of the issuer of such security, shall file, at the time of
the registration of such security on a securities exchange or by the effective date of a registration statement
or within ten days after he becomes such a beneficial owner, director or officer, a statement with the
Commission and, if such security is registered on a securities exchange, also with the exchange, of the
amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after
the close of each calendar month thereafter, if there has been a change in such ownership during such
month, shall file with the Commission, and if such security is registered on a securities exchange, shall also
file with the exchange, a statement indicating his ownership at the close of the calendar month and such
changes in his ownership as have occurred during such calendar month. (Emphasis provided.)
Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in the following manner:
[F]irst, to indicate the interest of a beneficiary in trust property (also called "equitable ownership"); and
second, to refer to the power of a corporate shareholder to buy or sell the shares, though the shareholder is
not registered in the corporation's books as the owner. Usually, beneficial ownership is distinguished from
naked ownership, which is the enjoyment of all the benefits and privileges of ownership, as against
possession of the bare title to property.47
Even assuming that the term "beneficial ownership" was vague, it would not affect respondents' case, where the
respondents are directors and/or officers of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36(a) of the Revised Securities Act. The validity of a statute may be contested
only by one who will sustain a direct injury as a result of its enforcement.48
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities market and
prevent unscrupulous individuals, who by their positions obtain non-public information, from taking advantage of an
uninformed public. No individual would invest in a market which can be manipulated by a limited number of corporate
insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the occurrence of such
an event, Section 30 of the Revised Securities Act prevented the unfair use of non-public information in securities
transactions, while Section 36 allowed the SEC to monitor the transactions entered into by corporate officers and
directors as regards the securities of their companies.
In the case In the Matter of Investor's Management Co.,49 it was cautioned that "the broad language of the anti-fraud
provisions," which include the provisions on insider trading, should not be "circumscribed by fine distinctions and rigid
classifications." The ambit of anti-fraud provisions is necessarily broad so as to embrace the infinite variety of
deceptive conduct.50
In Tatad v. Secretary of Department of Energy,51 this Court brushed aside a contention, similar to that made by the
respondents in this case, that certain words or phrases used in a statute do not set determinate standards, declaring
that:
Petitioners contend that the words "as far as practicable," "declining" and "stable" should have been defined
in R.A. No. 8180 as they do not set determinate and determinable standards. This stubborn submission
deserves scant consideration. The dictionary meanings of these words are well settled and cannot confuse
men of reasonable intelligence. x x x. The fear of petitioners that these words will result in the exercise of
executive discretion that will run riot is thus groundless. To be sure, the Court has sustained the validity of
similar, if not more general standards in other cases.
Among the words or phrases that this Court upheld as valid standards were "simplicity and dignity," 52 "public
interest,"53 and "interests of law and order."54
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules were
promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section 36 of the Revised
Securities Act. It is already unequivocal that the Revised Securities Act requires full disclosure and the Full Disclosure
Rules were issued to make the enforcement of the law more consistent, efficient and effective. It is equally reasonable
to state that the disclosure forms later provided by the SEC, do not, in any way imply that no compliance was required
before the forms were provided. The effectivity of a statute which imposes reportorial requirements cannot be
suspended by the issuance of specified forms, especially where compliance therewith may be made even without
such forms. The forms merely made more efficient the processing of requirements already identified by the statute.
For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and 36 of the
Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently clear and complete
by themselves. Their requirements are specifically set out, and the acts which are enjoined are determinable. In
particular, Section 8 of the Revised Securities Act is a straightforward enumeration of the procedure for the
registration of securities and the particular matters which need to be reported in the registration statement thereof.
The Decision, dated 20 August 1998, provides no valid reason to exempt the respondent IRC from such requirements.
The lack of implementing rules cannot suspend the effectivity of these provisions. Thus, this Court cannot find any
cogent reason to prevent the SEC from exercising its authority to investigate respondents for violation of Section 8 of
the Revised Securities Act.
G.R. No. 168380
February 8, 2007
BAVIERA vs. PAGLINAWAN
SANDOVAL-GUTIERREZ, J.:
FACTS: Baviera was the former head of the HR Service Delivery and Industrial Relations of Standard Chartered BankPhilippines (SCB). SCB is a foreign banking corporation duly licensed to engage in banking, trust, and other fiduciary
business in the Philippines.
SCB acted as a stock broker, soliciting from local residents foreign securities called "GLOBAL THIRD PARTY
MUTUAL FUNDS" (GTPMF), denominated in US dollars. These securities were not registered with the Securities and
Exchange Commission (SEC).
ICAP filed with the SEC a complaint alleging that SCB violated the Revised Securities Act, particularly the
provision prohibiting the selling of securities without prior registration with the SEC. SEC indorsed ICAP’s complaint to
the BSP. BSP directed SCB not to include investments in global mutual funds issued abroad in its trust investments
portfolio without prior registration with the SEC.
However, SCB continued to offer and sell GTPMF securities in this country. This prompted petitioner to enter
into an Investment Trust Agreement with SCB wherein he purchased US$8,000.00 worth of securities. After six (6)
months, however, petitioner learned that the value of his investment went down to US$7,000.00. He tried to
withdraw his investment but was persuaded by Antonette de los Reyes of SCB to hold on to it for another six (6)
months in view of the possibility that the market would pick up. Petitioner’s investment went down further to only
US$3,000.00.
Petitioner filed with the DOJ a complaint for violation of Section 8.1 of the Securities Regulation Code against
private respondents.
Meanwhile, the DOJ dismissed petitioner’s complaint for violation of Securities Regulation Code, holding that
it should have been filed with the SEC.CA sustained the ruling of the DOJ that the case should have been filed initially
with the SEC.
ISSUE: Whether the case should have been filed initially with the SEC.
HELD: YES. Section 53.1 of the Securities Regulation Code provides:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses.–
53. 1. The Commission may, in its discretion, make such investigation as it deems necessary to determine whether
any person has violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or
any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission shall
determine, as to all facts and circumstances concerning the matter to be investigated. The Commission may publish
information concerning any such violations and to investigate any fact, condition, practice or matter which it may
deem necessary or proper to aid in the enforcement of the provisions of this Code, in the prescribing of rules and
regulations thereunder, or in securing information to serve as a basis for recommending further legislation concerning
the matters to which this Code relates: Provided, however, That any person requested or subpoenaed to produce
documents or testify in any investigation shall simultaneously be notified in writing of the purpose of such
investigation: Provided, further, That all criminal complaints for violations of this Code and the implementing rules and
regulations enforced or administered by the Commission shall be referred to the Department of Justice for preliminary
investigation and prosecution before the proper court: Provided, furthermore, That in instances where the law allows
independent civil or criminal proceedings of violations arising from the act, the Commission shall take appropriate
action to implement the same: Provided, finally; That the investigation, prosecution, and trial of such cases shall be
given priority.
The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or rule
administered by the SEC must first be filed with the latter. If the Commission finds that there is probable cause, then
it should refer the case to the DOJ. Since petitioner failed to comply with the foregoing procedural requirement, the
DOJ did not gravely abuse its discretion in dismissing his complaint in I.S. No. 2004-229.
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred
to an administrative agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will
not determine a controversy involving a question within the jurisdiction of the administrative tribunal, where the
question demands the exercise of sound administrative discretion requiring the specialized knowledge and expertise of
said administrative tribunal to determine technical and intricate matters of fact.12 The Securities Regulation Code is a
special law. Its enforcement is particularly vested in the SEC. Hence, all complaints for any violation of the Code and
its implementing rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the
SEC shall indorse the complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1
earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed his criminal
complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed to the DOJ in dismissing
petitioner’s complaint.
CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.
GR No. 171815, August 7, 2007 Chico-Nazario, J.
FACTS: Union Cement Corporation (UCC) has two principal stockholders – UCHC, a non-listed company, with shares
amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC’s stocks were owned by BCI with 21.31%
and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter, BCI informed the
Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in
UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to 29.69%.
As a consequence of this disclosure, the PSE inquired as to whether the Tender Offer Rule under Rule 19 of
the Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner of the
majority of shares of UCC. The SEC en banc had resolved that the Cemco transaction was not covered by the tender
offer rule. National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to
Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.
Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it
to reverse its 27 July 2004 Resolution and to declare the purchase agreement of Cemco void and praying that the
mandatory tender offer rule be applied to its UCC shares.
