Cases in Securities Regulation Code

Philippine Veterans Bank vs. Justina Callangan, et. al., G.R. No. 191995, August 3, 2011

FACTS:

Respondent Justina F. Callangan, the SEC Director for Corporation Finance

Department, sent the Petitioner a letter, informing it that it qualifies as a “public
company” under the Securities Regulation Code (SRC), thus, the Bank is required to
comply with the reportorial requirements set forth of the SRC.

The Bank responded by explaining that it should not be considered a “public

company” because it is a private company whose shares of stock are available only to
a limited class or sector, such as to World War II veterans, and not to the general
public.

Director Callangan rejected the Bank’s explanation and assessed it with a

penalty for failing to comply with the SRC reportorial requirements.

The Bank moved for the reconsideration of the assessment, but Director
Callangan denied the motion.

 The SEC En Banc also dismissed the Bank’s appeal for lack of merit
prompting the Bank to file a petition for review with the Court of Appeals (CA).

The CA dismissed the petition and affirmed the assailed SEC ruling with the
modification that the assessment of the penalty be recomputed.

           The CA also denied the Bank’s motion for reconsideration, opening the way
for the Bank’s petition for review on certiorari filed with this Court.

However, the Court denied the Bank’s petition for failure to show any
reversible error in the assailed CA decision and resolution.

ISSUE: 

Whether the bank is a public company which is subject to the reportorial

requirements of the SRC.

HELD: 
 Yes. The bank is a public company which is subject to the reportorial requirements of
the SRC.
Under the SRC, the reportorial requirements shall apply to the following:

1. An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other amount as the
Commission shall prescribe;
2. and having two hundred (200) or more holders each holding at least one hundred (100) shares of a
class of its equity securities.

The records establish that the Bank has assets exceeding P50,000,000.00 and has 395,998 shareholders,
hence, it must comply with the reportorial requirements set of the SRC.

The SC further ruled that, a “Public company" is not limited to a company whose shares of stock are publicly listed;
even companies like the Bank, whose shares are offered only to a specific group of people, are considered a public
company, provided they meet the requirements enumerated above.

The Bank's obligation to provide its stockholders with copies of its annual report is actually for the benefit of the
veterans-stockholders, as it gives these stockholders access to information on the Bank's financial status and...
operations, resulting in greater, transparency on the part of the Bank.

While compliance with this requirement will undoubtedly cost the Bank money, the benefit provided to the
shareholders clearly outweigh the expense. For many stockholders, these annual reports are the only... means
of keeping in touch with the state of health of their investments; to them, these are invaluable and continuing links
with the Bank that immeasurably contribute to the transparency in public companies that the law envisions

Phil. Stock Exchange, Inc. vs. The Hon. Court of Appeals, et. al., G.R. No. 125469, Oct. 27,
1997

Facts:

Puerto Azul Land Inc. (PALI) a domestic real estate corporation, had sought to offer its shares to
the public in order to raise funds allegedly to develop its properties and pay its loans with several
banking institutions.

PALI was issued a PERMIT TO SELL its shares to the public by the SEC.

PALI filed an application to list its shares with the Philippine Stock Exchange, Inc. (PSE) to
facilitate the trading of its shares.

PALI listing committee recommended the approval of PALI’s application to the PSE’s Board of
Governors.

Before the committee could act on the application, the board received a letter from the heirs of
Ferdinand Marcos requesting to defer PALI’s application, claiming that the late president was the
legal and beneficial owner of the certain properties forming part of the PALI.
The board of governors of the PSE reached its decision rejecting PALI’s application citing the
serious claims surrounding PALI’s ownership over its assets that affect the suitability of listing
PALI’s shares on the stock exchange.

PALI wrote a letter to the SEC bringing to their attention the action taken by PSE on its
application for the listing of shares and requesting the SEC to exercise its supervisory and
regulatory powers over stock exchanges and to institute such measures as are just and proper
under the circumstances.

The SEC rendered its order reversing the PSE decision allowing the listing of PALI shares to the
Exchange, without prejudice to its authority to require PALI to disclose material information it
deems necessary for the protection of the public.

PSE filed an MR however denied.

PSE filed an appeal before the CA contending that SEC has no power to order the listing and sale
of shares of PALI whose assets are sequestered and to review and substitute decisions of the PSE
on listing applications.

PSE’s Arguments: PSE submits that the Court of Appeals erred in ruling that the SEC had
authority to order the PSE to list the shares of PALI in the stock exchange. Under
presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited
as compared to its authority over ordinary corporations. In connection with this, the powers
of the SEC over stock exchanges under the Revised Securities Act are specifically
enumerated, and these do not include the power to reverse the decisions of the stock
exchange. This is in accord with the “business judgment rule” whereby the SEC and the
courts are barred from intruding into business judgments of corporations, when the same
are made in good faith. the said rule precludes the reversal of the decision of the PSE to
deny PALI’s listing application, absent a showing of bad faith on the part of the PSE. Under
the listing rules of the PSE, to which PALI had previously agreed to comply, the PSE retains
the discretion to accept or reject applications for listing. Thus, even if an issuer has complied
with the PSE listing rules and requirements, PSE retains the discretion to accept or reject
the issuer’s listing application if the PSE determines that the listing shall not serve the
interests of the investing public.

