IV.

SECURITIES REGULATION CODE same entity as BSA or was connected therewith, but beginning in March 1998,
the receipts were issued in the name of ASBHI. They claimed that they were
Gabionza vs. CA told that ASBHI was exactly the same institution that they had previously dealt
with.
G.R. No. 161057, September 12, 2008
Nature of Action:
ASBHI would issue two (2) postdated checks to its lenders, one representing
the principal amount and the other covering the interest thereon. The checks
Petitioners then filed a joint petition for review with the Secretary of Justice. On
were drawn against DBS Bank and would mature in 30 to 45 days. On the
15 October 2001, DOJ Secretary issued a resolution which partially reversed
maturity of the checks, the individual lenders would renew the loans, either
the Task Force and instead directed the filing of five (5) Informations for estafa
collecting only the interest earnings or rolling over the same with the principal
under Article 315(2)(a) of the Revised Penal Code on the complaints, and an
amounts.
Information for violation of Section 4 in relation to Section 56 of the Revised
Securities Act. Motions for reconsideration to this Resolution were denied by
Reason for filling the case:
the Department of Justice in a Resolution dated 3 July 2002.
In the first quarter of 2000, DBS Bank started to refuse to pay for the checks
Even as the Informations were filed before the Regional Trial Court of Makati
purportedly by virtue of stop payment orders from ASBHI. In May of 2000,
City, private respondents assailed the DOJ Resolution by way of a certiorari
ASBHI filed a petition for rehabilitation and receivership with the Securities and
petition with the Court of Appeals. Court of Appeals reversed the DOJ and
Exchange Commission (SEC), and it was able to obtain an order enjoining it
ordered the dismissal of the criminal cases. The dismissal was sustained by
from paying its outstanding liabilities. This series of events led to the filing of
the appellate court when it denied petitioners motion for reconsideration.
the complaints by petitioners against ASBHI. The complaints were for estafa
Hence this petition filed by Gabionza and Tan.
under Article 315(2)(a) and (2)(d) of the Revised Penal Code, estafa under
Presidential Decree No. 1689, violation of the Revised Securities Act and
Facts:
violation of the General Banking Act.

Profile of ASBHI:
-----XXXX-----
ASBHI was incorporated in 1996 with its declared primary purpose to invest in
any and all real and personal properties of every kind or otherwise acquire the
A special task force, the Task Force on Financial Fraud (Task Force), was
stocks, bonds, and other securities or evidence of indebtedness of any other
created by the DOJ to investigate, the several complaints that were lodged in
corporation, and to hold or own, use, sell, deal in, dispose of, and turn to
relation to ASBHI were dismissed. With respect to the charges of estafa under
account any such stocks. ASBHI was organized with an authorized capital
Article 315(2) of the Revised Penal Code and of violation of the Revised
stock of P500,000.00, a fact reflected in the corporations articles of
Securities Act, the Task Force concluded that the subject transactions were
incorporation.
loans which gave rise only to civil liability ; that petitioners were satisfied with
the arrangement from 1996 to 2000; that petitioners never directly dealt with
How ASBHI Operates:
Nolasco and Roxas; and that a check was not a security as contemplated by
the Revised Securities Act.
Both petitioners had previously placed monetary investment with the Bank of
Southeast Asia (BSA). They alleged that between 1996 and 1997, they were
Findings of the DOJ
convinced by the officers of ASBHI to lend or deposit money with the
corporation. They and other investors were urged to lend, invest or deposit
The transactions in question appear to be mere renewals of
money with ASBHI, and in return they would receive checks from ASBHI for the
the loans the complainant-petitioners earlier granted to BSA.
amount so lent, invested or deposited. At first, they were issued receipts
However, just after they agreed to renew the loans, the ASB
reflecting the name ASB Realty Development which they were told was the
agents who dealt with them issued to them receipts indicating
that the borrower was ASB Realty, with the representation that
it was the same entity as BSA or connected therewith. On the
strength of this representation, along with other claims relating
to the status of ASB and its supposed financial capacity to
meet obligations, the complainant- petitioners acceded to lend
the funds to ASB Realty instead. As it turned out, however,
ASB had in fact no financial capacity to repay the loans as it
had an authorized capital stock of only P500,000.00 and paid
up capital of only P125,000.00. Clearly, the representations
regarding its supposed financial capacity to meet its
obligations to the complainant-petitioners were simply false.
Had they known that ASB had in fact no such financial
capacity, they would not have invested millions of pesos.
Indeed, no person in his proper frame of mind would venture
to lend millions of pesos to a business entity having such a
meager capitalization. The fact that the complainant-petitioners
might have benefited from its earlier dealings with ASB,
through interest earnings on their previous loans, is of no
moment, it appearing that they were not aware of the fraud at
those times they renewed the loans.
The false representations made by the ASB agents who dealt
with the complainant-petitioners and who inveigled them into
investing their funds in ASB are properly imputable to
respondents Roxas and Nolasco, because they, as ASBs
president and senior vice president/treasurer, respectively, in
charge of its operations, directed its agents to make the false
representations to the public, including the complainant-
petitioners, in order to convince them to invest their moneys in
ASB. It is difficult to make a different conclusion, judging from
the fact that respondents Roxas and Nolasco authorized and
accepted for ASB the fraud-induced loans. This makes them
liable for estafa under Article 315 (paragraph 2 [a]) of the
Revised Penal Code. They cannot escape criminal liability on
the ground that they did not personally deal with the
complainant-petitioners in regard to the transactions in
question. Suffice it to state that to commit a crime, inducement
is as sufficient and effective as direct participation.
Issue:
1. Do the findings embodied in the DOJ Resolution align with the foregoing
elements of estafa by means of deceit? YES
2. Does it also establish a prima facie finding that there has been a violation of
the then-Revised Securities Act, specifically Section 4 in relation to Section 56
thereof? YES
3. Whether the same charges can be pinned against Roxas and Nolasco
likewise.
Ruling: WHEREFORE, the petition is GRANTED. The assailed Decision and
Resolution of the Court of Appeals dated 18 July 2003and 28 November 2003
are REVERSED and SET ASIDE. The Resolutions of the Department of
Justice in I.S. Nos. 2000-1418 to 1422 dated 15 October 2001 and 3 July 2002
are REINSTATED. Costs against private respondents.
Ratio:
1. YES. The elements of estafa by means of deceit as defined under Article
315(2)(a) of the Revised Penal Code are as follows: (1) that there must be a
false pretense, fraudulent act or fraudulent means; (2) that such false
pretense, fraudulent act or fraudulent means must be made or executed prior
to or simultaneously with the commission of the fraud; (3) that the offended
party must have relied on the false pretense, fraudulent act or fraudulent
means, that is, he was induced to part with his money or property because of
the false pretense, fraudulent act or fraudulent means; and (4) that as a result
thereof, the offended party suffered damage.
First. (false pretense)
As to short-lived ability to pay
The short -lived ability of ASBHI, to repay its loans does not negate the
fraudulent misrepresentation or inducement it has undertaken to obtain the
loans in the first place. The material question is not whether ASBHI inspired
exculpatory confidence in its investors by making good on its loans for a while,
but whether such investors would have extended the loans in the first place
had they known its true financial setup. The DOJ reasonably noted that no
person in his proper frame of mind would venture to lend millions of pesos to a
business entity having such a meager capitalization.
As to capitalization of ASBHI has always been a matter of public record
The material misrepresentations have been made by the agents or employees
of ASBHI to petitioners, to the effect that the corporation was structurally sound
and financially able to undertake the series of loan transactions that it induced
petitioners to enter into. Respondents argument assumes that there is legal
obligation on the part of petitioners to undertake an investigation of ASBHI.
There is no such obligation. It is unfair to expect a person to procure every
available public record concerning an applicant for credit to satisfy himself of
the latters financial standing.
Second. false representations have been made to petitioners prior to or
simultaneously with the commission of the fraud.
The assurance given to them by ASBHI that it is a worthy credit partner
occurred before they parted with their money. Relevantly, ASBHI is not the
entity with whom petitioners initially transacted with, and they averred that they
had to be convinced with such representations that Roxas and the same group
behind BSA were also involved with ASBHI.
Third. Petitioners were enticed by the false pretense.
Petitioners, in their respective complaint-affidavits, alleged that they were
enticed to extend the loans upon the following representations: that ASBHI was
into the very same activities of ASB Realty Corp., ASB Development Corp. and
ASB Land, Inc., or otherwise held controlling interest therein; that ASB could
legitimately solicit funds from the public for investment/borrowing purposes;
that ASB, by itself, or through the corporations aforestated, owned real and
personal properties which would support and justify its borrowing program; that
ASB was connected with and firmly backed by DBS Bank in which Roxas held
a substantial stake; and ASB would, upon maturity of the checks it issued to its
lenders, pay the same and that it had the necessary resources to do so.
Fourth. petitioners sustained damage.
The damage is considerable as to petitioners. Gabionza lost P12,160,583.32
whereas Tan lost 16,411,238.57. In addition, the DOJ Resolution noted that
neither Roxas nor Nolasco disputed that ASBHI had borrowed funds from
about 700 individual investors amounting to close to P4B.
2. YES. Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act,
generally requires the registration of securities and prohibits the sale or
distribution of unregistered securities.
a. On Postdated checks
The Court of Appeals: the postdated checks issued by ASBHI did not constitute
a security under the Revised Securities Act (no prima facie case). Citing the
general definition of a check as a bill of exchange drawn on a bank and
payable on demand, and took cognizance of the fact that the issuance of
checks for the purpose of securing a loan to finance the activities of the
corporation is well within the ambit of a valid corporate act to note that a
corporation does not need prior registration with the SEC in order to be able to
issue a check, which is a corporate prerogative.
SC
There is ultimately a prima facie case that can at the very least sustain
prosecution of private respondents under that law. Pointing out that the
definition of securities set forth in Section 2 of the Revised Securities Act
includes commercial papers evidencing indebtedness of any person, financial
or non-financial entity, irrespective of maturity, issued, endorsed, sold,
transferred or in any manner conveyed to another. A check is a commercial
paper evidencing indebtedness of any person, financial or non-financial entity.
Since the checks in this case were generally rolled over to augment the
creditors existing investment with ASBHI, they most definitely take on the
attributes of traditional stocks.
It is clear error on the part of the Court of Appeals to dismiss such finding so
perfunctorily and on such flimsy grounds that do not consider the grave
consequences. After all, as the DOJ Resolution correctly pointed out: [T]he
postdated checks themselves serve as the evidences of the indebtedness. A
different rule would open the floodgates for a similar scheme, whereby
companies without prior license or authority from the SEC. This cannot be
countenanced.
b. Defense on Economic crisis
Court of Appeals said that the unfortunate events befalling petitioners
were consequences of the economic crisis that beset the Philippines
during that era.
SC
That conclusion would be agreeable only if it were undisputed that the
activities of ASBHI are legal in the first place, but the DOJ puts forth a
legitimate theory that the entire modus operandi of ASBHI is illegal under the
Revised Securities Act and if that were so, the impact of the Asian economic
crisis would not obviate the criminal liability of private respondents.
C. Security Regulation Code of 2000 did not repeal the Revised Security
Act.
Private respondents cannot make capital of the fact that when the DOJ
Resolution was issued, the Revised Securities Act had already been repealed
by the Securities Regulation Code of 2000. As noted by the DOJ, the new
Code does punish the same offense alleged of petitioners, particularly Section
8 in relation to Section 73 thereof. The complained acts occurred during the
effectivity of the Revised Securities Act. Certainly, the enactment of the new
Code in lieu of the Revised Securities Act could not have extinguished all
criminal acts committed under the old law.
