VI.

MANIPULATION, FRAUD, AND INSIDER TRADING 


Manipulation of Security Prices; Devices and Practices
1 It shall be unlawful for any person acting for himself or through a dealer or broker, directly or
indirectly:
(a) To create a false or misleading appearance of active trading in any listed security
traded in an Exchange or any other trading market (hereafter referred to purposes
of this Chapter as “Exchange”):
(i) By effecting any transaction in such security which involves no change in the
beneficial ownership thereof;
(ii) By entering an order or orders for the purchase or sale of such security with the
knowledge 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 parties; or
(iii) By performing similar act where there is no change in beneficial ownership.
(b) To effect, alone or with others, a series of transactions in securities that:
(i) 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;
(ii) Depresses their price to induce the sale 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; or
(iii) Creates active trading to induce such a purchase or sale through manipulative
devices such as marking the close, painting the tape, squeezing the float, hype and
dump, boiler room operations and such other similar devices.
(c) 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.
(d) 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.
(e) 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. (SRC, § 24)

Manipulative Practices
1. It shall be unlawful for any person to make a bid or offer, or deal in securities, with the
intention, or if that bid, offer or dealing, has the effect or is likely to have the effect, of
creating a false or misleading appearance of active trading in any security or with respect to
the market for, or the price of, any security.
2. It shall be unlawful for any Broker Dealer, associated person or salesman of a Broker
Dealer (hereinafter collectively referred to as “registered person”), to make a bid or offer for,
or deal in securities, on account of any other person where the registered person intends to
create, or the registered person is aware that the other person intends to create, or taking into
account the circumstances of the order, the registered person reasonably suspects that a person
has placed the order with the intention of creating, a false or misleading appearance of active
trading in any security or with respect to the market for, or the price of, any security.
3. In considering whether an order violates Section 24 of the Code, a Broker Dealer shall
consider:
a. Whether the order, or execution of the order, would materially alter the market for, and/or
the price of, the securities;
b. The time the order is entered or any instructions concerning the time of entry of the order;
c. Whether the person on whose behalf the order is placed, or another person who the Broker
Dealer knows to be a related party of that person, may have an interest in creating a false or
misleading appearance of active trading in any security or with respect to the market for, or
the price of, any security;
d. Whether the order is accompanied by settlement, delivery or security arrangements which
are unusual;
e. Whether the order appears to be part of a series of orders, whether when put together with
orders which appear to make up the series, the order or the series is unusual having regard to
the matters referred to in this paragraph 3; and
f. Whether there appears to be a legitimate commercial reason for that person placing the
order, unrelated to an intention to create a false or misleading appearance of active trading in
or with respect to the market for, or price of, any security. Failure to consider these factors
shall raise a presumption that a transaction/s is manipulative.
4. Obligations imposed on registered persons under this rule apply in respect of all orders,
irrespective of the trading system used.
5. Set forth below are non-exclusive examples of types of prohibited conduct:
a. Engaging in a series of transactions in securities that are reported publicly to give the
impression of activity or price movement in a security (e.g. painting the tape);
b. Buying and selling securities at the close of the market in an effort to alter the closing price
of the security (marking the close);
 c. Engaging in transactions where both the buy and sell orders are entered at the same time
with the same price and quantity by different but colluding parties (improper matched orders);
d. Engaging in buying activity at increasingly higher prices and then selling securities in the
market at the higher prices (hype and dump);
e. Engaging in transactions in which there is no genuine change in actual ownership of a
security (wash sales);
f. Taking advantage of a shortage of securities in the market by controlling the demand side
and exploiting market congestion during such shortages in a way as to create artificial prices
(squeezing the float); or
g. Disseminating false or misleading market information through media, including the
internet, or any other means to move the price of a security in a direction that is favorable to a
position held or a transaction. (SRC Rule 24.1(b)-1 Implementing Rules and Regulations)

Definition of terms
• Wash Sales – Selling securities for the purpose of creating a false or misleading
appearance of active trading in any listed security in an Exchange or any other trading
market:
o No change in beneficial ownership thereof 

o To enter order or orders knowing that a simultaneous order or 
 orders of the
same size, time, and price has or will be entered 
 by different parties; 

o Similar acts 

• Marking the Close – Buying and selling securities the close of the market in an effort to
alter the closing price of the security. 

• Painting the Tape – engaging in a series of transactions that are reported publicly to give
the impression of activity or price movement in a security. 

• Squeezing the Float – Controlling the demand of a particular securities to take advantage
of its shortage and exploiting market congestion during such shortages in a way as to
create artificial prices. 

• Hype and Dump – buying securities at increasingly higher prices and then selling it at a
higher price. 