SEC and CA Contentions: Pursuant to the Revised Securities Act, SEC had both jurisdiction
and authority to look into the decision of the petitioner PSE. oth as a corporation and as a stock
exchange, the petitioner is subject to public respondent's jurisdiction, regulation and control.
Accepting the argument that the public respondent has the authority merely to supervise or regulate,
would amount to serious consequences, considering that the petitioner is a stock exchange whose
business is impressed with public interest. Abuse is not remote if the public respondent is left without
any system of control. If the securities act vested the public respondent with jurisdiction and control
over all corporations; the power to authorize the establishment of stock exchanges; the right to
supervise and regulate the same; and the power to alter and supplement rules of the exchange in
the listing or delisting of securities, then the law certainly granted to the public respondent the
plenary authority over the petitioner; and the power of review necessarily comes within its authority.

The CA affirmed SEC and held that PALI complied with all the requirements for public listing.

Issue:

Whether or not the SEC has the authority to cause the listing of the shares of PALI in
the stock exchange?

Held:

No. While the SEC is the entity with the primary say as to whether or not securities,
including shares of stock of a corporation, may be traded in the stock exchange. This is
not to say, however, that the PSE’s management prerogatives are under absolute
control of the SEC. Thus, notwithstanding the regulatory power of the SEC over the
PSE, and the resultant authority to reverse the PSE’s decision in matters of application
for listing in the market, the SEC may exercise such power only if the PSE’s judgment is
attended by bad faith. In reaching its decision to deny the application for listing of PALI,
the PSE considered important facts, heard from representatives of both sides, and,
through the Philippine Commission on Good Governance (PCGG), confirmed the claim
of the heirs of the late president. The petitioner was in the right when it refused the
application of PALI for a contrary ruling was not to the best interest of the general public.
The Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion
of approving the application for listing in the PSE of the private respondent PALI, since
this is a matter addressed to the sound discretion of the PSE, a corporation entity,
whose business judgments are respected in the absence of bad faith.

Baviera v. Paglinawan G.R. No. 168380, 8 February 2007, 515 SCRA 515

Facts:

Petitioner Manuel Baviera was the former head of the HR Service Delivery and Industrial
Relations of Standard Chartered Bank- Philippines (SCB).

SCB is a foreign banking corporation duly licensed to engage in banking, trust, and fiduciary
business in the PH. The conduct of SBC’s business in the PH is subject to the conditions of the
Bangko Sentral ng Pilipinas (BSP).

However, SBC failed to comply with the conditions, instead, the SBC’s counsel, advised the
bank to proceed with the selling of foreign currencies although unregistered with the SEC, it was
able to sell securities to some investors.

Investment capital Association of the Ph (ICAP) filed with the SEC a complaint alleging that
SCB violated the RSA which prohibits the selling of securities without prior registration with the
SEC, and that its actions are potentially damaging to the local mutual fund industry.

SEC indorsed the complaint to the BSP.

BSP directed SCB not to include investments in global mutual funds issued abroad in its trust
investments portfolio without prior registration with the SEC.

SCB sent a letter to the BSP confirming that it will withdraw third-party fund products which could be
directly purchased by investors.

However, notwithstanding its commitment and the BSP directive, SCB continued to offer and sell
securities in this country which prompted petitioner to enter into an Investment Trust Agreement with
SCB upon the bank’s promise of 40% return on his investment and a guarantee that his money is
safe. However, petitioner learned that the value of his investment went down, as such, he tried to
withdraw his investment but was persuaded by Antonette de los Reyes of SCB to hold on to it for
another six (6) months in view of the possibility that the market would pick up.

Petitioner then filed with the BSP a letter-complaint demanding compensation for his lost investment.
But SCB denied his demand on the ground that his investment is "regular."

petitioner filed with the Department of Justice (DOJ) a complaint charging the above-named officers
and members of the SCB Board of Directors and other SCB officials, private respondents, with
syndicated estafa,

the DOJ dismissed petitioner’s complaint holding that it should have been filed with the SEC.

Court of Appeals promulgated its Decision dismissing the petition.  It sustained the ruling of the DOJ
1avvphi1.net

that the case should have been filed initially with the SEC.

