Powers and Functions of SEC
before it, subject to the provisions of existing laws;
Section 5. Powers and Functions of the Commission.
5.1. The commission shall act with transparency and shall
have the powers and functions provided by this code,
Presidential Decree No. 902-A, the Corporation Code, the
Investment Houses law, the Financing Company Act and other
existing laws. Pursuant thereto the Commission shall have,
among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations,
partnership or associations who are the grantees of primary
franchises and/or a license or a permit issued by the
Government;
(b) Formulate policies and recommendations on issues
concerning the securities market, advise Congress and other
government agencies on all aspect of the securities market
and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments
to registration statements, and registration and licensing
applications;
(d) Regulate, investigate or supervise the activities of persons
to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of
exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and rules,
regulations and orders, and issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and
orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulation and orders;
(h) Enlist the aid and support of and/or deputized any and all
enforcement agencies of the Government, civil or military as
well as any private institution, corporation, firm, association
or person in the implementation of its powers and function
under its Code;
(i) Issue cease and desist orders to prevent fraud or injury to
the investing public;
(j) Punish for the contempt of the Commission, both direct
and indirect, in accordance with the pertinent provisions of
and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or
association to call meetings of stockholders or members
thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to
appear in any proceedings of the Commission and in
appropriate cases, order the examination, search and seizure
of all documents, papers, files and records, tax returns and
books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases
(m) Suspend, or revoke, after proper notice and hearing the
franchise or certificate of registration of corporations,
partnership or associations, upon any of the grounds
provided by law; and
(n) Exercise such other powers as may be provided by law as
well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and
purposes of these laws.
5.2. The Commission’s jurisdiction over all cases enumerated
under section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the
Regional Trial Court branches that shall exercise jurisdiction
over the cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted
for final resolution which should be resolved within one (1)
year from the enactment of this Code. The Commission shall
retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until
finally disposed.
CHAPTER VIII – REGULATION OF SECURITIES MARKET
PROFESSIONALS
Section 28. Registration of Brokers, Dealers, Salesmen and
Associated Persons. –
28.1. No person shall engage in the business of buying or
selling securities in the Philippine as a broker or dealer, or act
as a salesman, or an associated person of any broker or dealer
unless registered as such with the Commission.
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.
28.3. The Commission, by rule or order, may conditionally or
unconditionally exempt from subsection 28.1 and 28.2 any
broker, dealer, salesman, associated person of any broker or
dealer, or any class of the foregoing, as it deems consistent
with the public interest and the protection of investors.
28.4. The Commission shall promulgate rules and regulation
prescribing the qualifications for registration of each category
of applicant, which shall, among other things, require as a
condition for registration that:
(a) If a natural person, the applicant satisfactorily pass a
written examination as to his proficiency and knowledge in
the area of activity for which registration is sought;
(b) In the case of a broker or dealer, the applicant satisfy a
minimum net capital as prescribed by the Commission, and
provide a bond or other security as the Commission may
prescribe to secure compliance with the provisions of this
Code; and
(c) If located outside of the Philippines, the applicant files a
written consent to service of process upon the Commission
pursuant to Section 65 hereof.
28.5. A broker or dealer may apply for registration by filing
with the Commission a written application in such forms and
containing such information and documents concerning such
broker or dealer as the Commission by rule shall prescribe.
28.6. Registration of a salesman or of an associated person of
a registered broker or dealer may be made upon written
application filed with the Commission by such salesman or
associated person. The application shall be separately signed
and certified by the registered broker or dealer to which such
salesman or associated person is to become affiliated, or by
the issuer in the case of a salesman employed appointed or
authorized solely by such issuer. The application shall be in
such form and contain such information and documents
concerning the salesman or associated person as the
Commission by rule shall prescribe. For purposes of this
Section, a salesman shall not include any employee of an
issuer whose compensation is not determined directly or
indirectly on sales of securities if the issuer.
28.7. Applications filed pursuant to Subsections 28.5 and 28.6
shall be accompanied by a registration fee in such reasonable
amount prescribed by the Commission.
28.8. Within thirty (30) days after the filing of any application
under this Section, the Commission shall by order:
(a) Grant registrations if it determines that the requirements
of this Section and the qualifications for registrations set forth
in its rules and regulations have been satisfied ; or
(b) Deny said registration.
28.9. The names and addresses of all persons approved for the
registration as brokers, dealers, associated persons or
salesman and all orders of the Commission with respect
thereto shall be recorded in a Register of Securities Market
Professionals kept in the office of the Commission which shall
be open to public inspection.
28.10. Every person registered pursuant to this Section shall
file with the Commission, in such form as the Commission
shall prescribe, information necessary to keep the application
for registration current and accurate, including in the case of
a broker or dealer changes in salesmen, associated persons
and owners thereof.
28.11. Every person registered pursuant to this Selection
shall pay to the Commission an annual fee at such time and in
such reasonable amount as the Commission shall prescribe.
Upon notice by the Commission that such annual fee has not
been paid as required, the registration of such person shall be
suspended until payment has been made.
28.12. The registration of a salesman or associated person
shall be automatically terminated upon the cessation of his
affiliation with said registered broker or dealer or with an
issuer in the case of a salesman employed, appointed or
authorized by such issuer. Promptly following any such
cessation of affiliation, the registered broker or dealer, issuer
as the case may be, shall file with the Commission a notice of
separation of such salesman or associated person.
Section 29. Revocation, Refusal or Suspension of Registration
of Brokers, Dealers, Salesmen and Associated Persons.
29.1. Registration under Section 28 of this Code may be
refused, or any registration granted thereunder may be
revoked, suspended, or limitations placed thereon, by the
Commission if, after due notice and hearing the Commission
determines the application or registrant.
(a) Has willfully violated any provision of this Code, any rule,
regulation or order made hereunder, or any other law
administered by the Commission, or in the case of a registered
broker, dealer or associated persons has failed to supervise,
with a view to preventing such violation, another person who
commits such violation;
(b) Has willfully made or caused to be made a materially false
or misleading statement in any application for registration or
report filed with the Commission or a self-regulatory
organization, or has willfully omitted to state any material
fact that is required to be stated therein;
(c) Has failed to satisfy the qualifications or requirements for
registration prescribed under Section 28 and the rules and
regulations of the Commission promulgated thereunder;
(d) Has been convicted, by a competent judicial or
administrative body of an offense involving moral turpitude,
fraud, embezzlement, counterfeiting, theft, estafa,
misappropriation, forgery, bribery, false oath, or perjury, or
of a violation of securities, commodities, banking, real state or
insurance laws;
(e) Is enjoined or restrained by a competent judicial or
administrative body from engaging in securities,
commodities, banking, real state or insurance activities or
from willfully violating laws governing such activities;
(f) Is subject to an order of a competent judicial or
administrative body refusing, revoking or suspending any
registration, licensed or other permit under this Code, the
rules and regulations promulgated thereunder, any other law
administered by the Commission;
(g) Is subject to an order of a self-regulatory organization
suspending or expelling him from membership or
participating therein or from association with a member or
participant thereof;
(h) Has been found by a competent judicial or administrative
body to have willfully violated any provisions of securities,
commodities, banking, real state or insurance laws, or has
willfully aided, abetted, counseled, commanded, induced or
procured such violation; or
(i) Has been judicially declared insolvent. For purposes of this
subsection, the term "competent judicial or administrative
body" shall include a foreign court of competent jurisdiction
and a foreign financial regulator.
29.2. (a) In case of charges against a salesman or associated
person, notice thereof shall also be given the broker, dealer or
issuer employing such salesman or associated person.
(b) Pending the hearing, the Commission shall have the
power to order the suspensions of such broker’s, dealers,
associated person’s or salesman’s registration: Provided,
That such order shall state the cause for such suspension.
Until the entry of a final order, the suspension of such
registration, though binding upon the persons notified
thereof, shall be deemed confidential, and shall not be
published, unless it shall appear that the order of suspension
has been violated after notice.
29.3. The orders of the Commission refusing, revoking,
suspending or placing limitations on a registration as herein
above provided, together with its findings, shall be entered in
the Register of Securities Market Professionals. The
suspension or revocation of the registration of a dealer or
broker shall also automatically suspend the registration of all
salesmen and associated persons affiliated with such broker
or dealer. The order of the Commission refusing, revoking,
suspending or placing limitations on a registration as herein
above provided, together with its findings, shall be entered in
the Register of Securities Market Professionals. The
suspension or revocation of the registration of a dealer or
broker shall also automatically suspend the registration of a
dealer or broker shall also automatically suspend the
registration of all salesmen and associated persons affiliated
with such broker or dealer.
29.4. It shall be sufficient cause for refusal, revocation or
suspension of a broker’s or dealer’s registrations, if any
associated person thereof or any juridical entity controlled by
such associated person has committed any act or omission or
is subject to any disability enumerated in paragraphs (a)
through (i) of Subsection 29. I hereof.
Section 33. Registration of Exchanges. –
33.1. Any Exchange may be registered as such with the
Commission under the terms and conditions hereinafter
provided in this Section and Section 40 hereof, by filing an
application for registration in such form and containing such
information and supporting documents as the Commission by
rule shall prescribe, including the following:
(a) An undertaking to comply and enforce by its members
with the provisions of this Code, its implementing rules and
regulations and the rules of the Exchange;
(b) The organizational charts of the Exchange, rules of
procedure, and a list of its officers and members;
(c) Copies of the rules of the Exchange; and
(d) An undertaking that in the event a member firm becomes
insolvent or when the Exchange shall have found that the
financial condition of its member firm has so deteriorated
that it cannot readily meet the demands of its customers for
the delivery of securities and/or payment of sales proceeds,
the Exchange shall, upon order of the Commission, take over
the operation of the insolvent member firm and immediately
proceed to settle the member firm’s liabilities to its
customers.
33.2. Registrations of an Exchange shall be granted upon
compliance with the following provisions:
(a) That the applicant is organized as a stock corporation:
Provided, That any registered Exchange existing prior to the
effectivity of this Code shall within one (1) year reorganize as
a stock corporation pursuant to a demutualization plan
approved by the Commission;
(b) That the applicant is engaged solely in the business of
operating an exchange: Provided, however, That the
Commission may adopt rules, regulations or issue an order,
upon application, exempting an Exchange organized as a
stock corporation and owned and controlled by another
juridical person from the restriction.
(c) Where the Exchange is organized as a stock corporation,
that no person may beneficially own or control, directly or
indirectly, more than five percent (5%) of the voting rights of
the Exchange and no industry or business group may
beneficially own or control, directly or indirectly, more than
twenty percent (20%) of the voting rights of the Exchange:
Provided, however,That the Commission may adopt rules,
regulations or issue an order, upon application from this
prohibition where it finds that such ownership or control will
not negatively impact on the exchange’s ability to effectively
operate in the public interest.
(d) The expulsion, suspension, or disciplining of a member
and persons associated with a member for conduct or
proceeding inconsistent with just and equitable principles of
fair trade, and for violations of provisions of this Code, or any
other Act administered by the Commission, the rules,
regulations and orders thereunder, or the rules of the
Exchange;’
(e) A fair procedure for the disciplining of members and
persons associated with members, the denial of membership
to any person seeking to be a member, the barring of any
person from association with a member, and the prohibition
or limitation of any person from association with member,
and the prohibition or limitation of any person from access to
services offered by the Exchange;
(f) That the brokers in the board of the Exchange shall
comprise of not more than forty-nine percent (49%) of such
board and shall proportionately represent the Exchange
membership in terms of volume/value or trade and paid up
capital, and that any natural person associated with a juridical
entity that is a member for this purpose; Provide, That any
registered Exchange existing prior to the affectivity of this
Code shall immediately comply with this requirement;
(g) For the board of the Exchange to include in its composition
(1) the president of the Exchange, and (ii) no less than fifty
one percent (51%) of the remaining members of the board to
be comprised of three (3) independent directors and persons
who represent the interests of issuers, investors, and other
market participants, who are not associated with any broker
or dealer or member of the Exchange for a period of two (2)
years prior to his/her appointment. No officer or employee of
a member, its subsidiaries or affiliates or related interests
shall become an independent director: Provided, however,
That the Commission may by rule, regulation, or order upon
application, permit the exchange organized as a stock
corporation to use a different governance structure:
Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to
effectively operate as a self-regulatory organization under
this Code: Provided, finally, That any registered exchange
existing prior to the affectivity of this Code shall immediately
comply with this requirement.
(h) The president and other management of the Exchange to
consist only of persons who are not members and are not
associated in any capacity, directly or indirectly with any
broker or dealer or member or listed company of the
Exchange: Provided, That the Exchange may only appoint, and
a person may only serve, as an officer of the exchange if such
person has not been a member or affiliated with any broker,
dealer, or member of the Exchange for a period of at least two
(2) years prior to such appointment;
(i) The transparency of transactions on the Exchange;
(j) The equitable allocation of reasonable dues, fees, and other
charges among members and issuers and other persons using
any facility or system which the Exchange operates or
controls;
(k) Prevention of fraudulent and manipulative acts and
practices, promotion of just and equitable principles of trade,
and, in general, protection of investors and the public interest;
and
(l) The transparent, prompt and accurate clearance and
settlement of transactions effected on the Exchange.