In 1909- 1910, the Philippine and United States Supreme Courts affirmed the
principle that when the repealing act reenacts substantially the former law, and
does not increase the punishment of the accused, the right still exists to punish
the accused for an offense of which they were convicted and sentenced before
the passage of the later act. This doctrine was reaffirmed as recently as 2001,
where the Court, through Justice Quisumbing, held in Benedicto v. Court of
Appeals that an exception to the rule that the absolute repeal of a penal law
deprives the court of authority to punish a person charged with violating the old
law prior to its repeal is where the repealing act reenacts the former statute
and punishes the act previously penalized under the old law. It is worth noting
that both the Revised Securities Act and the Securities Regulation Code of
2000 provide for exactly the same penalty: a fine of not less than five thousand
(P5,000.00) pesos nor more than five hundred thousand (P500,000.00) pesos
or imprisonment of not less than seven (7) years nor more than twenty one
(21) years, or both, in the discretion of the court.
3. Whether the same charges can be pinned against Roxas and Nolasco
likewise.
Applying the rule in civil cases that all indispensable parties must be impleaded
in a civil action. There is no equivalent rule in criminal procedure, and certainly
the Court of Appeals decision failed to cite any statute, procedural rule or
jurisprudence to support its position that the failure to implead the traders who
directly dealt with petitioners is indeed fatal to the complaint.
Assuming that the traders could be tagged as principals by direct participation
in tandem with Roxas and Nolasco the principals by inducement does it make
sense to compel that they be jointly charged in the same complaint to the
extent that the exclusion of one leads to the dismissal of the complaint? It does
not. Unlike in civil cases, where indispensable parties are required to be
impleaded in order to allow for complete relief once the case is adjudicated,
the determination of criminal liability is individual to each of the defendants.
Even if the criminal court fails to acquire jurisdiction over one or some
participants to a crime, it still is able to try those accused over whom it
acquired jurisdiction. The criminal court will still be able to ascertain the
individual liability of those accused whom it could try, and hand down penalties
based on the degree of their participation in the crime. The absence of one or
some of the accused may bear impact on the available evidence for the
prosecution or defense, but it does not deprive the trial court to accordingly try
the case based on the evidence that is actually available.
At bar, if it is established after trial that Roxas and Nolasco instructed all the
employees, agents and traders of ASBHI to represent the corporation as
financially able to engage in the challenged transactions and repay its
investors, despite their knowledge that ASBHI was not established to be in a
position to do so, and that representatives of ASBHI accordingly made such
representations to petitioners, then private respondents could be held liable for
estafa. The failure to implead or try the employees, agents or traders will not
negate such potential criminal liability of Roxas and Nolasco. It is possible that
the non-participation of such traders or agents in the trial will affect the ability
of both petitioners and private respondents to adduce evidence during the trial,
but it cannot quell the existence of the crime even before trial is had. At the
very least, the non-identification or non-impleading of such traders or agents
cannot negatively impact the finding of probable cause.
The assailed ruling unfortunately creates a wide loophole, especially in this
age of call centers, that would create a nearly fool-proof scheme whereby well-
organized criminally-minded enterprises can evade prosecution for criminal
fraud. Behind the veil of the anonymous call center agent, such enterprises
could induce the investing public to invest in fictional or incapacitated
corporations with fraudulent impossible promises of definite returns on
investment. The rule, as set forth by the Court of Appeals ruling, will allow the
masterminds and profiteers from the scheme to take the money and run
without fear of the law simply because the defrauded investor would be hard-
pressed to identify the anonymous call center agents who, reading aloud the
script prepared for them in mellifluous tones, directly enticed the investor to
part with his or her money.
Is there sufficient basis then to establish probable cause against Roxas and
Nolasco? Taking into account the relative remoteness of private respondents to
petitioners, the DOJ still concluded that there was. To repeat:
The false representations made by the ASB agents who dealt
with the complainant-petitioners and who inveigled them into
investing their funds in ASB are properly imputable to
respondents Roxas and Nolasco, because they, as ASBs
president and senior vice president/treasurer, respectively,
respectively, in charge of its operations, directed its agents to
make the false representations to the public, including the
complainant-petitioners, in order to convince them to invest
their moneys in ASB. It is difficult to make a different
conclusion, judging from the fact that respondents Roxas and
Nolasco authorized and accepted for ASB the fraud-induced
loans.
SEC vs. Prosperity.Com.Inc.
G.R. No. 164197, January 25, 2012
FACTS: Prosperity.Com, Inc. sold computer software and hosted websites
without providing internet service. 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 15MB 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 US, and insurance worth
P50,000.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc.
(GVI), which company stopped operations after the 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 PCIs actual operations. GVI filed a complaint
with the SEC against PCI, alleging that the latter had taken over GVIs
operations.
After hearing, SEC issued a CDO against PCI. SEC ruled that PCI’s scheme
constitutes an Investment contract and it should have first registered such
contract or securities with the SEC. PCI filed with SEC a request to lift the
CDO. The Court of Appeals granted the PCI’s petition and set aside the SEC-
issued CDO. CA ruled that, following the Howey test, PCIs scheme did not
constitute an investment contract that needs registration pursuant to R.A.
8799, hence, this petition.
ISSUE: Whether or not PCIs scheme constitutes an investment contract that
requires registration under R.A. 8799 (Securities Regulation Code).
RULING: 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.
The United States Supreme Court held in Securities and Exchange
Commission v. W.J. Howey Co. 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. Thus, to sustain the SEC position in this case, PCIs
scheme or contract with its buyers must have all these elements.
Here, PCIs 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.
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 commissions, interest in real estate, and insurance coverage
worth P50,000.00 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.
 SEC vs. Santos Furthermore, it was relayed by the officers and agents to complainants–
G.R. No. 195542, March 19, 2014 investors that PIPC Corp. is the Philippine office of the Performance Group of
Companies affiliates situated in different parts of the world, particularly China,
Rationale: Violation of Section 28 of R.A. 8799, the Securities Regulation
Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands
Code filed by SEC against Oudine Santos (PROBABLE CAUSE)
(BVI), even reaching Switzerland. With such basic depiction of the legitimacy
and stability of PIPC Corp., complainants–investors deduced that it was
FACTS: Sometime in 2007, yet another investment scam was exposed with
clothed with the authority to solicit, offer [and] sell securities. As regards the
the disappearance of its primary perpetrator, Michael H.K. Liew (Liew), a self–
officers and agents of [PIPC Corp.], they secured proper individual licenses
styled financial guru and Chairman of the Board of Directors of Performance
with the SEC as brokers/dealers of securities to enable to solicit, offer and/or
Investment Products Corporation (PIPC–BVI), a foreign corporation registered
sell the same.
in the British Virgin Islands.

Official SEC documents would show that while PIPC Corp. is indeed registered
To do business in the Philippines, PIPC–BVI incorporated herein as Philippine
with the SEC, it having engaged in the solicitation and sale of securities was
International Planning Center Corporation (PIPC Corporation).
contrary to the purpose for which it was established which is only to act as a
financial research. Corollarily, PIPC Corp.’s officers, agents, and brokers
Because the head of PIPC Corporation had gone missing and with it the
were not licensed to solicit, offer and sell securities to the public, a
monies and investment of a significant number of investors, the SEC was
glaring violation of Sections 8 and 28 of the SRC.
flooded with complaints from thirty–one (31) individuals against PIPC
Corporation, its directors, officers, employees, agents and brokers for alleged
Santos’ defense consisted in: (1) denying participation in the conspiracy and
violation of certain provisions of the Securities Regulation Code, including
fraud perpetrated against the investor–complainants of PIPC Corporation,
Section 28 thereof. Santos was charged in the complaints in her capacity as
specifically Sy and Lorenzo; (2) claiming that she was initially and merely
investment consultant of PIPC Corporation, who supposedly induced private
an employee of, and subsequently an independent information provider
complainants Luisa Mercedes P. Lorenzo (Lorenzo) and Ricky Albino P. Sy
for, PIPC Corporation; (3) PIPC Corporation being a separate entity from
(Sy), to invest their monies in PIPC Corporation.
PIPC–BVI of which Santos has never been a part of in any capacity; (4) her
not having received any money from Sy and Lorenzo, the two having, in
The common recital in the 31 complaints is that:cha
actuality, directly invested their money in PIPC–BVI; (5) Santos having dealt
only with Sy and the latter, in fact, deposited money directly into PIPC–BVI’s
x x x [D]ue to the inducements and solicitations of the PIPC corporation’s
account; and (6) on the whole, PIPC–BVI as the other party in the investment
directors, officers and employees/agents/brokers, the former were enticed to
contracts signed by Sy and Lorenzo, thus the only corporation liable to Sy and
invest their hard–earned money, the minimum amount of which must be
Lorenzo and the other complainants.
US$40,000.00, with PIPC–BVI, with a promise of higher income potential of an
interest of 12 to 18 percentum (%) per annum at relatively low–risk investment
On 18 April 2008, the DOJ, in I.S. No. 2007–1054, issued a Resolution signed
program. The private complainants also claimed that they were made to
by a panel of three (3) prosecutors, with recommendation for approval of the
believe that PIPC Corporation refers to Performance Investment Product
Assistant Chief State Prosecutor, and ultimately approved by Chief State
Corporation, the Philippine office or branch of PIPC–BVI, which is an entity
Prosecutor Jovencito R. Zuño, indicting: (a) Liew and Gonzalez–Tuason for
engaged in foreign currency trading, and not Philippine International Planning
violation of Sections 8 and 26 of the Securities Regulation Code; and (b)
Center Corporation.
herein respondent Santos, along with Cristina Gonzalez–Tuason and 12 others
for violation of Section 28 of the Securities Regulation Code. The same
Private complainants, Lorenzo and Sy, in their affidavits annexed to SEC’s
Resolution likewise dismissed the complaint against 8 of the respondents
complaint–affidavit, respectively narrated Santos’ participation in how they
therein for insufficiency of evidence. In the 18 April 2008 Resolution, the DOJ
came to invest their monies in PIPC Corporation.
discussed at length the liability of PIPC Corporation and its officers,
employees, agents and all those acting on PIPC Corporation’s behalf.
In sum, the DOJ panel based its finding of probable cause on the collective
acts of the majority of the respondents therein, including herein respondent
Santos, which consisted in their acting as employees–agent and/or investor–
agents of PIPC Corporation and/or PIPC–BVI. Specifically alluding to Santos
as Investment Consultant of PIPC Corporation, the DOJ found probable cause
to indict her for violation of Section 28 of the Securities Regulation Code for
engaging in the business of selling or offering for sale securities, on behalf of
PIPC Corporation and/or PIPC–BVI (which were found to be an issuer of
securities without the necessary registration from the SEC) without Santos
being registered as a broker, dealer, salesman or an associated person.
Respondent Santos filed a petition for review before the Office of the Secretary
of the DOJ assailing the Resolutions dated 18 April 2008 and 2 September
2008 and claiming that she was a mere clerical employee/information provider
who never solicited nor recruited investors, in particular complainants Sy and
Lorenzo, for PIPC Corporation or PIPC–BVI. Santos also claimed dearth of
evidence indicating she was a salesman/agent or an associated person of a
broker or dealer, as defined under the Securities Regulation Code. A
Resolution dated 1 October 2009 which, as previously adverted to, excluded
respondent Santos from prosecution for violation of Section 28 of the
Securities Regulation Code.