Issue:

whether the Court of Appeals erred in concluding that the DOJ did not commit grave abuse of
discretion in dismissing petitioner’s complaint in I.S. 2004-229 for violation of Securities Regulation
Code and his complaint in I.S. No. 2003-1059 for syndicated estafa.
Held:

(For violation of Securities Regulation Code)

NO. The Court of Appeals held that under Section 53.1 of the said Code provides, a
criminal complaint for violation of any law or rule administered by the SEC must first be
filed with the latter. If the Commission finds that there is probable cause, then it should
refer the case to the DOJ. Since petitioner failed to comply with the foregoing
procedural requirement, the DOJ did not gravely abuse its discretion in dismissing his
complaint. Under the doctrine of primary jurisdiction, courts will not determine a
controversy involving a question within the jurisdiction of the administrative tribunal,
where the question demands the exercise of sound administrative discretion requiring
the specialized knowledge and expertise of said administrative tribunal to determine
technical and intricate matters of fact
(For Syndicated Estafa);

NO. Section 5, Rule 110 of the 2000 Rules of Criminal Procedure, as amended,
provides that all criminal actions, commenced by either a complaint or an information,
shall be prosecuted under the direction and control of a public prosecutor. This mandate
is founded on the theory that a crime is a breach of the security and peace of the people
at large, an outrage against the very sovereignty of the State. It follows that a
representative of the State shall direct and control the prosecution of the offense. A
public prosecutor is in a peculiar and very definite sense a servant of the law, the
twofold aim of which is that guilt shall not escape or innocence suffers. Suarez v. Platon
Concomitant with his authority and power to control the prosecution of criminal offenses,
the public prosecutor is vested with the discretionary power to determine whether a
prima facie case exists or not. A preliminary investigation is essentially an inquiry to
determine whether (a) a crime has been committed; and (b) whether there is probable
cause that the accused is guilty thereof. Thus, the decision whether or not to dismiss
the criminal complaint against the accused depends on the sound discretion of the
prosecutor. The rule in this jurisdiction is that courts will not interfere with the conduct of
preliminary investigations or reinvestigations or in the determination of what constitutes
sufficient probable cause for the filing of the corresponding information against an
offender. Courts are not empowered to substitute their own judgment for that of the
executive branch. The prosecutor’s findings on the existence of probable cause are not
subject to review by the courts, unless these are patently shown to have been made
with grave abuse of discretion. In Suarez previously cited, this Court made it clear that a
public prosecutor’s duty is two-fold. On one hand, he is bound by his oath of office to
prosecute persons where the complainant’s evidence is ample and sufficient to show
prima facie guilt of a crime. Yet, on the other hand, he is likewise duty-bound to protect
innocent persons from groundless, false, or malicious prosecution. WHEREFORE, we
DENY the petitions and AFFIRM the assailed Decisions of the Court of Appeals in CA-
G.R. SP No. 87328 and in CA-G.R. SP No. 85078.SEC vs. Interport Resources Corp. G.R.
No. 135808, October 6, 2008

SEC vs. CA, 246 SCRA 738 (1995)

FACTS:

                Omico Corporation (Omico) is a company whose shares of stock are listed and
traded in the Philippine Stock Exchange, Inc. Astra Securities Corporation (Astra) is one
of the stockholders of Omico owning about 18% of the latter’s outstanding capital stock.

                Omico scheduled its annual stockholders’ meeting on 3 November 2008. It set
the deadline for submission of proxies on 23 October 2008 and the validation of proxies
on 25 October 2008.
             Astra objected to the validation of the proxies issued in favor of Tia, representing
about 38% of the outstanding capital stock of Omico. Astra also objected to
the inclusion of the proxies issued in favor of Tia and/or Martin Buncio, representing
about 2% of the outstanding capital stock of Omico.

                Astra maintained that the proxy issuers, who were brokers, did not obtain the
required express written authorization of their clients when they issued the proxies in
favor of Tia. In so doing, the issuers were allegedly in violation of SRC Rules.
Furthermore, the proxies issued in favor of Tia exceeded, thereby giving rise to the
presumption of solicitation thereof under said rules. Tia did not also comply with the
rules on proxy solicitation, in violation of the SRC.

                Despite the objections of Astra, Omico’s Board of Inspectors declared that the
proxies issued in favor of Tia were valid.

ISSUE:

1. Whether or not SEC has jurisdiction over controversies arising from the
validation of proxies for the election of the directors of a corporation.
2. Whether or not SEC may appeal a reversal of its ruling.

HELD:

FIRST ISSUE: None.

               

               The Court held that when proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it ostensibly raised the violation of
the SEC rules on proxy solicitation, should be properly seen as an election controversy
within the original and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of
the SRC. Hence, the jurisdiction is still with the Special Commercial Courts.

                An election contest covers any controversy or dispute involving the validation

of proxies, in general. Thus, it can only refer to all the beneficial purposes that validation
of proxies can bring about when made in connection with a forthcoming election of
directors. Thus, there is no point in making distinctions between who has jurisdiction
before and who has jurisdiction after the election of directors, as all controversies
related thereto – whether before, during or after – shall be passed upon by regular
courts as provided by law.

