SECURITIES REGULATION CODE (REPUBLIC ACT NO. 8799) Personal Reviewer by Kelvin JaluagCulajara, CPA Sources: 1. Reviewer Reviewer on Commercial Law, 2013 Edition, by Jose R. Sundiang Sr., and Timoteo B. Aquino 2. Memory Aid for Mercantile Law, 2018 Edition, by San Beda Law 2018 Centralized Bar Operations 3. Guidebook on Commercial Law, 2015 Edition, by Nilo T. Divina
State policy and purpose The rise and fall of stock market indices reflect to a considerable degree the state of the economy. Securities transactions are impressed with public interest, and are thus subject to public regulation; in particular, the laws and regulations requiring payment of traded shares within specified periods are meant to protect the economy from excessive stock market speculations, and are thus mandatory (Abacus Securities Corporation vs. Ruben Ampil).
The powers and functions of the Securities and Exchange Commission Have jurisdiction and supervision over all corporations, partnerships, or associations who are the grantees of primary franchises and/or a license or permit issued by the Government; Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto; Approve, reject, suspend, revoke or require amendments to registration statements and registration and licensing applications; Regulate, investigate or supervise the activities of persons to ensure compliance; Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies, and other SROs; Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto; Prepare, approve, amend or repeal rules, regulations, and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations, and orders; Enlist the aid and support of and/or deputize 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 functions under this Code; Issue cease and desist orders to prevent fraud or injury to the investing public; Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of an penalties prescribed by the Rules of Court; Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision; Issue subpoena ducestecum 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 account of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws; Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and 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.
Transferred jurisdiction – The following cases are within the jurisdiction of the Regional Trial Court, and not the SEC: Fraudulent devices and schemes employed by directors detrimental to the public interest and to other firms; Intra-corporate dispute and with the state in relation to their franchise and right to exist as such; Controversies in election, appointment of directors or trustees; Petition to be declared in state of suspension of payments; and Appointment of Rehabilitation Receiver or Management Committee.
Scope of securities – Securities are shares, participation or interests in a corporation or in a commercial enterprise or profitmaking venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes: Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securit ies; Investment contracts, certificates of interest or participation in a profit-sharing agreement, certificates of deposit for a future subscription; Fractional undivided interests in oil, gas or other mineral rights; Derivatives like option and warrants; Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments; and
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Proprietary or non-proprietary membership certificates in corporations; and other instruments as may in the future be determined by the Commission.
Definition of terms Issuer – the originator, maker, obligor, or creator of the security. Broker – a person engaged in the business of buying and selling securities for the account of others. Dealer – any person who buys and sells securities for his/her own account in the ordinary course of business. Clearing agency – any person who acts as intermediary in making deliveries upon payment to effect settlement in securities transactions. Exchange – an organized marketplace or facility that brings together buyers and sellers and executes trades of securities and/or commodities. Pre-need plans – they are contracts, agreements, deeds or plans for the benefit of the planholders which provide for the performance of future service/s, payment of monetary considerations or delivery of other benefits at the time of actual need or agreed maturity date, as specified therein, in exchange for cash or installment amounts with or without interest or insurance coverage and includes life, pension, education, interment and other plans, instruments, contracts or deeds as may be determined by the Insurance Commission. Promoter – a person who, acting alone or with others, takes initiative in foundling and organizing the business or enterprise of the issuer and receives consideration therefore. Prospectus – the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for sale to the public through a registration statement filed with the Commission. Registration statement – the application for the registration of securities required to be filed with the Commission. Uncertificated security – a security evidenced by electronic or similar records. Underwriter – a person who guarantees on a firm commitment and/or declared best effort basis the distribution and sale of securities of any kind by another company.
Investment contracts An investment contract is a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. A presumption that a contract is an investment contract arises whenever a person seeks to use the money of others on the promise of profits.
When two or more investors “pool” their resources, there is a common enterprise, even if the promoter does not do more than receive a broker’s commission.
Requisites of investment contract: An investment of money; o In a common enterprise; o With expectation of profits; o Primarily from the efforts of others. Note: This modifies the “Howey Test” which requires the profit to be o derived solely from the efforts of others.
Derivatives With respect to equity securities, it means a financial instrument, including options and warrants, whose value depends on the interest in or performance of an underlying security, but which does not require any investment of principal in the underlying security.
“Options” are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying security at a
predetermined price, called the exercise or strike price, on or before a predetermined rate, called the expiry date, which can only be extended in accordance with the Exchange rules. “Call options” are rights to buy a specified number of shares at a stated price, and “put options” are rights to sell a given number of shares of stock at a stated price at any given time during a stated period. “Straddle” is a combination of put and call. Note: The SRC prohibits members of an Exchange from directly or indirectly indorsing or guaranteeing the performance of a put, call, or straddle. “Warrants” are rights to subscribe or purchase new shares or existing shares in a company, on or before a predetermined dated called the expiry date, which can only be extended in accordance with the Exchange rules. Warrants generally have a longer exercise period than options.