33.3. If the Commission finds that the applicant Exchange is
capable of complying and enforcing compliance by its
members, and persons associated with such members, with
the provisions of this Code, and the rules of the Exchange, and
that the rules of Exchange are fair, just and adequate, the
Commission shall cause such Exchange to be registered. If,
after notice due and hearing, the Commission finds otherwise,
the application shall be denied.
33.4. Within ninety (90) days after the filing of the application
the Commission may issue an order either granting or
denying registration as an Exchange, unless the Exchange
applying for registration shall withdraw its application or
shall consent to the Commission’s deferring action on its
application for a stated longer period after the date of filing.
The filing with the Commission of an application for
registration by an Exchange shall be deemed to have taken
place upon the receipt thereof. Amendments to an application
may be made upon such terms as the Commission may
prescribe.
33.5. Upon the registration of an Exchange, it is shall pay a fee
in such amount and within such period as the Commission
may fix.
33.6. Upon appropriate application in accordance with the
rules and regulations of the Commission and upon such terms
as the Commission may deemed necessary for the protection
of investors, an exchange may withdraw its registration or
suspend its operations or resume the same.
Section 36. Powers with Respect to Exchanges and Other
Trading Market. –
36.1. The Commission is authorized, if in its opinion such
action is necessary or appropriate for the protection of
investors and the public interest so requires, summarily to
suspend trading in any listed security on any Exchange or
other trading market for a period not exceeding thirty (30)
days but not exceeding ninety (90) days: Provided, however,
That the Commission promptly following the issuance of the
order of suspension, shall notify the affected issuer of the
reasons for such suspension and provide such issuer with an
opportunity for hearing to determine whether the suspension
should be lifted.
36.2. Wherever two (2) or more Exchanges or other trading
markets exist, the Commission may require and enforce
uniformity of trading regulations in and/or between or
among said Exchanges or other trading markets.
36.3. In addition to the existing Philippine Stock Exchange, the
Commission shall have the authority to determine the
number, size and location of stock Exchanges, other trading
markets and commodity Exchanges and other similar
organizations in the light of national or regional requirements
for such activities with the view to promote, enhance, protect,
conserve or rationalize investment.
36.4. The Commission, having due regard to the public
interest, the protection of investors, the safeguarding of
securities and funds, and maintenance of fair competition
among brokers, dealers, clearing agencies, and transfer
agents, shall promulgate rules and regulations for the prompt
and accurate clearance and settlement of securities
transactions.
36.5. (a) The Commission may establish or facilitate the
establishment of trust funds which shall be contributed by
Exchanges, brokers, dealers, underwriters, transfer agents,
salesmen and other persons transacting in securities, as the
Commission may require, for the purpose of compensating
investors for the extraordinary losses or damage they may
suffer due to business failure or fraud or mismanagement of
the persons with whom they transact, under such rules and
regulations as the Commission may from time to time
prescribe or approve in the public interest.
(b) The Commission may, having due regard to the public
interest or the protection of investors, regulate, supervise,
examine, suspend or otherwise discontinue such and other
similar funds under such rules and regulations which the
Commission may promulgate, and which may include taking
custody and management of the fund itself as well as
investments in and disbursements from the funds under such
forms of control and supervision by the Commission as it may
from time to time require. The authority granted to the
Commission under this subsection shall also apply to all funds
established for the protection of investors, whether
established by the Commission or otherwise.
Section 37. Registration of Innovative and Other Trading
Markets. – The Commission, having due regard for national
economic development, shall encourage competitiveness in
the market by promulgating within six (6) months upon the
enactment of this Code, rules for the registration and licensing
of innovative and other trading markets or Exchanges
covering, but not limited to, the issuance and trading of
innovative securities, securities of small, medium, growth and
venture enterprises, and technology-based ventures
pursuant to Section 33 of this Code.
CHAPTER X – REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELFREGULATORY ORGANIZATIONS
Section 39. Associations of Securities Brokers, and Dealers, and
Other Securities Related Organizations. –
39.1. The Commission shall have the power to register as a
self-regulatory organization, or otherwise grant licenses, and
to regulate, supervise, examine, suspend or otherwise
discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the
securities market such as but not limited to associations of
brokers and dealers, transfer agents, custodians, fiscal and
paying agents, computer services, news disseminating
services, proxy solicitors, statistical agencies, securities rating
agencies, and securities information processor which are
engaged in business of:
(a) Collecting, processing, or preparing for distribution or
publication, or assisting, participating in, or coordinating the
distribution or publication of, information with respect to
transactions in or quotations for any security; or
(b) Distributing or publishing, whether by means of a ticker
tape, a communications network, a terminal display device, or
otherwise, on a current and continuing basis, information
with respect to such transactions or quotations. The
Commission may prescribe rules and regulations which are
necessary or appropriate in the public interest or for the
protection of investors to govern self-regulatory
organizations and other organizations licensed or regulated
pursuant to the authority granted in Subsection 39.1
including the requirement of cooperation within and among,
and electronic integration of the records of, all participants in
the securities market to ensure transparency and facilitate
exchange of information.
39.2. An association of brokers and dealers may be registered
as a securities association pursuant to Subsection 39.3 by
filing with the Commission an application for registration in
such form as the Commission, by rule, may prescribe
containing the rules of the association and such other
information and documents as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or
for the protection of investors.
39.3. An association of brokers and dealers shall not be
registered as a securities association unless the Commission
determines that:
(a) The association is so organized and has the capacity to be
able to carry out the purposes of this Code and to comply with,
and to enforce compliance by its members and persons
associated with its members, with the provisions of this Code,
the rules and regulations thereunder, and the rules of the
association.
(b) The rules of the association, notwithstanding anything in
the Corporation Code to the contrary, provide that:
(i) Any registered broker or dealer may become a member of
the association;
(ii) There exist a fair representation of its members to serve
on the Board of Directors of the association and in the
administration of its affairs, and that may any natural person
associated with a juridical entity that is a member shall
himself be deemed to be a member for this purpose;
(iii) The Board of Directors of the association includes in its
composition:
(a) The president of the association and
(b) Person who represent the interests of the issuer and
public investors and are not associated with any broker or
dealer or member of the association; that the president and
other management of the association not be a member or
associated with any broker, dealer or member of the
association;
(iv) For the equitable allocation of reasonable dues, fees, and
other charges among member and issuers and other persons
using any facility or system which the association operates or
controls;
(v) For the prevention of fraudulent and manipulative acts
and practices, the promotion of just and equitable principles
of trade, and, in general, the protection of investors and the
public interest;
(vi) That its members and persons associated with its
members shall be appropriately disciplined for violation of
any provision of this Code, the rules and regulations
thereunder, or the rules of the association;
(vii) That a fair procedure for the disciplining of members and
persons associated with members, the denial of membership
to any person seeking membership therein, the barring of any
person from becoming associated with a member thereof, and
the prohibition or limitation by the association of any person
with respect to access to services offered by the association
or a member thereof.
39.4. (a) A registered securities association shall deny
membership to any person who is not a registered broker or
dealer.
(b) A registered securities association may deny membership
to, or condition the membership of, a registered broker or
dealer if such broker or dealer:
(i) Does not meet the standards of financial responsibility,
operational capability, training, experience or competence
that are prescribe by the rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood it will
again engage, in acts or practices inconsistent with just and
equitable principles of fair trade.
(c) A registered securities association may deny membership
to a registered broker or dealer not engage in a type of
business in which the rules of the association require
members to be engaged: Provided, however, That no
registered securities association may deny membership to a
registered broker or dealer by reason of the amount of
business done by the broker or dealer. A registered securities
association may examine and verify the qualifications of an
applicant to become a member in accordance with procedure
established by the rules of the association.
(d) A registered securities association may bar a salesman or
person associated with a broker or dealer from being
employed by a member or set conditions for the employment
of a salesman or associated if such person:
(i) Does not meet the standards of training, experience, or
competence that are prescribe by the rules of the association;
or
(ii) Has engage, and there is a reasonable likelihood he will
again engage, in acts or practices inconsistent with just and
equitable principles of fair trade. A registered securities
association may examine and verify the qualifications of an
applicant to become a salesman or associated person
employed by a member in accordance with the procedures
establish by the rules of the association. A registered
association also may require a salesman or associated person
employed by a member to be registered with the association
in accordance with the procedures prescribed in the rules of
the association.
39.5. In any proceeding by a registered securities association
to determine whether a person shall be denied membership,
or barred from association with a member, the association
shall provide notice to the person under review of the specific
grounds being considered for denial, afford him an
opportunity to defend against the allegations, and keep a
record of the proceedings. A determination by the association
to deny membership shall be supported by a statement
setting forth the specific grounds on which the denial is based.
Section 40. Powers with Respect to Self-Regulatory
Organizations. –
40.1. Upon the filing of an application for registration as an
Exchange under Section 33, a registered securities
association under Section 39, a registered clearing agency
under Section 42, or other self-regulatory organization under
this Section, the Commission shall have ninety (90) days
within which to either grant registration should be denied. In
the event proceedings are instituted, the Commission shall
have two hundred seventy (270) days within which to
conclude such proceedings at which time it shall, by order,
grant or deny such registration.
40.2. Every self-regulatory organization shall comply with the
provision of this Code, the rules and regulations thereunder,
and its own rules, and enforce compliance therewith,
notwithstanding any provisions of the Corporation Code to
the contrary, by its members, persons associated with its
members of its participants.
40.3. (a) Each self-regulatory organization shall submit to the
Commission for prior approval any proposed rule or
amendment thereto, together with a concise statement of the
reason and effect of the proposed amendment
(b) Within sixty (60) days after submission of a proposed
amendment, the Commission shall, by order, approve the
proposed amendment. Otherwise, the same may be made
effective by the self-regulatory organization.
(c) In the event of an emergency requiring action for the
protection of investors, the maintenance of fair and orderly
markets, or the safeguarding of securities and funds, a self-
regulatory organization may put a proposed amendment into
effect summarily; Provided however, That the copy of the
same shall be immediately submitted to the Commission.
40.4. The Commission is further authorized, if after making
appropriate request in writing to a self-regulatory
organization that such organization effect on its own behalf
specified changes in its rules and practices and, after due to
notice and hearing it determines that such changes have not
been effected, and that such changes are not necessary, by the
rule or regulation or by order, may alter, abrogate or
supplement the rules of such self-regulatory organization in
so far as necessary or appropriate to effect such changes in
respect of such matters as:
(a) Safeguards in respect of the financial responsibility of
members and adequate provision against the evasion of
financial responsibility through the use of corporate forms or
special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of any security;
(d) Hours of trading;
(e) The manner, methods, and place of soliciting business;
(f) Fictitious accounts;
(g) The time and method of making settlements, payments,
and deliveries, and of closing accounts;
(h) The transparency of securities transactions and prices;
(i) The fixing of reasonable rates of fees, interest, listing and
other charges, but not rates of commission;
(j) Minimum units of trading;
(k) Odd-lot purchases and sales;
(l) Minimum deposits on margin accounts; and
(m) The supervision, auditing and disciplining of members or
participants.
40.5. The Commission, after due notice and hearing, is
authorized, in the public interest and to protect investors:
(a) To suspend for a period not exceeding twelve (12) months
or to revoke the registration of a self-regulatory organization,
or to censure or impose limitations on the activities,
functions, and operations of such self-organization, if the
Commission finds that such a self-regulatory organization has
willfully violated or is unable to comply with any provision of
this Code or of the rules and regulations thereunder, or its
own or has failed to enforce compliance therewith by a
member of, person associated with a member, or a participant
in such selfregulatory organization;
(b) To expel from a self-regulatory organization any member
thereof or any participant therein who is subject to an order
of the Commission under Section 29 of this Code or is found
to have willfully violated any provision of this Code or
suspend for a period not exceeding twelve (12) months for
violation of any provision of this Code or any other laws
administered by the Commission, or rules and regulations
thereunder, or effected, directly or indirectly, any transaction
for any person who, such member or participant had reason
to believe, was violating in respect of such transaction any of
such provisions; and
(c) To remove from the office or censure any officer or
director of a self-regulatory organization if it finds that such
officer or director has violated any provision of this Code, any
other law administered by the Commission, the rules or
regulations thereunder, or the rules of such self-regulatory
organization, abused his authority, without reasonable
justification or excuse has failed to enforce compliance with
any of such provisions.
40.6. (a) A self-regulatory organization is authorized to
discipline a member of or participant in such self-regulatory
organization, or any person associated with a member,
including the suspension or expulsion of such member or
participant, and the suspension or bar from being associated
with a member, if such person has engage in acts or practices
inconsistent with just and equitable principles of fair trade or
in willful violation of any provision of the Code, any other law
administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization. In
any disciplinary proceeding by a self-regulatory organization
(other than a summary proceeding pursuant to paragraph (b)
of this subsection) the self-regulatory organization shall bring
specific charges, provide notice to the person charged, afford
the person charged with an opportunity to defend against the
charges, and keep a record of the proceedings. A
determination to impose a disciplinary sanction shall be
supported by a written statement of the offenses, a summary
of the evidence presented and a statement of the sanction
imposed.
