CASES IN SECURITIES REGULATION CODE

PHILIPPINE VETERANS BANK VS. JUSTINA CALLANGAN, ET. AL., G.R. NO.
191995, AUGUST 3, 2011

FACTS:

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

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

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

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

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

penalty for failing to comply with the SRC reportorial requirements.

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

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

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

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

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

ISSUE: 

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

requirements of the SRC.

HELD: 

Yes. The bank is a public company which is subject to the reportorial

requirements of the SRC.
 Under the SRC, the reportorial requirements shall apply to the following:

1. An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such

other amount as the Commission shall prescribe;
2. and having two hundred (200) or more holders each holding at least one
hundred (100) shares of a class of its equity securities.

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

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

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

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

PHIL. STOCK EXCHANGE, INC. VS. THE HON. COURT OF APPEALS, ET. AL., G.R.
NO. 125469, OCT. 27, 1997

Facts:

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

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

PALI filed an application to list its shares with the Philippine Stock Exchange, Inc.
(PSE) to facilitate the trading of its shares.
 PSE listing committee recommended the approval of PALI’s application to the
PSE’s Board of Governors.

Before the committee could act on the application, the board received a letter
from the heirs of Ferdinand Marcos requesting to defer PALI’s application, claiming that
the late president was the legal and beneficial owner of the certain properties forming
part of the PALI.

The board of governors of the PSE reached its decision rejecting PALI’s
application citing the serious claims surrounding PALI’s ownership over its assets that
affect the suitability of listing PALI’s shares on the stock exchange.

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

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

PSE filed an MR however denied.

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

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

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

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

Issue:

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

Held:

No. While the SEC is the entity with the primary say as to whether or not
securities, including shares of stock of a corporation, may be traded in the stock
exchange. This is not to say, however, that the PSE’s management prerogatives are
under absolute control of the SEC. Thus, notwithstanding the regulatory power of the
SEC over the PSE, and the resultant authority to reverse the PSE’s decision in matters
of application for listing in the market, the SEC may exercise such power only if the
PSE’s judgment is attended by bad faith.

In reaching its decision to deny the application for listing of PALI, the PSE
considered important facts, heard from representatives of both sides, and, through the
Philippine Commission on Good Governance (PCGG), confirmed the claim of the heirs
of the late president. The petitioner was in the right when it refused the application
of PALI for a contrary ruling was not to the best interest of the general public.
 The Court finds that the SEC had acted arbitrarily in arrogating unto itself the
discretion of approving the application for listing in the PSE of the private respondent
PALI, since this is a matter addressed to the sound discretion of the PSE, a corporation
entity, whose business judgments are respected in the absence of bad faith.

BAVIERA V. PAGLINAWAN G.R. NO. 168380, 8 FEBRUARY 2007, 515 SCRA 515

Facts:

Manuel Baviera, petitioner in this case was the former head of the HR Service
Delivery and Industrial Relations of Standard Chartered Bank-Philippines. SCB did not
comply with the conditions set forth by the BSP. Although unregistered with SEC, SCB
continued to sell securities to some investors.

Petitioner entered into an Investment Trust Agreement with SCB wherein he

purchased 8,ooo US dollars worth of securities upon the bank’s promise of return of his
investment and a guarantee that his money is safe.

However, petitioner learned that the value of his investment went down, thus, he
tried to withdraw his investment but was persuaded by bank personnel to hold on it for
another 6 months in view of the possibility that the market would pick up. However, the
pertitioner’s investment continue to went down.

Petitioner then filed with the BSP a complaint demanding compensation for his
investment but SCB denied his demand stating that his investment is regular.

Petitioner filed with the DOJ a complaint charging the officers of SCB with
sybdicated estafa.

DOJ dismissed the complaint stating that the case should be filed first before the
SEC.

On appeal, CA sustained the ruling of DOJ that the case should be filed initially
with the SEC.

Issue:

whether the CA erred in ruling that the DoJ did not commit grave abuse of discretion in
dismissing Baviera’s complaint.

Held:
 The CA was correct in ruling that the DoJ did not commit grave abuse of
discretion in dismissing Baviera’s complaint for violation of the SRC.

According to the High Court, “[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.”

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

SEC VS. CA, 246 SCRA 738 (1995)

FACTS:

Cualoping Securities Corporation is a stockbroker while Fidelity Stock Transfer,

Inc. is the stock transfer agent of Philex Mining Corporation.

The certificates of stock of Philex were stolen from the premises of Fidelity.