The SEC ruled in favor of the respondent by reversing and setting aside its 27 July 2004 Resolution and
directed petitioner Cemco to make a tender offer for UCC shares to respondent and other holders of UCC shares
similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of the Securities Regulation Code.
CA affirmed the ruling of the SEC. It ruled that the SEC has jurisdiction to render the questioned decision and,
in any event, Cemco was barred by estoppel from questioning the SEC’s jurisdiction.
It, likewise, held that the tender offer requirement under the Securities Regulation Code and its
Implementing Rules applies to Cemco’s purchase of UCHC stocks.
ISSUES:
1. Whether or not the SEC has jurisdiction over respondent’s complaint and to require Cemco to make a tender offer
for respondent’s UCC shares.
2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company,
in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-listed company, through its purchase of the
shares in UCHC, a non-listed company.
HELD:
1. YES. In taking cognizance of respondent’s complaint against petitioner and eventually rendering a judgment
which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule19(13) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code, to wit:
“ 13. Violation If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company
at threshold amounts without the required tender offer, the Commission, upon complaint, may nullify the said
acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other
sanctions under the Code.”
The foregoing rule emanates from the SEC’s power and authority to regulate, investigate or supervise the
activities of persons to ensure compliance with the Securities Regulation Code, more specifically the provision
on mandatory tender offer under Section 19thereof. Moreover, petitioner is barred from questioning the
jurisdiction of the SEC. It must be pointed out that petitioner had participated in all the proceedings before the
SEC and had prayed for affirmative relief.
2. YES. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to
acquire equity securities of a public company.
A public company is defined as a corporation which is listed on an exchange, or a corporation with assets
exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares
of such company .
Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for
them to tender their shares therein on the terms specified in the offer. Tender of offer is in place
to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the
minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their
shares at the same price as those of the majority shareholders. The SEC and the Court of Appeals ruled that the indirect
acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by
the mandatory tender offer rule. The legislative intent of Section 19 of the Code is to regulate activities relating to
acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed
corporation. Whatever may be the method by which control of a public company is obtained, either through the direct
purchase of its stocks or through an indirect means, mandatory tender offer applies. As appropriately held by the
Court of Appeals:
The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as a result
of the transaction, it became an indirect owner of UCC. We are constrained, however, to construe ownership
acquisition to mean both direct and indirect. What is decisive is the determination of the power of control. The
legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the
acquisition of control of the listed company through the purchase of shares. Control may [be] effected through a
direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must
occur. The bottom line of the law is to give the shareholder of the listed company the opportunity to decide whether
or not to sell in connection with a transfer of control. x x x
PHILIPPINE VETERANS BANK v. JUSTINA CALLANGAN, GR No. 191995, 2011-08-03
FACTS: Justina F. Callangan, Director of the Corporation Finance Department of the SEC, sent the Bank a letter,
informing it that it qualifies as a "public company" under Section 17.2 of the Securities Regulation Code (SRC) in
relation with Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC. The Bank is thus required
to comply with the reportorial requirements set forth in Section 17.1 of the SRC.
The Bank responded by explaining that it should not be considered a "public company" because it is a private
company whose shares of stock are available only to a limited class or sector, i.e., to World War II veterans, and not
to the general public.
Director Callangan rejected the Bank's explanation and assessed it a total penalty of One Million Nine
Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for failing to comply with
the SRC reportorial... requirements from 2001 to 2003.
CA dismissed the petition and affirmed the assailed SEC ruling, with the modification. The CA also denied the
Bank's motion for reconsideration,7] opening the way for the Bank's petition for review on certiorari filed with this
Court. The Court denied the Bank's petition for failure to show any reversible error in the assailed CA decision and
resolution.
The Bank also argues that even assuming it is considered a "public company" pursuant to Section 17 of the
SRC, the Court should interpret the pertinent SRC provisions in such a way that no financial prejudice is done to the
thousands of veterans who are stockholders of the Bank.
ISSUE: Whether the bank is a "public company" subject to the reportorial requirements under Section 17.1 of the SRC.
HELD: Yes. Under Sec 17.2 SRC, the reportorial requirements of Subsection 17.1 shall apply to the following:
An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other amount as the Commission shall
prescribe, and having two hundred (200) or more holders each holding at least one hundred (100) shares of a class of
its equity securities.
"Public company," is not limited to a company whose shares of stock are publicly listed; even companies like the Bank,
whose shares are offered only to a specific group of people, are considered a public company, provided they meet
the requirements enumerated above.
The records establish, and the Bank does not dispute, that the Bank has assets exceeding P50,000,000.00 and has
395,998 shareholders. It is thus considered a public company that must comply with the reportorial requirements set
forth in Section.
17.1 of the SRC... the Bank's obligation to provide its stockholders with copies of its annual report is actually for the
benefit of the veterans-stockholders, as it gives these stockholders access to information on the Bank's financial status
and... operations, resulting in greater transparency on the part of the Bank.
While compliance with this requirement will undoubtedly cost the Bank money, the benefit provided to the
shareholders clearly outweighs the expense.
For many stockholders, these annual reports are the only... means of keeping in touch with the state of health of their
investments; to them, these are invaluable and continuing links with the Bank that immeasurably contribute to the
transparency in public companies that the law envisions.
G.R. No. 164197
January 25, 2012
SECURITIES AND EXCHANGE COMMISSION vs. PROSPERITY.COM, INC.
ABAD, J.: This case involves the application of the Howey test in order to determine if a particular transaction is an
investment contract.
FACTS: Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet service. To
make a profit, PCI devised a scheme in which, for the price of US$234.00 (subsequently increased to US$294), a buyer
could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by referring to PCI his
own down-line buyers, a first-time buyer could earn commissions, interest in real estate in the Philippines and in the
United States, and insurance coverage worth ₱50,000.00.
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own down-lines.
These second tier of buyers could in turn build up their own down-lines. For each pair of down-lines, the buyersponsor received a US$92.00 commission. But referrals in a day by the buyer-sponsor should not exceed 16 since the
commissions due from excess referrals inure to PCI, not to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company stopped operations
after the Securities and Exchange Commission (SEC) issued a cease and desist order (CDO) against it. As it later on
turned out, the same persons who ran the affairs of GVI directed PCI’s actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had taken over
GVI’s operations. After hearing, SEC issued a CDO against PCI. The SEC ruled that PCI’s scheme constitutes an
Investment contract and, following the Securities Regulations Code, it should have first registered such contract or
securities with the SEC.
ISSUE: Whether PCI’s scheme constitutes an investment contract that requires registration under R.A. 8799.
HELD: No. The Securities Regulation Code treats investment contracts as "securities" that have to be registered with
the SEC before they can be distributed and sold. An investment contract is a contract, transaction, or scheme where
a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.8
Apart from the definition, which the Implementing Rules and Regulations provide, Philippine jurisprudence has so far
not done more to add to the same. Of course, the United States Supreme Court, grappling with the problem, has on
several occasions discussed the nature of investment contracts. That court’s rulings, while not binding in the
Philippines, enjoy some degree of persuasiveness insofar as they are logical and consistent with the country’s best
interests.9
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co.10 that, for an
investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a contract,
transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation
of profits; and (5) profits arising primarily from the efforts of others. 11 Thus, to sustain the SEC position in this case,
PCI’s scheme or contract with its buyers must have all these elements.
An example that comes to mind would be the long-term commercial papers that large companies, like San Miguel
Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor buys these
papers or securities, he invests his money, together with others, in SMC with an expectation of profits arising from
the efforts of those who manage and operate that company. SMC has to register these commercial papers with the
SEC before offering them to investors.1âwphi1
Here, PCI’s clients do not make such investments. They buy a product of some value to them: an Internet website of
a 15-MB capacity. The client can use this website to enable people to have internet access to what he has to offer to
them, say, some skin cream. The buyers of the website do not invest money in PCI that it could use for running some
business that would generate profits for the investors. The price of US$234.00 is what the buyer pays for the use of
the website, a tangible asset that PCI creates, using its computer facilities and technical skills.
Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for getting people to buy
their products outside the usual retail system where products are bought from the store’s shelf. Under this scheme,
adopted by most health product distributors, the buyer can become a down-line seller. The latter earns commissions
from purchases made by new buyers whom he refers to the person who sold the product to him. The network goes
down the line where the orders to buy come.
The commissions, interest in real estate, and insurance coverage worth ₱50,000.00 are incentives to down-line sellers
to bring in other customers. These can hardly be regarded as profits from investment of money under the Howey test.