(b) A self-regulatory organization may summarily:
(I) Suspend a member, participant or person associated with
a member who has been or is expelled or suspended from any
other self-regulatory organization; or
(ii) Suspend a member who the self-regulatory organization
finds to be in such financial or operating difficulty that the
member or participant cannot be permitted to continue to do
business as a member with safety to investors, creditors,
other members, participants or the self-regulatory
organization: Provided, That the self-regulatory organization
immediately notifies the Commission of the action taken. Any
person aggrieved by a summary action pursuant to this
paragraph shall be promptly afforded an opportunity for a
hearing by the association in accordance with the provisions
of paragraph (a) of this subsection. The Commission, by
order, may stay a summary action on its own motion or upon
application by any person aggrieved thereby, if the
Commission determines summarily or after due notice and
hearing (which hearing may consist solely of the submission
of affidavits or presentation of oral arguments) that a stay is
consistent with the public interest and the protection of
investors.
40.7. A self-regulatory organization shall promptly notify the
Commission of any disciplinary sanction on any member
thereof or participant therein, any denial of membership or
participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member
or a bar of such person from becoming so associated. Within
thirty (30) days after such notice, any aggrieved person may
appeal to the Commission from, or the Commission from, or
the Commission on its own motion within such period, may
institute review of, the decision of the self-regulatory
organization, at the conclusion of which, after due notice and
hearing (which may consist solely of review of the record
before the self-regulatory organization), the Commission
shall affirm, modify or set aside the sanction. In such
proceeding the Commission shall determine whether the
aggrieved person has engaged or omitted to engage in the acts
and practices as found by the self-regulatory organization,
whether such acts and practices constitute willful violations
of this Code, any other law administered by the Commission,
the rules or regulations thereunder, or the rules of the self-
regulatory organization as specified by such organization,
whether such provisions were applied in a manner consistent
with the purposes of this Code, and whether, with due regard
for the public interest and the protection of investors the
sanction is excessive or oppressive.
40.8. The powers of the Commission under this Section shall
apply to organized exchanges and registered clearing
agencies.
Section 42. Registration of Clearing Agencies. –
42.1. Any clearing agency may be registered as such with the
Commission under the terms and conditions hereinafter
provided in this Section, by filing an application for
registration in such form and containing such information
and supporting documents as the Commission by rule shall
prescribe, including the following:
(a) An undertaking to comply and enforce compliance by its
participants with the provisions of this Code, and any
amendments thereto, and the implementing rules or
regulations made or to be made thereunder, and the clearing
agency’s rules;
(b) The organizational charts of the Exchange, its rules of
procedure, and list of its officers and participants;
(c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be granted
unless the rules of the clearing agency include provision for:
(a) The expulsions, suspension, or disciplining of a
participant for violations of this Code, or any other Act
administered by the Commission, the rules, regulations, and
orders thereunder, or the clearing agency’s rules;
(b) A fair procedure for the disciplining of participants, the
denial of participation rights to any person seeking to be a
participant, and the prohibition or limitation of any person
from access to services offered by the clearing agency;
(c) The equitable allocation of reasonable dues, fees, and
other charges among participants;
(d) Prevention of fraudulent and manipulative acts and
practices, promotion of just and equitable principles of trade,
and, in general, protection of investors and the public interest;
(e) The transparent, prompt and accurate clearance and
settlement of transactions in securities handled by the
clearing agency; and
(f) The establishment and oversight of a fund to guarantee the
prompt and accurate clearance and settlement of transaction
executed on an exchange, including a requirement that
members each contribute an amount based on their and a
relevant percentage of the daily exposure of the (4) largest
trading brokers which adequately reflects trading risks
undertaken or pursuant to another formula set forth in
Commission rules or regulations or order, upon application:
Provided, however, That a clearing agency engaged in the
business of securities depository shall be exempt from this
requirement.
42.3. In the case of an application filed pursuant to this
section, the Commission shall grant registration if it is finds
That the requirements of this code and the rules and
regulations thereunder with respect to the applicant have
been satisfied, and shall deny registration if it does not make
such finding.
42.4. Upon appropriate application in accordance with the
rules and regulations of the Commission and upon such terms
as the Commission may deem necessary for the protection of
investors, a clearing agency may withdraw its registration or
suspend its operation or resume the same.
Section 47. Power of the Commission With Respect to
Securities Ownership. – The Commission is authorize, having
due regard to the public interest and the protection of
investors, to promulgate rules and regulations which:
47.1. Validate the transfer of securities by book-entries rather
than the delivery of physical certificates;
47.2. Establish when a person acquires a security or an
interest therein and when delivery of a security to a purchaser
occurs;
47.3. Establish which records constitute the best evidence of
a person’s interests in a security and the effect of any errors
in electronic records of ownership;
47.4. Codify the rights of investors who choose to hold their
securities indirectly through a registered clearing agency
and/ or other securities intermediaries;
47.5. Codify the duties of securities intermediaries (including
clearing agencies) who hold securities on behalf of investors;
and
47.6 Give first priority to any claims of a registered clearing
agency against a participant arising from a failure by the
participant to meet its obligations under the clearing agency’s
rules in respect of the clearing and settlement of transactions
in securities, in a dissolution of the participant, and any such
rules and regulation shall bind the issuers of the securities,
investors in the securities, any third parties with interests in
the securities, and the creditors of a participant of a registered
clearing agency.
CHAPTER XII MARGIN AND CREDIT
Section 48. Margin Requirements. –
48.1. For the purpose of preventing the excessive use of credit
for the purchase or carrying of securities, the Commission, in
accordance with the credit and monetary policies that may be
promulgated from time to time by the Monetary Board of the
Bangko Sentral ng Pilipinas, shall prescribed rules and
regulations with respect to the amount of credit that may be
extended on any security. For the extension of credit, such
rules and regulations shall be based upon the following
standard: An amount not greater than the whichever is the
higher of –
(a) Sixty-five per centum (65%) of the current market price
of the security, or
(b) One hundred per centum (100%) of the lowest market
price of the security during the preceding thirty-six (36)
calendar months, but not more than seventy-five per centum
(75%) of the current market price.
However, the Monetary Board may increase or decrease the
above percentages, in order to achieve the objectives of the
Government with due regard for promotion of the economy
and prevention of the use of excessive credit. Such rules and
regulations may make appropriate provision with respect to
the carrying of undermargined accounts for limited periods
and under specified conditions; the withdrawal of funds or
securities; the transfer of accounts from one lender to
another; special or different margin requirements for delayed
deliveries, short sales, arbitrage transactions, and securities
to which letter (b) of the second paragraph of this subsection
does not apply; the methods to be used in calculating loans,
and margins and market prices; and similar administrative
adjustments and details.
48.2. No member of an Exchange or broker or dealer shall,
directly or indirectly, extend or maintain credit is extended
and maintain credit or arrange for the extension or
maintenance of credit to or for any customer:
(a) On any security unless such credit is extended and
maintained in accordance with the rules and regulations
which the Commission shall prescribe under this Section
including rules setting credit in relation to net capital of such
member, broker or dealer; and
(b) Without collateral or any collateral other than securities,
except
(I) to maintain a credit initially extended in conformity with
rules and regulations of the Commission and
(ii) in cases where the extension or maintenance of credit is
not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of paragraph (a) of
this subsection.
48.3 Any person not subject to Subsection 48.2 hereof shall
extend or maintain credit or arrange for the extension or
maintenance of credit for the purpose of purchasing or
carrying any security, only in accordance with such rules and
regulations as the Commission shall prescribe to prevent the
excessive use of credit for the purchasing or carrying of or
trading in securities in circumvention of the other provisions
of this Section. Such rules and regulations may impose upon
all loans made for the purpose of purchasing or carrying
securities limitations similar to those imposed upon
members, brokers, or dealers by Subsection 48.2 and the
rules and regulations thereunder. This subsection and the
rules and regulations thereunder shall not apply:
(a) To a credit extension made by a person not in the ordinary
course of business;
(b) to a loan to a dealer to aid in the financing of the
distribution of securities to customers not through the
medium of an Exchange; or
(c) To such other credit extension as the Commission shall
exempt from the operation of this subsection and the rules
and regulations thereunder upon specified terms and
conditions for stated period.
Section 52. Accounts and Records, Reports, Examination of
Exchanges, members, and Others. –
52.1. Every registered Exchange, broker or dealer, transfer
agent, clearing agency, securities association, and other self-
regulatory organization, and every other person required to
register under this Code, shall make, keep and preserve for
such periods, records, furnish such copies thereof, and make
such reports, as the Commission by its rules and regulations
may prescribe. Such accounts, correspondence, memoranda,
papers, books, and other records shall be subject at any time
to such reasonable periodic, special or other examinations by
representatives of the Commission as the Commission may
deem necessary or appropriate in the public interest of for the
protection of investors.
52.2. Any brother, dealer or other person extending credit,
who is subject to the rules and regulations prescribed by the
Commission pursuant to this Code, shall make such reports to
the Commission as may be necessary or appropriate to enable
it to perform the functions conferred upon it by this Code.
52.3. For purposes of this Section, the term "records refers to
accounts, correspondence, memoranda, tapes, discs, papers,
books and other documents or transcribed information of any
type, whether written or electronic in character.
Section 53. Investigations, Injunctions and Prosecution of
Offenses.
53.1. The Commission may, in its discretion, make such
investigations as it deems necessary to determine whether
any person has violated or is about to violate any provision of
this Code, any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities association, clearing
agency, other self-regulatory organization, and may require
or permit any person to file with it a statement in writing,
under oath or otherwise, as the Commission shall determine,
as to all facts and circumstances concerning the matter to be
investigated.
The Commission may publish information concerning any
such violations, and to investigate any fact, condition, practice
or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing
of rules and regulations thereunder, or in securing
information to serve as a basis for recommending further
legislation concerning the matters to which this Code relates:
Provided, however, That any person requested or
subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the
purpose of such investigation: Provided, further, That all
criminal complaints for violations of this Code, and the
implementing rules and regulations enforced or administered
by the Commission shall be referred to the Department of
Justice for preliminary investigation and prosecution before
the proper court: Provided, furthermore, That in instances
where the law allows independent civil or criminal
proceedings of violations arising from the same act, the
Commission shall take appropriate action to implement the
same: provided, finally, That the investigation, prosecution,
and trial of such cases shall be given priority.
53.2. For the purpose of any such investigation, or any other
proceeding under this Code, the Commission or any officer
designated by it is empowered to administer oaths and
affirmations, subpoena witnesses, compel attendance, take
evidence, require the production of any book, paper,
correspondence, memorandum, or other record which the
Commission deems relevant or material to the inquiry, and to
perform such other acts necessary in the conduct of such
investigation or proceedings.
53.3. Whenever it shall appear to the Commission that any
person has engaged or is about to engage in any act or practice
constituting a violation of any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange,
registered securities association, clearing agency or other
self-regulatory organization, it may issue an order to such
person to desist from committing such act or practice:
Provided, however, That the Commission shall not charge any
person with violation of the rules of an Exchange or other self-
regulatory organization unless it appears to the Commission
that such Exchange or other self-regulatory organization is
unable or unwilling to take action against such person. After
finding that such person has engaged in any such act or
practice and that there is a reasonable likelihood of
continuing, further or future violations by such person, the
Commission may issue ex-parte a cease and desist order for a
maximum period of ten (10) days, enjoining the violation and
compelling compliance with such provision. The Commission
may transmit such evidence as may be available concerning
any violation of any provision of this Code, or any rule,
regulation or order thereunder, to the Department of Justice,
which may institute the appropriate criminal proceedings
under this Code.
53.4. Any person who, within his power but without cause,
fails or refuses to comply with any lawful order, decision or
subpoena issued by the Commission under Subsection 53.2 or
Subsection 53.3 or Section 64 of this Code, shall after due
notice and hearing, be guilty of contempt of the Commission.
Such person shall be fined in such reasonable amount as the
Commission may determine, or when such failure or refusal
is a clear and open defiance of the Commission’s order,
decision or subpoena, shall be detained under an arrest order
issued by the Commission, until such order, decision or
subpoena is complied with.
Section 54. Administrative Sanctions. –
54.1. If, after due notice and hearing, the Commission finds
that:
(a) There is a violation of this Code, its rule, 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 their
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;
(ii) A fine of no less than Ten thousand pesos (P10,000.00)
nor more than One million pesos (P1,000,000.00) plus not
more than Two thousand pesos (P2,000.00) for each day of
continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and
27, disqualification from being an officer, member of the
Board of Directors, or person performing similar functions, of
an issuer required to file reports under Section 17 of this Code
or any other act, rule or regulation administered by the
Commission;
(iv) In the case of a violation of Section 34, a fine of no more
than three (3) times the profit gained or loss avoided as result
of the purchase, sale or communication proscribed by such
Section, and
(v) Other penalties within the power of the Commission to
impose.