Later, the stolen certificates were found in the hands of a messenger named
Agustin Lopez of New world security Inc. an entirely different stock brokerage firm.

Accordingly, lopez bought the certificates to Cualoping with stamped in each

certificate stating “Indorsement Guaranteed” and thereafter traded the same with the
stock exchange.

After the sale of the stocks represent by said certificates to different buyers, the
same were delivered to Fidelity for the cancellation and for issuance of new certificates
in the name of the new buyers.
 Fidelity rejected for reasons that the signatures of the owners were forged and
thus the cancellation and re issuance cannot be effected.

Fidelity sought the opinion of the SEC on the matter.

SEC ordered Fidelity to replace all the subject shares and Cualoping to pay a
fine for violation of the RSA.

Fidelity and Cualoping appealed to CA, which reverse the SEC order.

Issue:

WON CA is correct in reversing the order of SEC directing Fidelity to replace the
certificates.

Held:

The SC see nothing erroneous in the decision of the CA.

The stockholders who have been deprived of their certificates of stock or the
persons to whom the forged certificates 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, in turn,
contests it.5 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 certificates of
stock. Any peremptory judgment by the SEC, without such proceedings having first
been 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 file the necessary
proceedings for appropriate relief.
SEC VS. PERFORMANCE FOREIGN EXCHANGE CORP., G.R. NO. 154131, JULY
20, 2006

SEC vs Performance Foreign Exchange Corporation GR No 154131 July 20, 2006

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

FACTS:

Performance Foreign Exchange Corporation, respondent herein, is a domestic

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

The respondent secondary purpose is to engage in money changer or

exchanging foreign currencies.

The Director of Compliance and Enforcement Department of the SEC issued a

Cease and Desist Order against respondent alleging that in their inquiry it showed that
respondent was engaged in the trading of foreign currency futures contracts in behalf of
its clients without the necessary license which transaction can be deemed as a direct
violation of RSA.

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

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

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

BSP, in answer to SEC Chairman letter-request stated that respondent’s

business activity does not fall under the category of futures trading "and" cannot be
classified as financial derivatives transactions.

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

ISSUE:

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

HELD:

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

Under the SRC, there are two essential requirements that must be complied with
by the SEC before it may issue a cease and desist order:
 First, it must conduct proper investigation or verification; and

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

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

It bears stressing, however, that such investigation and verification, to be proper,

must be conducted by petitioner before, not after, issuing the Cease-and-Desist Order in
question. This, petitioner utterly failed to do.

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

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

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

may be issued by the SEC, there must be a showing that the act or practice sought to
be restrained will operate as a fraud on investors or is likely to cause grave, irreparable
injury or prejudice to the investing public. Such requirement implies that the act to be
restrained has been determined after conducting the proper investigation/verification. In
this case, the nature of the act to be restrained can only be determined after the BSP
shall have submitted its findings to petitioner. However, there is nothing in the
questioned Orders that shows how the public is greatly prejudiced or damaged by
respondent’s business operation.
SEC vs Performance Foreign Exchange Corporation GR No 154131 July 20, 2006
FACTS:
Performance Foreign Exchange Corporation, respondent herein, is a domestic
corporation duly registered with
SEC and engaged as its primary purpose to operate as a broker/agent between market
participants in transactions
involving, but not limited to, foreign exchange, deposits, interest rate instruments, and
similar or derivative products,
other than acting as a broker for the trading of securities pursuant to the Revised
Securities Act of the Philippines.
The respondent secondary purpose is to engage in money changer or exchanging
foreign currencies.
The respondent received a letter from SEC requiring it to appear before
the Compliance and Enforcement
Department (CED) for a clarificatory conference regarding its business operations. The
Director of CED issued a
Cease and Desist Order for possible violation of R.A.No. 8799 (otherwise known as
The Securities Regulation
Code) and that the outcome of the inquiry shows that respondent is engaged in the
trading of foreign currency
futures contracts in behalf of its clients without the necessary license; that such
transaction can be deemed as a
direct violation of Section 11 of R.A. No. 8799. The respondent filed a motion to SEC to
lift the said order.
SEC Chairman Bautista, in her desire to know with certainty the nature of respondent’s
business, sent a letter
to the BSP, requesting a definitive statement that respondent’s business transactions
are a form of financial
derivatives and, therefore, can only be undertaken by banks or non-bank financial
intermediaries performing quasi-
banking functions. However, SEC issued an Order denying respondent’s motion for the
lifting of the Cease and
Desist Order without waiting for BSP’s determination of the matter. Thereafter, SEC
issued an order making
the Cease and Desist Order permanent.
Respondent filed with the Court of Appeals a Petition for Certiorari. It alleged that SEC
grave abuse of discretion
when it issued the Cease and Desist Order and its subsequent Order making the same
permanent without waiting
for the BSP’s determination of the real nature of its business operations; and that
petitioner’s Orders, issued without
any factual basis, violated its (respondent’s) fundamental right to due process.
BSP, in answer to SEC Chairman letter-request stated that respondent’s business
activity "does not fall under the
category of futures trading"and"can not be classified as financial derivatives
transactions,"
CA ruled that SEC acted with grave abuse of discretion when it issued its challenged
Orders without a positive
factual finding that respondent violated the Securities Regulation Code. Hence, this
petition.
ISSUE:
Whether or not SEC acted with grave abuse of discretion in issuing the Cease and
Desist Order and its subsequent
Order making it permanent.
HELD:
YES. Section 64 of R.A. No. 8799, provides:
Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper
investigation or
verification, motu proprio, or upon verified complaint by any aggrieved party, may issue
a cease
and desist order without the necessity of a prior hearing if in its judgment the act or
practice,
unless restrained, will operate as a fraud on investors or is otherwise likely to cause
grave
or irreparable injury or prejudice to the investing public.
x x x. (Underscoring supplied)
Under the above provision, there are two essential requirements that must be complied
with by the SEC before it
may issue a cease and desist order: First, it must conduct proper investigation or
verification; and Second, there
must be a finding that the act or practice, unless restrained, will operate as a fraud on
investors or is otherwise
likely to cause grave or irreparable injury or prejudice to the investing public.