• Improper Matched Orders – Both buy and sell transactions are entered at the same time
with the same price and quantity by different colluding parties. 

• Boiler Room Operations – An organized operation in a room with well-trained salesmen
operating several phones and using high- pressure sales talk to get investors to invest in a
 particular security. 

• Scalping – Where a person purchases securities for his own account before
recommending that security, and then sells the share at a profit upon the rise in the
market price following the recommendation. 

• Daisy Chain – A pattern of fictitious trading activity by a group of persons who lures
innocent people into the scheme. 

• Flipping – When a trading participant buys a particular stock for customers, with another
trading participant simultaneously recommends that its customers sell the stock, with the
stock being shifted from one office to another, and the make a profit.

• Short Sale – Selling stocks which he does not own and purchasing them back at a much
lower price with the anticipation of earning profits.

-The SEC is regulating transactions wherein the seller does not yet own or have
the securities he is selling. He is required to show that he has made arrangements
to effect delivery of such securities on settlement date; otherwise, the sale will not
be allowed.
(a) No person shall use or employ, in connection with the purchase or sale
of any security any manipulative or deceptive device or contrivance.
(b) No short sale shall be effected nor any stop-loss order be executed in
connection with the purchase or sale of any security except if allowed by
the SEC (Sec. 24.2)
The SEC may allow certain acts or transactions under Sec. 24 (on Manipulation of Security
Prices and Short Sales), for public interest and protection of investors (Sec. 24.3)

Securities and Exchange Commission v. Court of Appeals, 246 SCRA 738 (1995).
Doctrine: 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. To constitute a violation of the Revised Securities Act that can
warrant an imposition of a fine 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 affirmatively operating with furtive objectives. Given the
factual circumstances found by the appellate court, neither FIDELITY nor CUALOPING, albeit
indeed remiss in the observance of due diligence, can be held liable under the above provisions
of the Revised Securities Act. It is not implied however, that the negligence committed by
private respondents would not at all be actionable; upon the other hand, such an action belongs
not to the SEC but to those whose rights have been injured.

Advertisements and Communications with the Public

1. All communications by Broker Dealers or associated persons or salesmen of Broker Dealers
(hereinafter “registered persons”), with the public shall be based on principles of fair dealing
and good faith and should provide a sound basis for evaluating the facts in regard to any
particular security or securities or type of security, industry discussed, or service offered. No
material fact or qualification may be omitted if the omission, in the light of the context of the
material presented, would cause the advertising or sales literature to be misleading.
2. Exaggerated, unwarranted or misleading statements or claims are prohibited in all public
communications of registered persons. In preparing such literature, it must be borne in mind by
registered persons that inherent in investment are the risks of fluctuating prices and the
uncertainty of dividends, rates of return and yield, and no registered person shall, directly or
indirectly, publish, circulate or distribute any public communication that he knows, or had
reason to know, contains any untrue statement of a material fact or is otherwise false or
misleading.
3. Communications with the public shall not contain promises of specific results, exaggerated
or unwarranted claims or unwarranted superlatives, opinions for which there is no reasonable
basis, or forecasts of future events which are unwarranted, or which are not clearly labeled as
forecasts.
4. In judging whether a communication or a particular element of a communication may be
misleading, several factors should be considered, including but not limited to:
a. the overall context in which the statement or statements are made. A statement made in
one context may be misleading even though such a statement could be perfectly appropriate
in another context. An essential test in this regard is the balance of treatment of risks and
potential benefits;
b. the audience to which the communication is directed. Different levels of explanation or
detail may be necessary depending on the audience to which a communication is directed
and the ability of the registered person given the nature of the media used, to restrict the
audience appropriately. If the statements made in a communication would be applicable only
to a limited audience, or if additional information might be necessary for other audiences, it
should be kept in mind that it is not always possible to restrict the readership of a particular
communication; and/or
 c. the overall clarity of the communication. A statement or disclosure made in an unclear
manner obviously can result in a lack of understanding of the statement, or in a serious
misunderstanding. A complex or overly technical explanation may be worse than too little
information. Likewise, material disclosure relegated to legends or footnotes realistically may
not enhance the reader's understanding of the communication. (SRC Rule 24.1(d)-1)

Publication of Transactions and Quotations

No Broker Dealer, or associated person or salesman of a Broker Dealer, shall publish or
circulate, or cause to be published or circulated, any notice, circular, advertisement, newspaper
article, investment service, or communication of any kind which purports to report any
transaction as a purchase or sale of any security unless such person believes that such
transaction was a bona fide purchase or sale of such security; or which purports to quote the bid
price or asked price for any security, unless such person believes that such quotation represents
a bona fide bid for, or offer of, such security. (SRC Rule 24.1(d)-2)