The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme that PCI has
adopted. Evidently, it is PCI that expects profit from the network marketing of its products. PCI is correct in saying that
the US$234 it gets from its clients is merely a consideration for the sale of the websites that it provides.
THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix, SYLVIA S. Ty, petitioner, VS. COURT OF
APPEALS, HON. ILDEFONSO E. GASCON, and ALEJANDRO B. TY, respondents
G.R. No. 112872
April 19, 2001
FACTS: Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent Alejandro. Alexander died of
leukemia on May 19, 1988 and was survived by his wife, petitioner Silvia, and only child, Krizia Katrina. In the
settlement of his estate, petitioner was appointed administratrix of her late husband’s intestate estate.
On November 4, 1992, petitioner filed a motion for leave to sell or mortgage estate property in order to generate
funds for the payment of deficiency estate taxes in the sum of P4,714,560.00.
Private respondent Alejandro Ty then filed two complaints for the recovery of the above-mentioned property, praying
for the declaration of nullity of the deed of absolute sale of the shares of stock executed by private respondent in
favor of the deceased Alexander, praying for the recovery of the pieces of property that were placed in the name of
deceased Alexander, they were acquired through private-respondent’s money, without any cause or consideration
from deceased Alexander.
Motions to dismiss were filed by petitioner. Both motions alleged lack of jurisdiction of the trial court, claiming that
the cases involved intra-corporate dispute cognizable by the Securities and Exchange Commission (SEC). The motions
to dismiss were denied. Petitioner then filed petitions for certiorari in the Courts of Appeals, which were also dismissed
for lack of merit. Thus, the present petitions now before the Court.
ISSUE: Whether the case involves an intra-corporate dispute, and thus, under Section 5(b) of Presidential Decree 902A, the SEC has jurisdiction over the case.
HELD: No. Petitioner argues that the present case involves a suit between two stockholders of the same corporation
which thus places it beyond the jurisdictional periphery of regular trial courts and more within the exclusive
competence of the SEC by reason of Section 5(b) of Presidential Decree 902-A, since repealed. However, it does not
necessarily follow that when both parties of a dispute are stockholders of a corporation, the dispute is automatically
considered intra-corporate in nature and jurisdiction consequently falls with the SEC. Presidential Decree 902-A did
not confer upon the SEC absolute jurisdiction and control over all matters affecting corporations, regardless of the
nature of the transaction which gave rise to such disputes (Jose Peneyra, et. al. vs. Intermediate Appellate Court, et.
al., 181 SCRA 245 [1990] citing DMRC Enterprises vs. Este del Sol Mountain Reserve, Inc., 132 SCRA 293 [1984]). The
better policy in determining which body has jurisdiction over this case would be to consider, not merely the status of
the parties involved, but likewise the nature of the question that is the subject of the controversy (Viray vs. Court of
Appeals, 191 SCRA 309 [1990]). When the nature of the controversy involves matters that are purely civil in character,
it is beyond the ambit of the limited jurisdiction of the SEC (Saura vs. Saura, Jr., 313 SCRA 465 [1999]).
In the cases at bar, the relationship of private respondent when he sold his shares of stock to his son was one of
vendor and vendee, nothing else. The question raised in the complaints is whether or not there was indeed a sale in
the absence of cause or consideration. The proper forum for such a dispute is a regular trial court. The Court agrees
with the ruling of the Court of Appeals that no special corporate skill is necessary in resolving the issue of the validity
of the transfer of shares from one stockholder to another of the same corporation. Both actions, although involving
different property, sought to declare the nullity of the transfers of said property to the decedent on the ground that
they were not supported by any cause or consideration, and thus, are considered void ab initio for being absolutely
simulated or fictitious. The determination whether a contract is simulated or not is an issue that could be resolved by
applying pertinent provisions of the Civil Code, particularly those relative to obligations and contracts. Disputes
concerning the application of the Civil Code are properly cognizable by courts of general jurisdiction. No special skill
is necessary that would require the technical expertise of the SEC.
It should also be noted that under the newly enacted Securities Regulation Code (Republic Act No. 8799), this issue is
now moot and academic because whether or not the issue is intra-corporate, it is the regional trial court and not longer
the SEC that takes cognizance of the controversy. Under Section 5.2 of Republic Act No. 8799, original and exclusive
jurisdiction to hear and decide cases involving intra-corporate controversies have been transferred to courts of general
jurisdiction or the appropriate regional trial court.
G.R. No. 168639
January 29, 2007
ALDERITO Z. YUJUICO, BONIFACIO C. SUMBILLA, and DOLNEY S. SUMBILLA, Petitioners,
vs.
CEZAR T. QUIAMBAO, JOSE M. MAGNO III, MA. CHRISTINA F. FERREROS, ANTHONY K. QUIAMBAO, SIMPLICIO T.
QUIAMBAO, JR., ERIC C. PILAPIL, ALBERT M. RASALAN, and REGIONAL TRIAL COURT, BRANCH 48, URDANETA CITY,
FACTS: Respondents filed with the RTC a complaint against STRADEC. The complaint prays that: (1) the election of
Board of Directors be nullified on the ground of improper venue, pursuant to Section 51 of the Corporation Code; (2)
all ensuing transactions conducted by the elected directors be likewise nullified; and (3) a special stockholders meeting
be held anew.
Petitioners filed their Answer with Counterclaim7 in Civil (SEC) Case. They prayed for the dismissal of the complaint on
the following grounds, among others: (a) the complaint does not state a cause of action; (b) the action is barred by
prescription for it was filed beyond the 15-day prescriptive period provided by Section 2, Rule 6 of the Interim Rules
and Procedure Governing Intra-Corporate Controversies under Republic Act (R.A.) No. 8799.
ISSUE: Whether the RTC may order the holding of a special meeting of stockholders or members of a corporation
involving an intra-corporate dispute under its supervision.
HELD: YES. An intra-corporate controversy is one which "pertains to any of the following relationships: (1) between
the corporation, partnership or association and the public; (2) between the corporation, partnership or association
and the State in so far as its franchise, permit or license to operate is concerned; (3) between the corporation,
partnership or association and its stockholders, partners, members or officers; and (4) among the stockholders,
partners or associates themselves."15 There is thus no dispute that respondents’ complaint in Civil (SEC) Case No. U14 before the RTC, Branch 48, Urdaneta City involves an intra-corporate controversy, the contending parties being
stockholders and officers of a corporation.
Originally, Section 5 of Presidential Decree (P.D.) No. 902-A bestowed the SEC original and exclusive jurisdiction over
cases involving the following:
(a) Devices or schemes employed by, or any act of, the board of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the
stockholders, partners, or members of associations registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members
or associates; between any or all of them and the corporation, partnership or association and the State insofar as it
concerns their individual franchise or right as such entity;
(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations,
partnership or associations;
(d) Petitioners of corporations, partnerships or associations to be declared in the state of suspension of payment in
cases where the corporation, partnership or association possesses sufficient property to cover all its debts but
foresees the impossibility of meeting them when they fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities but is under the management of a rehabilitation receiver or
management committee created pursuant to this Decree.16 (Underscoring supplied)
Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation Code" which took
effect on August 8, 2000,17 the jurisdiction of the SEC over intra-corporate controversies and other cases enumerated
in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction, or the appropriate RTC. Section
5.2 of R.A. No. 8799 provides:
5.2. The Commission’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court, Provided, That the Supreme
Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000
until finally disposed. (Underscoring supplied)
Pursuant to R.A. No. 8799, the Court issued a Resolution dated November 21, 2000 in A.M. No. 00-11-03-SC
designating certain branches of the RTC to try and decide cases enumerated in Section 5 of P.D. No. 902-A. Branch 48
of RTC, Urdaneta City, the court a quo, is among those designated as a Special Commercial Court. On March 13, 2001,
the Court approved the Interim Rules of Procedure Governing Intra-Corporate Controversies under R.A. No. 8799
which took effect on April 1, 2001.18 Sections 1 and 2, Rule 6 of the said Rules provide:
SEC. 1. Cases covered. – The provisions of this rule shall apply to election contests in stock and non-stock corporations.