Commodity and commodity futures contract
“Commodity futures contract” means a contract providing for the making or taking delivery at a prescribed time in the
future of a specific quantity and quality of a commodity or the cash value thereof, which is customarily offset prior to the delivery date, and includes standardized contracts having the indicia of commodities futures, commodity options and commodity leverage or margin contracts. “Commodity” means any goods, articles, services, rights and interests, including any group or i ndex of any of the foregoing, in which commodity interests contracts are presently or in the future dealt in.
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The ways by which the SRC protects the public who wishes to invest in securities The law requires full disclosure of information to the public regarding the securities that are being offered and the issuers, including the filing of an approval of the registration statement and the approval of the prospectus. There is also a continuing duty to regularly submit material information to the SEC. Close monitoring of the securities and other circumstances that may affect the same as well as the persons involved including brokers, issuers, the exchange itself, etc., in order to ensure compliance with pertinent laws and regulations. Prohibiting and penalizing different fraudulent practices and transactions. Providing the SEC with powers and functions.
The basic rules regarding the registration of securities The SRC provides that securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser. The Commission may conditionally approve the registration statement under such terms as it may deem o necessary. The Commission may specify the terms and conditions under which any written communication, including any o summary prospectus, shall be deemed not to constitute an offer for sale under this Section. A record of the registration of securities shall be kept in a Register of Securities in which shall be recorded o orders entered by the Commission with respect to such securities. Such register and all documents or information with respect to the securities registered therein shall be open to public inspection at reasonable hours on business days. The Commission may audit the financial statements, assets and other information of a firm applying for o registration of its securities whenever it deems the same necessary to insure full disclosure or to protect the interest of the investors and the public in general. In approving the registration of the securities, the SEC is not concerned with the requirement that full disclosure of information is given to the public. The SEC is also concerned with the merit of the securities themselves and the issuer.
Securities that are exempt from the requirement of registration Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by, and acting as an instrumentality of said Government. Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations, or by any state, province or political subdivision thereof on the basis of reciprocity: Provided, That the Commission may require compliance with the form and content of disclosure the Commission may prescribe. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of Internal Revenue. Any security issued by a bank except its own shares of stock.
Note: The Commission may, by rule or regulation after public hearing, add to the foregoing any class of securities if it finds that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the protection of investors. Transactions that are exempt from registration requirement At any judicial sale, or sale by an executor, administrator, guardian or received or trustee in insolvency or bankruptcy. By or for the account of a pledge holder, or mortgagee or any other similar lien holder, selling or offering for sale or delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this Code, to liquidate a bona fide debt, a security pledged in good faith as security for such debt. An isolated transaction in which any security is sold, offered for sale, subscription or delivery by the owner thereof, or by his representative for the owner’s account, such sale or offer for sale, subscription or delivery not being made in the course of repeated and successive transactions of a like character by such owner, or on his account by such representative and such owner or representative not being the underwriter of such security. The distribution by a corporation, actively engaged in the business authorized by its articles of incorporation, of securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus. The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single date. The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of conversion entitling the holder of t he security surrendered in exchange to make such conversion: Provided, That the security so surrendered has been registered under this Code or was, when sold, exempt o from the provisions of this Code, and that the security issued and delivered in exchange, if sold at the
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conversion price, would at the time of such conversion fall within the class of securities entitled to registration under this Code. Upon such conversion, the par value of the security surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold.
Broker’s transactions, executed upon customer’s orders, on any registered Exchange or other tra ding market.
Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stock under the Corporation Code, when no expense is incurred, or no commission, compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and only when the purpose for soliciting, giving or taking of such subscriptions is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized capital increased. The exchange of securities by the issuer with its existing security holders exclusively, where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period. The sale of securities to any number of the following qualified buyers: Bank; o Registered investment house; o Insurance company; o Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision o thereof or managed by a bank or other persons authorized by the BangkoSentral to engage in trust functions; Investment company; or o Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors o as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management.
The Commission may exempt other transactions, if it finds that the requirement of registration under this Code is not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved or the limited character of the public offering. Any person applying for an exemption under this Section, shall file with the Commission a notice identifying the exemption relied upon on such form and at such time as the Commission by rule may prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price or issued value of the securities. Grounds for revocation and/or rejection of the registration of securities Note: Revocation and/or rejection is possible only after due notice and hearing by issuing an order to such effect, setting forth its findings. The issuer: Has been judicially declared insolvent; o Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the o Commission of which the issuer has notice in connection with the offering for which a registration statement has been filed; Has been or is engaged or is about to engage in fraudulent transactions; o Has made any false or misleading representation of material facts in any prospectus concerning the issuer or o its securities; or Has failed to comply with any requirement that the Commission may impose as a condition for registration of o the security for which the registration statement has been filed; or The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; or The issuer, any officer, director or controlling person of the issuer, or person performing similar functions, or any underwriter has been convicted by a competent judicial or administrative body, upon plea of guilty, or otherwise, of an offense involving moral turpitude and/or fraud or is enjoined or restrained by the Commission or other competent judicial or administrative body for violations of securities, commodities, and other related laws.