SECOND ISSUE: No.

                The Court held that quasi-judicial agencies do not have the right to seek the
review of an appellate court decision reversing any of their rulings. This is because they
are not real parties-in-interest. Thus, the Court expunged the petition filed by the SEC
for the latter’s lack of capacity to file the suit.

SEC vs. Performance Foreign Exchange Corp., G.R. No. 154131, July 20, 2006

SEC vs Performance Foreign

Exchange Corporation GR No 154131
July 20, 2006
FACTS:
Performance Foreign Exchange
Corporation, respondent herein, is a
domestic corporation duly registered
with
SEC and engaged as its primary
purpose to operate as a broker/agent
between market participants in
transactions
involving, but not limited to, foreign
exchange, deposits, interest rate
instruments, and similar or derivative
products,
other than acting as a broker for the
trading of securities pursuant to the
Revised Securities Act of the
Philippines.
The respondent secondary purpose is
to engage in money changer or
exchanging foreign currencies.
The respondent received a letter
from SEC requiring it to appear
before the Compliance and
Enforcement
Department (CED) for a clarificatory
conference regarding its business
operations. The Director of CED
issued a
Cease and Desist Order for possible
violation of R.A.No. 8799 (otherwise
known as The Securities Regulation
Code) and that the outcome of the
inquiry shows that respondent is
engaged in the trading of foreign
currency
futures contracts in behalf of its clients
without the necessary license; that
such transaction can be deemed as a
direct violation of Section 11 of R.A.
No. 8799. The respondent filed a
motion to SEC to lift the said order.
SEC Chairman Bautista, in her desire
to know with certainty the nature of
respondent’s business, sent a letter
to the BSP, requesting a definitive
statement that respondent’s business
transactions are a form of financial
derivatives and, therefore, can only be
undertaken by banks or non-bank
financial intermediaries performing
quasi-
banking functions. However, SEC
issued an Order denying respondent’s
motion for the lifting of the Cease and
Desist Order without waiting for
BSP’s determination of the matter.
Thereafter, SEC issued an order
making
the Cease and Desist Order
permanent.
Respondent filed with the Court of
Appeals a Petition for Certiorari. It
alleged that SEC grave abuse of
discretion
when it issued the Cease and Desist
Order and its subsequent Order
making the same permanent without
waiting
for the BSP’s determination of the real
nature of its business operations; and
that petitioner’s Orders, issued without
any factual basis, violated its
(respondent’s) fundamental right to
due process.
BSP, in answer to SEC Chairman
letter-request stated that respondent’s
business activity "does not fall under
the
category of futures trading"and"can
not be classified as financial
derivatives transactions,"
CA ruled that SEC acted with grave
abuse of discretion when it issued its
challenged Orders without a positive
factual finding that respondent
violated the Securities Regulation
Code. Hence, this petition.
ISSUE:
Whether or not SEC acted with grave
abuse of discretion in issuing the
Cease and Desist Order and its
subsequent
Order making it permanent.
HELD:
YES. Section 64 of R.A. No. 8799,
provides:
Sec. 64. Cease and Desist Order.
– 64.1. The Commission, after
proper investigation or
verification, motu proprio, or upon
verified complaint by any aggrieved
party, may issue a cease
and desist order without the necessity
of a prior hearing if in its judgment
the act or practice,
unless restrained, will operate as a
fraud on investors or is otherwise
likely to cause grave
or irreparable injury or prejudice to
the investing public.
x x x. (Underscoring supplied)
Under the above provision, there are
two essential requirements that must
be complied with by the SEC before it
may issue a cease and desist order:
First, it must conduct proper
investigation or verification; and
Second, there
must be a finding that the act or
practice, unless restrained, will
operate as a fraud on investors or is
otherwise
likely to cause grave or irreparable
injury or prejudice to the investing
public.
Here, the first requirement is not
present. Petitioner did not conduct
proper investigation or verification
before it
issued the challenged orders. The
clarificatory conference undertaken
by petitioner regarding
respondent’s
business operations cannot be
considered a proper investigation or
verification process to justify the
issuance of
the Cease and Desist Order. It was
merely an initial stage of such process,
considering that after it issued the said
order following the clarificatory
conference, petitioner still sought
verification from the BSP on the
nature of
respondent’s business activity
Petitioner’s act of referring the
matter to the BSP is an essential
part of the investigation and
verification
process. In fact, such referral indicates
that petitioner concedes to the BSP’s
expertise in determining the nature of
respondent’s business. It bears
stressing, however, that such
investigation and verification, to be
proper, must be
conducted by petitioner before, not
after, issuing the Cease and Desist
Order in question. This, petitioner
utterly
failed to do. The issuance of such
order even before it could finish its
investigation and verification on
respondent’s business activity
obviously contravenes Section 64 of
R.A. No. 8799 earlier quoted.
And worst, without waiting for BSP’s
action, petitioner proceeded to issue
its Order dated April 23, 2001 making
the
Cease and Desist Order permanent. In
the same Order, petitioner further
directed respondent "to show cause x
xx
why its certificate of registration
should not be revoked for alleged
violation of the Securities Regulation
Code
and/or Presidential Decree No. 902-A,
specifically on the ground of serious
misrepresentation as to what the
corporation can do or is doing to the
great prejudice or damage to the
general public." Obviously, without
BSP’s determination of the nature of
respondent’s business, there was no
factual and legal basis to justify the
issuance of such order.
Which brings us to the second
requirement. Before a cease and desist
order may be issued by the SEC, there
must be a showing that the act or
practice sought to be restrained will
operate as a fraud on investors or is
likely to
cause grave, irreparable injury or
prejudice to the investing public. Such
requirement implies that the act to be
restrained has been determined after
conducting the proper
investigation/verification. In this case,
the nature
of the act to be restrained can only be
determined after the BSP shall have
submitted its findings to petitioner.
However, there is nothing in the
questioned Orders that shows how the
public is greatly prejudiced or
damaged by
respondent’s business operation.
FACTS:

Performance Foreign Exchange Corporation, respondent herein, is a domestic corporation

duly registered with SEC and engaged as its primary purpose to operate as a broker/agent
between market participants in transactions involving, but not limited to, foreign exchange,
deposits, interest rate instruments, and similar or derivative products, other than acting as a
broker for the trading of securities pursuant to the Revised Securities Act of the Philippines.

The respondent secondary purpose is to engage in money changer or exchanging foreign

currencies.

The respondent received a letter from SEC requiring it to appear before

the Compliance and Enforcement Department (CED) for a clarificatory conference regarding
its business operations.

The Director of CED issued a Cease and Desist Order for possible violation of R.A.No.
8799 (otherwise known as The Securities Regulation Code) and that the outcome of the inquiry
shows that respondent is engaged in the trading of foreign currency futures contracts in behalf of
its clients without the necessary license; that such transaction can be deemed as a direct violation
of Section 11 of R.A. No. 8799.

The respondent filed a motion to SEC to lift the said order. SEC Chairman Bautista, in
her desire to know with certainty the nature of respondent’s business, sent a letter to the BSP,
requesting a definitive statement that respondent’s business transactions are a form of financial
derivatives and, therefore, can only be undertaken by banks or non-bank financial intermediaries
performing quasi-banking functions.

However, SEC issued an Order denying respondent’s motion for the lifting of the Cease-
and-Desist Order without waiting for BSP’s determination of the matter. Thereafter, SEC issued
an order making the Cease-and-Desist Order permanent.

Respondent filed with the Court of Appeals a Petition for Certiorari. It alleged that SEC
grave abuse of discretion when it issued the Cease-and-Desist Order and its subsequent Order
making the same permanent without waiting for the BSP’s determination of the real nature of its
business operations; and that petitioner’s Orders, issued without any factual basis, violated its
(respondent’s) fundamental right to due process.

BSP, in answer to SEC Chairman letter-request stated that respondent’s business activity
does not fall under the category of futures trading "and" cannot be classified as financial
derivatives transactions.

CA ruled that SEC acted with grave abuse of discretion when it issued its challenged
Orders without a positive factual finding that respondent violated the Securities Regulation
Code. Hence, this petition.

ISSUE:

Whether or not SEC acted with grave abuse of discretion in issuing the Cease and Desist Order
and its subsequent Order making it permanent.

HELD:

YES. SEC acted with grave abuse of discretion in issuing the Cease and Desist Order and its
subsequent Order making it permanent.

Under the SRC, there are two essential requirements that must be complied with by the SEC
before it may issue a cease and desist order:

First, it must conduct proper investigation or verification; and

Second, there must be a finding that the act or practice, unless restrained, will operate as
a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice
to the investing public.

Here, the first requirement is not present. Petitioner did not conduct proper investigation
or verification before it issued the challenged orders. The clarificatory conference
undertaken by petitioner regarding respondent’s business operations cannot be considered a
proper investigation or verification process to justify the issuance of the Cease-and-Desist Order.
It was merely an initial stage of such process, considering that after it issued the said order
following the clarificatory conference, petitioner still sought verification from the BSP on the
nature of respondent’s business activity Petitioner’s act of referring the matter to the BSP is
an essential part of the investigation and verification process. In fact, such referral indicates
that petitioner concedes to the BSP’s expertise in determining the nature of respondent’s
business.

It bears stressing, however, that such investigation and verification, to be proper, must be
conducted by petitioner before, not after, issuing the Cease and Desist Order in question. This,
petitioner utterly failed to do.

The issuance of such order even before it could finish its investigation and verification
on respondent’s business activity obviously contravenes Section 64 of R.A. No. 8799 earlier
quoted. And worst, without waiting for BSP’s action, petitioner proceeded to issue its Order
dated April 23, 2001 making the Cease and Desist Order permanent.