SEC. 2. Definition. – An election contest refers to any controversy or dispute involving title or claim to any elective
office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the
qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer
directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the
articles of incorporation or by-laws so provide. (Underscoring supplied)
In Morato v. Court of Appeals we held that pursuant to R.A. No. 8799 and the Interim Rules of Procedure Governing
Intra-Corporate Controversies, "among the powers and functions of the SEC which were transferred to the RTC include
the following: (a) jurisdiction and supervision over all corporations, partnerships or associations which are the
grantees of primary franchises and/or a license or permit issued by the Government; (b) the approval, rejection,
suspension, revocation or requirement for registration statements, and registration and licensing applications; (c) the
regulation, investigation, or supervision of the activities of persons to ensure compliance; (d) the supervision,
monitoring, suspension or take over the activities of exchanges, clearing agencies, and other SROs; (e) the imposition
of sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; (f) the issuance of
cease-and-desist orders to prevent fraud or injury to the investing public; (g) the compulsion of the officers of any
registered corporation or association to call meetings of stockholders or members thereof under its supervision; and
(h) the exercise of such other powers as may be provided by law as well as those which may be implied from, or which
are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the
objectives and purposes of these laws."
Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties herein. Concomitant
to said power is the authority to issue orders necessary or incidental to the carrying out of the powers expressly
granted to it. Thus, the RTC may, in appropriate cases, order the holding of a special meeting of stockholders or
members of a corporation involving an intra-corporate dispute under its supervision.
GSIS v. CA (G.R. No. 183905)
FACTS: GSIS, a major shareholder in Meralco, was distressed over the proxy validation proceedings and the resulting
certification of proxies in favor of the Meralco Management. The proceedings were presided over by Meralco’s
assistant corporate secretary and chief legal counsel instead of the person duly designated by Meralco’s Board of
Directors. Thus, GSIS moved before the SEC to declare certain proxies, those issued to herein private respondents, as
invalid. Private respondents contend that dispute in the validity of proxies is an election contest which falls under the
trial court’s jurisdiction. GSIS argues there was no election yet at the time it filed its petition with the SEC, hence no
proper election contest over which the regular courts may have jurisdiction.
ISSUE: Whether the proxy challenge is an election contest cognizable by the regular courts.
HELD: YES. Section 2, Rule 6 of the Interim Rules broadly defines the term “election contest” as encompassing all
plausible incidents arising from the election of corporate directors, including: (1) any controversy or dispute involving
title or claim to any elective office in a stock or non-stock corporation, (2) the validation of proxies, (3) the manner
and validity of elections and (4) the qualifications of candidates, including the proclamation of winners.
Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts
with respect to election-related controversies is specifically confined to “controversies in the election or appointment
of directors, trustees, officers or managers of corporations, partnerships, or associations.” Evidently, the jurisdiction
of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to every
potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which
stockholders are authorized to participate under Section 24 of the Corporation Code.
The power of the SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are
obtained to vote on matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A.
However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even
if it ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election
controversy within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation
to Section 5(c) of Presidential Decree No. 902-A.
That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is undisputed. The
controversy was engendered by the looming annual meeting, during which the stockholders of Meralco were to elect
the directors of the corporation. GSIS very well knew of that fact.
SEC v Performance Foreign Exchange Corporation GR No 154131 July 20, 2006
FACTS: Performance Foreign Exchange Corporation, respondent herein, is a domestic corporation duly registered with
SEC and engaged as its primary purpose to operate as a broker/agent between market participants in transactions
involving, but not limited to, foreign exchange, deposits, interest rate instruments, and similar or derivative products,
other than acting as a broker for the trading of securities pursuant to the Revised Securities Act of the Philippines. The
respondent secondary purpose is to engage in money changer or exchanging foreign currencies. The respondent
received a letter from SEC requiring it to appear before the Compliance and Enforcement Department (CED) for a
clarificatory conference regarding its business operations. The Director of CED issued a Cease and Desist Order for
possible violation of R.A.No. 8799 (otherwise known as The Securities Regulation Code) and that the outcome of the
inquiry shows that respondent is engaged in the trading of foreign currency futures contracts in behalf of its clients
without the necessary license; that such transaction can be deemed as a direct violation of Section 11 of R.A. No.
8799. The respondent filed a motion to SEC to lift the said order. SEC Chairman Bautista, in her desire to know with
certainty the nature of respondent’s business, sent a letter to the BSP, requesting a definitive statement that
respondent’s business transactions are a form of financial derivatives and, therefore, can only be undertaken by banks
or non-bank financial intermediaries performing quasi-banking functions. However, SEC issued an Order denying
respondent’s motion for the lifting of the Cease and Desist Order without waiting for BSP’s determination of the
matter.
Thereafter, SEC issued an order making the Cease and Desist Order permanent.
Respondent filed with the Court of Appeals a Petition for Certiorari. It alleged that SEC grave abuse of discretion when
it issued the Cease and Desist Order and its subsequent Order making the same permanent without waiting or the
BSP’s determination of the real nature of its business operations; and that petitioner’s Orders, issued without any
factual basis, violated its (respondent’s) fundamental right to due process. BSP, in answer to SEC Chairman letterrequest stated that respondent’s business activity "does not fall under the category of futures trading "and" cannot
be classified as financial derivatives transactions.“ CA ruled that SEC acted with grave abuse of discretion when it
issued its challenged Orders without a positive factual finding that respondent violated the Securities Regulation Code.
Hence, this petition.
ISSUE: Whether petitioner SEC acted with grave abuse of discretion in issuing the Cease and Desist Order and its
subsequent Order making it permanent.
HELD: Yes. Section 64 of R.A. No. 8799, provides:
Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu proprio, or
upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior
hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise
likely to cause grave or irreparable injury or prejudice to the investing public.
Under the above provision, there are two essential requirements that must be complied with by the SEC before it may
issue a cease and desist order: First, it must conduct proper investigation or verification; and Second, there must be
a finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause
grave or irreparable injury or prejudice to the investing public.
Here, the first requirement is not present. Petitioner did not conduct proper investigation or verification before it
issued the challenged orders. The clarificatory conference undertaken by petitioner regarding respondent’s business
operations cannot be considered a proper investigation or verification process to justify the issuance of the Cease and
Desist Order. It was merely an initial stage of such process, considering that after it issued the said order following the
clarificatory conference, petitioner still sought verification from the BSP on the nature of respondent’s business
activity. Its letter to the BSP dated February 8, 2001 states in part:
The Securities and Exchange Commission has been investigating corporations which engage in foreign currency
trading abroad. The following illustrates their operations:
Enclosed are pertinent documents which were submitted by a corporation showing how its transactions operate. It is
claimed by the corporation in question that theirs are all spot transactions and are not covered by the Bangko Sentral
ng Pilipinas. We understand, however, that in other jurisdiction, this type of activity can only be done by banks.
Previous inquiries from the Bangko Sentral ng Pilipinas, specifically Department of Commercial Banks II, and your
department, Commercial Banks I, lead to conclude that this kind of trading in foreign currencies may be a form of
financial derivatives.
May we, therefore, request a definitive statement that the above-described transactions, and as illustrated in the
attached documents, are a form of financial derivatives and, therefore, can only be undertaken by banks, or non-bank
financial intermediaries performing quasi-banking functions and/or its subsidiaries/affiliates.20 (Underscoring
supplied)
Petitioner’s act of referring the matter to the BSP is an essential part of the investigation and verification process. In
fact, such referral indicates that petitioner concedes to the BSP’s expertise in determining the nature of respondent’s
business. It bears stressing, however, that such investigation and verification, to be proper, must be conducted by
petitioner before, not after, issuing the Cease and Desist Order in question. This, petitioner utterly failed to do. The
issuance of such order even before it could finish its investigation and verification on respondent’s business activity
obviously contravenes Section 64 of R.A. No. 8799 earlier quoted.
Worse, when respondent filed a motion praying that the same order be lifted for being premature, petitioner, in its
Order dated February 9, 2001, even denied the motion despite its admission therein that it cannot determine certain
material facts involving respondent’s transactions and, as such, the matter must be referred to the BSP for
determination, thus:
In the light of the above circumstances, and the fact that the Commission cannot determine whether such transactions
are actually executed in Singapore or Hongkong as alleged, and whether the foreign currency rates used in the
transactions are verifiable, it is our position that the same be endorsed to the BSP.
In view of the foregoing, the cease and desist order stays against the corporation until the latter shall be able to submit
the appropriate endorsement from the Bangko Sentral ng Pilipinas that it can engage in financial derivative
transactions.
SO ORDERED.
G.R. No. 179047, March 11, 2015
SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. SUBIC BAY GOLF AND COUNTRY CLUB, INC. AND UNIVERSAL
INTERNATIONAL GROUP DEVELOPMENT CORPORATION, Respondents.