54.2. The imposition of the foregoing administrative
sanctions shall be without prejudice to the filing of criminal
charges against the individuals responsible for the violation.
54.3. The Commission shall have the power to issue writs of
execution to enforce the provisions of the Section and to
enforce payment of the fees and other dues collectible under
this Code.
Section 55. Settlement Offers. –
55.1. At any time, during an investigation or proceeding under
this Code, parties being investigated and/or charged may
propose in writing an offer of settlement with the
Commission.
55.2. Upon receipt of such offer of settlement, the Commission
may consider the offer based on timing, the nature of the
investigation or proceeding, and the public interest.
55.3. The Commission may only agree to a settlement offer
based on its findings that such settlement is in the public
interest. Any agreement to settle shall have no legal effect
until publicly disclosed. Such decision may be made without a
determination of guilt on the part of the person making the
offer.
55.4. The Commission shall adopt rules and procedures
governing the filing, review, withdrawal, form of rejection and
acceptance of such offers.
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.
64.2. Until the Commission issue a cease and desist order, the
fact that an investigation has been initiated or that a
complaint has been filed, including the contents of the
complaint, shall be confidential. Upon issuance of a cease and
desist order, the Commission shall make public such order
and a copy thereof shall be immediately furnished to each
person subject to the order.
64.3. Any person against whom a cease and desist order was
issued may, within five (5) days from receipt of the order, file
a formal request for a lifting thereof. Said request shall be set
for hearing by the Commission not later than fifteen (15) days
from its filing and the resolution thereof shall be made not
later than ten (10) days from the termination of the hearing.
If the Commission fails to resolve the request within the time
herein prescribed, the cease and desist order shall
automatically be lifted.
Section 68. Special Accounting Rules. – The Commission shall
have the authority to make, amend, and rescind such
accounting rules and regulations as may be necessary to carry
out the provisions of this Code, including rules and
regulations as may be necessary to carry out the provisions of
this Code, including rules and regulations governing
registration statements and prospectuses for various classes
of securities and issuers, and defining accounting, technical
and trade terms used in this Code. Among other things, the
Commission may prescribe the form or forms in which
required information shall be set forth, the items or details to
be shown in the balance sheet and income statement, and the
methods to be followed in the preparation of accounts,
appraisal or valuation of assets and liabilities, determination
of depreciation and depletion, differentiation of recurring and
non-recurring income, differentiation of investment and
operating income, and in the preparation, where the
Commission deems it necessary or desirable of consolidated
balance sheets or income accounts of any person directly or
indirectly controlling or controlled by the issuer, or any
person under direct or indirect common control with the
issuer.
Section 72. Rules and Regulations; Effectivity. –
72.1. This Code shall be self-executory. To effect the
provisions and purposes of this Code, the Commission may
issue, amend, and rescind such rules and regulations and
orders necessary or appropriate, including rules and
regulations defining accounting, technical, and trade terms
used in this Code, and prescribing the form or forms in which
information required in registration statements, applications,
and reports to the Commission shall be set forth. For purposes
of its rules or regulations, the Commission may classify
persons, securities, and other matters within its jurisdiction,
prescribe different requirements for different classes of
persons, securities, or matters, and by rule or order,
conditionally or unconditionally exempt any person, security,
or transaction, or class or classes of persons, securities or
transactions, from any or all provisions of this Code. Failure
on the part of the Commission to issue rules and regulations
shall not in any manner affect the self-executory nature of this
Code.
72.2. The Commission shall promulgate rules and regulations
providing for reporting, disclosure and the prevention of
fraudulent, deceptive or manipulative practices in connection
with the purchase by an issuer, by tender offer or otherwise,
of and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2. such rules and regulations
may require such issuer to provide holders of equity
securities of such dates with such information relating to the
reasons for such purchase, the source of funds, the number of
shares to be purchased, the price to be paid for such
securities, the method of purchase and such additional
information as the Commission deems necessary or
appropriate in the public interest or for the protection of
investors, or which the Commission deems to be material to a
determination by holders whether such security should be
sold.
72.3. For the purpose of Subsection 72.2, a purchase by or for
the issuer or any person controlling, controlled by, or under
common control with the issuer, or a purchase subject to the
control of the issuer or any such person, shall be deemed to
be a purchased by the issuer. The commission shall have the
power to make rules and regulations implementing this
subsection, including exemptive rules and regulations
covering situations in which the Commission deems it
unnecessary or inappropriate that a purchase of the type
described in this subsection shall be deemed to be a purchase
by the issuer for the purpose of some or all of the provisions
of Subsection 72.2.
72.4. The rules and regulations promulgated by the
Commission shall be published in two (20 newspapers or
general circulation in the Philippines, and unless otherwise
prescribed by the Commission, the same shall be effective
fifteen (15) days after the date of the last publication.
Sec 179, RCC (RA 11232)
SEC. 179. Powers, Functions, and Jurisdiction of the
Commission. – The Commission shall have the power and
authority to:
(a) Exercise supervision and jurisdiction over all
corporations and persons acting on their behalf, except as
otherwise provided under this Code;
(b) Pursuant to Presidential Decree No. 902-A, retain
jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution. The Commission shall
retain jurisdiction over pending suspension of
payment/rehabilitation cases filed as of 30 June 2000 until
finally disposed;
(c) Impose sanctions for the violation of this Code, its
implementing rules and orders of the Commission;
(d) Promote corporate governance and the protection of
minority investors, through, among others, the issuance of
rules and regulations consistent with international best
practices;
(e) Issue opinions to clarify the application of laws, rules, and
regulations;
(f) Issue cease and desist orders ex parte to prevent imminent
fraud or injury to the public;
(g) Hold corporations in direct and indirect contempt;
(h) Issue subpoena duces tecum and summon witnesses to
appear in proceedings before the Commission;
(i) In appropriate cases, order the examination, search and
seizure of documents, papers, files and records, and books of
accounts of any entity or person under investigation as may
be necessary for the proper disposition of the cases, subject
to the provisions of existing laws;
(j) Suspend or revoke the certificate of incorporation after
proper notice and hearing;
(k) Dissolve or impose sanctions on corporations, upon final
court order, for committing, aiding in the commission of, or in
any manner furthering securities violations, smuggling, tax
evasion, money laundering, graft and corrupt practices, or
other fraudulent or illegal acts;
(l) Issue writs of execution and attachment to enforce
payment of fees, administrative fines, and other dues
collectible under this Code;
(m) Prescribe the number of independent directors and the
minimum criteria in determining the independence of a
director;
(n) Impose or recommend new modes by which a
stockholder, member, director, or trustee may attend
meetings or cast their votes, as technology may allow, taking
into account the company’s scale, number of shareholders or
members, structure, and other factors consistent with the
basic right of corporate suffrage;
(o) Formulate and enforce standards, guidelines, policies,
rules and regulations to carry out the provisions of this Code;
and
(p) Exercise such other powers provided by law or those
which may be necessary or incidental to carrying out the
powers expressly granted to the Commission.
In imposing penalties and additional monitoring and
supervision requirements, the Commission shall take into
consideration the size, nature of the business, and capacity of
the corporation. No court below the Court of Appeals shall
have jurisdiction to issue a restraining order, preliminary
injunction, or preliminary mandatory injunction in any case,
dispute, or controversy that directly or indirectly interferes
with the exercise of the powers, duties and responsibilities of
the Commission that falls exclusively within its jurisdiction.
CASES:
Baviera vs Paglinawan (2007)
Baviera was the former head of HR Service and Delivery and
Industrial Relations of Standard Charter Bank-PH. SCB is a
foreign banking corporation licensed to do business in PH.
BSP-Monetary Board issued a resolution, the conduct of SCB
was subject to the condition that at the end of 1 year period
that SCB starts its trust function, at least 25% of the trust
accounts must be for the accounts of non-residents of PH and
that the foreign exchange remitted to reduce the
indebtedness of the residents. At the end of the 2nd year, it
shall be raised to 50%.
SCB did not comply with the condition, but instead acted as
stockbroker soliciting foreign securities form PH residents
Global Third Party Mutual Funds denominated in US$. They
were not registered with SEC and were remitted outwardly to
SCB-Hongkong and SCB-Singapore. SCB counsel advised SCB
to sell the securities under the guise of custodian agreement
and if the sale is questioned, it would invoke Sec 72 of General
Banking Act. SCB was able to sell GTPMF securities worth
P6B.
On July 1997, Investment Capital Association of the PH filed
before SEC a complaint against SCB for violation of the
Revised Securities Act for the sale of unregistered securities
with SEC. SCB argues that it was offering and selling securities
and that it was only performing purely informational function
without solicitations from any investments, that it has trust
license, that its clients were the ones who took the initiative
to invest in securities and that it was acting as an agent or
passive order taker for them.
SEC issued a cease and desist order against SCB. SEC referred
ICAP’s complaint to BSP. SEC withdrew the GTPMF securities
from the market and it will not sell them without the
necessary clearances. BSP directed SCB not to include
investments in global mutual funds issue abroad in its trust
investment portfolios without prior registration with SEC.
SCB sent a letter confirming the directive. However, SCB still
continued to sell GTPMF securities.
Baviera entered with SCB into an Investment Trust
agreement wherein Baviera purchased US$8k worth of
securities, with 40% RoI and a guarantee that his money was
safe. After 6 mos, Baviera learned that the value went down
to US$7k. Baviera tried to withdraw his investment but SCB
persuaded him to hold on to it, promising that the market
would pick up.
BSP found that SCB failed to comply with its directive and
fined SCB worth 30k. Baviera’s investment further went down
to US$3k. Baviera learned that BSP prohibited SCB from
selling GTPMF securities. Baviera filed with BSP a letter
complaint demanding compensation with his lost investment.
SCB denied his demand coz his investment was regular.
Baviera filed with DOJ a complaint charging SCB BoD and
officers of SYNDICATED ESTAFA. SEC lifted its cease and
desist order upon P7M settlement by SCB and SCB made a
commitment not to further sell unregistered GTPMF
securities. He also filed a complaint with DOJ for alleged SCB’s
violation of SRC. DOJ dismissed complaint for syndicated
estafa. The complaint for violation of SRC was also denied coz
it should have been filed with SEC. CA affirmed DOJ.
W/N SEC has jurisdiction over the case.
YES. A criminal charge for violation of the Securities
Regulation Code is a specialized dispute. Hence, it must first
be referred to an administrative agency of special
competence, i.e., the SEC. Under the doctrine of primary
jurisdiction, courts will not determine a controversy
involving a question within the jurisdiction of the
administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the
specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact
The Securities Regulation Code is a special law. Its
enforcement is particularly vested in the SEC.
Hence, all complaints for any violation of the Code and its
implementing rules and regulations should be filed with the
SEC. Where the complaint is criminal in nature, the SEC shall
indorse the complaint to the DOJ for preliminary investigation
and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner
committed a fatal procedural lapse when he filed his criminal
complaint directly with the DOJ. Verily, no grave abuse of
discretion can be ascribed to the DOJ in dismissing
petitioner's complaint.
In determining whether the DOJ committed grave abuse of
discretion, it is expedient to know if the findings of fact of
herein public prosecutors were reached in an arbitrary or
despotic manner. The Court of Appeals held that petitioner's
evidence is insufficient to establish probable cause for
syndicated estafa. There is no showing from the record that
private respondents herein did induce petitioner by false
representations to invest in the GTPMF securities. Nor did
they act as a syndicate to misappropriate his money for their
own benefit. Rather, they invested it in accordance with his
written instructions. That he lost his investment is not their
fault since it was highly speculative.
Petition is denied.
Pablo Roman & Matias Defensor vs SEC (2016)
On June 2007 private respondents Attys – Atienza, De Jesus Jr
& Sr, Aguirre, and Padro et al. filed a complaint against the
Petitioners, who are officers of Capitol Hills Golf and Country
Club. They allege that: On Apr 1996, Special BoD meeting was
held and a resolution was passed by the BoD of Capitol
authorizing Pablo Roman as its President.
He is to acquire in behalf of the corp 4 parcels of land in
Montalban for P150/sqm, he is also to enter into a JVA with
Ayala Land (market and develop a certain area in the olf
course = saleable lots) and to acquire and obtain loans from
Ayala Land for the purpose of acquiring the Montalban
properties (P150M) to be secured by REM. He is also to
negotiate, execute, sign and deliver a letter-agreement with
Ayala land, DoS for purchase of properties, PNs REM and
assignment agreements.
It was also alleged that Roman asked the Board to pass a
resolution authorizing 3rd party Pacific Asia Capital to receive
from Ayala Land the proceeds of the loan and to Ayala Land
to release the proceeds of the loan to Pacific Asia so that any
release by Ayala Land which is received by Pacific Asia is valid
release and receipt of such amount. That the issued
resolutions were erroneously made and in evident BF Roman
never informed the board that at the time he made the
proposal, Ayala land had already made initial cash advance in
favor of Capitol but directly payable to Pacific Asia and that
Ayala had no legal basis to make cash advances as Roman had
no authority yet to enter into said agreement.