UNION BANK OF THE PHILIPPINES VS. SEC, G.R. NO. 138949, JUNE 6, 2001

Facts:

Petitioner, through Counsel and Corporate Secretary, sought the opinion of

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

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

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

Petitioner assailed the assessment by respondent contending that they should

not be required to submit those reports as they are exempted from the said
requirements.

ISSUE: 

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

Held:

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

This provision exempts from registration the securities issued by banking or

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

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

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

listed in the stock exchange. Thus, it must adhere not only to banking and other allied
special laws, but also to the rules promulgated by Respondent SEC, the government
entity tasked not only with the enforcement of the Revised Securities Act, 11 but also
with the supervision of all corporations, partnerships or associations which are grantees
of government-issued primary franchises and/or licenses or permits to operate in the
Philippines.

RSA Rules 11(a)-1, 34(a)-1 and 34(c)-1 require the submission of certain reports
to ensure full, fair and accurate disclosure of information for the protection of the
investing public. These Rules were issued by respondent pursuant to the authority
conferred upon it by Section 3 of the RSA.
 The said Rules do not amend Section 5(a)(3) of the Revised Securities Act,
because they do not revoke or amend the exemption from registration of the securities
enumerated thereunder. They are reasonable regulations imposed upon petitioner as a
banking corporation trading its securities in the stock market.

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

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

POWER HOMES UNLIMITED CORP. vs SEC, 546 SCRA 567 (2008)

FACTS:

Power Homes (P) was engaged in managing real estate properties for
subdivision & allied purposes and in the purchase, exchange, and/or sale of such
through network marketing.

Public Respondent SEC acted on the letters of Respondent Noel Manero and a
certain Romulo Munsayac, Jr. Manero alleged that in a seminar he attended, Petitioner
claimed that it sells properties that were inexistent and without any broker’s license.

Munsayac on the other hand, inquired whether Petitioner’s business is legitimate

or not. After investigation, Public Respondent SEC found out that Petitioner is engaged
in the sale or offer for sale or distribution of investment contracts, which are considered
securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation
Code), but failed to register them in violation of Sec. 8.1 of the same Act,

Public Respondent SEC issued a Cease and Desist Order against Petitioner.
Petitioner filed this petition for review after the Court of Appeals denied its petition for
lack of merit and affirmed in toto Public Respondent’s Cease and Desist Order.
ISSUES:

Whether or not Petitioner’s business constitutes an investment contract which should be

registered with Public Respondent SEC before its sale or offer for sale or distribution to
the public.

RULING:

To determine whether a transaction falls within the scope of an investment

contract, the Court made use of the Howey Test which provides that an investment
contract requires a transaction, contract, or scheme whereby a person:

(1) makes an investment of money,

(2) in a common enterprise,
(3) with the expectation of profits,
(4) to be derived solely from the efforts of others.

In this case the Court therefore ruled that the business operation or the scheme
of Petitioner constitutes an investment contract that is a security define under the SRC.