LEONEN, J.:
Intra-corporate controversies, previously under the Securities and Exchange Commission's jurisdiction, are now under
the jurisdiction of Regional Trial Courts designated as commercial courts. However, the transfer of jurisdiction to the
trial courts does not oust the Securities and Exchange Commission of its jurisdiction to determine if administrative
rules and regulations were violated.
FACTS: Subic Bay Golf Course, also known as Binictican Valley Golf Course, was operated by Subic Bay Metropolitan
Authority (SBMA) under the Bases Conversion Development Authority (BCDA). Universal International Group of
Taiwan (UIG), a Taiwanese corporation, was chosen to implement the plan to privatize the golf course.
SBMA and UIG entered into a Lease and Development Agreement. Under the agreement, UIG agreed to "develop,
manage and maintain the golf course and other related facilities within the complex. Later, Universal International
Group Development Corporation (UIGDC) succeeded to the interests of UIG on the golf course development. UIGDC
executed a Deed of Assignment in favor of Subic Bay Golf and Country Club, Inc. (SBGCCI).
Complainants Regina Filart (Filart) and Margarita Villareal (Villareal) informed the Securities and Exchange Commission
that they had been asking UIGDC for the refund of their payment for their SBGCCI shares. UIGDC did not act on their
requests. They alleged that they purchased the shares in 1996 based on the promise of SBGCCI and UIGDC to deliver
the amenities. They also claimed that despite SBGCCI's and UIGDC's failure to deliver the promised amenities, they
started to charge them monthly dues.
The Corporation Finance Department found that Filart and Villareal invested in the golf course because of SBGCCI and
UIGDC's representation that a 27-hole, world-class golf course would be developed. It also found that SBGCCI and
UIGDC failed to comply with their commitments and representations as stated in their prospectus
The Corporation Finance Department ordered the return of the purchase price of shares. The Securities and Exchange
Commission affirmed the order.
SBGDCC and UIGDC insist that the case involved an intra-corporate dispute over which only the Regional Trial Court has
jurisdiction. The Securities and Exchange Commission has no authority to order the return of payments made by
Villareal and Filart. Even assuming that the Securities and Exchange Commission has jurisdiction over intra-corporate
cases, there should first be a disagreement over prospectus amendments before paid contributions can be
refunded.66cralawrednad
ISSUE: Which has jurisdiction over the case, SER or RTC?
HELD: Thee Securities and Exchange Commission may take cognizance of it to determine if SBGCCI and UIGDC
committed administrative violations and were liable under the Securities Regulation Code. However, the issue of
refund should be litigated in the appropriate Regional Trial Court. This issue is both intra-corporate and civil in nature,
which is under the jurisdiction of the designated Regional Trial Courts.
Under Presidential Decree No. 902-A,67 the Securities and Exchange Commission has jurisdiction over acts amounting
to fraud and misrepresentation by a corporation's board of directors, business associates, and officers. It also provides
that it has jurisdiction over intra-corporate disputes.
WHEREAS, in line with the government's policy of encouraging investments, both domestic and foreign, and more
active public participation in the affairs of private corporations and enterprises through which desirable activities may
be pursued for the promotion of economic development; and, to promote a wider and more meaningful equitable
distribution of wealth, there is a need for an agency of the government to be invested with ample powers to protect
such investment and the public;
....
SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving:
Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partners,
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the
stockholder, partners, members of associations or organizations registered with the Commission;
Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such entity;
Controversies in the election or appointments of directors, trustees, officers or managers of such corporations,
partnerships or associations.
However, jurisdiction over intra-corporate disputes and all other cases enumerated in Section 5 of Presidential Decree
No. 902-A had already been transferred to designated Regional Trial Courts. Section 5.2 of Republic Act No. 8799
5.2.
The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme
Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000
until fully disposed.
Hence, actions pertaining to intra-corporate disputes should be filed directly before designated Regional Trial Courts.
Intra-corporate disputes brought before other courts or tribunals are dismissible for lack of
jurisdiction.68cralawrednad
For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy tests.69cralawrednad
The relationship test requires that the dispute be between a corporation/partnership/association and the public; a
corporation/partnership/association and the state regarding the entity's franchise, permit, or license to operate; a
corporation/partnership/association and its stockholders, partners, members, or officers; and among stockholders,
partners, or associates of the entity.70cralawrednad
The nature of the controversy test requires that the action involves the enforcement of corporate rights and
obligations.
Courts and tribunals must consider both the parties' relationship and the nature of the controversy to determine
whether they should assume jurisdiction over a case. In Medical Plaza Makati Condominium Corporation v. Cullen:71
[T]he controversy must not only be rooted in the existence of an intra-corporate relationship, but must as well pertain
to the enforcement of the parties' correlative rights and obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation. In other words, jurisdiction should be determined by considering
both the relationship of the parties as well as the nature of the question involved.72 (Citations omitted)
This case is an intra-corporate dispute, over which the Regional Trial Court has jurisdiction. It involves a dispute
between the corporation, SBGCCI, and its shareholders, Villareal and Filart.
This case also involves corporate rights and obligations. The nature of the action — whether it involves corporate
rights and obligations — is determined by the allegations and reliefs in the complaint.73cralawrednad
Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and UIGDC's alleged failure to
abide by their representations in their prospectus. Specifically, Villareal and Filart alleged in their letter-complaint that
the world-class golf course that was promised to them when they purchased shares did not materialize. This is an
intra-corporate matter that is under the designated Regional Trial Court's jurisdiction. It involves the determination
of a shareholder's rights under the Corporation Code or other intra-corporate rules when the corporation or
association fails to fulfill its obligations.
However, even though the Complaint filed before the Securities and Exchange Commission contains allegations that
are intra-corporate in nature, it does not necessarily oust the Securities and Exchange Commission of its regulatory
and administrative jurisdiction to determine and act if there were administrative violations committed.
The Securities and Exchange Commission is organized in line with the policy of encouraging and protecting
investments.74 It also administers the Securities Regulation Code,75 which was enacted to "promote the
development of the capital market, protect investors, ensure full and fair disclosure about securities, [and] minimize
if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create
distortions in the free market."76 Pursuant to these policies, the Securities and Exchange Commission is given
regulatory powers77 and "absolute jurisdiction, supervision and control over all corporations, partnerships' or
associations. . . ."78cralawrednad
In relation to securities, the Securities and Exchange Commission's regulatory power pertains to the approval and
rejection, and suspension or revocation, of applications for registration of securities79 for, among others, violations
of the law, fraud, and misrepresentations.
SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. The Commission may reject a registration
statement and refuse registration of the security thereunder, or revoke the effectivity of a registration statement and
the registration of the security thereunder after due notice and hearing by issuing an order to such effect, setting
forth its findings in respect thereto, if it finds that:
The issuer:
Has been judicially declared insolvent;
Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in connection with the offering for which a registration statement has been
filed;
Has been engaged or is about to engage in fraudulent transactions;
Has made any false or misleading representation of material facts in any prospectus concerning the issuer or its
securities;
Has failed to comply with any requirement that the Commission may impose as a condition for registration of the
security for which the registration statement has been filed; or
The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; or
The issuer, any officer, director or controlling person of the issuer, or person performing similar functions, or any
underwriter has been convicted, by a competent judicial or administrative body, upon plea of guilty, or otherwise, of
an offense involving moral turpitude and/or fraud or is enjoined or restrained by the Commission or other competent
judicial or administrative body for violations of securities, commodities, and other related laws.
....
13.4. If the Commission deems it necessary, it may issue an order suspending the offer and sale of the securities
pending any investigation. The order shall state the grounds for taking such action, but such order of suspension
although binding upon the persons notified thereof, shall be deemed confidential, and shall not be published. Upon
the issuance of the suspension order, no further offer or sale of such security shall be made until the same is lifted or
set aside by the Commission. Otherwise, such sale shall be void.
....