Section 28 of the Securities Regulation Code (SRC) reads:
SEC. [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 unless registered as such
with the Commission.
28.2. No registered broker or dealer shall employ any salesman or any
associated person, and no issuer shall employ any salesman, who is not
registered as such with the Commission.
Jurisprudence defines an “agent” as a “business representative, whose
function is to bring about, modify, affect, accept performance of, or terminate
contractual obligations between principal and third persons.” x x x On the other
hand, the Implementing Rules of the SRC simply provides that an agent or a
“salesman” is a person employed as such or as an agent, by the dealer, issuer
or broker to buy and sell securities x x x.
A judicious examination of the records indicates the lack of evidence that
respondent Santos violated Section 28 of the SRC, or that she had acted as an
agent for PIPC Corp. or enticed Luisa Mercedes P. Lorenzo or Ricky Albino P.
Sy to buy PIPC Corp. or PIPC–BVI’s investment products.
It is important to note that in the “Request Form,” one of the documents being
distributed by respondent Santos x x x, it is categorically stated therein that
said request “shall not be taken as an investment solicitation x x x, but is
mainly for the purpose of providing me with information.” Clearly, this document
proves that respondent Santos did not or was not involved in the solicitation of
investments but merely shows that she is an employee of PIPC Corp. In
addition, the “Information Dissemination Agreement” between her employer
PIPC Corp. and PIPC–BVI readably and understandably provides that she is
prohibited from soliciting investments in behalf of PIPC–BVI and her authority
is limited only to providing interested persons with the “necessary
information regarding how to communicate directly with PIPC.”
Parenthetically, the decision to sign the partnership Agreement with PIPC–BVI
to invest and repeatedly reinvest their monies with PIPC–BVI were made by
Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy themselves without any
inducement or undue influence from respondent Santos.
Prescinding from the foregoing, a person must first and foremost be engaged in the
business of buying and selling securities in the Philippines before he can be
considered as a broker, a dealer or salesman within the coverage of the Securities
Regulation Code. The record in this case however is bereft of any showing that
[Santos] was engaged in the business of buying and selling securities in the
Philippines, whether for herself or in behalf of another person or entity. Apart from
[SEC’s] sweeping allegation that [Santos] enticed Sy and Lorenzo and solicited
from them investments for PIPC–BVI without first being registered as broker,
dealer or salesman with SEC, no evidence had been adduced that shows [Santos’]
actual participation in the alleged offer and sale of securities to the public,
particularly to Sy and Lorenzo, within the Philippines. There was likewise no
exchange of funds between Sy and Lorenzo, on one hand, and [Santos], on the
other hand, as the price of certain securities offered by PIPC–BVI. There was even
no specific proof that [Santos] misrepresented to Sy and Lorenzo that she was a
licensed broker, dealer or salesperson of securities, thereby inducing them to
invest and deliver their hard–earned money with PIPC–BVI. In fact, the Information
Dissemination Agreement between PIPC Corporation, [Santos’ employer], and
PIPC–BVI clearly provides that [Santos] was prohibited from soliciting investments
in behalf of PIPC–BVI and that her authority is limited only to providing prospective
client with the “necessary information on how to communicate directly with PIPC.”
Thus, it is obvious that the final decision of investing and reinvesting their money
with PIPC–BVI was made solely by Sy and Lorenzo themselves.
ISSUE: W/N Santos should be excluded from the Information for violation of
Section 28 of the Securities Regulation Code
HELD: No. In excluding Santos from the prosecution of the supposed violation
of Section 28 of the Securities Regulation Code, the Secretary of the DOJ, as
affirmed by the appellate court, debunked the DOJ panel’s finding that Santos
was prima facie liable for either: (1) selling securities in the Philippines as a
broker or dealer, or (2) acting as a salesman, or an associated person of any
broker or dealer on behalf of PIPC Corporation and/or PIPC–BVI without being
registered as such with the SEC.
To get to that conclusion, the Secretary of the DOJ and the appellate court
ruled that no evidence was adduced showing Santos’ actual participation in the
final sale by PIPC Corporation and/or PIPC–BVI of unregistered securities
since the very affidavits of complainants Lorenzo and Sy proved that Santos
had never signed, neither was she mentioned in, any of the investment
documents between Lorenzo and Sy, on one hand, and PIPC Corporation
and/or PIPC–BVI, on the other hand.
The conclusions made by the Secretary of the DOJ and the appellate court are
a myopic view of the investment solicitations made by Santos on behalf of
PIPC Corporation and/or PIPC–BVI while she was not licensed as a broker or
dealer, or registered as a salesman, or an associated person of a broker or
dealer
To determine whether the DOJ Secretary’s Resolution was tainted with grave
abuse of discretion, we pass upon the elements for violation of Section 28 of
the Securities Regulation Code: (a) engaging in the business of buying or
selling securities in the Philippines as a broker or dealer; or (b) acting as a
salesman; or (c) acting as an associated person of any broker or dealer, unless
registered as such with the SEC.
Tying it all in, there is no quarrel that Santos was in the employ of PIPC
Corporation and/or PIPC–BVI, a corporation which sold or offered for sale
unregistered securities in the Philippines. To escape probable culpability,
Santos claims that she was a mere clerical employee of PIPC Corporation
and/or PIPC–BVI and was never an agent or salesman who actually solicited
the sale of or sold unregistered securities issued by PIPC Corporation and/or
PIPC–BVI.
Solicitation is the act of seeking or asking for business or information; it is not a
commitment to an agreement.
Santos, by the very nature of her function as what she now unaffectedly
calls an information provider, brought about the sale of securities made
by PIPC Corporation and/or PIPC–BVI to certain individuals, specifically
private complainants Sy and Lorenzo by providing information on the
investment products of PIPC Corporation and/or PIPC–BVI with the end
in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s
investments, Santos procured the sale of these unregistered securities to the
two (2) complainants by providing information on the investment products
being offered for sale by PIPC Corporation and/or PIPC–BVI and convincing
them to invest therein.
What is palpable from the foregoing is that Sy and Lorenzo did not go directly
to Liew or any of PIPC Corporation’s and/or PIPC–BVI’s principal officers
before making their investment or renewing their prior investment. However,
undeniably, Santos actively recruited and referred possible investors to PIPC
Corporation and/or PIPC–BVI and acted as the go–between on behalf of PIPC
Corporation and/or PIPC–BVI.
The DOJ’s and Court of Appeals’ reasoning that Santos did not sign the
investment contracts of Sy and Lorenzo is specious. The contracts merely
document the act performed by Santos.
Individual complainants and the SEC have categorically alleged that Liew and
PIPC Corporation and/or PIPC–BVI is not a legitimate investment company but a
company which perpetrated a scam on 31 individuals where the president, a
foreign national, Liew, ran away with their money. Liew’s absconding with the
monies of 31 individuals and that PIPC Corporation and/or PIPC–BVI were not
licensed by the SEC to sell securities are uncontroverted facts.
The transaction initiated by Santos with Sy and Lorenzo, respectively, is
an investment contract or participation in a profit sharing agreement that
falls within the definition of the law. When the investor is relatively
uninformed and turns over his money to others, essentially depending upon
their representations and their honesty and skill in managing it, the transaction
generally is considered to be an investment contract. The touchstone is the
presence of an investment in a common venture premised on a reasonable
expectation of profits to be derived from the entrepreneurial or managerial
efforts of others.
At bottom, the exculpation of Santos cannot be preliminarily established simply by
asserting that she did not sign the investment contracts, as the facts alleged in this
case constitute fraud perpetrated on the public. Specially so because the absence
of Santos’ signature in the contract is, likewise, indicative of a scheme to
circumvent and evade liability should the pyramid fall apart.
Lastly, we clarify that we are only dealing herein with the preliminary
investigation aspect of this case. We do not adjudge respondents’ guilt or the
lack thereof. Santos’ defense of being a mere employee or simply an
information provider is best raised and threshed out during trial of the
case.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
in CA–G.R. No. SP No. 112781 and the Resolutions of the Department of
Justice dated 1 October 2009 and 23 November 2009 are ANNULLED and
SET ASIDE. The Resolution of the Department of Justice dated 18 April 2008
and 2 September 2008 are REINSTATED. The Department of Justice is
directed to include respondent Oudine Santos in the Information for violation of
Section 28 of the Securities and Regulation Code.
SEC vs. Interport Resources Corporation
G.R. No. 135808, October 6, 2008
Facts: On August 6, 1994, the Board of Directors of IRC approved a
Memorandum of Agreement (MoA) with Ganda Holdings Berhad (GHB). Under
the MoA, IRC acquired 100% or the entire capital stock of Ganda Energy
Holdings, Inc. (GEHI), which would own and operate a 102 megawatt gas
turbine power-generating barge. Also stipulated is that GEHI would assume a
five-year power purchase contract with National Power Corp. At that time,
GEHI’s power-generating barge was 97% complete and would go on-line by
mid-Sept 1994.
In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC
(amounting to 40.88 billion shares – 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.
On August 8, 1994, IRC alleged that a press release announcing the
approval of the agreement was sent through fax to Philippine Stock
Exchange (PSE) and the SEC, but that the fax machine of SEC could not
receive it. Upon the advice of SEC, IRC sent the press release on the
morning of 9 Aug 1994. 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 heavily traded IRC shares utilizing this material insider
information.
On August 16, 1994 SEC Chairman issued a directive requiring IRC to
submit to SEC a copy of its aforesaid MoA with GHB and further directed
all principal officers of IRC to appear at a hearing before the Brokers and
Exchanges Dept (BED) of SEC to explain IRC’s failure to immediately
disclose the information as required by the Rules on Disclosure of
Material Facts by Corporations Whose Securities are Listed in Any Stock
Exchange or Registered/Licensed Under the Securities Act. IRC sent a
letter to SEC, attaching copies of MoA and its directors appeared to
explain IRC’s alleged failure to immediately disclose material information
as required under the Rules on Disclosure of Material Facts.
The SEC Chairman issued an Order dated September 19, 1994 finding that
IRC violated the Rules on Disclosure when it failed to make timely
disclosure, and that some of the officers and directors of IRC entered into
transactions involving IRC shares in violation of Sec 30, in relation to Sec 36
of the Revised Securities Act. IRC filed an Omnibus Motion (later an
Amended Omnibus Motion) alleging that SEC had no authority to investigate
the subject matter, since under Sec 8 of PD 902-A, as amended by PD
1758, jurisdiction was conferred upon the Prosecution and Enforcement
Dept (PED) of SEC. IRC also claimed that SEC violated their right to due
process when it ordered that the respondents appear before SEC and show
cause why no administrative, civil or criminal sanctions should be imposed
on them, and thus, shifted the burden of proof to the respondents. They filed
a Motion for Continuance of Proceedings. No formal hearings were
conducted in connection with the Motions.
On January 25, 1995, SEC issued an Omnibus Order: creating a special
investigating panel to hear and decide the case in accordance with Rules of
Practice and Procedure before the PED, SEC; to recall the show cause
orders; and to deny the Motion for Continuance for lack of merit. Respondents
filed a petition before the CA questioning the Omnibus Orders and filed a
Supplemental Motion wherein they prayed for the issuance of a writ of
preliminary injunction. CA granted their motion and issued a writ of preliminary
injunction, which effectively enjoined SEC from filing any criminal, civil or
administrative case against the respondents.