Payment to Influence Market Prices

No Broker Dealer shall, directly or indirectly, give, permit to be given, or offer to give, anything
of value to any person for the purpose of influencing or rewarding the action of such person in
connection with the publication or circulation in any newspaper, investment service, or similar
publication, of any matter which has, or is intended to have, an effect upon the market price of
any security, provided that this rule shall not be construed to apply to matter which is clearly
distinguishable as paid advertising. (SRC Rule 24.1(d)-3)

Prohibition on Guarantees against Loss

No Broker Dealer or salesman shall guarantee a customer against loss in any securities account
of such customer carried by the Broker Dealer or in any securities transaction effected by the
Broker Dealer with or for the customer. (SRC Rule 24.2-3)

Regulation of Option Trading

No member of an Exchange shall, directly or indirectly endorse or guarantee the performance of
any put, call, straddle, option or privilege in relation to any security registered on a securities
exchange.
The terms “put”, “call”, “straddle”, “option”, or “privilege” shall not include any registered
warrant, right or convertible security. (SRC, § 25)

Fraudulent Transactions
It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale
of any securities to:
1. Employ any device, scheme, or artifice to defraud; (SRC, § 26.1)
2. Obtain money or property by means of any untrue statement of a material fact of any omission
to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading; or (SRC, § 26.2)
3. Engage in any act, transaction, practice or course of business which operates or would operats
as a fraud or deceit upon any person. (SRC, § 26.3)

Use of Information Obtained in Fiduciary Capacity

A Broker Dealer, associated person or salesman of a Broker Dealer, a paying agent, transfer
agent, trustee, or any other person acting in a similar fiduciary capacity, who has received
information as to the ownership of securities, shall not make use of such information for the
purpose of soliciting or making purchases, sales or exchanges of securities or, except as provided
in SRC Rule 30.2-9, provide such information to any person who does not need such information
to fulfill his responsibilities under the Code. (SRC Rule 26.3-1)

Prohibited Representations
It shall be unlawful for any:
a. Person to represent that he has been registered as a securities intermediary with the
Commission unless such person is registered under the Code. Registration under the Corporation
Code shall not be deemed to be registration under the Code;
b. Broker Dealer to represent that the registration of the Broker Dealer under the Code, or the
failure of the Commission to deny, suspend, or revoke such registration, indicates in any way
that the Commission has passed upon or approved the financial standing, business, or conduct of
such Broker Dealer, or the merits of any security or any transaction/s conducted thereby; and/or
c. Person to represent that a security is a particular type of security when such representation is
inconsistent with a stated definition under the Code or rules or regulations adopted thereunder, or
internationally accepted practice. (SRC Rule 26.3-2)


Insider’s Duty to Disclose When Trading.
1. 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:
(a) The insider proves that the information was not gained from such relationship; or
 (b) If the other party selling to or buying from the insider (or his agent) is identified, the
insider proves:
(i) that he disclosed the information to the other party, or
(ii) 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 defined
in Subsection 3.8, 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 a showing by the
purchaser or seller that he was not aware of the material non-public information at the
time of the purchase or sale. (SRC, § 27.1)

2. information is “material non-public” if:

(a) 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
(b) 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. (SRC, § 27.2)

3. 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 as
defined in Subsection 3.8, where the insider communicating the information knows or has reason
to believe that such person will likely buy or sell a security of the issuer while in possession of
such information. (SRC, § 27.3)

4. It shall be unlawful where a tender offer has commenced or is about to commence for:
(i) Any person (other than the tender offeror) who is in possession of material non-public
information relating to such tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person knows or has reason to believe
that the information is non-public and has been acquired directly or indirectly from the
tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought
by such tender offer, or any insider of such issuer; and
(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be
sought by such tender offer, and any insider of such issuer to communicate material non-
 public information relating to the tender offer to any other person where such
communication is likely to result in a violation of Subsection 27.4 (a)(i). (SRC, § 27.4)

the term “securities of the issuer sought or to be sought by such tender offer” shall include any
securities convertible or exchangeable into such securities or any options or rights in any of the
foregoing securities. (SRC, § 27.4)


“Pre-Need Plans” are contracts which provide for the performance of future services or the
payment of future monetary considerations at the time of actual need, for which plan holders pay
in cash or installment at stated prices, with or without interest or insurance coverage and includes
life, pension, education, interment, and other plans which the Commission may from time to time
approve. (SRC, § 3.9)

Securities and Exchange Commission v. Interport Resources Corp. 567 SCRA 354 (2008)
Doctrine: Section 30 of the Revised Securities Act 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.