Thus, it must be registered with Public Respondent SEC before its sale or offer
for sale or distribution to the public.

As petitioner failed to register the same, its offering to the public was rightfully
enjoined by Public Respondent SEC.

The CDO was proper even without a finding of fraud. PETITION IS DENIED.

SEC VS. PROSPERITY.COM, INC., G.R. NO. 164197, JANUARY 25, 2012

Facts:

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without
providing internet service. To make a profit, PCI devised a scheme in which a buyer
could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same
time, by referring to PCI his own down-line buyers, a first-time buyer could earn
commissions, interest in real estate in the Philippines and in the United States, and
insurance coverage.

In 2001, discontented elements of Golconda Ventures, Inc. filed a complaint with

the SEC against PCI, alleging that the latter had taken over GVI’s operations. After
hearing, the SEC issued a CDO against PCI.
 The SEC ruled that PCI’s scheme constitutes an Investment contract and,
following the Securities Regulations Code, it should have first registered such contract
or securities with the SEC.

PCI filed with the Court of Appeals and CA rendered a decision, granting PCI’s
petition and setting aside the SEC-issued CDO. The CA ruled that, following the Howey
test, PCI’s scheme did not constitute an investment contract that needs registration
pursuant to R.A. 8799, hence, this petition by the SEC.

ISSUE:

Whether or not PCI’s scheme constitutes an investment contract that requires

registration under R.A. 8799.

RULING:

The Supreme Court DENIED the petition and AFFIRMED the decision of the
Court of Appeals.

PCI’s scheme does not require registration under R.A. 8799. The United States
Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that,
for an investment contract to exist, the following elements, referred to as the Howey test
must concur:

(1) a contract, transaction, or scheme;

(2) an investment of money;
(3) investment is made in a common enterprise;
(4) expectation of profits; and
(5) profits arising primarily from the efforts of others.

Thus, to sustain the SEC position in this case, PCI’s scheme or contract with its
buyers must have all these elements.

Here, PCI’s clients do not make such investments. They buy a product of some
value to them: an Internet website of a 15-MB capacity. The client can use this website
to enable people to have internet access to what he has to offer to them, say, some skin
cream.

The buyers of the website do not invest money in PCI that it could use for
running some business that would generate profits for the investors.

The price of US$234.00 is what the buyer pays for the use of the website, a
tangible asset that PCI creates, using its computer facilities and technical skills.

The CA is right in ruling that the last requisite in the Howey test is lacking in the
marketing scheme that PCI has adopted. Evidently, it is PCI that expects profit from the
network marketing of its products. PCI is correct in saying that the US$234 it gets from
its clients is merely a consideration for the sale of the websites that it provides.

SEC VS. OUDINE SANTOS, G.R. NO. 195542, MARCH 19, 2014

FACTS:

                In 2007, another investment scam was exposed involving

Performance Investment Products Corporation (PIPC) a foreign corporation registered
in the British Virgin Islands.

                Because the head of PIPC Corporation had gone missing, the SEC was
flooded with complaints from individuals against PIPC Corporation, its directors, officers,
employees, agents and brokers for alleged violation of the SRC.

Santos was charged in the complaints in her capacity as investment consultant of

PIPC Corporation.

                On her defense, Santos alleged that she was merely an employee of PIPC

thus should not be personally liable.

ISSUE:

                Whether or not Santos violated SRC which punishes unregistered broker

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

HELD:

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

Corporation making her liable under Sec. 28 of SRC.

                 There is no question that Santos was in the employ of PIPC Corporation

and/or PIPC–BVI, a corporation which sold or offered for sale unregistered securities in
the Philippines.  To escape probable culpability, Santos claims that she was a mere
clerical employee of PIPC Corporation and/or PIPC–BVI and was never an agent or
salesman who actually solicited the sale of or sold unregistered securities issued by
PIPC Corporation and/or PIPC–BVI.

                Solicitation is the act of seeking or asking for business or information; it is not
a commitment to an agreement.

                Santos, by the very nature of her function as what she now unaffectedly
calls an information provider, brought about the sale of securities made by PIPC
Corporation and/or PIPC–BVI to certain individuals, specifically private
complainants Sy and Lorenzo by providing information on
the investment products of PIPC Corporation and/or PIPC–BVI with the end in
view of PIPC Corporation closing a sale.

                While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s

investments, Santos procured the sale of these unregistered securities to the 2
complainants by providing information on the investment products being offered
for sale by PIPC Corporation and/or PIPC–BVI and convincing them to invest
therein.

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

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

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