To private respondents all these are irregularities and
anomalies amounting to fraud and misrepresentation that
prompted them to ask SEC to investigate the Board and order
constitution of MANCOM to temporarily oversee affairs of
Capitol.
In their answer, Petitioners invoked SEC’s lack of jurisdiction
claiming the complaint to be in the nature of an intra-
corporate dispute. Under the SRC, said jurisdiction is vested
with the RTC acting as special commercial court.
SEC: composed the membership of MANCOM pursuant to S5
of SRC and PD 902-A after finding merit in the complaint.
Atty. Franklin I. Cueto - Chairman
Atty. Noel Y. Artiza - Member
Mr. Manuel Baldeo, Jr. – Member
- to perform the following duties and functions, for a
period of one (1) month from the date of receipt of
this Order, and until further Orders from the
Commission, to prevent the paralyzation of the
operations of Capitol Hills Golf and Country Club,
preserve its assets and protect the interests of the
minority stockholders and other stakeholders.
Petitioners also questionthe Dec 2007 SEC order before the
CA via Petition for Prohibition and asked CA to enjoin SEC
from conducting further investigation.
CA: dismissed the petition – case did not necessarily involve a
controversy arising purely out of intra-corporate relations so
as to deprive the SEC of jurisdiction. They are merely asking
for administrative intervention of SEC on matters within its
competence.
CA agreed with OSG that the creation of MANCOM was
authorized under SEC Memo Circ No. 11, S2003. The said
memorandum stated that the SEC had the power "to do any
and all acts to carry out the effective implementation of the
laws it is mandated to enforce, that is, constitute a
management committee; appoint receivers, issue cease and
desist orders to prevent fraud or injury to the public; and such
other measures to carry out its role as a regulator."
W/N letter-complaint filed by the private respondents is
beyond jurisdiction of SEC. NO
W/N SEC order creating the MANCOM issued in excess of
jurisdiction. NO.
Under the SRC, jurisdiction on matters stated under Section 5
of P.D. No. 902-A, which was originally vested in the SEC, has
already been transferred to the RTC acting as a special
commercial court. Despite the said transfer, however, the SEC
still retains sufficient powers to justify its assumption of
jurisdiction over matters concerning its supervisory,
administrative and regulatory functions. Court cited Sections
5 and 53 of the SRC as justifications.
the authority of the SEC to hear cases regardless of whether
an action involves issues cognizable by the RTC, provided that
the SEC could only act upon those which are merely
administrative and regulatory in character. In other words,
the SEC was never dispossessed of the power to assume
jurisdiction over complaints, even if these are riddled with
intra-corporate allegations, if their invocation of authority is
confined only to the extent of ensuring compliance with the
law and the rules, as well as to impose fines and penalties for
violation thereof; and to investigate even motu proprio
whether corporations comply with the Corporation Code, the
SRC and the implementing rules and regulations.
On the next issues, The SEC submits that the power to
constitute a management committee is based on its
supervisory and regulatory functions. It cites SEC-MC No. 11,
Series of 2003 as authority. In effect, the authority of the SEC
is viewed as one that is intimately related to its functions as a
regulator.
Clearly, any dispute concerning intra-corporate issues is now
beyond the province of the SEC. Yet, it must be stressed that
under Section 5.1 (n) of the SRC, the SEC is permitted to
exercise such other powers as may be provided for by law as
well as those which may be implied from, or which are
necessary or incidental to the carrying out, of the express
powers granted the SEC to achieve the objectives and
purposes of these laws. With such broad authority, it is
beyond question that the SEC, as a regulator, has broad
discretion to act on matters that relate to its express power of
supervision over all corporations, partnerships or
associations who are the grantees of primary franchises
and/or a license or permit issued by the Government. Such
grant of express power of supervision, necessarily includes
the power to create a management committee following the
doctrine of necessary implication. The reason is simple. The
creation of a management committee is one that is premised
on the immediate and speedy protection of the interest not
only of minority stockholders, but also of the general public
from immediate danger of loss, wastage or destruction of
assets or the paralyzation of business of a concerned
corporation or entity.
Petition is denied.
SEC vs Performance Foreign Exchange Corp (2006)
Performance Foreign Exchange Corporation is a domestic
corporation duly registered on June 23, 1998 under Securities
and Exchange Commission (SEC) Registration No.
A199808910.
Primary Purpose: To operate as a broker/agent between
market participants in transactions involving, but not limited
to, foreign exchange, deposits, interest rate instruments, fixed
income securities, bonds/bills, repurchased agreements of
fixed income securities, certificate of deposits, bankers
acceptances, bills of exchange, over the counter option of the
aforementioned instruments, Lesser Developed Country's
(L.D.C.) debt, energy and stock indexes and all related, similar
or derivative products, other than acting as a broker for the
trading of securities pursuant to the Revised Securities Act of
the Philippines.
After two years of operation, respondent received a letter
dated November 28, 2000 from the SEC. requiring it to appear
before the Compliance and Enforcement Department (CED)
on December 14, 2000 for a clarificatory conference
regarding its business operations. Respondent's officers
complied and explained before the CED the nature of their
business.
On January 16, 2001, Emilio B. Aquino, Director of CED, issued
a Cease and Desist Order stating that his department
conducted an inquiry on respondent's business operations for
possible violation of S11 of SRC; 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 it is imperative to enjoin
respondent from further operating as such to protect the
interest of the public.
On January 25, 2001, respondent Bled with petitioner SEC a
motion praying for the lifting of the Cease and Desist Order,
alleging that: (a) it has not violated any law or regulation in
the conduct of its business; (b) it has been operating in
accordance with the purposes for which it was organized,
which purposes were duly approved by petitioner; (c) it has
not engaged in currency futures contracts trading; and (d) its
business involves "spot currency trading which is not a form
of currency futures transaction."
On February 8, 2001, then SEC Chairman Lilia R. Bautista, in
her desire to know with certainty the nature of respondent's
business, sent a letter to 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.
Without waiting for BSP's determination of the matter,
petitioner, the following day (February 9, 2001), issued an
Order denying respondent's motion for the lifting of the Cease
and Desist Order and directing that the same stays until
respondent shall have submitted the appropriate
"endorsement" from the BSP that it can engage in financial
derivative transactions. The Order states that the contracts
entered into, offered and sold by respondent are in the nature
of commodity futures contracts and that such contracts may
be considered a form of financial derivatives instruments, the
trading of which is regulated by BSP.
On March 15, 2001, respondent, in compliance with
petitioner's February 9, 2001 Order requiring it to submit the
appropriate BSP "endorsement," presented before the BSP
panel of officers a summary of its operations and its foreign
exchange spot product. On April 23, 2001, petitioner issued
an Order making the Cease and Desist Order permanent.
Feeling the injurious effects of petitioner's acts to its business
operations, respondent, on June 20, 2001, Bled with the Court
of Appeals a Petition for Certiorari. Respondent alleged,
among others, that petitioner SEC acted without or in excess
of its jurisdiction or with 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.
August 13, 2001, Amado M. Tetangco, Jr., then Officer-in-
Charge, Office of the Governor, BSP, in answer to SEC
Chairman Lilia Bautista's letter-request of February 8, 2001,
stated that respondent's business activity "does not fall under
the category of futures trading" and "cannot be classified as
financial derivatives transactions.
CA: in favor of Respondent – petitioner 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, the instant Petition for Review on Certiorari.
Petitioner, through the Solicitor General, contends that the
Court of Appeals erred in not applying the rule that factual
findings of quasi-judicial bodies, like the SEC, which have
acquired expertise because their jurisdiction is confined to
specific matters, are generally accorded not only respect but
even finality if such findings are supported by substantial
evidence.
W/N SEC acted with GAD in issuing cease and desist order.
Section 64 of R.A. No. 8799. YES.
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. 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.
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.
Petition denied.
Primanila Plans vs SEC (2014)
Primanila was registered with the SEC on October 17, 1988.
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, 8rms, or entities, and self-employed individuals
can be pooled together, accumulated and invested in
pro8table placements and productive enterprises so as to
build an Accumulated Fund for each individual participant or
plan holder for his retirement, monthly pension or for other
[foreseeable] needs in the future." Primanila then operated as
a pre-need company 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 –
- office in Makati was closed and no notice posted as
to the reason for such.
- Its website was offering a pension plan Primasa
Plan.
- It failed to renew its Dealer’s License for 2008 and it
has not been issued a secondary license to act as a
dealer or general agent for pre-need pension plans
for 2008.
- Also, no registration statement has been 8led by
[Primanila] for the approval of a pension plan
product called Primasa Plan.
- Bank Account is still active.
- Among the many planholders of [PRIMANILA] are
enlisted personnel of the Philippine National Police
(PNP). Premium collections for Primaplans via
salary deductions were religiously remitted to
[Primanila] on a monthly basis.
- PNP remitted the total amount of Php2,072,149.38
to respondent PRIMANILA representing the
aforementioned premium collections via salary
deductions of the 410 enlisted personnel of PNP
who are planholders.
- [PRIMANILA] failed to deposit the required monthly
contributions to the trust fund in violation of Pre-
need Rule 19.1.
 - [PRIMANILA] under-declared the total amount of its
collections as shown in its SEC Monthly Collection
Reports which it submitted to NTD.
SEC declared that Primanila committed a flagrant violation of
S16 (Pre-need Plans) of SRC. It also breached the New Rules
on the Registration and Sale of Pre-Need Plans, specifically
Rule Nos. 3 and 15.
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."
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. it was neither selling nor collecting
premium payments for the product Primasa plans. The
product was previously developed but was never launched
and sold to 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 plan holders.
June 5, 2008, the SEC issued its Order denying Primanila's
motion for reconsideration for lack of merit. The cease and
desist order issued on April 9, 2008 was then made
permanent. Primanila appealed to the CA via a petition for
review. On March 9, 2010, the CA rendered its decision
dismissing the petition and affirming in toto the issuances of
the SEC.
W/N Primanila was given due process by SEC by filing the MR
- YES
W/N cease and desist order is valid – YES
Primanila was accorded due process notwithstanding the
SEC's immediate issuance of the cease and desist order on
April 9, 2008. 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.
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 veri8ed complaint from an aggrieved party.
A prior hearing is also not required whenever the
Commission 8nds it appropriate to issue a cease and desist
order that aims to curtail fraud or grave or irreparable injury
to investors.
A cease and desist order may only be issued by the
Commission after proper investigation or veri8cation, 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 satis8ed by the SEC prior to
its issuance of the subject cease and desist order.
Investigators of the CED personally conducted an ocular
inspection of Primanila's declared office, only to con8rm
reports that it had closed even without the prior approval of
the SEC. Members of CED also visited the company website of
Primanila, and discovered the company's offer for sale
thereon of the pension plan product called Primasa Plan, with
instructions on how interested applicants and plan holders
could pay their premium payments for the plan. One of the
payment options was through bank deposit to Primanila's
given Metrobank account which, following an actual deposit
made by the CED was confirmed to be active.
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.
The validity of the SEC's cease and desist order is further
sustained for having sufficient factual and legal bases. The
acts speci8cally restrained by the subject cease and desist
order were Primanila's sale, offer for sale and collection of
payments speci8cally for its Primasa plans.
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.
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. Furthermore, even
prior to the issuance of the subject cease and desist order,
Primanila was already enjoined by the SEC from selling
and/or offering for sale pre-need products to the public. the
SEC from selling and/or offering for sale pre-need products to
the public.
Petition is denied.
SEC vs CJH Development (2016)
CJH Development Corporation (CJHDC) is a duly-organized
domestic corporation which is engaged in the acquisition,
development, sale, lease and management of real estate and
any improvements thereon or any interest and right.
Respondent CJH Suites Corporation (CJHSC), on the other
hand, is a wholly owned subsidiary of CJHDC which was
formed primarily for the purpose of acquiring, maintaining,
operating and managing hotels, inns, lodging houses,
restaurants and other allied businesses.
On October 19, 1996, CJHDC entered into a Lease Agreement
(Agreement) with the Bases Conversion and Development
Authority (BCDA) for the development into a public tourism
complex, multiple-use forest watershed and human resource
development center, of a 247-hectare property within the
John Hay Special Economic Zone in Baguio City.
The Fixed annual rental for the property for the first Five
years was pegged at P425,001,378.00 or 5 percent of Gross
Revenues, whichever is higher. Thereafter, for the duration of
the lease period, the Fixed annual rental shall not be more
than P150,000,000.00 or Five percent of Gross Revenues,
whichever is higher. Among other provisions, the Agreement
authorized CJHDC to sub-lease, develop and manage the
abovementioned property for a period of (50) years, or until
2046. It was also provided that, upon expiration of the
Agreement, the leased property shall revert back to the BCDA
and all the improvements thereon shall become its property.
CJHDC came up with a development plan and put it into effect.
Part of such development plan was the construction of two
(2) condominium-hotels (condotels) which it named as "The
Manor" and "The Suites".