The devices and practices on the manipulation of security prices identified under the SRC To create a false or misleading appearance of active trading in any listed security traded in an Exchange or any other trading market: Wash sale – by effecting any transaction in such security which involves no change in the beneficial ownership o thereof; Matched orders – by entering an order or orders for the purchase or sale of such security with the knowledge o that a simultaneous order or orders of substantially the same size, time and price, for the sale or purchase of any such security, has or will be entered by or for the same or different (but colluding) parties; or Market rigging or jiggling – by performing similar act where there is no change in beneficial ownership. o To effect alone or with others, a series of transactions in securities that:
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Raises their price to induce the purchase of a security, whether of the same or a different class of the same issuer or of a controlling, controlled, or commonly controlled company by others; Depresses their price to induce the sale of a security, whether of the same or a different class, of the same o issuer or of a controlling, controlled, or commonly controlled company by others; or Creates active trading to induce such a purchase or sale through manipulative devices such as marking the o close, painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices. To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or depressing the price of the security for the purpose of inducing the purchase or sale of such security. To make false or misleading statement with respect to any material fact, which he knew or had reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security listed or traded in an Exchange. To effect, either alone or others, any series of transactions for the purchase and/or sale of any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by this Code or by rules of the Commission. No person shall use or employ, in connection with the purchase or sale of any security any manipulative or deceptive device or contrivance. Neither shall any short sale be effected nor any stop-loss order be executed in connection with the purchase or sale of any security except in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. o
Unlawful acts with respect to purchase and sale of securities It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: Employ any device, scheme or artifice to defraud; o Obtain money or property by means of any untrue statement of a material fact necessary in order to make the o statements made, in the light of the circumstances under which they were made, not misleading; or Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or o deceit upon any person.
Insider
The issuer; A director or officer (or person performing similar functions) of, or a person controlling the issuer; A person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public; A government employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to material information about an issuer or a security that is not generally available to the public; or A person who learns such information by a communication from any of the foregoing insiders.
Duties of an insider when trading securities It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public, unless: The insider proves that the information was not gained from such relationship; o If the other party selling to or buying from the insider (or his agent) is identified, the insider proves: o That he disclosed the information to the other party, or That he had reason to believe that the other party otherwise is also in possession of the information. A purchase or sale of a security of the issuer made by an insider or such insider’s spouse or relatives by affinity or consanguinity within the second degree, legitimate or common-law, shall be presumed to have been effected while in possession of material non-public information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for the market to absorb such information: Provided, however, That this presumption shall be rebutted upon showing by the purchaser or seller that he o was not aware of the material non-public information at the time of the purchase or sale.
Material non-public information It has not been generally disclosed to the public and would likely affect the market price of the security after being disseminated to the public and the lapse of a reasonable time for the market to absorb the information; or Would be considered by a reasonable person important under the circumstances in determining his course of action whether to buy, sell or hold a security.
Note: It shall be unlawful for any insider to communicate material non-public information about the issuer or the security to any person who, by virtue of the communication, becomes an insider where the insider communication the information knows or has reason to believe that such person will likely buy or sell a security of the issuer while in the possession of such information
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Tender offer It means a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. Note: A public company means any corporation with a class of equity securities listed on an Exchange or with assets in excess of P50 million and having 200 or more holders, at least 200 of which are holding at least 100 shares of a class of its equity shares. A tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. Tender offer is in place to protect minority shareholders against scheme that dilutes the share value of their investments, and gives them the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders.
When tender offer is mandatory When any person or group of persons acting in concert, who intends to acquire 35% or more of equity shares in a public company. Any person or group of persons acting in concert, who intends to acquire 35% or more of equity shares in a public company in one or more transactions within a period of 12 months, shall be required to make a tender offer to all holders of such class for the number of shares so acquired within the said period. If any acquisition of even less than 35% would result in ownership of over 51% of the total outstanding equity securities of a public company, the acquirer shall be required to make a tender offer for all the outstanding equity securities to all remaining stockholders of the said company at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. The acquirer in such a tender offer shall be required to accept any and all securities thus tendered.
Exempt from the mandatory tender offer requirement Any purchase of shares from the unissued capital stock provided that the acquisition will not result to a 50% or more ownership of shares by the purchaser; Any purchase of shares from an increase in authorized capital stock; Purchase in connection with foreclosure proceedings involving a duly constituted pledge or security arrangement where the acquisition is made by the debtor or creditor; Purchases in connection with privatization undertaken by the government of the Philippines; Purchases in connection with corporate rehabilitation under court supervision; Purchases through an open market at the prevailing market price; and Merger or consolidation.