CA promulgated a Decision dated August 20, 1998: Determined that there
were no implementing rules and regulations regarding disclosure, insider
trading, or any of the provisions of the Revised Securities Acts which
respondents allegedly violated. It found no statutory authority for SEC to initiate
and file any suit for civil liability under Sec 8, 30 and 36 of the Revised
Securities Act, thus, it ruled that no civil, criminal or administrative proceedings
may possibly be held against the respondents without violating their rights to
due process and equal protection.
It further resolved that absent any implementing rules, the SEC cannot be
allowed to quash the assailed Omnibus Orders Further decided that the Rules
of Practice and Procedure before the PED did not comply with the statutory
requirements contained in the Administrative Code of 1997. Section 9, Rule V
of the Rules of Practice and Procedure before the PED affords a party the
right to be present but without the right to cross -examine witnesses
presented against him, in violation of Sec 12(3), Chap 3, Book VII of the
Administrative Code.
Issues:
1. Do sections 8, 30, and 36 of the Revised Securities Act require the
enactment of implementing rules to make them binding and effective?
2. Does the right to cross-examination be demanded during investigative
proceedings before the PED?
3. May a criminal case still be filed against the respondents despite the
repeal of Sections 8, 30, and 36 of the Revised Securities Act?
4. Did SEC retain the jurisdiction to investigate violations of the Revised
Securities Act, re-enacted in the Securities Regulations Code, despite
the abolition of the PED?
5. Does the instant case prescribed already?
6. Is CA justified in denying SEC’s Motion for Leave to Quash SEC
Omnibus Orders?
Ruling: The petition is impressed with merit. It should be noted that while the
case was pending in SC, RA 8799 (Securities Regulation Code) took effect on
8 August 2000. Section 8 of PD 902- A, as amended, which created the PED,
was already repealed as provided for in Sec 76 of Securities Regulation Code.
Thus, under the new law, the PED has been abolished, and the Securities
Regulation Code has taken the place of the Revised Securities Act.
1. NO. Sections 8, 30, and 36 of the Revised Securities Act (RSA) do not
require the enactment of implementing rules to make them binding and
effective. The mere absence of implementing rules cannot effectively
invalidate provisions of law, where a reasonable construction that will support
the law may be given.
Absence of any constitutional or statutory infirmity, which may concern Secs 30
and 36 of RSA, the provisions are legal and binding. Every law has in its favour
the presumption of validity. Unless and until a specific provision of the law is
declared invalid and unconstitutional, the same is valid and binding for all
intents and purposes. The Court does not discern any vagueness or ambiguity
in Sec 30 and 36 of RSA Sec 30 – Insider’s Duty to Disclose when Trading.
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:
(1) 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
(2) the inherent unfairness involved when a party takes advantage of such
information knowing it is unavailable to those with whom he is dealing.
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. In some cases, however, there may be valid
corporate reasons for 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.
Sections 30 and 36 of the RSA 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.
Sec 30 prevented the unfair use of non-public information in securities
transactions, while Sec 36 allowed the Sec to monitor the transactions
entered into by corporate officers and directors as regards the securities of
their companies. The lack of implementing rules cannot suspend the
effectivity of these provisions.
2. NO. The right to cross-examination is not absolute and cannot be demanded
during investigative proceedings before the PED. Sec 4, Rule 1 of the PED
Rules of Practice and Procedure, categorically stated that the proceedings
before the PED are summary in nature, not necessarily adhering to or following
the technical rules of evidence obtaining in the courts of law Rule V –
Submission of documents, determination of necessity of hearing and
disposition of case. A formal hearing was not mandatory, it was within the
discretion of the Hearing Officer whether there was a need for a formal
hearing. Since the holding of a hearing before the PED is discretionary, then
the right to cross-examination could not have been demanded by either party.
Chapter 3, Book VII of the Administrative Code refers to “Adjudication”
and does not affect the investigatory functions of the agencies. The law
creating PED empowers it to investigate violations of the rules and
regulations promulgated by the SEC and to file and prosecute such
cases. It fails to mention any adjudicatory functions insofar as the PED is
concerned. Thus, PED Rules of Practice need not comply with the
provisions of the Administrative Code on adjudication. The only powers
which the PED was likely to exercise over the respondents were
investigative in nature.
In proceedings before administrative or quasi-judicial bodies, such as NLRC
and POEA, created under laws which authorize summary proceedings,
decisions may be reached on the basis of position papers or other
documentary evidence only. They are not bound by technical rules of
procedure and evidence. It is enough that every litigant be given reasonable
opportunity to appear and defend his right and to introduce relevant
evidence in his favour, to comply with the due process requirements.
3. YES. The Securities Regulation Code (SRC) did not repeal Sections 8, 30,
and 36 of the Revised Securities Act since said provisions were re-enacted in
the new law. When the repealing law punishes the act previously penalized
under the old law, the act committed before the re-enactment continues to be
an offense and pending cases are not affected. Sec 8 of RSA, which
previously provided for the registration of securities and the information that
needs to be included in the registration statements, was expanded under Sec
12 of the Securities Regulations Code. Further details of the information
required to be disclosed by the registrant are explained.
Sec 30 of RSA has been re-enacted as Sec 27 of SRC, still penalizing an
insider’s misuse of material and non-public information about the issuer, for the
purpose of protecting public investors. Sec 23 of SRC was practically lifted
from Sec 36 of RSA. The legislature had not intended to deprive the courts of
their authority to punish a person charged with violation of the old law that was
repealed.
4. YES. The SEC retained the jurisdiction to investigate violations of the
Revised Securities Act, re-enacted in the Securities Regulations Code,
despite the abolition of the PED.
Sec 53 of SRC clearly provides that criminal complaints for violations of rules
and regulations enforced or administered by SEC shall be referred to the
DOJ for preliminary investigation, while the SEC nevertheless retains limited
investigatory powers. SEC may still impose the appropriate administrative
sanctions under Sec 54.
5. NO. The instant case has not yet prescribed. Respondents point out that the
prescription period applicable to offenses punished under special laws is 12
years. Since the offense was committed in 1994, they reasoned that
prescription set in as early as 2006 and rendered this case moot.
It is an established doctrine that a preliminary investigation interrupts the
prescription period. A preliminary investigation is essentially a determination
whether an offense has been committed, and whether there is probable cause
for the accused to have committed as offense.
6. YES. The CA was justified in denying SEC’s Motion for Leave to Quash
SEC Omnibus Orders dated 23 October 1995. Since it found other issues that
were more important than whether or not the PED was the proper body to
investigate the matter, CA denied SEC’s motion for leave to quash SEC
Omnibus Orders.
In all, the SC rules that no implementing rules were needed to render
effective Sections 8, 30, and 36 of the Revised Securities Act; nor was the
PED Rules of Practice and Procedure invalid, prior to the enactment of the
Securities Regulations Code, for failure to provide parties with the right to
cross-examine the witnesses presented against them. Thus, the respondents
maybe investigated by the appropriate authority under the proper rules of
procedure of the Securities Regulations Code for violations of Secs 8, 30, and
36 of the Revised Securities Act. SC ruled that the instant Petition is
GRANTED . This Court hereby REVERSES the assailed Decision of the
Court of Appeals and LIFTS the permanent injunction issued pursuant
thereto. This Court further DECLARES that the investigation of the
respondents for violations of Sections 8, 30 and 36 of the Revised Securities
Act may be undertaken by the proper authorities in accordance with the
Securities Regulations Code.
Cemco Holdings Inc. vs.
National Life Insurance Company of the Philippines
G.R. No. 171815, August 7, 2007
FACTS: Union Cement Corporation (UCC), a publicly-listed company, has two
principal stockholders UCHC, a non-listed company, with shares amounting
to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHCs 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 dated 5 July 2004, BCI informed the Philippine Stock
Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell
to Cemco BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in
UCHC equivalent to 29.69%. The PSE made and inquiry to the SEC 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 Director of the SEC’s Corporate Finance
Department responded to the query of the PSE that while it was the stance of
the department that the tender offer rule was not applicable – such matter
was approved by the SEC en banc later.
A Share Purchase Agreement was executed by ACC and BCI, as sellers, and
Cemco, as buyer. Later, the transaction was consummated and closed.
Feeling aggrieved by the transaction, respondent 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.
On 19 August 2004, 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. Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC,
which were then required by the SEC to file their respective comment on the
complaint. In their comments, they were uniform in arguing that the tender
offer rule applied only to a direct acquisition of the shares of the listed
company and did not extend to an indirect acquisition arising from the
purchase of the shares of a holding company of the listed firm.
In a Decision, SEC ruled in favor of the respondent by reversing and setting
aside its 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.
Petitioner filed a petition with the Court of Appeals challenging the SECs
jurisdiction to take cognizance of respondents complaint and its authority to
require Cemco to make a tender offer for UCC shares, and arguing that the
tender offer rule does not apply, or that the SECs re-interpretation of the rule
could not be made to retroactively apply to Cemcos purchase of UCHC shares.
CA affirmed SEC’s ruling.
ISSUE:
1. Whether or not the SEC has jurisdiction over respondents
complaint and to require Cemco to make a tender offer for
respondents 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.
RULING: CEMCO HOLDINGS lost the case. SC affirmed Decision of
CA and SEC.
Ratio:
(1) On the first issue, petitioner Cemco contends that while the SEC can take
cognizance of respondents complaint on the alleged violation by petitioner
Cemco of the mandatory tender offer requirement under Section 19 of
Republic Act No. 8799, the same statute does not vest the SEC with
jurisdiction to adjudicate and determine the rights and obligations of the parties
since, under the same statute, the SECs authority is purely administrative.
Having been vested with purely administrative authority, the SEC can only
impose administrative sanctions such as the imposition of administrative fines,
the suspension or revocation of registrations with the SEC, and the like.
Petitioner stresses that there is nothing in the statute which authorizes the SEC
to issue orders granting affirmative reliefs. Since the SECs order commanding
it to make a tender offer is an affirmative relief fixing the respective rights and
obligations of parties, such order is void.
Petitioner further contends that in the absence of any specific grant of
jurisdiction by Congress, the SEC cannot, by mere administrative regulation,
confer on itself that jurisdiction.
Petitioners stance fails to persuade.
In taking cognizance of respondents complaint against petitioner and
eventually rendering a judgment which ordered the latter to make a tender
offer, the SEC was acting pursuant to Rule 19(13) of the Amended
Implementing Rules and Regulations of the Securities Regulation Code.
SECs 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 19 thereof.
Another provision of the statute, which provides the basis of Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities Regulation
Code, is Section 5.1(n), viz:
[T]he Commission shall have, among others, the following
powers and functions:
xxxx
(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.
The foregoing provision bestows upon the SEC the general adjudicative power
which is implied from the express powers of the Commission or which is
incidental to, or reasonably necessary to carry out, the performance of the
administrative duties entrusted to it. As a regulatory agency, it has the
incidental power to conduct hearings and render decisions fixing the rights and
obligations of the parties. In fact, to deprive the SEC of this power would
render the agency inutile, because it would become powerless to regulate and
implement the law.
For sure, the SEC has the authority to promulgate rules and regulations,
subject to the limitation that the same are consistent with the declared policy of
the Code. Among them is the protection of the investors and the minimization,
if not total elimination, of fraudulent and manipulative devises.
The power conferred upon the SEC to promulgate rules and regulations is a
legislative recognition of the complexity and the constantly-fluctuating nature of
the market and the impossibility of foreseeing all the possible contingencies
that cannot be addressed in advance
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. In fact, petitioner
defended the jurisdiction of the SEC in its Comment dated 15 September
2004, filed with the SEC.