In the same Order, petitioner further directed respondent "to show cause x x x why its certificate
of registration should not be revoked for alleged violation of the Securities Regulation Code
and/or Presidential Decree No. 902-A, specifically on the ground of serious misrepresentation as
to what the corporation can do or is doing to the great prejudice or damage to the general public."
Obviously, without BSP’s determination of the nature of respondent’s business, there was no
factual and legal basis to justify the issuance of such order.

Which brings us to the second requirement. Before a cease-and-desist order may be

issued by the SEC, there must be a showing that the act or practice sought to be restrained will
operate as a fraud on investors or is likely to cause grave, irreparable injury or prejudice to the
investing public. Such requirement implies that the act to be restrained has been determined after
conducting the proper investigation/verification. In this case, the nature of the act to be restrained
can only be determined after the BSP shall have submitted its findings to petitioner. However,
there is nothing in the questioned Orders that shows how the public is greatly prejudiced or
damaged by respondent’s business operation.

SEC vs Performance Foreign

Exchange Corporation GR No 154131
July 20, 2006
FACTS:
Performance Foreign Exchange
Corporation, respondent herein, is a
domestic corporation duly registered
with
SEC and engaged as its primary
purpose to operate as a broker/agent
between market participants in
transactions
involving, but not limited to, foreign
exchange, deposits, interest rate
instruments, and similar or derivative
products,
other than acting as a broker for the
trading of securities pursuant to the
Revised Securities Act of the
Philippines.
The respondent secondary purpose is
to engage in money changer or
exchanging foreign currencies.
The respondent received a letter
from SEC requiring it to appear
before the Compliance and
Enforcement
Department (CED) for a clarificatory
conference regarding its business
operations. The Director of CED
issued a
Cease and Desist Order for possible
violation of R.A.No. 8799 (otherwise
known as The Securities Regulation
Code) and that the outcome of the
inquiry shows that respondent is
engaged in the trading of foreign
currency
futures contracts in behalf of its clients
without the necessary license; that
such transaction can be deemed as a
direct violation of Section 11 of R.A.
No. 8799. The respondent filed a
motion to SEC to lift the said order.
SEC Chairman Bautista, in her desire
to know with certainty the nature of
respondent’s business, sent a letter
to the BSP, requesting a definitive
statement that respondent’s business
transactions are a form of financial
derivatives and, therefore, can only be
undertaken by banks or non-bank
financial intermediaries performing
quasi-
banking functions. However, SEC
issued an Order denying respondent’s
motion for the lifting of the Cease and
Desist Order without waiting for
BSP’s determination of the matter.
Thereafter, SEC issued an order
making
the Cease and Desist Order
permanent.
Respondent filed with the Court of
Appeals a Petition for Certiorari. It
alleged that SEC grave abuse of
discretion
when it issued the Cease and Desist
Order and its subsequent Order
making the same permanent without
waiting
for the BSP’s determination of the real
nature of its business operations; and
that petitioner’s Orders, issued without
any factual basis, violated its
(respondent’s) fundamental right to
due process.
BSP, in answer to SEC Chairman
letter-request stated that respondent’s
business activity "does not fall under
the
category of futures trading"and"can
not be classified as financial
derivatives transactions,"
CA ruled that SEC acted with grave
abuse of discretion when it issued its
challenged Orders without a positive
factual finding that respondent
violated the Securities Regulation
Code. Hence, this petition.
ISSUE:
Whether or not SEC acted with grave
abuse of discretion in issuing the
Cease and Desist Order and its
subsequent
Order making it permanent.
HELD:
YES. Section 64 of R.A. No. 8799,
provides:
Sec. 64. Cease and Desist Order.
– 64.1. The Commission, after
proper investigation or
verification, motu proprio, or upon
verified complaint by any aggrieved
party, may issue a cease
and desist order without the necessity
of a prior hearing if in its judgment
the act or practice,
unless restrained, will operate as a
fraud on investors or is otherwise
likely to cause grave
or irreparable injury or prejudice to
the investing public.
x x x. (Underscoring supplied)
Under the above provision, there are
two essential requirements that must
be complied with by the SEC before it
may issue a cease and desist order:
First, it must conduct proper
investigation or verification; and
Second, there
must be a finding that the act or
practice, unless restrained, will
operate as a fraud on investors or is
otherwise
likely to cause grave or irreparable
injury or prejudice to the investing
public.
Union Bank of the Philippines vs. SEC, G.R. No. 138949, June 6, 2001

Facts:

Petitioner, through Counsel and Corporate Secretary, sought the opinion of Chairman Perfecto
Yasay, Jr. of respondent Commission as to the applicability and coverage of the Full Material
Disclosure Rule on Banks, contending that said rules, in effect, amend Section 5 (a) (3) of the
Revised Securities Act which exempts securities issued or guaranteed by banking
institutions from the registration requirement provided by Section 4 of the same Act.