Obligations of person making a tender offer Make an announcement of his intention in a newspaper of general circulation, prior to the commencement of the offer; At least 2 business days prior to the date of the commencement of the tender offer: File with the SEC a required form for tender offer (SEC Form 19-1) including all exhibits thereto (and any o amendments thereto), with the prescribed filing fees; and Hand deliver a copy of such form including all exhibits (and amendments thereto) to the target company at its o principal executive office and to each Exchange where such class of the target company’s securities are liste d for trading. Report the results of the tender offer by filing with the Commission, not later than 10 calendar days after the termination of the tender offer, copies of the final amendments to the form.
Direct and indirect acquisition Ownership acquisition means both direct and indirect. What is decisive is the determination of the power of control. The bottom line of the law is to give the shareholder of the public company the opportunity to decide whether or not to sell in connection with a transfer of control. Thus, the rules apply even if one will acquire the shares in the corporation that owns the shares of a public company (including subsidiary). Example: X Corp. owns 61% of the outstanding shares in B, a public company. The tender offer rules apply if there will be a sale of the controlling shares in X Corp.
Margin trading The customer purchases stocks by advising only a portion of the purchase price with the broker extending credit or making loan for balance due. The main purpose is to give the government an effective method of reducing the aggregate amount of the nation’s credit resources which can be directed by speculation into the stock market and out of other more desirable uses of commerce and industry.
Prohibitions related to margin trading
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A broker dealer shall not extend credit to a customer in an amount that exceeds 50% of the current market value of the security at the time of the transaction. In no event shall new or additional credit be extended into an account in which the equity is less than P50,000. The margin maintained in a margin account of a customer shall be no less than 25% of the current market value of all
securities “long” in the account and 30% of the current market value of the securities “short” in the account. Mandatory close-out rule – When there is an insufficiency of margin, a call for additional margin shall be issued
promptly by the broker dealer to the customer. A call for initial margin shall be satisfied within 5 business days from the date the insufficiency is created. A call for maintenance margin shall be satisfied within 24 hours after the call is issued. Note: The parties may be considered in pari delicto if they violate the limitations on margin trading. If a broker tolerates the purchases of its customer without performing its obligation under the Mandatory Close-Out Rule and without requiring the latter to deposit cash before embarking on trading stocks any further, broker violated the law at its own peril. Hence, it cannot complain for failing to obtain the full amount of its claim for later transactions. Violations of the SRC 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 Department of Justice (DOJ) for preliminary investigation and prosecution.
Summary of cases
BETTY GABIONZA AND ISABELITA TAN VS. COURT OF APPEALS G.R. NO. 161057, SEPTEMBER 12, 2008 Both Gabionza and Tan had previously placed monetary investment with the Bank of Southeast Asia (BSA). They alleged that between 1996 and 1997, they were convinced by the officers of ASB Holdings, Inc. (ASBHI) to lend or deposit money with the corporation, and in return they would receive checks from ASBHI for the amount so lent, invested, or deposited. At first, they were issued receipts reflecting the name ASB Realty Development which they were told was the same entity as BSA or was connected therewith, but beginning in March 1998, the receipts were issued in the name of ASBHI. They claimed that they were told that ASBHI was exactly the same institution that they had previously dealt with. ASBHI would issue two (2) post-dated checks to its lenders, one representing the principal amount and the other covering the interest thereon. The checks were drawn against DBS Bank and would mature in 30 to 45 days. On the maturity of the checks, the individual lenders would renew the loans, either collecting only the interest earnings or rolling over the same with the principal amounts. In the first quarter of 2000, DBS Bank started to refuse to pay for the checks purportedly by virtue of stop payment orders from ASBHI. In May of 2000, ASBHI filed a petition for rehabilitation and receivership with the SEC; it was able to obtain an order enjoining it from paying its outstanding liabilities. These series of events led to the filing of the complaints by Gabionza and Tan, together with Christine Chua, Elizabeth Chan, Ando Sy, and Antonio Villareal against ASBHI. The complaints were for estafa under Article 3 15(2)(a) and (2)(d) of the R evised Penal Code, estafa under Presidential Decree No. 1689, violation of the Revised Securities Act, and violation of the General Banking Act. A special task force, the Task Force on Financial Fraud was created by the Department of Justice to investigate the several complaints that were lodged in relation to ASBHI. The Task Force dismissed the complaint and the dismissal was concurred in by the assistant chief state prosecutor and approved by the chief state prosecutor.With respect to the charges of estafa and of violation of the Revised Securities Act, the Task Force concluded that the subject transactions were loans which gave rise only to civil liability; that petitioners were satisfied with the arrangement from 1996 to 2000; that petitioners never directly dealt with Nolasco and Roxas (the president and senior vice president, respectively, of ASBHI); and that a check was not a security as contemplated by the Revised Securities Act. Gabionza and Tan then filed a joint petition for review with the Secretary of Justice (SOJ). SOJ Perez issued a resolution which partially reversed the Task Force and instead directed the filing of five (5) Informations for estafa under Article 315(2)(a) of the Revised Penal Code on the complaints of Chan and petitioners Gabionza and Tan, and an Information for violation of Section 4 in relation to Section 56 of the Revised Securities Act.