SEC. 15. Suspension of Registration. - 15.1. If, at any time, the information contained in the registration statement
filed is or has become misleading, incorrect, inadequate or incomplete in any material respect, or the sale or offering
for sale of the security registered thereunder may work or tend to work a fraud, the Commission may require from
the issuer such further information as may In its judgment be necessary to enable the Commission to ascertain
whether the registration of such security should be revoked on any ground specified in this Code. The Commission
may also suspend the right to sell and offer for sale such security pending further investigation, by entering an order
specifying the grounds for such action, and by notifying the issuer, underwriter, dealer or broker known as
participating in such offering.80
To ensure compliance with the law and the rules, the Securities and Exchange Commission is also given the power to
impose fines and penalties. It may also investigate motu proprio whether corporations comply with the Corporation
Code, Securities Regulation Code, and rules implemented by the Securities and Exchange Commission.chanrobleslaw
SEC. 5. Powers and Functions of the Commission. - 5.1. The Commission shall act with transparency and shall have the
powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment
Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions:
...
d.
Regulate, investigate or supervise the activities of persons to ensure compliance;
...
f.
Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
...
i.
Issue cease and desist orders to prevent fraud or injury to the investing public;
...
m.
Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by law; and
n.
Exercise such other powers as may be provided by law as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives
and purposes of these laws.81
The Securities and Exchange Commission's approval of securities registrations signals to the public that the securities
are valid. It provides the public with basis for relying on the representations of corporations that issue securities or
financial instruments.
Any fraud or misrepresentation in the issuance of securities injures the public. The Securities and Exchange
Commission's power to suspend or revoke registrations and to impose fines and other penalties provides the public
with a certain level of assurance that the securities contain representations that are true, and that misrepresentations
if later found, would be detrimental to the erring corporation. It creates risks to corporations that issue securities and
adds cost to errors, misrepresentations, and violations related to the issuance of those securities. This protects the
public who will rely on representations of corporations and partnerships regarding financial instruments that they
issue. The Securities and Exchange Commission's regulatory power over securities-related activities is tied to the
government's duty to protect the investing public from illegal and fraudulent instruments.
Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed misrepresentations
in the sale of their shares, nothing prevented the Securities and Exchange Commission from taking cognizance of it to
determine if SBGCCI and UIGDC committed administrative violations and were liable under the Securities Regulation
Code. The Securities and Exchange Commission may investigate activities of corporations under its jurisdiction to
ensure compliance with the law.
However, the Securities and Exchange Commission's regulatory power does not include the authority to order the
refund of the purchase price of Villareal's and Filart's shares in the golf club. The issue of refund is intra-corporate or
civil in nature. Similar to issues such as the existence or inexistence of appraisal rights, pre-emptive rights, and the
right to inspect books and corporate records, the issue of refund is an intra-corporate dispute that requires the court
to determine and adjudicate the parties' rights based on law or contract. Injuries, rights, and obligations involved in
intra-corporate disputes are specific to the parties involved. They do not affect the Securities and Exchange
Commission or the public directly.
The Securities and Exchange Commission argues that the power to order a refund is in accordance with the
implementing rules of the Securities Regulation Code. Despite orders from the Securities and Exchange Commission
to amend their prospectus, SBGCCI and UIGDC failed to comply. Thus, Villareal and Filart were entitled to the refund
of the purchase price of their shares. They cite Section 14 of the Implementing Rules and Regulations of the Securities
Regulation Code:
SRC Rule 14 - Amendments to the Registration Statement
1.
If a prospectus filed with the Commission under the Code becomes incomplete or inaccurate in any material respect
or if the issuer wants to change any material information therein, the issuer shall:
a.
file an amendment to the registration statement with the Commission explaining all proposed changes which shall be
reviewed by the Commission in accordance with Section 14 of the Code;
....
c.
where material amendments have been made to the prospectus after the effective date thereof, purchasers may,
within thirty (30) days from the date of such notification, renounce their purchase of securities, whereupon the issuer,
or any person acting on behalf of the issuer in connection with the distribution of said securities, shall, within ten (10)
days from receipt of notification of such election, return the contributions paid by such purchasers without making
any deductions. Purchasers who decide not to renounce their purchase of securities shall be subject to the terms of
the amended offering. (Emphasis supplied)
Based on these provisions, Villareal and Filart may be entitled to a refund of the purchase price of their shares.
Provisions giving shareholders rights, however, are not to be interpreted as sources of authority or jurisdiction when
there is none. The provisions in the law or in the rules giving Villareal and Filart the right to be refunded the value of
their shares are not equivalent to authority for the Securities and Exchange Commission to issue an order for the
refund. Such order may not come from the Securities and Exchange Commission.
Neither the provisions of the implementing rules nor the provisions of the Securities Regulation Code, the law being
implemented, give the Securities and Exchange Commission the power to order a refund. The Securities and Exchange
Commission's power when violations of the Securities Regulation Code are found is limited to issuing regulatory orders
such as suspending or revoking registration statements, providing for the terms and conditions for registration, and
imposing fines and penalties.
The implementing rules cannot be interpreted to give the Securities and Exchange Commission the power that is more
than what is provided under the Securities Regulation Code. Implementing rules are limited by the laws they
implement. The rules cannot be used to amend, expand, or modify the law being implemented. The law shall prevail
in case of inconsistency between the law and the rules.
In United BF Homeowner's Association v. BF Homes, Inc.:83
As early as 1970, in the case of Teoxon vs. Members of the Board of Administrators (PVA), we ruled that the power to
promulgate rules in the implementation of a statute is necessarily limited to what is provided for in the legislative
enactment. Its terms must be followed for an administrative agency cannot amend an Act of Congress. "The rulemaking power must be confined to details for regulating the mode or proceedings to carry into effect the law as it has
been enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace matters not
covered by the statute." If a discrepancy occurs between the basic law and an implementing rule or regulation, it is
the former that prevails.
....
. . . The rule-making power of a public administrative body is a delegated legislative power, which it may not use either
to abridge the authority given it by Congress or the Constitution or to enlarge its power beyond the scope intended.
Constitutional and statutory provisions control what rules and regulations may be promulgated by such a body, as
well as with respect to what fields are subject to regulation by it. It may not make rules and regulations which are
inconsistent with the provisions of the Constitution or a statute, particularly the statute it is administering or which
created it, or which are in derogation of, or defeat, the purpose of a statute.
Moreover, where the legislature has delegated to an executive or administrative officers and boards authority to
promulgate rules to carry out an express legislative purpose, the rules of administrative officers and boards, which
have the effect of extending, or which conflict with the authority-granting statute, do not represent a valid exercise
of the rule-nrnking power but constitute an attempt by an administrative body to legislate. "A statutory grant of
powers should not be extended by implication beyond what may be necessary for their just and reasonable
execution." It is axiomatic that a rule or regulation must bear upon, and be consistent with, the provisions of the
enabling statute if such rule or regulation is to be valid.84 (Citations omitted)
Hence, the issue of refund should be litigated in the appropriate Regional Trial Court. This issue is both intra-corporate
and civil in nature, which is under the jurisdiction of the designated Regional Trial Courts.
GR No. 196329, Jun 01, 2016
PABLO B. ROMAN v. SECURITIES & EXCHANGE COMMISSION
MENDOZA, J.:
FACTS: Private respondents filed a verified letter-complaint against the petitioners before the SEC.
In their letter-complaint, private respondents alleged that on April 23, 1996, a Special Board of Directors Meeting was
held and, thereafter, a resolution was passed by the Board of Directors of Capitol (Board) authorizing Roman, as its
President:
(a) To acquire for and in behalf of the corporation four (4) parcels of land located at Montalban, Rizal xxx for a
consideration of ONE HUNDRED FIFTY PESOS (P150.00) per sq. m. xxx;
(b) To enter for and in behalf of the corporation [Capitol] into a Joint Venture Agreement with ALI [Ayala Land Inc.]