In reply thereto, Chairman Yasay informed petitioner that while the requirements of
registration do not apply to securities of banks, it does not however exempt banks with
a class of securities listed for trading on the Philippine Stock Exchange, Inc. from filing
of various reports with the Commission.

Not satisfied, petitioner referred the matter to the PSE for clarification.

Due to the petitioner’s failure to submit reports to the SEC, petitioner was given a show
cause order with assessment for fine.

Petitioner assailed the assessment by respondent contending that they should not be
required to submit those reports as they are exempted from the said requirements.

ISSUE: WON petitioner is required to comply with the respondent SEC’s full disclosure rules.

Held:

Yes, petitioner is required to comply with the respondent SEC’s full disclosure rules.

This provision exempts from registration the securities issued by banking or

financial institutions mentioned in the law. Nowhere does it state or even imply that
petitioner, as a listed corporation, is exempt from complying with the reports required
by the assailed RSA Implementing Rules.

However, the exemption from the registration requirement enjoyed by petitioner

does not necessarily connote that [it is] exempted from the other reportorial
requirements. Having confined the exemption enjoyed by petitioner merely to the initial
requirement of registration of securities for public offering, and not [to] the subsequent
filing of various periodic reports, respondent Commission, as the regulatory agency, is
able to exercise its power of supervision and control over corporations and over the
securities market as a whole. Otherwise, the objectives of the ‘Full Material Disclosure’
policy would be defeated since petitioner corporation and its dealings would be totally
beyond the reach of respondent Commission and the investing public."

It must be emphasized that petitioner is a commercial banking corporation 10

listed in the stock exchange. Thus, it must adhere not only to banking and other allied
special laws, but also to the rules promulgated by Respondent SEC, the government
entity tasked not only with the enforcement of the Revised Securities Act, 11 but also
with the supervision of all corporations, partnerships or associations which are grantees
of government-issued primary franchises and/or licenses or permits to operate in the
Philippines.
RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain
reports to ensure full, fair and accurate disclosure of information for the protection of
the investing public. These Rules were issued by respondent pursuant to the authority
conferred upon it by Section 3 of the RSA.

The said Rules do not amend Section 5(a)(3) of the Revised Securities Act,
because they do not revoke or amend the exemption from registration of the securities
enumerated thereunder. They are reasonable regulations imposed upon petitioner as a
banking corporation trading its securities in the stock market.

That petitioner is under the supervision of the Bangko Sentral ng Pilipinas (BSP)
and the Philippine Stock Exchange (PSE) does not exempt it from complying with the
continuing disclosure requirements embodied in the assailed Rules. Petitioner, as a
bank, is primarily subject to the control of the BSP; and as a corporation trading its
securities in the stock market, it is under the supervision of the SEC. It must be pointed
out that even the PSE is under the control and supervision of Respondent. 14 There is
no over-supervision here. Each regulating authority operates within the sphere of its
powers. That stringent requirements are imposed is understandable, considering the
paramount importance given to the interests of the investing public.

Otherwise stated, the mere fact that in regard to its banking functions, petitioner
is already subject to the supervision of the BSP does not exempt the former from
reasonable disclosure regulations issued by the SEC. These regulations are meant to
assure full, fair and accurate disclosure of information for the protection of investors in
the stock market. Imposing such regulations is a function within the jurisdiction of the
SEC. Since petitioner opted to trade its shares in the exchange, then it must abide by
the reasonable rules imposed by the SEC.

Power Homes Unlimited Corp. SEC, 546 SCRA 567 (2008)

FACTS:

Petitioner is a domestic corporation duly registered with Public Respondent SEC,

and is engaged in the transaction of promoting, acquiring, managing, leasing, obtaining
options on, development, and improvement of real estate properties for subdivision and
allied purposes, and in the purchase, sale and/or exchange of said subdivision and
properties through network marketing.

Public Respondent SEC acted on the letters of Respondent Noel Manero and a
certain Romulo Munsayac, Jr. Manero alleged that in a seminar he attended, Petitioner
claimed that it sells properties that were inexistent and without any broker’s license.
Munsayac on the other hand, inquired whether Petitioner’s business is legitimate or not.
After investigation, Public Respondent SEC found out that Petitioner is engaged in the
sale or offer for sale or distribution of investment contracts, which are considered
securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation
Code), but failed to register them in violation of Sec. 8.1 of the same Act,Public
Respondent SEC issued a Cease and Desist Order against Petitioner. Petitioner filed
this petition for review after the Court of Appeals denied its petition for lack of merit and
affirmed in toto Public Respondent’s Cease and Desist Order. ISSUES: 1. Whether or
not Public Respondent SEC followed due process in the issuance of the assailed Cease
and Desist Order; 2. Whether or not Petitioner’s business constitutes an investment
contract which should be registered with Public Respondent SEC before its sale or offer
for sale or distribution to the public.