Subject to CJHDC's leasehold rights under the Agreement, the
residential units in these condotels were then offered for sale
to the general public by means of two schemes. The First is a
straight purchase and sale contract where the buyer pays the
purchase price for the unit bought, either in lump sum or on
installment basis and, thereafter, enjoys the beneFits of full
ownership, subject to payment of maintenance dues and
utility fees. The second scheme involved the sale of the unit
with an added option to avail of a "leaseback" or a "money-
back" arrangement.
Under this added option, the buyer pays for the unit bought
and, subsequently, surrenders its possession to the
management of CJHDC or CJHSC. These corporations would
then create a pool of these units and, in turn, will offer them
for billeting under the management of the hotel operated by
the Camp John Hay Leisure, Inc. (CJHLI). This arrangement
lasts for a period of (15) years with a renewal option for the
same period until 2046. The buyers who opt for the
"leaseback" arrangement will receive either a proportionate
share in seventy percent (70%) of the annual income derived
from the hotel operation of the pooled rooms or a guaranteed
eight percent (8%) return on their investment. On the other
hand, those who choose to avail of the "money-back"
arrangement are entitled to a return of the purchase price
they paid for the units by expiration of the Lease Agreement
in 2046. The buyers are given the right to use their units for
thirty (30) days within a year and they are exempted from
paying the monthly dues and utility fees.
Sometime in May 2010, the BCDA and the CJHDC entered into
an agreement for the restructuring of the latter's rental
payments and other Financial obligations to the former. Thus,
pursuant to this agreement, CJHDC transferred ownership of,
among others, sixteen (16) units from "The Manor" and ten
(10) units from "The Suites" to the BCDA via dacion en pago.
These units were covered by Limited Warranty Deeds and
were subject to a "leaseback" arrangement.
BCDA acquired information regarding CJHDC and CJHSC's
scheme of selling "The Manor" and "The Suites" units through
"leaseback" or "moneyback" terms. Hence, in a letter dated
November 18, 2011, the BCDA requested the SEC to conduct
an investigation into the operations of CJHDC and CJHSC on
the belief that the "leaseback" or "money-back" arrangements
they are offering to the public is, in essence, investment
contracts which are considered as securities under SRC.
Enforcement and Prosecution Department (EPD) of the SEC
conducted its own investigation of the operations of CJHDC
and CJHSC with respect to the sale of the subject condotel
units and, thereafter, submitted a Field Investigation Report.
April 23, 2012, the SEC's Corporation Finance Department
(CFD) issued a Memorandum indicating its opinion that the
"leaseback" arrangements offered by respondents to the
public are investment contracts.
On May 16, 2012, the EPD Fled a Motion for Issuance of Cease
and Desist Order with the SEC En Banc praying that CJHDC
and CJHSC, their respective ofFicers, directors,
representatives, salesmen, agents, and any and all persons
claiming and acting for and in their behalf be directed to
immediately cease and desist "from further engaging in
activities of selling and/or offering for sale investment
contracts covering the condotel units on "leaseback" and/or
"money-back" arrangements until the requisite registration
statement is duly Fled with and approved by the Commission
and the corresponding permit to offer/sell securities is
issued."
CJHDC and CJHSC then Fled a Petition for Review before the
CA questioning the above CDO and praying that the same be
reversed and set aside.
On September 25, 2012, the CA issued a temporary
restraining order which enjoins the SEC from enforcing its
questioned CDO for a period of sixty (60) days. November 8,
2012, the CA issued a writ of preliminary injunction which
was made effective pending the decision of the petition on the
merits. CA ruled in favor of CJHDC and CJHSC.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
IN NOT OUTRIGHTLY DISMISSING THE APPEAL FILED BY
RESPONDENTS AGAINST AN INTERLOCUTORY OR
PROVISIONAL ORDER OF THE SEC.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
AND ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
FAILING TO DISMISS THE PETITION FOR REVIEW
CONSIDERING THAT THE SEC HAS THE PRIMARY
JURISDICTION OVER THE CASE AND RESPONDENTS FAILED
TO EXHAUST ALL THE ADMINISTRATIVE REMEDIES UNDER
THE LAW TO CHALLENGE THE PROVISIONAL ORDER.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
AND ACTED WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
NULLIFYING THE CDO AND DISMISSING SEC-CDO CASE NO.
05-12-006.
First, the Court agrees with petitioners that the challenged
CDO is an interlocutory order. The word interlocutory refers
to something intervening between the commencement and
the end of the suit which decides some point or matter but is
not a Final decision of the whole controversy. It is a settled
rule in this jurisdiction that an appeal may only be taken from
a judgment or Final order that completely disposes of the case
and that an interlocutory order is not appealable until after
the rendition of the judgment on the merits for a contrary rule
would delay the administration of justice and unduly burden
the courts.
In the present case, it is clear from the dispositive portion of
the CDO that its issuance is based on the Findings of the SEC
that there exists prima facie evidence that respondents are
engaged in the business of selling securities without the
proper registration issued by the Commission. In fact, the
non-appealability of a CDO issued by the SEC is provided for
under the 2006 Rules of Procedure of the Commission. Thus,
Section 10-8 of the Rules. In addition, the temporary
character, thus interlocutory nature, of a CDO is recognized
under Section 10-5 of the same Rules.
Thus, pursuant to the above provision, the EPD of the SEC
Filed a Motion for Issuance of Permanent Cease and Desist
Order on July 9, 2012 which, however, was subsequently
overtaken by the CA's issuance of a temporary restraining
order and preliminary injunction enjoining the SEC from
enforcing its assailed CDO.
Hence, as cited above, instead of Fling an appeal with the CA,
respondents should have Fled a motion to lift the assailed
CDO. Since the law and the SEC Rules require that this motion
be heard by the SEC, it is during this hearing that respondents
could have presented evidence in support of their
contentions. However, they chose not to file the said motion.
Thus, the second reason for the denial of the instant petition
is respondents' failure to exhaust all administrative remedies
available to there.
Corollary to the principle of exhaustion of administrative
remedies is the third reason for denying the instant petition.
The main issue, as to whether or not the sale of "The Manor"
or "The Suites" units to the general public under the
"leaseback" or "moneyback" scheme is a form of investment
contract or sale of securities, is not a pure question of law. On
the contrary, it involves a question of fact that falls under the
primary jurisdiction of the SEC. Under the doctrine of primary
administrative jurisdiction, courts will not determine a
controversy where the issues for resolution demand the
exercise of sound administrative discretion requiring the
special knowledge, experience, and services of the
administrative tribunal to determine technical and intricate
matters of fact, which under a regulatory scheme have been
placed within the special competence of such tribunal or
agency.
In other words, if a case is such that its determination
requires the expertise, specialized training, and knowledge of
an administrative body, relief must First be obtained in an
administrative proceeding before resort to the court is had
even if the matter may well be within the latter's proper
jurisdiction.
In the instant case, the resolution of the issue as to whether
respondents' scheme of selling the subject condotel units is
tantamount to an investment contract and/or sale of
securities, as deFined under the SRC, requires the expertise
and technical knowledge of the SEC being the government
agency which is tasked to enforce and implement the
provisions of the said Code as well as its implementing rules
and regulations.
Upon issuance of the CDO, nothing prevented respondents
from Fling a motion to lift the said Order wherein they could
have amply explained their position. However, they chose not
to avail of this remedy and, instead, went directly, albeit
erroneously, to the CA via a petition for review. Lastly, the
Court neither agrees with the ruling of the CA that there is
nothing in the assailed CDO which shows that the acts sought
to be restrained therein operate as a fraud on investors. The
SEC arrived at a preliminary Finding that respondents are
engaged in the business of selling securities without the
proper registration issued by the Commission. Based on this
initial Finding, respondents' act of selling unregistered
securities would necessarily operate as a fraud on investors
as it deceives the investing public by making it appear that
respondents have authority to deal on such securities. As
correctly cited by the SEC, Section 8.1 of the SRC clearly states
that securities shall not be sold or offered for sale or
distribution within the Philippines without a registration
statement duly Fled with and approved by the SEC and that
prior to such sale, information on the securities, in such form
and with such substance as the SEC may prescribe, shall be
made available to each prospective buyer. The Court agrees
with the SEC that the purpose of this provision is to afford the
public protection from investing in worthless securities.
Petition is Granted. order on July 26, 1996, and a writ of preliminary injunction
on August 26, 1996. On June 17, 1998, the appellate court
PASTRA vs SEC (2007) dismissed the petition. It ruled that the power to regulate
petitioner's fees was included in the general power given to
Petitioner Philippine Association of Stock Transfer and
the SEC under Section 40 of The Revised Securities Act to
Registry Agencies, Inc. is an association of stock transfer
regulate, supervise, examine, suspend or otherwise
agents principally engaged in the registration of stock
discontinue, the operation of securities-related organizations
transfers in the stock-and-transfer book of corporations.
like petitioner.
May 10, 1996, petitioner's Board of Directors unanimously
While this case was pending, The Revised Securities Act by
approved a resolution allowing its members to increase the
authority of which the assailed orders were issued was
transfer processing fee they charge their clients from P45 per
repealed by Republic Act No. 8799 or The Securities
certiBcate to P75 per certiBcate, effective July 1, 1996; and
Regulation Code which became effective on August 8, 2000.
eventually to P100 per certiBcate, effective October 1, 1996.
Nonetheless, we Bnd it pertinent to rule on the parties'
The resolution also authorized the imposition of a processing
submissions considering that the effects of the July 11, 1996
fee for the cancellation of stock certiBcates at P20 per
Order had not been obliterated by the repeal of The Revised
certiBcate effective July 1, 1996.
Securities Act and there is still present a need to rule on
After a dialogue with petitioner, public respondent Securities whether petitioner was liable for the fees imposed upon it.
and Exchange Commission (SEC) allowed petitioner to
W/N the SEC acted with grave abuse of discretion or lack or
impose the P75 per certiBcate transfer fee and P20 per
excess of jurisdiction in issuing the controverted Orders of
certiBcate cancellation fee effective July 1, 1996. But,
July 8 and 11, 1996.
approval of the additional increase of the transfer fees to
P100 per certiBcate effective October 1, 1996, was withheld The Court notes that before its repeal, Section 47 of The
until after a public hearing. The SEC issued a letter- Revised Securities Act clearly gave the SEC the power to
authorization to this effect on June 20, 1996. enjoin the acts or practices of securities-related organizations
even without Brst conducting a hearing if, upon proper
June 24, 1996, the Philippine Association of Securities
investigation or veriBcation, the SEC is of the opinion that
Brokers and Dealers, Inc. registered its objection to the
there exists the possibility that the act or practice may cause
measure advanced by petitioner and requested the SEC to
grave or irreparable injury to the investing public, if left
defer its implementation. On June 27, 1996, the SEC advised
unrestrained.
petitioner to hold in abeyance the implementation of the
increases until the matter was cleared with all the parties Said section enforces the power of general supervision of the
concerned. Petitioner nonetheless proceeded with the SEC under Section 40 of the then Revised Securities Act. As a
implementation of the increased fees. securities-related organization under the jurisdiction and
supervision of the SEC by virtue of Section 40 of The Revised
The SEC wrote petitioner on July 1, 1996, reiterating the
Securities Act and Section 3 of Presidential Decree No. 902-A
directive of June 27, 1996. On July 2, 1996, following a
petitioner was under the obligation to comply with the July 8,
complaint from the Philippine Stock Exchange, the SEC again
1996 Order. Defiance of the order was subject to
sent petitioner a second letter strongly urging petitioner to
administrative sanctions provided in Section 46 of The
desist from implementing the new rates in the interest of all
Revised Securities Act.
participants in the security market.
Petitioner failed to show that the SEC, which undoubtedly
Petitioner replied on July 3, 1996 that it had no intention of
possessed the necessary expertise in matters relating to the
defying the orders but stated that it could no longer hold in
regulation of the securities market, gravely abused its
abeyance the implementation of the new fees because its
discretion in Bnding that there was a possibility that the
members had already put in place the procedures necessary
increase in fees and imposition of cancellation fees will cause
for their implementation. Petitioner also argued that the
grave or irreparable injury or prejudice to the investing
imposition of the processing fee was a management
public. Indeed, petitioner did not advance any argument to
prerogative, which was beyond the SEC's authority to
counter the SEC's Bnding. Thus, there appears to be no
regulate absent an express rule or regulation.
substantial reason to nullify the July 8, 1996 Order. This is
July 8, 1996, the SEC issued Order No. 104, series of 1996, true, especially considering that, as pointed out by the OSG,
enjoining petitioner from imposing the new fees. petitioner's fee increases have far-reaching effects on the
capital market. Charging exorbitant processing fees could
Aggrieved, petitioner went to the Court of Appeals on discourage many small prospective investors and curtail the
certiorari contending that the SEC acted with grave abuse of infusion of money into the capital market and hamper its
discretion or lack or excess of jurisdiction in issuing the above growth.
orders. The appellate court issued a temporary restraining
Moreover, it devolved upon petitioner to protect its interests
adequately considering the clear implications of the Order of
July 8, 1996. Petitioner had only itself to blame for its failure
to present its evidence during the July 11, 1996 hearing.