for the purpose of (1) having ALI develop and market the area occupied by the first nine (9) holes of the existing golf
course of the corporation into saleable lots in consideration of the payment to the corporation of a forty percent
(40%) share in the proceeds of the sale of such lots (NET OF TAXES AND DISCOUNTS); and (2) granting to ALI the right
to develop the Properties into a first class golf course;
(c) For the purpose of acquiring the Properties, to obtain loans from ALI for the purpose of acquiring the Montalban
properties up to an aggregate amount of One Hundred Fifty Million (P150,000,000.00) to be secured by (a) real estate
mortgage on the properties; and (b) assignment of the proceeds to be paid in connection with the Joint Venture for
the development of the first nine (9) holes of the existing golf course of the corporation and under the Deed of
Absolute Sale, dated April 10, 1992, between ALI and the Corporation covering the sale of the former driving range of
the corporation to ALI under such terms, payment scheme and conditions as the President may deem reasonable and
necessary under the circumstances;
(d) To (1) negotiate, agree to terms of, execute, sign and deliver the following agreements: (a) A letter-agreement
with ALI embodying the foregoing terms; (b) A deed of sale for the purchase of the Properties; (c) Joint Venture
Agreement with ALI covering the first nine (9) holes of the existing golf course of the corporation; (d) Promissory
Notes, real estate mortgages and assignment agreements in favor of ALI; and (e) such other documents and
agreements related to or in connection with the transactions contemplated in this resolution and (2) to do any and
all acts necessary and appropriate to carry this resolution into effect.[6]
It was further alleged that Roman also asked the Board to pass a resolution authorizing a third-party, Pacific
Asia Capital Corporation (Pacific Asia), to receive from Ayala Land, Inc. (ALI) the proceeds of the loan, or any portion
thereof, and ALI to cause the release of the proceeds of the aforesaid loan, or any portion thereof, to Pacific Asia, and
that any release by ALI and receipt by Pacific Asia be deemed a valid release and receipt of such amount; that the
issued resolutions were erroneously made; that in evident bad faith, Roman, as President of Capitol, never informed
the Board that, at the time he made the proposals and before the resolutions were issued, ALI had already made
substantial initial cash advance in favor of Capitol but directly payable to Pacific Asia;[9] that ALI had no legal basis to
make cash advances as Roman had no authority yet to enter into any agreement with ALI; that part of the
representations made by Roman was that ALI would not commence the conversion of the area occupied by the first
nine (9) holes of the existing golf course of Capitol in Old Balara, Quezon City, until such time that one (1) 18 hole golf
course of the promised two (2) championship golf courses in Macabud, Montalban, Rizal, would have been finished
and playable; and that after more than ten (10) long years, no golf course existed or was even under construction in
Macabud, Montalban, Rizal, and yet the Old Balara property had already been converted and developed into a
residential subdivision called the Ayala Hillside Estate.
To private respondents, all these were irregularities and anomalies amounting to fraud and misrepresentation that
prompted them to ask the SEC to investigate the Board and to order the constitution of the MANCOM to temporarily
oversee the affairs of Capitol.
The petitioners invoked the SEC's lack of jurisdiction claiming that the complaint of private respondents involved an
intra-corporate controversy. Accordingly, they argued that under the Securities Regulation Code (SRC), jurisdiction over
such intra-corporate controversies should be with the Regional Trial Court (RTC) acting as special commercial court.
The SEC, after finding merit in the arguments presented in the complaint, composed the membership of the MANCOM
pursuant to its authority under Section 5 of the SRC and Presidential Decree (P.D.) No. 902-A.
ISSUE/S:
(1) WAS TAKING COGNIZANCE OF THE LETTER- COMPLAINT FILED BY THE PRIVATE RESPONDENTS BEYOND THE
JURISDICTION OF THE SEC?
(2) WAS THE SEC ORDER CREATING THE MANCOM ISSUED IN EXCESS OF ITS JURISDICTION?
In its Comment,he SEC submitted that it correctly took cognizance of the subject letter-complaint and appointed the
MANCOM to temporarily oversee Capitol. It asserted that Section 5 of the SRC authorized the SEC to assume
jurisdiction over the subject matter to determine whether the petitioners, who were officers of Capitol, violated the
SRC and its implementing rules and regulations. Lastly, the SEC justified its act in creating the MANCOM on the basis
of SEC-MC No. 11, Series of 2003, which included the constitution of such a committee as one of its powers.
HELD:
On SEC's authority to take cognizance of the letter-complaint
Under the SRC, jurisdiction on matters stated under Section 5 of P.D. No. 902-A, which was originally vested in the
SEC, has already been transferred to the RTC acting as a special commercial court. Despite the said transfer, however,
the SEC still retains sufficient powers to justify its assumption of jurisdiction over matters concerning its supervisory,
administrative and regulatory functions. In SEC v. Subic Bay Golf and Country Club, Inc. (SBGCCI) and Universal
International Group Development Corporation (UIGDC),[24] for instance, the Court affirmed the SEC's assumption of
jurisdiction over a complaint, which alleged that SBGCCI and UIGDC committed misrepresentations in the sale of their
shares. The Court held in the said case that nothing prevented the SEC from assuming jurisdiction to determine if
SBGCCI and UIGDC committed administrative violations and were liable under the SRC despite the complaint having
raised intra-corporate issues. It also ruled that the SEC may investigate activities of corporations to ensure compliance
with the law.
In ruling that way, the Court cited Sections 5 and 53 of the SRC as justifications, to wit:
SECTION 5. Powers and Functions of the Commission. — 5.1. The Commission shall act with transparency and shall
have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall
have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of
primary franchises and/or a license or permit issued by the Government;
xxx
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
xxx
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives
and purposes of these laws.
xxx
SECTION 53. Investigations, Injunctions and Prosecution of Offenses. — 53.1. The Commission may, in its discretion,
make such investigations as it deems necessary to determine whether any person has violated or is about to violate
any provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and may require or permit any person to file with it a
statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances
concerning the matter to be investigated. xxx
Beyond doubt, therefore, is the authority of the SEC to hear cases regardless of whether an action involves issues
cognizable by the RTC, provided that the SEC could only act upon those which are merely administrative and
regulatory in character. In other words, the SEC was never dispossessed of the power to assume jurisdiction over
complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is confined only
to the extent of ensuring compliance with the law and the rules, as well as to impose fines and penalties for violation
thereof; and to investigate even motu proprio whether corporations comply with the Corporation Code, the SRC and
the implementing rules and regulations.
Thus, in this case, there is simply no doubt that the SEC acted properly in assuming jurisdiction over the lettercomplaint filed by private respondents. A perusal of their letter-complaint demonstrates that private respondents
sought the SEC's intervention in the interest of the minority stockholders by "conducting thorough investigation"[25]
on the actions of the petitioners over "the apparent anomalies and fraud over the agreement with ALI," the growing
labor unrest at [Capitol], the unpaid individual creditors some of whom have already gone into courts to enforce
collection, the continuing financial mismanagement and gross negligence and incompetence shown by Mr. Pablo B.
Roman, Jr., et al. in running the business affairs of [Capitol] xxx that resulted in losses, wastages and dissipation of
funds of the corporation.[26] Their prayer for the SEC to exercise its investigatory powers in the end would adequately
justify the assumption of jurisdiction over the letter-complaint regardless if, indeed, intra-corporate allegations were
raised.
As the SEC is not ousted of its regulatory and administrative jurisdiction to determine and act if administrative
violations were committed,[27] no grave abuse of discretion can be attributed to it when it assumed jurisdiction over
the letter-complaint. Accordingly, the Court finds no error with what was held by the CA.
On the Constitution of the MANCOM
The SEC submits that the power to constitute a management committee is based on its supervisory and regulatory
functions. It cites SEC-MC No. 11, Series of 2003 as authority, which provides in part:
4. Notwithstanding the foregoing, the Commission, as provided in Section 5 of the SRC and the effective provisions of
PD 902-A, shall have the power to do any and all acts to carry out the effective implementation of the laws it is
mandated to enforce, i.e.: constitute a Management Committee; appoint receivers, issue Cease and Desist Orders to
prevent fraud or injury to the public; and such other measures to carry out its role as a regulator.
In effect, the authority of the SEC is viewed as one that is intimately related to its functions as a regulator.
The petitioners reject this and opine that constituting the MANCOM involves an intra-corporate controversy, which is
within the jurisdiction of the RTC. Invoking Section 5.2 of the SRC, they contend that the authority to create the
MANCOM is exclusive to the RTC and no longer with the SEC.
Indeed, Section 5.2. of the SRC has transferred jurisdiction over intra-corporate controversies to the RTC. It provides:
The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme
Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes
submitted for final resolution which should be resolved within one (l) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending suspension of payments/ rehabilitation cases filed as of 30 June
2000 until finally disposed.
Relative thereto, Section 5 of P.D. No. 902-A states:
SECTION 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving
a)
Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or partnership,
amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the
stockholder, partners, members of associations or organizations registered with the Commission;
b)
Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders,
members or associates, respectively; and between such corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as such entity; and
c)
Controversies in the election or appointments of directors, trustees, officers or managers of such corporations,
partnerships or associations.
Clearly, any dispute concerning intra-corporate issues is now beyond the province of the SEC.
Yet, it must be stressed that under Section 5.1 (n) of the SRC, the SEC is permitted to exercise such other powers as
may be provided for by law as well as those which may be implied from, or which are necessary or incidental to the
carrying out, of the express powers granted the SEC to achieve the objectives and purposes of these laws.