Issue: Whether the findings of the SOJ establish a prima facie case that petitioners were indeed victims of the violation of the Revised Securities Act, among others? YES. Section 4 of B.P. 176 or the Revised Securities Act generally requires the registration of securities and prohibits the sale or distribution of unregistered securities. In their resolution, the DOJ extensively concluded that private respondents are liable for violating such prohibition against the sale of unregistered securities. The Court of Appeals ruled that the post-dated checks issued by ASBHI did not constitute a security under the Revised Securities Act. It cited the general definition of a check as a bill of exchange drawn on a bank and payable on demand, and took cognizance of the fact that the issuance of checks for the purpose of securing a loan to finance the activities of the corporation is well within the ambit of a valid corporate act to note that a corporation does not need prior registration with the SEC in order to be able to issue a check, which is a corporate prerogative. This analysis is highly myopic and ignorant of the bigger picture. It is
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one thing for a corporation to issue checks to satisfy isolated individual obligations, and another for a corporation to execute an elaborate scheme where it would comport itself to the public as a pseudo-investment house and issue post-dated checks instead of stocks or traditional securities to evidence the investments of its patrons. The Revised Securities Act was geared towards maintaining the stability of the national investment market against activities such as those apparently engaged in by ASBHI. As the Department of Justice (DOJ) Resolution noted, ASBHI adopted this scheme in an attempt to circumvent the Revised Securities Act, which requires a prior license to sell or deal in securities. After all, if ASBHIs activities were actually regulated by the SEC, it is hardly likely that the design it chose to employ would have been permitted at all. SECURITIES AND EXCHANGE COMMISSION VS. PROSPERITY.COM, INC. G.R. NO. 164197, JANUARY 25, 2012 Prosperity. Com, Inc. (PCI) sold computer softwares and hosted websites without providing internet service. To make a profit, the PCI devised a scheme in which, for the price of US$234, a buyer could acquire from it an internet website of a 15-mega byte (MB) capacity and could earn commissions, interest in real estate in the Philippines and in the United States, and insurance coverage worth P50,000 by referring to the PCI his own down-line buyers. Apparently the PCI patterned its scheme from that of the Golconda Ventures, Inc. (GVI), which company stopped operations after the SEC issued a cease and desist order against it. As it later on turned out, the same persons who ran the affairs of the GVI directed the PCI’s actual operations. Disgruntled elements of the GVI filed a complaint with the SEC against PCI, alleging that PCI had taken over the GVI’s op erations. Consequently, SEC issued a cease and desist order against the PCI and ruled that the PCI’s scheme constitutes an investment contract which should have been first registered with the SEC following the Securities Regulations Code. The Court of Appeals (CA) granted the PCI’s petition and set aside the SEC -issued cease and desist order. Furthermore, the CA ruled that, following the Howey test, the PCI’s scheme did not constitute an investment contract that needs registration with the SEC.
Issue: Whet her or not the PCI’s scheme constitutes an investment contract which should have been registered first with the SEC. The Securities Regulation Code (SRC) treats investment contracts as “securities” that have to be registered with the SEC
before they can be distributed and sold. An investment contract is a contract, transaction, or scheme where a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. Apart from the definition, which the Implementing Rules and Regulations provide, Philippine jurisprudence has so far not done more to add to the same. Of course, the United States Supreme Court, grappling with the problem, has on several occasions discussed the nature of investment contracts. That cour t’s rulings, while not binding in the Philippines, enjoy some degree of persuasiveness insofar as they are logical and consistent with the country’s best interests.
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that: For an investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others. Thus, to sustain the SEC position in this case, the PCI’s scheme or contract with its buyers must have all these elements. Here, the PCI’s clients do not make such investments. The clients buy a product of some value to them: an Internet website of a
15-MB capacity. The buyers of the website do not invest money in the PCI that it could use for running some business that would generate profits for the investors. Actually, the PCI appears to be engaged in network marketing. Under this scheme, adopted by most health product distributors, the buyer can become a down -line seller. The latter earns commissions from purchases made by new buyerswhome he refers to the person who sold the product to him. The commissions, interest in real estate, and insurance coverage worth P50,000 are incentives to down-line sellers to bring in other customers. These can hardly be regarded as profits from investment of money under the Howey test. The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme that the PCI has adopted. Evidently, it is the PCI that expects profit from the network marketing of its products. The PCI is correct in saying that the US$234 it gets from its clients is merely a consideration for the sale of the websites that it provides. SECURITIES AND EXCHANGE COMMISSION VS. OUDINE SANTOS G.R. NO. 195542, MARCH 19, 2014 Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary perpetrator Liew, a self –styled financial guru and Chairman of the Board of Directors of Performance Investment Products Corporation (PIPC –BVI), a foreign corporation registered in the British Virgin Islands.To do business in the Philippines, PIPC –BVI incorporated herein as Philippine International Planning Center Corporation (PIPC Corporation). Because the head of PIPC Corporation had gone missing and with it the monies and investment of a significant number of investors, the SEC was flooded with complaints from 31 individuals against PIPC Corporation, its directors, officers, employees, agents and brokers for alleged violation of certain provisions of the SRC, including Section 28 thereof. OudineSantos was charged in the complaints in her capacity as investment consultant of PIPC Corporation, who supposedly induced private complainants Lorenzo and Sy, to invest their monies in PIPC Corporation. On her defense, Santos alleged that she was merely an employee of PIPC thus should not be personally liable.