The regulatory and supervisory powers of the Commission
under Section 40 of the then Revised Securities Act, in our
view, were broad enough to include the power to regulate
petitioner's fees. Indeed, Section 47 gave the Commission the
power to enjoin motu proprio any act or practice of petitioner
which could cause grave or irreparable injury or prejudice to
the investing public. The intentional omission in the law of
any qualiBcation as to what acts or practices are subject to the
control and supervision of the SEC under Section 47 conBrms
the broad extent of the SEC's regulatory powers over the
operations of securities-related organizations like petitioner.
The SEC's authority to issue the cease-and-desist order being
indubitable under Section 47 in relation to Section 40 of the
then Revised Securities Act, and there being no showing that
the SEC committed grave abuse of discretion in Bnding basis
to issue said order, we rule that the Court of Appeals
committed no reversible error in aJrming the assailed orders.
For its open and admitted deBance of a lawful cease-and-
desist order, petitioner was held appropriately liable for the
payment of the penalty imposed on it in the SEC's July 11,
1996 Order.
Petition denied.
Provident Int’l Resources Corp vs Joaquin Venue (2008)
Petitioner Provident International Resources Corporation
(PIRC) is a corporation duly organized under Philippine law.
It was registered with the SEC on September 20, 1979.
Edward T. Marcelo, Constancio D. Francisco, Lydia J.
Chuanico, Daniel T. Pascual, and Jose A. Lazaro, collectively
known as the Marcelo group, were its incorporators, original
stockholders, and directors.
Another group, known as the Asistio group, composed of Luis
A. Asistio, Lazaro L. Madara, Alfredo D. Roa III, Joaquin T.
Venus, and Jose Ma. Carlos L. Zumel, claimed that the Marcelo
group acquired shares in PIRC as mere trustees for the Asistio
group. The Marcelo group allegedly executed a waiver of pre-
emptive right, blank deeds of assignment, and blank deeds of
transfer; endorsed in blank their respective stock certificates
over all of the outstanding capital stock registered in their
names; and completed the blank deeds in 2002 to effect
transfers to the Asistio group.
On August 6, 2002, the Company Registration and Monitoring
Department (CRMD) of the SEC issued a certification stating
that verification made on the available records of PIRC
showed failure to register its stock and transfer book (STB).
It also appears that on April 21, 1998, the Supervision and
Monitoring Department of the SEC had issued a show cause
letter to PIRC for its supposed failure to register its STB.
On August 7, 2002, the Asistio group registered PIRC's STB.
Upon learning of this, PIRC's assistant corporate secretary,
Celedonio Escaño, Jr., requested the SEC for a certification of
the registration in 1979 of PIRC's STB. Escaño presented the
1979-registered STB bearing the SEC stamp and the signature
of the officer in charge of book registration.
Meanwhile, on October 17, 2002, the Asistio group filed in the
Regional Trial Court (RTC) of Muntinlupa City, a complaint
against the Marcelo group. The Asistio group prayed that the
Marcelo group be enjoined from acting as directors of PIRC,
from physically holding office at PIRC's office, and from taking
custody of PIRC's corporate records.
October 30, 2002, the CRMD of the SEC issued a letter ecalling
the certification it had issued on August 6, 2002 and canceling
the 2002-registered STB. However, one Kennedy B.
Sarmiento requested the SEC not to cancel the 2002-
registered STB. The SEC thus scheduled a conference to
determine which of the two STBs is valid. The parties were
ordered to file their respective position papers. On February
12, 2003, the hearing officer ruled: recall the certification
issued on 6 August 2002 and cancel the stock and transfer
book registered on October 2002. Accordingly, the stock and
transfer book registered on 25 September 1979 shall remain
valid.
The Asistio group appealed to the SEC Board of
Commissioners. They claimed that the issue of which of the
two STBs is valid is intra-corporate in nature; hence, the RTC,
not the SEC, has jurisdiction.
The SEC, in its assailed order, denied the appeal. The SEC
ratiocinated that the determination of which of the two STBs
is valid calls for regulatory, not judicial power and is therefore
within its exclusive jurisdiction.
The Asistio group elevated the case to the Court of Appeals,
which ruled in their favor. The Court of Appeals held that the
issue of which of the two STBs is valid is intra-corporate and
thus subject to the jurisdiction of the RTC.
WHETHER OR NOT THE SEC HAS THE JURISDICTION TO
RECALL AND CANCEL A STOCK AND TRANSFER BOOK
WHICH IT ISSUED IN 2002 BECAUSE OF ITS MISTAKEN
ASSUMPTION THAT NO STOCK AND TRANSFER BOOK HAD
BEEN PREVIOUSLY ISSUED IN 1979.
To resolve the issue of jurisdiction, it would be good to look at
the powers and functions of the SEC -The Securities
Regulation Code (Republic Act No. 8799)
From the above, it can be said that the SEC's regulatory
authority over private corporations encompasses a wide
margin of areas, touching nearly all of a corporation's
concerns. This authority more vividly springs from the fact
that a corporation owes its existence to the concession of its
corporate franchise from the state.
Under its regulatory responsibilities, the SEC may pass upon
applications for, or may suspend or revoke (after due notice
and hearing), certificates of registration of corporations,
partnerships and associations (excluding cooperatives,
homeowners' association, and labor unions); compel legal
and regulatory compliances; conduct inspections; and impose
fines or other penalties for violations of the Revised Securities
Act, as well as implementing rules and directives of the SEC,
such as may be warranted.
Considering that the SEC, after due notice and hearing, has the
regulatory power to revoke the corporate franchise -- from
which a corporation owes its legal existence -- the SEC must
likewise have the lesser power of merely recalling and
canceling a STB that was erroneously registered.
Going to the particular facts of the instant case, we find that
the SEC has the primary competence and means to determine
and verify whether the subject 1979 STB presented by the
incumbent assistant corporate secretary was indeed
authentic, and duly registered by the SEC as early as
September 1979. As the administrative agency responsible
for the registration and monitoring of STBs, it is the body
cognizant of the STB registration procedures, and in
possession of the pertinent files, records and specimen
signatures of authorized officers relating to the registration of
STBs. The evaluation of whether a STB was authorized by the
SEC primarily requires an examination of the STB itself and
the SEC files. This function necessarily belongs to the SEC as
part of its regulatory jurisdiction. Contrary to the allegations
of respondents, the issues involved in this case can be
resolved without going into the intra-corporate controversies
brought up by respondents.
As the regulatory body, it is the SEC's duty to ensure that there
is only one set of STB for each corporation. The determination
of whether or not the 1979-registered STB is valid and of
whether to cancel and revoke the August 6, 2002 certification
and the registration of the 2002 STB on the ground that there
already is an existing STB is impliedly and necessarily within
the regulatory jurisdiction of the SEC.
Under the circumstances of the instant case, we find no error
in the exercise of jurisdiction by the SEC. All that the SEC was
tasked to do, and which it actually did, was to evaluate the
1979 STB presented to it.
Petition granted.
SEC vs Court of Appeals (1995)
The Securities and Exchange Commission ("SEC") has both
regulatory and adjudicative functions.prLL Under its
regulatory responsibilities, the SEC may pass upon
applications for, or may suspend or revoke (after due notice
and hearing), certiGcates of registration of corporations,
partnerships and associations (excluding cooperatives,
homeowners' associations, and labor unions); compel legal
and regulatory compliances; conduct inspections; and impose
Gnes or other penalties for violations of the Revised Securities
Act, as well as implementing rules and directives of the SEC,
such as may be warranted.LLpr Relative to its adjudicative
authority, the SEC has original and exclusive jurisdiction to
hear and decide controversies and cases involving — a. Intra-
corporate and partnership relations between or among the
corporation, oHcers and stockholders and partners, including
their elections or appointments; b. State and corporate affairs
in relation to the legal existence of corporation, partnerships
and associations or to their franchises; and c. Investors and
corporate affairs, particularly in respect of devices and
scheme, such as fraudulent practices, employed by directors,
oHcers, business associates, and/or other stockholders,
partners, or members of registered Grms; as well as d.
Petitions for suspension of payment Gled by corporations,
partnerships or associations possessing sufficient property to
cover all their debts but which foresee the impossibility of
meeting them when they respectively fall due, or possessing
insuHcient assets to cover their liabilities and said entities are
upon petition or motu proprio, placed under the management
of a Rehabilitation Receiver or Management Committee.
The petition before this Court relates to the exercise by the
SEC of its powers in a case involving a stockbroker
(CUALOPING) and a stock transfer agency (FIDELITY).
Cualoping Securities Corporation (CUALOPING) is a
stockbroker, Fidelity Stock Transfer, Inc. (FIDELITY), on the
hand, is the stock transfer agent of Philex Mining Corporation
(PHILEX).
1988, certiGcates of stock of PHILEX representing one million
four hundred [thousand] (1,400,000) shares were stolen
from the premises of FIDELITY. These stock certiGcates
consisting of stock dividends of certain PHILEX shareholders
had been returned to FIDELITY for lack of forwarding
addresses of the shareholders concerned.
Later, the stolen stock certiGcates ended in the hands of a
certain Agustin Lopez, a messenger of New World Security,
Inc., an entirely different stock brokerage Grm. In the Grst half
of 1989, Agustin Lopez brought the stolen stock certificates to
CUALOPING for trading and sale with the stock exchange.
When the said stocks were brought to CUALOPING, all of the
said stock certiGcates bore the 'apparent' indorsement
(signature) in blank of the owners (the stockholders to whom
the stocks were issued by PHILEX) thereof. At the side of
these indorsements (signatures), the words 'Signature
VeriGed' apparently of FIDELITY were stamped on each and
every certiGcate. Further, on the words 'Signature Verified'
showed the usual initials of the officers of FIDELITY.
Upon receipt of the said certiGcates from Agustin Lopez,
CUALOPING stamped each and every certiGcate with the
words 'Indorsement Guaranteed,' and thereafter traded the
same with the Stock Exchange. After the Stock Exchange
awarded and conGrmed the sale of the stock represented by
said certiGcates to different buyers, the same were delivered
to FIDELITY for the cancellation of the stocks certiGcates and
for issuance of new certiGcates in the name of the new buyers.
Agustin Lopez on the other hand was paid by CUALOPING
with several checks for Four Hundred Thousand
(P400,000.00) Pesos for the value of the stocks. "After
acquiring knowledge of the pilferage, FIDELITY conducted an
investigation with assistance of the National Bureau of
Investigation (NBI) and found that two of its employees were
involved and signed the certificates. "After two(2) months
from receipt of said stock certiGcates, FIDELITY rejected the
issuance of new certiGcates in favor of the buyers for reasons
that the signatures of the owners of the certiGcates were
allegedly forged and thus the cancellation and new issuance
thereof cannot be effected."
11 August 1988, FIDELITY sought an opinion on the matter
from SEC, which, on 06 October 1988, summoned FIDELITY
and CUALOPING to a conference.
On 26 October 1988, the Brokers and Exchange Department
("BED") of the SEC disposed of the matter in this manner:
"WHEREFORE, Fidelity Stock Transfers, Inc., is hereby
ordered to replace all the subject shares and to cause the
transfer thereof in the names of the buyers within ten days
from actual receipt hereof. "Cualoping Securities, Inc. for
having violated Section 29 a(3) of the Revised Securities Act
is hereby ordered to pay a fine of P50,000.00 within Gve (5)
days from actual receipt hereof. "Henceforth, all brokers are
required to make out checks in payment of shares transferred
only in the name of the registered owners.
On 14 December 1989, the Commission rendered its decision:
Cualoping Securities Corporation and Fidelity Stock
Transfers, Inc. equally negligent in the performance of their
duties and violated S29 of RSA
The Commission has brought the case to this Court in the
instant petition for review on certiorari, contending that the
appellate court erred in setting aside the decision of the SEC
which had (a) ordered the replacement of the certiGcates of
stock of Philex and (b) imposed fines on both FIDELITY and
CUALOPING.
This case, it might be recalled, has started only on the basis of
a request by FIDELITY for an opinion from the SEC. The
stockholders who have been deprived of their certiGcates of
stock or the persons to whom the forged certiGcates have
ultimately been transferred by the supposed indorsee thereof
are yet to initiate, if minded, an appropriate adversarial
action. Neither have they been made parties to the
proceedings now at bench. A justiciable controversy such as
can occasion an exercise of SEC's exclusive jurisdiction would
require an assertion of a right by a proper party against
another who, contests it. It is one instituted by and against
parties having interest in the subject matter appropriate for
judicial determination predicated on a given state of facts.
That controversy must be raised by the party entitled to
maintain the action. He is the person to whom the right to
seek judicial redress or relief belongs which can be enforced
against the party correspondingly charged with having been
responsible for, or to have given rise to, the cause of action. A
person or entity tasked with the power to adjudicate stands
neutral and impartial and acts on the basis of the admissible
representations of the contending parties.
In the case at bench, the proper parties that can bring the
controversy and can cause an exercise by the SEC of its
original and exclusive jurisdiction would be all or any of those
who are adversely affected by the transfer of the pilfered
certiGcates of stock. Any peremptory judgment by the SEC,
without such proceedings having initiated, would be
precipitate. We thus see nothing erroneous in the decision of
the Court of Appeals, albeit not for the reason given by it, to
set aside the SEC's adjudication "without prejudice" to the
right of persons injured to Gle the necessary proceedings for
appropriate relief.