Petitioner did not question the jurisdiction of the SEC when it rendered an
opinion favorable to it, such as the 27 July 2004 Resolution, where the SEC
opined that the Cemco transaction was not covered by the mandatory tender
offer rule. It was only when the case was before the Court of Appeals and after
the SEC rendered an unfavorable judgment against it that petitioner
challenged the SECs competence.
(2) On the second issue, petitioner asserts that the mandatory tender offer rule
applies only to direct acquisition of shares in the public company.
This contention is not meritorious.
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 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.
Under Section 19 of Republic Act No. 8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of
persons acting in concert who intends to acquire at least
fifteen percent (15%) of any class of any equity security of a
listed corporation or of any class of any equity security of a
corporation with assets of at least Fifty million pesos
(P50,000,000.00) and having two hundred (200) or more
stockholders with at least one hundred (100) shares each or
who intends to acquire at least thirty percent (30%) of such
equity over a period of twelve (12) months shall make a tender
offer to stockholders by filing with the Commission a
declaration to that effect; and furnish the issuer, a statement
containing such of the information required in Section 17 of
this Code as the Commission may prescribe. Such person or
group of persons shall publish all requests or invitations for
tender, or materials making a tender offer or requesting or
inviting letters of such a security. Copies of any additional
material soliciting or requesting such tender offers subsequent
to the initial solicitation or request shall contain such
information as the Commission may prescribe, and shall be
filed with the Commission and sent to the issuer not later than
the time copies of such materials are first published or sent or
given to security holders.
Under existing SEC Rules, the 15% and 30% threshold acquisition of shares
under the foregoing provision was increased to thirty-five percent (35%). It is
further provided therein that mandatory tender offer is still applicable even if
the acquisition is less than 35% when the purchase would result in ownership
of over 51% of the total outstanding equity securities of the public company.
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.
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 bottomline 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.
Citibank NA vs. Tanco-Gabaldon
G.R. No. 198444, September 4, 2013
Facts: Respondents filed with the Securities and Exchange Commission’s
Enforcement and Prosecution Department (SEC-EPD) a complaint for violation
of the Revised Securities Act (RSA) and the Securities Regulation Code (SRC)
against petitioners Citibank N.A. (Citibank) and its officials, Citigroup Private
Bank (Citigroup) and its officials, and petitioner Carol Lim (Lim), who is
Citigroup’s Vice-President and Director. In a January 2003 statement issued by
the Citigroup, the respondents learned that their investments declined, until
their account was totally wiped out. Upon verification with the SEC, they
learned that the Ceres II Finance Ltd. Notes and the Aeries Finance II Ltd.
Notes were not duly registered securities. They also learned that Ceres II
Finance Ltd., Aeries Finance II Ltd. and the petitioners, among others, are not
duly-registered security issuers, brokers, dealers or agents.
Issues:
(1) Whether the criminal action for offenses punished under the SRC filed by
the respondents against the petitioners has already prescribed;
(2) Whether the filing of the action for the petitioners’ administrative liability is
barred by laches.
Ruling: Petition Denied.
Resolution of the issue raised by the petitioners call for an examination of the
pertinent provisions of the SRC, particularly Section 62, which states: 1ibrary
SEC. 62. Limitation of Actions. –
62.1. No action shall be maintained to enforce any liability created under
Section 56 or 57 of this Code unless brought within two (2) years after the
discovery of the untrue statement or the omission, or, if the action is to
enforce a liability created under Subsection 57.1(a), unless brought within two
(2) years after the violation upon which it is based. In no event shall any
such action be brought to enforce a liability created under Section 56 or
Subsection 57.1(a) more than five (5) years after the security was bona
fide offered to the public, or under Subsection 57.1(b) more than five (5)
years after the sale.
62.2. No action shall be maintained to enforce any liability created under any
other provision of this Code unless brought within two (2) years after the
discovery of the facts constituting the cause of action and within five (5) years
after such cause of action accrued.
Section 62 provides for two different prescriptive periods.
Section 62.1 specifically sets out the prescriptive period for the liabilities
created under Sections 56, 57, 57.1(a) and 57.1(b). Section 56 refers to Civil
Liabilities on Account of False Registration Statement while Section 57 pertains
to Civil Liabilities on Arising in Connection with Prospectus, Communications
and Reports. Under these provisions, enforcement of the civil liability must be
brought within two (2) years or five (5) years, as the case may be.
On the other hand, Section 62.2 provides for the prescriptive period to enforce
any liability created under the SRC. It is the interpretation of the phrase “any
liability” that creates the uncertainty. Does it include both civil and criminal
liability? Or does it pertain solely to civil liability?
In order to put said phrase in its proper perspective, reference must be made
to the rule of statutory construction that every part of the statute must be
interpreted with reference to the context, i.e., that every part of the statute must
be considered together with the other parts, and kept subservient to the
general intent of the whole enactment. Section 62.2 should not be read in
isolation of the other provision included in Section 62, particularly Section 62.1,
which provides for the prescriptive period for the enforcement of civil liability in
cases of violations of Sections 56, 57, 57.1(a) and 57.1(b).
Moreover, it should be noted that the civil liabilities provided in the SRC are not
limited to Sections 56 and 57. Section 58 provides for Civil Liability For Fraud
in Connection With Securities Transactions; Section 59 – Civil Liability For
Manipulation of Security Prices; Section 60 – Civil Liability With Respect to
Commodity Future Contracts and Pre-need Plans; and Section 61 – Civil
Liability on Account of Insider Trading. Thus, bearing in mind that Section 62.1
merely addressed the prescriptive period for the civil liability provided in
Sections 56, 57, 57.1(a) and 57.1(b), then it reasonably follows that the other
sub-provision, Section 62.2, deals with the other civil liabilities that were not
covered by Section 62.1, namely Sections 59, 60 and 61. This conclusion is
further supported by the fact that the subsequent provision, Section 63,
explicitly pertains to the amount of damages recoverable under Sections 56,
57, 58, 59, 60 and 61, the trial court having jurisdiction over such actions, the
persons liable and the extent of their liability. Clearly, the intent is to
encompass in Section 62 the prescriptive periods only of the civil liability in
cases of violations of the SRC.
The CA, therefore, did not commit any error when it ruled that “the phrase ‘any
liability’ in subsection 62.2 can only refer to other liabilities that are also civil in
nature. The phrase could not have suddenly intended to mean criminal liability
for this would go beyond the context of the other provisions among which it is
found.”
Given the absence of a prescriptive period for the enforcement of the criminal
liability in violations of the SRC, Act No. 3326 now comes into play.
Panaguiton, Jr. v. Department of Justice expressly ruled that Act No. 3326 is
the law applicable to offenses under special laws which do not provide
their own prescriptive periods.
Section 1 of Act No. 3326 provides: virtua1aw 1ibrary
Violations penalized by special acts shall, unless otherwise provided in such
acts, prescribe in accordance with the following rules: (a) after a year for
offenses punished only by a fine or by imprisonment for not more than one
month, or both; (b) after four years for those punished by imprisonment for
more than one month, but less than two years; (c) after eight years for those
punished by imprisonment for two years or more, but less than six years; and
(d) after twelve years for any other offense punished by imprisonment for
six years or more, except the crime of treason, which shall prescribe after
twenty years. Violations penalized by municipal ordinances shall prescribe
after two months. (Emphasis ours)
Under Section 73 of the SRC, violation of its provisions or the rules and
regulations is punishable with imprisonment of not less than seven (7) years
nor more than twenty-one (21) years. Applying Section 1 of Act No. 3326, a
criminal prosecution for violations of the SRC shall, therefore, prescribe in
twelve (12) years.
Hand in hand with Section 1, Section 2 of Act No. 3326 states that “prescription
shall begin to run from the day of the commission of the violation of the law,
and if the same be not known at the time, from the discovery thereof and the
institution of judicial proceedings for its investigation and punishment.” In
Republic v. Cojuangco, Jr. the Court ruled that Section 2 provides two rules for
determining when the prescriptive period shall begin to run: first, from the day
of the commission of the violation of the law, if such commission is known;
and second, from its discovery, if not then known, and the institution of
judicial proceedings for its investigation and punishment.
The respondents alleged in their complaint that the transactions occurred
between September 2000, when they purchased the Subscription Agreement
for the purchase of USD 2,000,000.00 worth of Ceres II Finance Ltd. Income
Notes, and July 31, 2003, when their Ceres II Finance Ltd. account was totally
wiped out. Nevertheless, it was only sometime in November 2004 that the
respondents discovered that the securities they purchased were actually
worthless. Thereafter, the respondents filed on October 23, 2005 with the
Mandaluyong City Prosecutor’s Office a complaint for violation of the RSA and
SRC. In Resolution dated July 18, 2007, however, the prosecutor’s office
referred the complaint to the SEC. Finally, the respondents filed the complaint
with the SEC on September 21, 2007. Based on the foregoing antecedents,
only seven (7) years lapsed since the respondents invested their funds with the
petitioners, and three (3) years since the respondents’ discovery of the alleged
offenses, that the complaint was correctly filed with the SEC for investigation.
Hence, the respondents’ complaint was filed well within the twelve (12)-year
prescriptive period provided by Section 1 of Act No. 3326.
On the issue of laches.
Petitioner Lim contends that the CA committed an error when it did not apply
the principle of laches vis-à-vis the petitioners’ administrative liability.
Laches has been defined as the failure or neglect for an unreasonable and
unexplained length of time to do that which, by exercising due diligence, could
or should have been done earlier, thus, giving rise to a presumption that the
party entitled to assert it either has abandoned or declined to assert it.
Section 54 of the SRC provides for the administrative sanctions to be imposed
against persons or entities violating the Code, its rules or SEC orders. Just as
the SRC did not provide a prescriptive period for the filing of criminal actions, it
likewise omitted to provide for the period until when complaints for
administrative liability under the law should be initiated. On this score, it is a
well-settled principle of law that laches is a recourse in equity, which is, applied
only in the absence of statutory law. And though laches applies even to
imprescriptible actions, its elements must be proved positively. 36 Ultimately, the
question of laches is addressed to the sound discretion of the court and, being
an equitable doctrine, its application is controlled by equitable considerations.
In this case, records bear that immediately after the respondents discovered in
2004 that the securities they invested in were actually worthless, they filed on
October 23, 2005 a complaint for violation of the RSA and SRC with the
Mandaluyong City Prosecutor’s Office. It took the prosecutor three (3) years to
resolve the complaint and refer the case to the SEC, in conformity with the
Court’s pronouncement in Baviera that all complaints for any violation of the
SRC and its implementing rules and regulations should be filed with the SEC.
Clearly, the filing of the complaint with the SEC on September 21, 2007 is not
barred by laches as the respondents’ judicious actions reveal otherwise.
 issues arising from petitioners’ causes of action against respondent are more
Pua vs. Citibank N.A., appropriate for the judiciary than for an administrative agency to resolve
G.R. No. 180064, September 16, 2013
CA reversed and set aside the RTC’s Orders and dismissed petitioners’
Facts: Binondo Branch Manager Guada Ang introduced the petitioners to
complaint for violation of the doctrine of primary jurisdiction. The CA agreed
Chingyee Yau, Vice president of Citibank Hongkong Branch who came to the
with respondent’s contention that since the case would largely depend on the
Philippines to sell securities. They averred that Yau required Jose to open an
issue of whether or not the latter violated the provisions of the SRC, matter is
account with Citibank Hongkong as it is one of the conditions for the sale of the
within the special competence or knowledge of the SEC. Citing the Braviera
aforementioned securities. After opening such account, Yau offered and sold to
case, The CA opined that all complaints involving violations of the SRC should
petitioners numerous securities issued by various public limited companies
be first filed before the SEC
established in Jersey, Channel I sands. Petitioners discovered that the
securities sold to them were not registered with the Securities and
Issue: Whether or not petitioners’ action falls within the primary jurisdiction of
Exchange Commission (SEC) and that the terms and conditions covering
the SEC.
the subscription were not likewise submitted to the SEC for evaluation,
approval, and registration.