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Issue: Whether or not Santos violated Sec. 28 of SRC which punishes unregistered broker or dealer who engage in business of buying or selling securities. YES. The Court held that Santos acted as an agent or salesman of PIPC Corporation making her liable under Sec. 28 of SRC. There is no question that Santos was in the employ of PIPC Corporation and/or PIPC –BVI, a corporation which sold or offered for sale unregistered securities in the Philippines. To escape probable culpability, Santos claims that she was a mere clerical employee of PIPC Corporation and/or PIPC –BVI and was never an agent or salesman who actually solicited the sale of or sold unregistered securities issued by PIPC Corporation and/or PIPC –BVI. Solicitation is the act of seeking or asking for business or information; it is not a commitment to an agreement. Santos, by the very nature of her function as what she now unaffectedly calls an information provider, brought about the sale of securities made by PIPC Corporation and/or PIPC –BVI to certain individuals, specifically private complainants Sy and Lorenzo by providing information on the investment products of PIPC Corporation and/or PIPC –BVI with the end in view of PIPC Corporation closing a sale. While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s investments, Santos procured the sale of these unregistered securities to the two (2) complainants by providing information on the investment products being offered for sale by PIPC Corporation and/or PIPC –BVI and convincing them to invest therein. Thus, Santos violated Sec. 28 of SRC. Its elements are as follows: 1. Engaging in the business of buying or selling securities in the Philippines as a broker or dealer; 2. Acting as a salesman; or 3. Acting as an associated person of any broker or dealer, unless registered as such with the SEC. SECURITIES AND EXCHANGE COMMISSION VS. INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY, AND SANTIAGO TANCHAN G.R. NO. 135808, OCTOBER 6, 2008 The Board of Directors (BOD) of Interport Resource Corporation (IRC) approved a Memorandum of Agreement with Ganda Holdings Berhad (GHB), to wit: IRC acquired 100% or the entire capital stock of Ganda Energy Holdings, Inc. (GEHI), among others. A press release announcing the approval of the agreement was sent through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994. According to SEC, the IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing this material insider information. SEC Chairman issued a directive requiring IRC to submit to the SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all principal officers of IRC to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRCs failure to immediately disclose the information as required by the Rules on Disclosure of Material Facts. IRC sent a letter to the SEC, attaching thereto copies of the Memorandum of Agreement. Its directors also appeared before the SEC to explain IRCs alleged failure to immediately disclose material information as required under the Rules on Disclosure of Material Facts. The SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make timely disclosure of its negotiations with GHB. SEC pronounced that some of the officers and directors of IRC entered into transactions involving IRC shares in violation of Section 30, in relation to Section 36, of the Revised Securities Act. SEC issued an Omnibus Order to create a special investigating panel to hear and decide the instant case in accordance with the Rules of Practice and Procedure Before the Prosecution and Enforcement Department (PED), Securities and Exchange Commission, to be composed of Attys. James K. Abugan, Medardo Devera (Prosecution and Enforcement Department), and Jose Aquino(Brokers and Exchanges Department), which is hereby directed to expeditiously resolve the case by conducting continuous hearings, if possible.