RULING: 1. The Court held that Petitioner was not denied of due process.The records
reveal that Public Respondent SEC properly examined petitioners business operations
when it (1) called into conference three of petitioners incorporators, (2) requested
information from the incorporators regarding the nature of petitioners business
operations, (3) asked them to submit documents pertinent thereto, and (4) visited
petitioners business premises and gathered information thereat. All these were done
before the CDO was issued by the Public Respondent SEC.

2. The Court ruled that Petitioner’s business constitutes an investment contract, thus,
should be registered with Public Respondent SEC before its sale or offer for sale of
distribution to the public. To determine whether a transaction falls within the scope of an
investment contract, the Court made use of the Howey Test which provides that an
investment contract requires a transaction, contract, or scheme whereby a person: (1)
makes an investment of money, (2) in a common enterprise, (3) with the expectation of
profits, (4) to be derived solely from the efforts of others. Ciiting SEC v. Glenn W. Turner
Enterprises, Inc. et al., the Court therefore ruled that the business operation or the
scheme of Petitioner constitutes an investment contract that is a security under R.A. No.
8799. Thus, it must be registered with Public Respondent SEC before its sale or offer
for sale or distribution to the public. As petitioner failed to register the same, its offering
to the public was rightfully enjoined by Public Respondent SEC. The CDO was proper
even without a finding of fraud. PETITION IS DENIED.

SEC vs. Prosperity.Com, Inc., G.R. No. 164197, January 25, 2012

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without
providing internet service. To make a profit, PCI devised a scheme in which a buyer
could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same
time, by referring to PCI his own down-line buyers, a first-time buyer could earn
commissions, interest in real estate in the Philippines and in the United States, and
insurance coverage. In 2001, disgruntled elements of GVI filed a complaint with the
SEC against PCI, alleging that the latter had taken over GVI’s operations. After hearing,
the SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The
SEC ruled that PCI’s scheme constitutes an Investment contract and, following the
Securities Regulations Code, it should have first registered such contract or securities
with the SEC pursuant to R.A. 8799. PCI filed with the Court of Appeals and CA
rendered a decision, granting PCI’s petition and setting aside the SEC-issued CDO. The
CA ruled that, following the Howey test, PCI’s scheme did not constitute an investment
contract that needs registration pursuant to R.A. 8799, hence, this petition by the SEC.
ISSUE: Whether or not PCI’s scheme constitutes an investment contract that requires
registration under R.A. 8799. RULING: The Supreme Court DENIED the petition and
AFFIRMED the decision of the Court of Appeals. PCI’s scheme does not require
registration under R.A. 8799. 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, PCI’s scheme or
contract with its buyers must have all these elements. Here, PCI’s clients do not make
such investments. They buy a product of some value to them: an Internet website of a
15-MB capacity. The client can use this website to enable people to have internet
access to what he has to offer to them, say, some skin cream. The buyers of the
website do not invest money in PCI that it could use for running some business that
would generate profits for the investors. The price of US$234.00 is what the buyer pays
for the use of the website, a tangible asset that PCI creates, using its computer facilities
and technical skills. 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.

SEC vs. Oudine Santos, G.R. No. 195542, March 19, 2014

FACTS:

                Sometime in 2007, yet another investment scam was exposed with the

disappearance of its primary perpetrator Michael H.K. Liew (Liew), a self–styled
financial guru and Chairman of the Board of Directors of
Performance Investment Products Corporation (PIPC–BVI), a foreign corporation
registered in the British Virgin Islands.To do business in the Philippines, PIPC–BVI
incorporated herein as Philippine International Planning Center Corporation (PIPC
Corporation).

                Because the head of PIPC Corporation had gone missing and with it
the monies and investment of a significant number of investors, the SEC was flooded
with complaints from 31 individuals against PIPC Corporation, its directors, officers,
employees, agents and brokers for alleged violation of certain provisions of the SRC,
including Section 28 thereof.  Santos was charged in the complaints in her capacity
as investment consultant of PIPC Corporation, who supposedly induced private
complainants Lorenzo and Sy, to invest their monies in PIPC Corporation.

                On her defense, Santos alleged that she was merely an employee of PIPC thus
should not be personally liable.

ISSUE:

                Whether or not Santos violated Sec. 28 of SRC which punishes unregistered

broker or dealer who engage in business of buying or selling securities.

HELD:

                YES. The Court held that Santos acted as an agent or salesman of PIPC

Corporation making her liable under Sec. 28 of SRC.

                There is no question 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 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.

                Thus, Santos violated Sec. 28 of SRC. Its elements are as follows:

 

1. Engaging in the business of buying or selling securities in the Philippines as a

broker or dealer;
2. Acting as a salesman; or
3. Acting as an associated person of any broker or dealer, unless registered as such
with the SEC.