Ruling: Petition is granted.
Petitioners, depositors of respondent Citibank Binondo branch, filed before the
Ratio:
RTC a Complaint for declaration of nullity of contract and sums of money
A careful reading of the Baviera case would reveal that the same involves a
with damages against respondent.
criminal prosecution of a purported violator of the SRC, and not a civil
suit such as the case at bar.
Petitioners Argument:
Asserting that respondent’s actions are in violation of Republic Act No.8799,
A criminal charge for violation of the Securities Regulation Code is a
entitled the "Securities Regulation Code" (SRC), they assailed the validity of
specialized dispute. Hence, it must first be referred to an administrative agency
the subscription agreements and the terms and conditions thereof for being
of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction,
contrary to law and/or public policy. Petitioner asserted that Section 63 of the
courts will not determine a controversy involving a question within the
SRC expressly provides that the RTC has exclusive jurisdiction to hear and
jurisdiction of the administrative tribunal, where the question demands the
decide all suits to recover damages pursuant to Sections 56 to 61 of the same
exercise of sound administrative discretion requiring the specialized knowledge
law.
and expertise of said administrative tribunal to determine technical and
intricate matters of fact. The Securities Regulation Code is a special law. Its
Respondents Argument:
enforcement is particularly vested in the SEC.
For its part, respondent filed a motion to dismiss alleging that petitioners’
complaint should be dismissed outright for violation of the doctrine of primary
Hence, all complaints for any violation of the Code and its implementing rules
jurisdiction. It pointed out that the merits of the case would largely depend on
and regulations should be filed with the SEC. Where the complaint is criminal
the issue of whether or not there was a violation of the SRC, in particular,
in nature, the SEC shall indorse the complaint to the DOJ for preliminary
whether or not there was a sale of unregistered securities. In this regard,
investigation and prosecution as provided in Section 53.1 earlier quoted.
respondent contended that the SRC conferred upon the SEC jurisdiction to
investigate compliance with its provisions and thus, petitioners’ complaint
Records show that petitioners’ complaint constitutes a civil suit for
should be first filed with the SEC and not directly before the RTC.
declaration of nullity of contract and sums of money with damages,
which stemmed from respondent’s alleged sale of unregistered
RTC ruled it has jurisdiction to hear and decide upon the case even if it
securities, in violation of the various provisions of the SRC and not a
involves the alleged sale of securities. It ratiocinated that the legal questions or
criminal case such as that involved in Baviera.

It is well settled that jurisdiction is conferred by law. It is apparent that the SRC
provisions governing criminal suits are separate and distinct from those which
pertain to civil suits. On the other hand, Sections 56, 57, 58, 59, 60, 61, 62,
and 63 of the SRC pertain to civil suits involving violations of the same law.
SEC. 63. Amount of Damages to be Awarded. – 63.1. All suits to recover
damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought
before the Regional Trial Court which shall have exclusive jurisdiction to hear
and decide such suits. The Court is hereby authorized to award damages in an
amount not exceeding triple the amount of the transaction plus actual
damages.
Based on the foregoing, it is clear that cases falling under Section 57 of
the SRC, which pertain to civil liabilities arising from violations of the
requirements for offers to sell or the sale of securities, as well as other
civil suits under Sections 56, 58, 59, 60, and 61 of the SRC shall be
exclusively brought before the regional trial courts. It is a well- settled rule
in statutory construction that the term "shall" is a word of command, and one
which has always or which must be given a compulsory meaning, and it is
generally imperative or mandatory Likewise, it is equally revelatory that no
SRC provision of similar import is found in its sections governing criminal suits;
quite the contrary, the SRC states that criminal cases arising from violations of
its provisions should be first referred to the SEC.
Timeshare Realty vs. Lao
G.R. No. 158941, February 11, 2008
Facts: On October 1996, Petitioner sold to Lao and Cortez (respondents) one
timeshare of Laguna de Boracay for $7500. Sometime in February 1998, the
SEC issued a resolution to the effect that petitioner was without authority to sell
securities, like timeshares, prior to February 11, 1998. It also held that the 30
days within which a purchaser may exercise the option to unilaterally rescind
the purchase agreement and receive the refund of money paid applies to all
purchase agreements entered into by petitioner prior to the effectivity of the
Registration Statement. Respondents then demanded their right and option to
cancel their contract. Despite repeated demands, petitioner failed and refused
to refund or pay respondents. Thus, respondents filed a case before the SEC
for violation of Section 4 of Batas Pambansa Bilang (B.P. Blg.) 178. Petitioner
filed an Answer to the Complaint but the SEC En Banc expunged the Answer
from the records due to tardiness. SEC en banc ruled in favor of respondents.
Petitioner sought from the CA an extension of 30 days within which to appeal,
but was only granted 15 days extension or until July 25, 2002. Petitioner
purportedly received the July 24, 2002 CA Order on July 29, 2002, but filed a
Petition for Review with the CA on August 19, 2002. Thus the CA dismissed the
petition.
Issues:
1. WON the eventual approval or issuance of license has retroactive effect and
therefore ratifies all earlier transactions
2. WON a party in a contract could withdraw or rescind unilaterally without
valid reason.
Petition was denied. A judgment must become final at the time appointed by
law. Thus, an appeal from such judgment, not being a natural right but a mere
statutory privilege, must be perfected according to the mode and within the
period prescribed by the law and the rules; otherwise, the appeal is forever
barred, and the judgment becomes binding. Nevertheless, the Court opts to
resolve the substantive issues raised by petitioner.
Ruling: The petition was denied.
Ratio: Petitioner argues that when it was registered and authorized by the
SEC as broker of securities, this had the effect of ratifying its October 1996
purchase agreement with respondents, and removing any cause for the latter
to rescind it. Petitioner failed to resort to administrative remedy regarding the
resolution issued by the SEC, such as by questioning the resolution before the
SEC enbanc, hence petitioner is already bound by said ruling and can no
longer question the same through a direct and belated recourse to us.
The provisions of B.P. Blg. 178 do not support the contention of petitioner that
its mere registration as a corporation already authorizes it to deal with
unregistered timeshares. Corporate registration is just one of several
requirements before it may deal with timeshares. Section 4 provides that:
Section 4. Requirement of registration of securities. - (a) No securities, except
of a class exempt under any of the provisions of Section five hereof or unless
sold in any transaction exempt under any of the provisions of Section six
hereof, shall be sold or offered for sale or distribution to the public within the
Philippines unless such securities shall have been registered and
permitted to be sold as hereinafter provided.
 Despite the opposition of the SEC, Judge Laigo ordered the insolvency
SEC vs. Hon. Laigo Assignee Gener T. Mendoza (Assignee) to take possession of the trust fund.
G.R. No. 188639, September 2, 2015 Judge Laigo viewed the trust fund as Legacy's corporate assets and, for said
reason, included it in the insolvent's estate.
FACTS: Republic Act (R.A.) No. 8799, otherwise known as the Securities
Regulation Code (SRC), specifically Section 16 thereof, mandated the
SEC appealed to SC through a certiorari petition.
Securities and Exchange Commission (SEC) to prescribe rules and regulations
governing the pre-need industry. Pursuant thereto, the SEC issued the
ISSUE: Whether Judge Laigo gravely abused his discretion in:
corresponding New Rules on the Registration and Sale of Pre-Need Plans
1. Including the trust properties in the insolvent’s estate; and
(New Rules) to govern the pre-need industry prior to the enactment of R.A. No.
2. Prohibiting the SEC from validating the claims filed by the plan holders
9829, otherwise known as the Pre-need Code of the Philippines (Pre-Need
against the trust fund.
Code). It required from the pre-need providers the creation of trust funds as a
requirement for registration.
RULING: Yes.
As defined in Rule 1.9 of the New Rules, " 'Trust Fund' means a fund set up
I. The Trust Fund is for the sole benefit of the planholders and cannot be used
from planholders' payments, separate and distinct from the paid-up capital of a
to satisfy the claims of other creditors of Legacy
registered pre-need company, established with a trustee under a trust
agreement approved by the SEC, to pay for the benefits as provided in the pre-
Section 30 of the Pre-Need Code clearly provides that the proceeds of trust
need plan."
funds shall redound solely to the planholders
Legacy, being a pre-need provider, complied with the trust fund requirement
In the course of delving into the complex relationships created by the
and entered into a trust agreement with the Land Bank of the Philippines (IBP).
agreement and the existing regulatory framework, this Court finds that
Legacy's claimed interest in the enforcement of the trust and in the trust
In mid- 2000, the industry collapsed for a range of reasons. Legacy, like the
properties is mere apparent than real. Legacy is not a beneficiary.
others, was unable to pay its obligations to the planholders.

First, it must be stressed that a person is considered as a beneficiary of a trust

This resulted in Legacy being the subject of a petition for involuntary
if there is a manifest intention to give such a person the beneficial interest over
insolvency filed on February 18, 2009 by private respondents in their capacity
the trust properties. This is the considered opinion expressed in the
as planholders. Through its manifestation filed in the RTC, Legacy did not
Restatement of the Law of Trust (Restatement) which Justice Vicente Abad
object to the proceedings. Accordingly, it was declared insolvent by the RTC in
Santos has described in his contribution to the Philippine Law Journal as
its Order, the RTC ordered the SEC, being the pre-need industry's regulator, to
containing the more salient principles, doctrines and rules on the subject. Here,
submit the documents pertaining to Legacy's assets and liabilities.
the terms of the trust agreement plainly confer the status of beneficiary to the
planholders, not to Legacy. In the recital clauses of the said agreement,
In its Manifestation with Evaluation, dated June 10, 2009, the SEC opposed
Legacy bound itself to provide for the sound, prudent and efficient
the inclusion of the trust fund in the inventory of corporate assets on the
management and administration of such portion of the collection "for the
ground that to do so would contravene the New Rules which treated trust funds
benefit and account of the planholders," through LBP (as the trustee).
as principally established for the exclusive purpose of guaranteeing the
delivery of benefits due to the planholders. It was of the position that the
This categorical declaration doubtless indicates that the intention of the trustor
inclusion of the trust fund in the insolvent's estate and its being opened to
is to make the planholders the beneficiaries of the trust properties, and not
claims by non-planholders would contravene the purpose for its establishment.
Legacy. It is clear that because the beneficial ownership is vested in the
planholders and the legal ownership in the trustee, LBP, Legacy, as trustor, is
left without any iota of interest in the trust fund. This is consistent with the
nature of a trust arrangement, whereby there is a separation of interests in the
subject matter of the trust, the beneficiary having an equitable interest, and the
trustee having an interest which is normally legal interest.
Second, considering the fact that a mandated pre-need trust is one imbued
with public interest, the issue on who the beneficiary is must be determined on
the basis of the entire regulatory framework. Under the New Rules, it is
unmistakable that the beneficial interest over the trust properties is with the
planholders. Rule 16.3 of the New Rules provides that : [n]o withdrawal shall
be made from the trust fund except for paying the benefits such as monetary
consideration, the cost of services rendered or property delivered, trust fees,
bank charges and investment expenses in the operation of the trust fund,
termination values payable to the planholders, annuities, contributions of
cancelled plans to the fund and taxes on trust funds.