Issue 1: Whether the Court of Appeals erred when it ruled that there is no statutory authority whatsoever for petitioner SEC to initiate and file any suit be they civil, criminal or administrative against respondent corporation and its directors with respect to section 30 of the revised securities act?YES. This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities Act, such that the acts proscribed and/or required would not be understood by a person of ordinary intelligence. The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. IN ALL, this Court rules that no implementing rules were needed to render effective Sections 8, 30 and 36 of the Revised Securities Act; nor was the PED Rules of Practice and Procedure invalid, prior to the enactment of the Securities Regulations Code, for failure to provide parties with the right to cross-examine the witnesses presented against them. Thus, the
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respondents may be investigated by the appropriate authority under the proper rules of procedure of the Securities Regulations Code for violations of Sections 8, 30, and 36 of the Revised Securities Act. Issue 2: Whether the IRC violated the Revised Securities Act when it failed to make timely disclosures of its negotiations. YES. The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct and that the intent of the law is the protection of investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he is dealing. This obligation to disclose is imposed upon “insiders” which are particularly officers, directors or controlling
stockholders but that definition has already been expanded. The term “insiders” now includes persons whose relationship or former relationship to the issuer gives or gave them access to a fact of special significance about the issuer or the security that is not generally available, and one who learns such a fact from an insider knowing that the person from whom he learns the fact is such an insider. Insiders have the duty to disclose material facts which are known to them by virtue of their position but which are not known to persons with whom they deal and which, if known, would affect their investment judgment. Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities market and prevent unscrupulous individuals, who by their positions obtain non-public information, from taking advantage of an uninformed public. No individual would invest in a market which can be manipulated by a limited number of corporate insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the occurrence of such an event, Section 30 of the Revised Securities Act prevented the unfair use of non-public information in securities transactions, while Section 36 allowed the SEC to monitor the transactions entered into by corporate officers and directors as regards the securities of their companies. PHILIPPINE VETERANS BANK, VS. JUSTINA CALLANGAN, in her capacity as Director of the Corporation Finance Department of the Securities and Exchange Commission and/or the SECURITIES AND EXCHANGE COMMISSION G.R. NO. 191995, AUGUST 3, 2011 On March 17, 2004, respondent Justina F. Callangan, the Director of the Corporation Finance Department of the Securities and Exchange Commission (SEC), sent the Bank a letter, informing it that it qualifies as a “public company” under Section 17.2 of the Securities Regulation Code (SRC) in relation with Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC. The Bank is thus required to comply with the reportorial requirements set forth in Section 17.1 of the SRC. The Bank responded by explaining that it should not be considered a “public company” because it is a private company whose shares of stock are available only to a limited class or sector, i.e., to World War II veterans, and not to the general public. In a letter dated April 20, 2004, Director Callangan rejected the Bank’s explanation and assessed it a total penalty of One Million Nine Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for failing to comply with the SRC reportorial requirements from 2001 to 2003. The Bank moved for the reconsideration of the assessment, but Director Callangan denied the motion in SEC-CFD Order No. 085, Series of 2005 dated July 26, 2005. When the SEC En Banc also dismissed the Ba nk’s appeal for lack of merit in its Order dated August 31, 2006, prompting the Bank to file a petition for review with the Court of Appeals (CA). On March 6, 2008, the Court of Appeals (CA) dismissed the petition and affirmed the assailed SEC ruling, with the modification that the assessment of the penalty be recomputed from May 31, 2004. The CA also denied the Bank’s motion for reconsideration, opening the way for the Bank’s petition for review on certiorari filed with this Court. On June 16, 2010, the Court denied the Bank’s petition for failure to show any reversible error in the assailed CA decision and resolution.
Issue: Whether or not the reportorial requirements of the SEC are applicable to Banks.YES. The Securities and Exchange Commission (SEC) required the Bank to comply with the reportorial requirements under Section 17.1 of SRC since it qualifies as a “public company” under Section 17.2 of the SRC. The Bank argued that it is a priv ate company and not a public company because its shares are available only to a limited class or sector. The Supreme Court held that “public company,” as contemplated by the SRC, is not limited to a company whose shares of stocks are publicly listed; ev en companies like the Bank, whose shares are offered only to a specific group of people, are considered a public company, provided they meet the requirement as required under the SRC. CEMCO HOLDINGS, INC. v. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., G.R. No. 171815, August 7, 2007 Union Cement Corporation (UCC) has two principal stockholders UCHC with shares amounting to 60.51%, and petitioner CEMCO with 17.03%. Majority of UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%. CEMCO, on the other hand, owned 9% of UCHC stocks.
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BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to CEMCO the BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC equivalent to 29.69%. As a result of petitioner CEMCO’s acquisition of BCI and ACCs sha res in UCHC, petitioners total beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC. As a consequence the PSE inquired to SEC as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC.The SECs Corporate Finance Department responded to the query of the PSE that while it was the stance of the department that the tender offer rule was not applicable, the matter must still have to be confirmed by the SEC en banc. Thereafter, SEC confirmed that the SEC en banc had resolved that the CEMCO transaction was not covered by the tender offer rule. Feeling aggrieved by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to CEMCO demanding the latter to comply with the rule on mandatory tender offer. CEMCO, however, refused. Respondent filed a complaint with the SEC asking it to reverse its Resolution and to declare the purchase agreement of CEMCO void and praying that the mandatory tender offer rule be applied to its UCC shares. In a Decision the SEC ruled in favor of the respondent by reversing and setting aside its Resolution and directed petitioner CEMCO to make a tender offer for UCC shares to respondent and other holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of the Securities Regulation Code. Petitioner filed a petition with the Court of Appeals challenging the SEC’s jurisdiction to take cognizance of respondents complaint and its authority to require CEMCO to make a tender offer for UCC shares, and arguing that the tender offer rule does not apply. The Court of Appeals rendered a decision affirming the ruling of the SEC.