The other issue, i.e., the question on the legal propriety of the
imposition by the SEC of a P50,000 Gne on each of FIDELITY
and CUALOPING, is an entirely different matter. This time, it
is the regulatory power of the SEC which is involved. When,
on appeal to the Court of Appeals, the latter set aside the Gnes
imposed by the SEC, the latter, in its instant petition, can no
longer be deemed just a nominal party but a real party in
interest sufficient to pursuant appeals to this Court. The
Revised Securities Act (Batas Pambansa Blg. 178) is designed,
in main, to protect public investors from fraudulent schemes
by regulating the sale and disposition of securities, creating,
for this purpose, a Securities and Exchange Commission to
ensure proper compliance with the law. Here, the SEC has
aptly invoked the provisions of Section 29, in relation to
Section 46, of the Revised Securities Act.
There is, to our mind, no question that both FIDELITY and
CUALOPING have been guilty of negligence in the conduct of
their affairs involving the questioned certiGcates of stock. To
constitute, however, a violation of the Revised Securities Act
that can warrant an imposition of a Gne under Section 29 (3),
in relation to Section 46 of the Act, fraud or deceit, not mere
negligence, on the part of the offender must be established.
Fraud here is akin to bad faith which implies a conscious and
intentional design to do a wrongful act for a dishonest
purpose or moral obliquity; it is unlike that of the negative
idea of negligence in that fraud or bad faith contemplates a
state of mind aHrmatively operating with furtive objective.
Given the factual circumstances found by the appellate court,
neither FIDELITY and CUALOPING, albeit indeed remiss in the
observance of due diligence, can be held liable under the
above provisions of the Revised Securities Act. We do not
imply, however, that the negligence committed by private
respondents would not at all be actionable; upon the other
hand, as we have earlier intimated, such an action belongs not
to the SEC but to those whose rights have been injured.
Our attention is called by the Solicitor General on the violation
by FIDELITY of SEC-BED Memorandum Circular No. 9, series
of 1987.
FIDELITY is candid enough to admit that it has truly failed to
promptly notify CUALOPING and the clearing house of the
pilferage of the certiGcates of stock (pp. 225, 239-240, Rollo).
FIDELITY strongly asserts, however, that it has been Gned by
the SEC not by virtue of Memorandum Circular No. 9 but for a
violation of Section 29 (a)(3) of the Revised Securities Act,
and that the memorandum circular is only now being raised
for the first time in the instant petition.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED except the portion thereof which sets aside the
imposition by the Securities and Exchange Commission of a
fine on FIDELITY which is hereby REINSTATED
Cases under Sec. 5 of PD 902-A (SEC Reorganization Act)
transferred to RTC
SEC vs Subic Bay Golf and Country Club Inc (2015)
Intra-corporate controversies, previously under the SEC’s
jurisdiction, are now under the jurisdiction of the RTC
designated as commercial courts. However, the transfer of
jurisdiction to the trial courts does not oust the SEC of its
jurisdiction to determine if administrative rules and
regulations were violated.
On April 25 1996, Subic Bay Golf and Country Club, Inc
(SBGCCI) and Universal International Group Development
Corporation (UIGDC) entered into a Development Agreement.
UIGDC agreed to “finance, construct and develop the golf
course, for an in consideration of the payment by SBGCCI of
it’s 1,530 shares of stock.
Upon, SBGCCI’s application, SEC issued an order for the
registration of 3,000 no par value shares of SBGCCI on July 8,
1996. SBGCCI was also issued a certificate of permit to offer
securities for sale to the Public of its 1, 530 no par value
proprietary shares on August 9, 1996. The shares are sold at
P425,000 per share and the same were used to pay UIGDC for
the development of the golf course.
Complainants Filart and Villareal informed SEC that they had
been asking UIGDC for the refund of their payment for their
SGGBCCI shares. UIGDC did not act on their requests. They
alleged that they purchased shares in the promise of SBGCCI
and UIGDC to deliver the ff:1) swimming pool and tennis
court; 2) 18 hole golf course; 3) 9 hole executive course and
etc. However, these promises were not delivered. And despite
the undelivered promises, they started to charged monthly
dues They were even threated that their shares would be
auctioned off if their back dues would remain unpaid.
SBGCCI and UIGDC averred that they had already
substantially complied with their commitment. SEC
conducted an inspection and found that SBGCCI and UIGDC
failed to substantially comply with their commitment to
complete the project. They found out that Filart and Villareal
invested because of SBGCCI and UIGDC’s representation of a
27-hole world class golf course being developed. Hence, the
Corporate Finance Dept of SEC ordered the return of purchase
price of the shares.
SBGCCI and UIGDC in a petition for review questioned the
order and jurisdiction of the Corporation Finance
Deparment’s order before the SEC since the same involved an
intra-corporate dispute. SEC ruled that the proceedings were
administrative in nature. It was only conducted to
determining if SEC’s rules and regulations were violated. SEC
has power to investigate possible violations and impose
appropriate administrative sanctions. CA, however, declared
SEC’s decision as null and void since it found the case as an
intra-corporate controversy not under SEC’s jurisdiction.
Who between the SEC and the RTC has jurisdiction over this
case
Before solving the issue, we have to determine whether SEC
has the authority to order the return of purchase price of
securities upon finding that there were fraudulent
representation in the prospectus.
The Court rules for SBGCCI and UIGDC.
Under PD No. 902-A, SEC has jurisdiction over acts amunting
to fraud and misrepresentation by a corporation’s board of
directors, business association and officers, even intra-
corporate disputes. However, jurisdiction over intra-
corporate disputes and all other cases enumerated in Sec 5
had already been transferred to designated RTC under RA no.
8799. For a dispute to be intra-corporate, it must satisfy the
relationship and nature of controversy tests.
 Relationship test – requires that the dispute be
between a:
o corporation/partnership/association and
the public;
o a corporation/partnership/association
and the state regarding the entity’s
franchise, permit or license to operate;
o a corporation/partnership/association
and its stockholders, partners, members
or officers; and
o among stockholders, partners or
associates of the entity
 Nature of the Controversy Test – requires that the
action involves the enforcement of corporate rights
and obligations.
In Medical Plaza Makati Condominium Corporation vs. Cullen:
“The controversy must not only be rooted in the existence of
an intra-corporate relationship, but must as well pertain to
the enforcement of parties’ correlative rights and obligations
under the Corporation Code and the internal and intra-
corporate regulatory rules of the corporation.”
This case is an intra-corporate dispute, over which the RTC
has jurisdiction. It involves a dispute between the
corporation, SBGCCI and its shareholders, Villareal and Filart.
Their right to a refund of the value of their shares was based
on SBGCCI and UIGDC's alleged failure to abide by their
representations in their prospectus. It involves the
determination of a shareholder's rights under the
Corporation Code or other intra-corporate rules when the
corporation or association fails to fulfill its obligations.
HOWEVER, even though it is intra-corporate in nature, it does
not necessarily oust the Commission of its regulatory and
administrative jurisdiction to determine and act if there were
administrative violations committed. n relation to securities,
the Securities and Exchange Commission's regulatory power
pertains to the approval and rejection, and suspension or
revocation, of applications for registration of securities for,
among others, violations of the law, fraud, and
misrepresentations. (CF: Sec 13 and 15)
To ensure compliance with the law and the rules, SEC is
empowered to impose fines and penalties. It may also
investigate motu propio to see whether corporations are
compliant. Any fraud or misrepresentation in the issuance of
securities injures the public. However, the Securities and
Exchange Commission's regulatory power does not include
the authority to order the refund of the purchase price of
Villareal's and Filart's shares in the golf club. The issue of
refund is intra-corporate or civil in nature. Similar to issues
such as the existence or inexistence of appraisal rights, pre-
emptive rights, and the right to inspect books and corporate
records, the issue of refund is an intra- corporate dispute that
requires the court to determine and adjudicate the parties'
rights based on law or contract. Injuries, rights, and
obligations involved in intra-corporate disputes are specific
to the parties involved. They do not affect the Securities and
Exchange Commission or the public directly.
Hence, the issue of refund should be litigated in the
appropriate Regional Trial Court. This issue is both intra-
corporate and civil in nature, which is under the jurisdiction
of the designated Regional Trial Courts.
SEC vs CA, Omico; Astra Securities vs Omico (2014)
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.
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.
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.
Speed vs CA (2004)
Pastor Lim died intestate and was survived by his wife, the
private respondent, and his informally adopted daughter Lita
Lim Marcelo, among others. On March 17, 1995, the private
respondent, through her nephew and attorney-in-fact George
Luy, filed a petition for the administration of the estate of her
deceased husband before the Regional Trial Court.
(Madami pang away sa lupa) The complaint (subject if the
issue) is one for the nullification of the deed of absolute sale
executed by Leslim (one of the corporations of the deceased)
in favor of Speed (another one of the corporations of the
deceased) over the property covered by TCT No. T-36617 in
the name of Leslim, the cancellation of TCT No. T-116716 in
the name of Speed, as well as the Secretary’s Certificate dated
August 22, 1994. The private respondent alleged that since
her deceased husband, Pastor Lim, acquired the property
during their marriage, the said property is conjugal in nature,
although registered under the name of Leslim under TCT No.
T-36617. She asserted that the petitioners connived to
deprive the estate of Pastor Lim and his heirs of their
possession and ownership over the said property using a
falsified Secretary’s Certificate stating that the Board of
Directors of Leslim had a meeting on August 19, 1995, when,
in fact, no such meeting was held. Petitioner Lita Lim was
never a stockholder of Leslim or a member of its Board of
Directors; her husband, petitioner Ireneo Marcelo was the
Vice-President of Speed; and, petitioner Pedro Aquino was
Leslim’s corporate secretary. The private respondent further
averred that the amount of P3,900,000.00, the purchase price
of the property under the deed of absolute sale, was not paid
to Leslim, and that petitioners Spouses Marcelo and
petitioner Pedro Aquino contrived the said deed to
consummate their devious scheme and chicanery. The private
respondent concluded that the Deed of Absolute Sale was
simulated; hence, null and void.
ISSUE: WON the case at bar is one involving intra-corporate
dispute
HELD: NO
To determine whether a case involves an intra-corporate
controversy, and is to be heard and decided by the Branches
of the RTC specifically designated by the Court to try and
decide such cases, two elements must concur: (a) the status
or relationship of the parties; and (2) the nature of the
question that is the subject of their controversy.
The first element requires that the controversy must arise out
of intra-corporate or partnership relations between any or all
of the parties and the corporation, partnership or association
of which they are stockholders, members or associates;
between any or all of them and the corporation, partnership
or association of which they are stockholders, members or
associates, respectively; and between such corporation,
partnership or association and the State insofar as it concerns
their individual franchises. The second element requires that
the dispute among the parties be intrinsically connected with
the regulation of the corporation.
f the nature of the controversy involves matters that are
purely civil in character, necessarily, the case does not involve
an intra-corporate controversy. The determination of
whether a contract is simulated or not is an issue that could
be resolved by applying pertinent provisions of the Civil Code.
Gonzales vs GJH Land (2015)
Petitioners filed a Complaint for Injunction with prayer for
Issuance of Status Quo Order, Temporary Restraining Orders,
and Writ of Preliminary Injunction with Damages against
respondents before the RTC of Muntinlupa City seeking to
enjoin the sale of their shares of stock which they purportedly
bought and already paid by them in full, but were nonetheless
offered for sale on to the corporation’s stockholders.
The case was raffled to Branch 276, which is not a Special
Commercial Court. Said branch issued a temporary
restraining order, and later, an Order granting the application
for a writ of preliminary injunction.
Respondents filed a motion to dismiss on the ground of lack
of jurisdiction over the subject matter, pointing out that the
case involves an intra-corporate dispute and should, thus, be
heard by the designated Special Commercial Court of
Muntinlupa City.
The RTC granted the motion to dismiss.
Petitioners’ motion for reconsideration was denied. Hence,
the present petition.
Whether or not Branch 276 of the RTC of Muntinlupa City
erred in dismissing the case for lack of jurisdiction over the
subject matter.
The petition is meritorious.
Applying the relationship test and the nature of the
controversy test, the suit between the parties is clearly rooted
in the existence of an intra-corporate relationship and
pertains to the enforcement of their correlative rights and
obligations under the Corporation Code and the internal and
intra-corporate regulatory rules of the corporation, hence,
intra-corporate, which should be heard by the designated
Special Commercial Court as provided under A.M. No. 03-03-
03-SC in relation to Item 5.2, Section 5 of RA 8799.
The designation of Special Commercial Courts was merely
intended as a procedural tool to expedite the resolution of
commercial cases in line with the court’s exercise of
jurisdiction.
The instant petition is granted. The Orders of the RTC of
Muntinlupa City, Branch 276 are reversed and set aside. The
Executive Judge shall assign said case to Branch 256, the sole
designated Special Commercial Court in the RTC of
Muntinlupa City.