Rule 17.1 also states that to ensure the liquidity of the trust fund to guarantee
the delivery of the benefits provided for under the plan contract and to obtain
sufficient capital growth to meet the growing actuarial reserve liabilities, all
investments of the trust fund shall be limited to Fixed Income Instruments,
Mutual Funds, Equities, and Real Estate, subject to certain limitations.
Further, Rule 20.1 directs the trustee to exercise due diligence for the
protection of the planholders guided by sound investment principles in the
exclusive management and control over the funds and its right, at any time, to
sell, convert, invest, change, transfer, or otherwise change or dispose of the
assets comprising the funds. All these certainly underscore the importance of
the planholders being recognized as the ultimate beneficiaries of the SEC-
mandated trust.
This consistently runs in accord with the legislative intent laid down in Chapter
IV of R.A. No. 8799, or the SRC, which provides for the establishment of
trust funds for the payment of benefits under such plans.
It is clear from Section 16 that the underlying congressional intent is to make
the planholders the exclusive beneficiaries. It has been said that what is within
the spirit is within the law even if it is not within the letter of the law because the
spirit prevails over the letter.
This will by the legislature was fortified with the enactment of R.A. No. 9829 or
the Pre-Need Code in 2009. The Congress, because of the chaos confounding
the industry at the time, considered it necessary to provide a stronger legal
framework so that no entity could claim that the mandate and delegated
authority of the SEC under the SRC was nebulous. The Pre-Need Code
cemented the regulatory framework governing the pre-need industry with
precise specifics to ensure that the rights of the pre-need planholders would be
categorically defined and protected.
To rule that Legacy has retained a beneficial interest in the trust fund is to
perpetuate the injustices being committed against the planholders and violate
not only the spirit of the trust agreement but, more importantly, the lawmaker's
intent. If indeed Legacy had an interest that could be reached by its creditors
even during insolvency, the planholders would be prejudiced as they would be
forced to share in the assets that would be distributed pro rata to all creditors,
whether planholders or not. It would contradict the very purpose for which the
trust was mandated by the Congress in the first place.
Third, the perceived interest of Legacy, as touted by the Assignee, has simply
no basis. It may appear that Legacy under the agreement has control over the
enforcement of the trust because of its provisions stating that Legacy shall
"solely and exclusively] [be] responsible for fulfilling the services referred to in
the recital clauses and the settlement/payment of claims of any person or firm
availing of such services" and that "[a]ny written direction of the Company [to
the trustee] shall constitute a certification that the distribution of payment so
directed is one which the Company is authorized to direct" Such provisions,
however, cannot be construed as Legacy having retained a beneficial interest
in the trust fund.
To begin with, the aforestated provisions refer solely to the delivery of the
proceeds of the trust from LBP to Legacy and then finally to the beneficiaries.
In effect, Legacy merely agreed to facilitate the payment of the benefits
from the trust fund to the intended beneficiaries, acting as a conduit or
an agent of the trustee in the enforcement of the trust agreement. Under
the general principles of trust, a trustee, by the terms of the agreement
may be permitted to delegate to agents or to co-trustees or to other
persons the administration of the trust or the performance of act which
could not otherwise be properly delegated. Thus, by the terms of the trust,
as in this case, a trustee may be authorized or permit an agent to do acts such
as the delivery of the benefits out of the trust fund.
II. Enjoining the SEC from validating the claims against the trust fund is grave
abuse of discretion for the insolvency court has no authority to order the
reversion of properties that do not form part of Legacy's insolvent estate.
It is an error for the Assignee to assume that the authority of the RTC extends
to the claims against the trust fund. Claims against the trust fund must be
distinguished from claims against Legacy. The claims against the trust fund are
directed not against Legacy, but against LBP, the trustee, being the debtor
relative to the trust properties.
The Pre-Need Code is clear on this. It recognizes the distinction between
claims against the pre-need company and those against the trust fund. Section
52 (b) states that liquidation "proceedings in court shall proceed
independently of proceedings in the Commission for the liquidation of claims,
and creditors of the pre-need company shall have no personality
whatsoever in the Commission proceedings to litigate their claims
against the trust funds." The reason why claims against the trust funds can
proceed independently of the proceedings in the courts is the fact that the
latter is directed against a different person or entity.
Moreover, the Assignee must be reminded that the issue in Abrera is not
similar to the question raised here by the SEC. In the case at bench, the SEC
questions the propriety of including the trust fund in the inventory of Legacy's
corporate assets.
People vs. Tibayan
G.R. Nos. 209655-60, January 14, 2015
(PONZI SCHEME)
FACTS: Tibayan Group Investment Company,Inc. (TGICI) is investment
company registered with(SEC). Sometime in 2002, the SEC conducted an
investigation on TGICI. It discovered that TGICI was selling securities to the
public without a registration statement in violation of Republic Act No. 8799,
otherwise known as "The Securities Regulation Code”. The SEC revoked
TGICI’s corporate registration for being fraudulently procured. The foregoing
led to the filing of multiple criminal cases for Syndicated Estafa against the
incorporators and directors of TGICI, namely herein accused-appellants.
(private complainants) were enticed to invest in TGICI due to the offer of high
interest rates. After giving their money to TGICI, private complainants received
a Certificate of Share and post-dated checks, representing the amount of the
principal investment and the monthly interest earnings, respectively. Upon
encashment, the checks were dishonored, as the account was already closed,
prompting private complainants to bring the bounced checks to the TGICI
office to demand payment. At the office, the TGICI employees took the said
checks, gave private complainants acknowledgement receipts, and reassured
that their investments, as well as the interests, would be paid. However, the
TGICI office closed down without private complainants having been paid and,
thus, they were constrained to file criminal complaints against the incorporators
and directors of TGICI. RTC rendered judgment convicting the accused of
Estafa. CA modified it to Syndicated Estafa.
ISSUE: Whether or not accused-appellants are guilty beyond reasonable
doubt of the crime of Syndicated Estafa defined and penalized under Item 2
(a), Paragraph 4, Article 315 of the RPC in relation to PD 1689. (YES)
RULING: YES. WHEREFORE, the appeal is DENIED. The Decision dated
June 28, 2013 of the Court of Appeals in CA-G.R. CR Nos. 33063, 33562,
33660, 33669, 33939, and 34398 is hereby AFFIRMED. Accordingly, accused
appellants Palmy Tibayan and Rico Z. Puerto are found GUILTY beyond
reasonable doubt of 13 and 11 counts, respectively, of Syndicated Estafa and
are sentenced to suffer the penalty of life imprisonment for each count.
Accused-appellants are further ordered to pay actual damages to each of the
private complainants.
RATIO: The elements of Estafa by means of deceit under this provision are the
following: (a) that there must be a false pretense or fraudulent representation
as to his power, influence, qualifications, property, credit, agency, business or
imaginary transactions; (b) that such false pretense or fraudulent
representation was made or executed prior to or simultaneously with the
commission of the fraud; (c) that the offended party relied on the false
pretense, fraudulent act, or fraudulent means and was induced to part with his
money or property; and (d) that, as a result thereof, the offended party suffered
damage.
In relation thereto, Section 1 of PD 1689 defines Syndicated Estafa as follows:
Section 1. Any person or persons who shall commit estafa or other forms of
swindling as defined in Articles 315 and 316 of the Revised Penal Code, as
amended, shall be punished by life imprisonment to death if the swindling
(estafa) is committed by a syndicate consisting of five or more persons formed
with the intention of carrying out the unlawful or illegal act, transaction,
enterprise or scheme, and the defraudation results in the misappropriation of
moneys contributed by stockholders, or members of rural banks, cooperatives,
"samahang nayon(s)," or farmers’ associations, or funds solicited by
corporations/associations from the general public.
The CA correctly held that accused -appellants, along with the other accused
who are still at large, used TGICI to engage ina Ponzi scheme, resulting in the
defraudation of the TGICI investors. A Ponzi scheme is a type of investment
fraud that involves the payment of purported returns to existing investors from
funds contributed by new investors. Its organizers often solicit new investors by
promising to invest funds in opportunities claimed to generate high returns with
little or no risk. In many Ponzi schemes, the perpetrators focus on attracting
new money to make promised payments to earlier-stage investors to create the
false appearance that investors are profiting from a legitimate business. It is
not an investment strategy but a gullibility scheme, which works only as long as
there is an ever increasing number of new investors joining the scheme. It is
clear that all the elements of Syndicated Estafa, committed through a Ponzi
scheme, are present in this case, considering that: (a) the
incorporators/directors of TGICI comprising more than five (5) people, including
herein accused-appellants, made false pretenses and representations to the
investing public - in this case, the private complainants - regarding a supposed
lucrative investment opportunity with TGICI in order to solicit money from them;
(b) the said false pretenses and representations were made prior to or
simultaneous with the commission of fraud; (c) relying on the same, private
complainants invested their hard earned money into TGICI; and the
incorporators/directors of TGICI ended up running away with the private
complainants' investments, obviously to the latter's prejudice.
Primanila Plans vs. SEC
G.R. No. 193791, August 6, 2014
FACTS: Primanila was registered with the SEC on October 17, 1988 and was
issued Certificate of Registration No. 156350. Based on its amended articles of
incorporation, the company’s primary purpose was "to organize, establish,
develop, conduct, provide, maintain, operate, offer, issue, market and sell
pension plans under which the savings of professionals, officers, directors and
other personnel of corporations, firms, or entities, and self employed
individuals can be pooled together, accumulated and invested in profitable
placements and productive enterprises so as to build an Accumulated Fund for
each individual participant or planholder for his retirement, monthly pension or
for other [foreseeable] needs in the future." Primanila then operated as a pre-
needcompany and maintained a business office in Makati City.
On April 9, 2008, the SEC was prompted to issue the subject cease and desist
order after an investigation conducted by the SEC’s Compliance and
Enforcement Department (CED) on Primanila.
From these findings, the SEC declared that Primanila committed a flagrant
violation of Republic Act No. 8799, otherwise known as The Securities
Regulation Code (SRC), particularly Section 16 thereof which reads:
Section 16. Pre-Need Plans. –No person shall sell or offer for sale to the public
any pre-need plan except in accordance with rules and regulations which the
Commission shall prescribe. Such rules shall regulate the sale of pre-need
plans by, among other things, requiring the registration of pre-need plans,
licensing persons involved in the sale of pre-need plans, requiring disclosures
to prospective plan holders, prescribing advertising guidelines, providing for
uniform accounting system, reports and record keeping with respect to such
plans, imposing capital, bonding and other financial responsibility and
establishing trust funds for the payment of benefits under such plans.
It also breached the New Rules on the Registration and Sale of Pre-Need
Plans, specifically Rule Nos. 3 and 15 thereof, to wit:
Rule 3. Registration of Pre-Need Plans. – No corporation shall issue, offer for
sale, or sell Pre-NeedPlans unless such plans shall have been registered
under Rule 4.
Rule 15. Registration of Dealers, General Agents and Salesmen of Pre-
Need Plans.
15.1. Any issuer selling its own Pre-Need Plans shall be deemed a dealer in
securities and shall be required to be registered as such and comply with all
the provisions hereof; provided that the issuer selling different types of
PreNeed Plans shall be required to be registered as dealer only once for the
different types of plans.
The SEC then issued the subject cease and desist order "in order to prevent
further violations and in order to protect the interest of its plan holders and the
public."