Issue 1: Whether or not, the SEC has jurisdiction over respondent’s complaint. YES. Yes, The Court affirmed the decision of the CA. SEC was acting pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code. Another provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, is Section 5.1(n), viz: “[T]he Commission shall have, among others, the following powers and functions: x xx (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 a nd purposes of these laws.” The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the express powers of the Commission or which is incidental to, or reasonably necessary to carry out, the performance of the administrative duties entrusted to it. As a regulatory agency, it has the incidental power to conduct hearings and render decisions fixing the rights and obligations of the parties. And as held by the Court of Appeals: “We must bear in mind in interpreting the powers and functions of the SEC that the law has made the SEC
primarily a regulatory body with the incidental power to conduct administrative hearings and make decisions. A regulatory body like the SEC may conduct hearings in the exercise of its regulatory powers, and if the case involves violations or conflicts in connection with the performance of its regulatory functions, it will have the duty and authority to resolve the dispute for the b est interests of the public.” Issue 2: Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company, in this case, the indirect acquisition by CEMCO of 36% of UCC, a publicly-listed company through its purchase of the shares in UCHC, a non-listed company. YES. Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. A public company is defined as a corpora tion which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company . Stated differently, a tender offer isan offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minorit y shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders. The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule. The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender offer applies. As appropriately held by the Court of Appeals:The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as a result of the transaction, it became an indirect owner of UCC. We are constrained, however, to construe ownership acquisition to mean both direct and indirect. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes clear that the type of activity intended to b e regulated is the
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acquisition of control of the listed company through the purchase of shares. Control may [be] effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. The bottom line of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in connection with a transfer of control. JOSE U. PUA VS. CITIBANK, N.A. G.R. NO. 180064, SEPTEMBER 16, 2013 Pua, et. al. (petitioners), filed before the Regional Trial Court (RTC) a complaint for declaration of nullity of contract and sums of money with damages against respondent Citibank. Pua and others had been depositors of Citibank Binondo. ChingyeeYau, Vice President of Citibank Hong Kong, came to the Philippines to sell securities to Pua. Yau required him to open an account with Citibank HK as a condition for the sale. Yau then offered and sold to petitioners numerous securities issued by public limited companies established in Jersey, Channel Isands. The offer, sale, and signing of the subscription agreements of said securities were all made and perfected at Citibank Binondo. Petitioners later discovered that the securities were not registered with the SEC and that the terms and conditions were not submitted to the SEC for evaluation, approval, and registration. Alleging a violation of the “Securities Regulation Code”, p etitioners assailed the validity of the subscription agreements and the terms and conditions thereof for being contrary to law and/or public policy. Respondent Citibank filed a motion to dismiss alleging violation of the doctrine of primary jurisdiction. It alleged that petitioner’s complaint shou ld first be filed with the SEC and not before the RTC. The RTC denied the motion to dismiss saying that the complaint was one for declaration of nullity of contract and sums of money with damages so it has jurisdiction. The legal questions or issues arising from petitioners’ causes of action against respondent are more appropriate for the judiciary than for an administrative agency to resolve. The Court of Appeals (CA) reversed and dismissed the complaint for violation of doctrine of primary jurisdiction. Since the case would largely depend on the issue of whether or not the latter violated the provisions of the SRC, the matter is within the special competence or knowledge of the SEC.
Issue: Whether or not petitioner’s action falls within the primary jurisdiction of the SEC . NO. Respondent’s reliance on the Baviera ruling is erroneous considering that what was involved there was a criminal prosecution while this instant case involves a civil suit. SRC provisions governing criminal suits are separate and distinct from those pertaining to civil suits. On the one hand, Sec. 53 (Investigations, Injunctions and Prosecution of Offenses) of the SRC governs criminal suits involving violations of the said law. On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil suits involving violations of the same law. Sec. 57 provides that any person who offers to sell or sells a security in violation of Chap. III or offers to sell or sells a security, whether or not exempted by the provisions of the Code, by the use of any means or instruments of transportation or communication, by means of a prospectus or other written or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall fail in the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. Moreover, Sec. 63.1 states that “All suits to recover damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court which shall have exclusive jurisdiction to hear and decide such suits. The Court is hereby authorized to award damages in an amount not exceeding triple the amount of the transaction plus actual damages.”
Therefore, civil suits falling under the SRC are under the exclusive original jurisdiction of the RTC and hence, need not be first filed before the SEC, unlike criminal cases wherein the latter body exercises primary jurisdiction. Petitioners' filing of a civil suit against respondent was properly filed directly before the RTC. Petition is granted. SECURITIES AND EXCHANGE COMMISSION VS.COURT OF APPEALS OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA/ASTRA SECURITIES CORPORATION VS.OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA. G.R. NO. 187702, OCTOBER 22, 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 Nov ember 2008. It set the deadlin e 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
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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.
Issues: Whether the SEC has jurisdiction over controversies arising from the validation of proxies for the election of the directors of a corporation.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 Securities Regulation Code (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. Whether or not SEC may appeal a reversal of its ruling. 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
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