With such broad authority, it is beyond question that the SEC, as a regulator, has broad discretion to act on matters
that relate to its express power of supervision over all corporations, partnerships or associations who are the grantees
of primary franchises and/or a license or permit issued by the Government. Such grant of express power of
supervision, necessarily includes the power to create a management committee following the doctrine of necessary
implication.
The reason is simple. The creation of a management committee is one that is premised on the immediate and speedy
protection of the interest not only of minority stockholders, but also of the general public from immediate danger of
loss, wastage or destruction of assets or the paralyzation of business of a concerned corporation or entity.[28] No
body is more competent to provide such a temporary relief other than the regulatory body of these companies - the
SEC.
Thus, such authority is expressly sanctioned under SEC-MC No. 11, Series of 2003. Suffice it to state that such circular
enjoys the presumption of validity unless this Court declares otherwise.
G.R. No. 197624, July 23, 2018
ABACUS CAPITAL AND INVESTMENT CORPORATION, Petitioner, v. DR. ERNESTO G. TABUJARA, Respondent.
TIJAM, J.:
FACTS: Abacus is an investment house engaged in activities related to dealing in securities and other commercial
papers. On July 6, 2000, Tabujara engaged Abacus as his lending agent for purposes of investing his money in the
principal amount of P3,000,000.00. Abacus, in turn, lent the P3,000,000.00 to Investors Financial Services Corporation
(IFSC, formerly CIPI Leasing and Finance Corporation) with a term of 32 days. To confirm the money placement, Abacus
issued to Tabujara a "Confirmation of Investment" slip.
However, shortly after Tabujara placed his investment, IFSC filed with the Securities and Exchange
Commission (SEC) a Petition for Declaration of Suspension of Payments. This petition was granted by the SEC and
consequently, all actions for claims against IFSC were immediately suspended.
Tabujara gave notice to Abacus and IFSC that he is opting to pre-terminate his money placement. Upon
maturity of the loan on August 7, 2000, Tabujara did not receive either the interest amount or the principal.
Meantime, IFSC's Petition for Declaration of Suspension of Payments was raffled to a regular court and was
subsequently treated as a petition for rehabilitation. Pursuant to IFSC's rehabilitation plan, Tabujara received interest
payments from Abacus for the period January 1, 2001 to December 31, 2001.10 The interest due, however, ceased
to be paid come January 2002, prompting Tabujara to file his complaint a quo against Abacus and IFSC for collection
of sum of money with damages. In its Complaint, Tabujara alleged, among others, that his investment was co-mingled
with the monies of other investors to support the credit line facility in the amount of P700,000,000.00 which Abacus
issued in favor of IFSC.
The complaint as against IFSC was dismissed on the ground of lack of jurisdiction while the same proceeded
against Abacus.
The RTC found that Abacus never guaranteed nor secured the obligations of IFSC which is the actual and real
borrower of Tabujara's money and against which the latter has a cause of action. Nevertheless, since IFSC is under
rehabilitation, the RTC held that the latter's assets are held in trust for the equal benefit of the creditors and Tabujara
should not be paid ahead of the others.
In reversing the RTC's decision, the CA reasoned that the transaction in this case was a money market
transaction dealing with short-term credit instruments where lenders and borrowers do not deal directly with each
other but through a middle man. The CA found that Abacus did not only act as a middle man pursuant to his function
as an investment house, but as the "fund supplier" for the credit line facility it extended to IFSC. Further, the CA held
that Abacus is guilty of fraud in handling Tabujara's money placement, having loaned the same to IFSC despite the
latter's financial woes.18
ISSUE: Whether Tabujara may recover from Abacus the amount so invested together with damages.
HELD: Yes. An investment house is defined under Presidential Decree No. 12921 as an entity engaged in underwriting
of securities of other corporations. In turn, "underwriting" is defined as the act or process of guaranteeing the
distribution and sale of securities of any kind issued by another corporation; while "securities" is therein defined as
written evidences of ownership, interest, or participation, in an enterprise, or written evidences of indebtedness of a
person or enterprise. Republic Act No. 8799 or the Securities Regulation Code defines securities as shares,
participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a
certificate, contract, instruments, whether written or electronic in character. It includes: (a) Shares of stocks, bonds,
debentures, notes evidences of indebtedness, asset-backed securities; (b) Investment contracts, certificates of
interest or participation in a profit sharing agreement, certifies of deposit for a future subscription; (c) Fractional
undivided interests in oil, gas or other mineral rights; (d) Derivatives like option and warrants; (e) Certificates of
assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments (f)
Proprietary or non-proprietary membership certificates in corporations; and (g) Other instruments as may m the
future be determined by the Commission.
Purportedly in keeping with its nature as an investment house, Abacus claims to have facilitated Tabujara's purchase
of debt instruments issued by IFSC. According to Abacus, it merely purchased a unit of participation in Loan Agreement
No. 0003 issued by IFSC for Tabujara's account, using the latter's money in the amount of P3,000,000.00. As it turns
out, Abacus had an existing Loan Agreement with IFSC whereby it agreed to grant the latter a credit line facility in the
amount of P700,000,000.00. By testimonial evidence, it was established that the moneys used to fund the
P700,000,000.00 credit line facility were gathered from various sources.22
That Tabujara's investment in the amount of P3,000,000.00 was used as part of the pool of funds made available to
IFSC is confirmed by the facts that it is Abacus, and not Tabujara, which was actually regarded as IFSC's creditor in the
rehabilitation plan and that Abacus even proposed to assign all its rights and privileges in accordance with the
rehabilitation plan to its "funders" in proportion to their participation. As such, in a letter dated November 6, 2000,
Abacus proposed passing on and assigning to Tabujara all the proceeds and rights which it has under the rehabilitation
plan in proportion to Tabujara's principal participation in the amount of P3,000,000.00. In other words, it was really
Abacus who was the creditor entitled to the proceeds of IFSC's rehabilitation plan - thus necessitating the assignment
by Abacus of said proceeds to the actual source of funds, Tabujara included.
Further, as aptly observed by the CA, the transaction herein involved is akin to money market placements. Perez v. CA,
et al. explains the nature of a money market transaction as follows:
As defined by Lawrence Smith, "the money market is a market dealing in standardized short-term
credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each
other but through a middle man or dealer in the open market." It involves "commercial papers" which are
instruments "evidencing indebtedness of any person or entity ... which are issued, endorsed, sold or
transferred or in any manner conveyed to another person or entity, with or without recourse." The
fundamental function of the money market device in its operation is to match and bring together in a most
impersonal manner both the "fund users" and the "fund suppliers." The money market is an "impersonal
market", free from personal considerations. "The market mechanism is intended to provide quick mobility of
money and securities."
The impersonal character of the money market device overlooks the individuals or entities concerned. The
issuer of a commercial paper in the money market necessarily knows in advance that it would be expeditiously
transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is
given to the borrower or issuer of commercial paper of the sale or transfer to the investor.
Stating that a money market placement partakes of the nature of loan, Sesbreno v. CA elucidates:
In money market placement, the investor is a lender who loans his money to a borrower through a
middleman or dealer. Petitioner here loaned his money to a borrower through Philfinance. When the latter
failed to deliver back petitioner's placement with the corresponding interest earned at the maturity date,
the liability incurred by Philfinance was a civil one. As such, petitioner could have instituted against
Philfinance before the ordinary courts a simple action for recovery of the amount he had invested and he
could have prayed therein for damages. x x x.27
In this case, Tabujara as the investor is the lender or the "funder" who loaned his P3,000,000.00 to IFSC through
Abacus. Thus, when the loaned amount was not paid together with the contracted interest, Tabajura may recover
from Abacus the amount so invested together with damages.
Finally, We find no reason to delete the CA's award for moral damages as it was established that Tabujara, in
his twilight years, suffered mental anguish and serious anxiety over the mishandling of his investment which
represented his savings and retirement benefits. Indeed, "[i]f there is any party that needs the equalizing protection
of the law in money market transactions, it is the members of the general public who place their savings in such
market for the purpose of generating interest revenues."28
In accordance, however, with Nacar v. Gallery Frames, et al.,the legal rate of interest on the interest is
modified from 12% to 6% beginning July 1, 2013 until finality of this judgment and the total amount due shall earn
interest at the rate of six percent (6%) per annum from the finality of this judgment until full payment.