Feeling aggrieved, Primanila filed a Motion for Reconsideration/Lift Cease and
Desist Order, arguing that it was denied due process as the order was
released without any prior issuance by the SEC of a notice or formal charge
that could have allowed the company to defend itself. Primanila further argued
that it was neither selling nor collecting premium payments for the product
Primasa plans. The product was previously developed but was never launched
and soldto the public following the resignation from the company in 2006 by
Benjamin Munda,the one who crafted it. The Primanila company website that
included details on the Primasa product was not updated; the advertisement of
the product on the website was the result of mere inadvertence. Thus, the
cease and desist order against Primanila would allegedly not accomplish
anything, but only prejudice the interest and claims of its other planholders.
ISSUES:
(1) WON Primanila was accorded due process of law.
(2) WON the cease and desist order was valid.
RATIO: Yes to both.
As the foregoing provisions are necessary for the protection of investors and
the public in general, even the PreNeed Code, 22 which now governs pre-need
companies and their activities, contains similar conditions for the regulation of
pre-need plans.
WHEREFORE, the petition is DENIED. The Decision dated March 9, 2010 and
Resolution dated September 15, 2010 of the Court of Appeals in CA-G.R. SP.
No. 104083 are AFFIRMED. SO ORDERED.
RULING:
(1) Yes, Primanila was accorded due process of law. The authority of the SEC
and the manner by which it can issue cease and desist orders are provided in
Section 64 of the SRC, and we quote:
Section 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.
The law is clear on the point that a cease and desist order may be issued by
the SEC motu proprio, it being unnecessary that it results from a verified
complaint from an aggrieved party. A prior hearing is also not required
whenever the Commission finds it appropriate to issue a cease and desist
order that aims to curtail fraud or grave or irreparable injury to investors. There
is good reason for this provision, as any delay in the restraint of acts that yield
such results can only generate further injury to the public that the SEC is
obliged to protect.
To equally protect individuals and corporations from baseless and improvident
issuances, the authority of the SEC under this rule is nonetheless with defined
limits. A cease and desist order may only be issued by the Commission after
proper investigation or verification, and upon showing that the acts
sought to be restrained could result in injury or fraud to the investing
public. Without doubt, these requisites were duly satisfied by the SEC prior to
its issuance of the subject cease and desist order.
The SEC was not mandated to allow Primanila to participate in the
investigation conducted by the Commission prior to the cease and desist
order’s issuance. Given the circumstances, it was sufficient for the satisfaction
of the demands of due process that the company was amply apprised of the
results of the SEC investigation, and then given the reasonable opportunity
to present its defense. Primanila was able to do this via its motion to
reconsider and lift the cease and desist order. After the CED filed its comment
on the motion, Primanila was further given the chance to explain its side to the
SEC through the filing of its reply. "Trite to state, a formal trial or hearing is not
necessary to comply with the requirements of due process. Its essence is
simply the opportunity to explain one’s position." As the Court held in Ledesma
v. Court of Appeals:
Due process, as a constitutional precept, does not always and in all situations
require a trial-type proceeding. Due process is satisfied when a person is
notified of the charge against him and given an opportunity to explain or
defend himself. In administrative proceedings, the filing of charges and giving
reasonable opportunity for the person so charged to answer the accusations
against him constitute the minimum requirements of due process. The essence
of due process is simply to be heard, or as applied to administrative
proceedings, an opportunity to explain one’s side, or an opportunity to
seek a reconsideration of the action or ruling complained of.
(2) Yes, the cease and desist order is valid. The validity of the SEC’s cease
and desist order is further sustained for having sufficient factual and legal
bases.
In ruling on the petition’s denial, merely on the substantial evidence that
supports the SEC’s and CA’s findings. Section 5, Rule 133 of the Rules of
Court defines "substantial evidence" as such relevant evidence which a
reasonable mind might accept as adequate to support a conclusion. In the
instant case, this substantial evidence is derived from the results of the SEC
investigation on Primanila’s activities. Specifically on the product Primasa
plans, the SEC ascertained that there were detailed instructions on Primanila’s
website as to how interested persons could apply for a plan, together with the
manner by which premium payments therefor could be effected. A money
deposit by CED to Primanila’s Metrobank account indicated in the
advertisement confirmed that the bank account was active.
There could be no better conclusion from the foregoing circumstances that
Primanila was engaged in the sale or, at the very least, an offer for sale to the
public of the Primasa plans. The offer for Primasa was direct and its reach was
even expansive, especially as it utilized its website as a medium and visits to it
were, as could be expected, from prospective clients.
The Court finds weak and implausible the argument of Primanila that the
inclusion of the Primasa advertisement on its website was due to mere
inadvertence. It was very unlikely that Primanila’s website developer would
include in the Primanila website sections or items that were not sanctioned by
the company. As a hiree of the company, the website developer could have
only acted upon the orders and specific instructions of the company. As
prudence requires, there also normally are employees of a company who are
specifically tasked to monitor contents and activities in its company website. It
was therefore inconceivable that Primanila only knew of the Primasa post on
its website after it received the subject cease and desist order. In any case,
Primanila should be held responsible for the truthfulness of all data or
information that appeared on its website, especially as these were supplied by
persons who were working under its authority.
It is beyond dispute that Primasa plans were not registered with the SEC.
Primanila was then barred from selling and offering for sale the said plan
product. A continued sale by the company would operate as fraud to its
investors, and would cause grave or irreparable injury or prejudice to the
investing public, grounds which could justify the issuance of a cease and desist
order under Section 64 of the SRC.
In view of the foregoing, Primanila clearly violated Section 16 of the SRC and
pertinent rules which barred the sale or offer for sale to the public of a pre-
need product except in accordance with SEC rules and regulations. Under
Section 16 of the SRC:
Sec. 16. Pre- Need Plans. - No person shall sell or offer for sale to the public
any pre-need plan except in accordance with rules and regulations which the
Commission shall prescribe. Such rules shall regulate the sale of pre-need
plans by, among other things, requiring the registration of pre-need plans,
licensing persons involved in the sale of pre-need plans, requiring disclosures
to prospective plan holders, prescribing advertising guidelines, providing for
uniform plans, imposing capital, bonding and other financial responsibility, and
establishing trust funds for the payment of benefits under such plans.
SEC vs. Universal Rightfield Property Holdings, Inc.
G.R. NO. 181381, July 20, 2015
FACTS: Petitioner is the Securities and Exchange Commission (SEC) and
Respondent is Universal Rightfield Property Holdings, Inc. (URPHI). URPHI is
a corporation duly registered and existing under Philippine Law which is
engaged in the business of providing residential and leisure-related needs and
wants market.
On May 29, 2003, SEC issued and Order revoking URPHI's Registration of
SEC for failure to timely file its Year 2001 Annual Report and Year 2002, 1st,
2nd, and 3rd Quarterly Reports which required pursuant to Section 17 of the
Securities Regulation Code (SRC). On October 16, 2003, URPHI Filed a
motion to set aside the revocation order and reinstate registration after
complying with its reportorial requirements.
On October 24, 2003, SEC granted the motion to lift the revocation order.
However, URPHI failed again to comply with the same reportorial
requirements. On June 24, 2004, in a NOTICE OF HEARING, SEC directed
URPHI to show cause why its registration of Securities and Certificate of
Permit to Sell securities to the Public should not be suspended for failure to
submit said requirements in violation of SRC Rule 17.
On July 6, 2004, the scheduled hearing, URPHI through its Chief accountant,
informed SEC why it failed to submit the reportorial requirement, viz:

(1) it was constrained to reduce its accounting staff due to cost-cutting
measures; thus, some of the audit requirements were not completed within the
original timetable;
(2) its audited financial statements for the period ending December 31, 2003
could not be finalized by reason of the delay in the completion of some of its
audit requirements.
On July 27, 2004, SEC suspended URPHI's registration of Securities and
Permit to Sell Securities to the public for failure to submit the reportorial
requirements DESPITE THE LAPSE OF THE EXTENSION PERIOD, and due
to lack of sufficient justification.
On August 23, 2004, SEC informed URPHI that it failed to submits its 2004
2nd Quarter Report in violation of the amended IRR of the SRC Rule 17.a
(1)(A)(ii). It directed URPHI to file the said report and show cause why it should
not be held in violation for the said rule.
On September 23, 2004, URPHI requested for a final extension or until
November 15, 2004. On December 1, 2004, URPHI filed with SEC its 2003
Annual Report. On December 8, 2004, SEC revoked URPHI's Registration of
Securities and Permit to Sell Securities to the Public for its failure to submits its
reportorial requirements within the final extension period.
On December 9, 10 and 14, 2004, URPHI finally submitted to the SEC its
Quarterly Reports. URPHI appealed the SEC Order of Revocation dated
December 8, 2004 by filing a Notice of Appeal and a Memorandum both dated
January 3, 2005.On December 15, 2005, SEC denied URPHI's appeal through
a resolution. Aggrieved, URPHI filed a petition for review with the CA.
Issue: Whether or not the Order of Revocation was issued by SEC without
affording URPHI due process due to absence of notice and hearing.
Held: CA granted the petition of URPHI to set aside. SEC appealed to the SC.
SC granted the petitioners meritorious claims stating that there is not dispute
that the violation of reportorial requirements under Sec 17.1 of the Amended
IRR of the SRC is a ground for suspension or revocation of the registration of
securities pursuant to Sec 13.1 and 54.1 of the SRC to wit:
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:
a) The issuer:
xxx xxx xxx
(ii) 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;
54.1. If, after due notice and hearing, the Commission finds that: (a) There is a
violation of this Code, its rules, or its orders; (b) Any registered broker or
dealer, associated person thereof has failed reasonably to supervise, with a
view to preventing violations, another person subject to supervision who
commits any such violation; (c) Any registrant or other person has, in a
registration statement or in other reports, applications, accounts, records or
documents required by law or rules to be filed with the Commission, made any
untrue statement of a material fact, or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading; or, in the case of an underwriter, has failed to conduct an inquiry
with reasonable diligence to insure that a registration statement is accurate
and complete in all material respects; or (d) Any person has refused to permit
any lawful examinations into its affairs, it shall, in its discretion, and subject
only to the limitations hereinafter prescribed, impose any or all of the following
sanctions as may be appropriate in light of the facts and circumstances:
(i) Suspension, or revocation of any registration for the offering of securities;
SC further held that the essence of due process is simply giving an opportunity
to be heard, or as applied to administrative proceedings, an opportunity to
explain one's side or an opportunity to seek a reconsideration of the action or
ruling complained of.
What the law prohibits is not the absence of previous notice but the absolute
absence thereof and the lack of opportunity to be heard. The due notice of
revocation given to URPHI through the SEC Order dated July 27, 2004. Due
notice simply means the information must be given or made to a particular
person or to the public within a legally mandated period of time so that its
recipient will have the opportunity to respond to a situation or to allegations that
affect the individual's or public's legal rights or duties.

Furthermore, the SC notes that SEC has both regulatory and adjudicative
functions. The revocation of registration of securities and permit to sell them to
the public is not an exercise of the SEC's quasi- judicial power, but of its
regulatory power.

The case used by URPHI which is the Globe Telecom ruling is different from
the case at hand. The SC in Globe Case ruled that the fined imposed by the
NTC without notice and hearing was null and void due to the denial of
petitioner's right to due process. The revocation of URPHI's registration of
securities and permit to sell them to the public cannot be considered a penalty
but a withdrawal of a privilege, which regulatory power the SEC validly
exercised after giving it due notice and opportunity to be heard.

Thus, petition is granted and the decision of CA is reversed. The requirements

of due notice and hearing under Section 13.1 and 54.1 of the SRC were
substantially complied with.