1. Abacus Securities Corporation v. Ampil, G.R. No.
160016, February 27, 2006
Facts: Abacus Security Corporation is engaged as a broker
and dealer of securities of listed companies at the Philippine
Stock Exchange Center.
Ruben Ampil opened a cash or regular account with Abacus
for the purpose of buying and selling securities. As a result
of Ampils trading activities, he accumulated an outstanding
obligation in favor of Abacus in the principal sum of Php
6,617,036.22 as of April 30, 1997
Ampil failed to settle his obligations with Abacus and the
latter was forced to sell Ampils securities to be applied to
his unpaid account. A balance of P3,364,313.56 remained
which Abacuse referred to its legal counsel for collection.
Ampil claims that he was induced to trade by Abacus
because the latter allowed offset settlements wherein he is
not obliged to pay the purchase price. Rather, it waits for
the customer to sell. And if there is a loss, Abacus only
requires the payment of the deficiency (i.e., the difference
between the higher buying price and the lower selling
price). However, if the customer sells and there is a profit,
Abacus deducts the purchase price and delivers only the
surplus - after charging its commission.
The RTC Makati held that Abacus violated Sections 23 and
25 of the Revised Securities Act (RSA) and Rule 25-1 of the
RSA Rules. Abacus allowed Ampil to continue trading
securities despite his failure to pay his outstanding
obligations.
The trial court also found Ampil to be equally at fault by
incurring excessive credits and waiting to see how his
investments turned out before deciding to invoke the RSA.
Thus, the RTC concluded that the parties were in pari
delicto and therefore without recourse against each other.
Abacus contended that the trial court lacked jurisdiction to
determine violations of the RSA. The Court of Appeals
upheld the jurisdiction of the RTC and its application of the
pari delicto rule.
Held:
Securities Transactions Regulations
1. Securities transactions are impressed with public interest,
and are thus subject to public regulation.
2. 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.
Margin Trading
3. Section 23(b) of the Revised Securities Act makes
it unlawful for a broker to extend or maintain credit on any
securities other than in conformity with the rules and
regulations issued by Securities and Exchange Commission
(SEC). Section 25 lays down the rules to prevent indirect
violations of Section 23 by brokers or dealers. RSA Rule 25-
1 prescribes in detail the regulations governing cash
accounts.
4. In the United States, where our country's security policies
are patterned, authorities explain the main purpose of such
margin requirements, that is to regulate the volume of credit
flow, by way of speculative transactions, into the securities
market and redirect resources into more productive uses.
Otherwise stated, the margin requirements set out in the
RSA are primarily intended to achieve a macroeconomic
purpose -- the protection of the overall economy from
excessive speculation in securities. Their recognized
secondary purpose is to protect small investors.
5. It will be noted that trading on credit (or "margin trading")
allows investors to buy more securities than their cash
position would normally allow. Investors pay only a portion
of the purchase price of the securities; their broker
advances for them the balance of the purchase price and
keeps the securities as collateral for the advance or loan.
6. Brokers take these securities/stocks to their bank and
borrow the "balance" on it, since they have to pay in full for
the traded stock. Hence, increasing margins i.e., decreasing
the amounts which brokers may lend for the speculative
purchase and carrying of stocks is the most direct and
effective method of discouraging an abnormal attraction of
funds into the stock market and achieving a more balanced
use of such resources.
Mandatory Close-Out Rule (Obligation of Brokers)
7. The law places the burden of compliance with margin
requirements primarily upon the brokers and dealers.
Sections 23 and 25 and Rule 25-1, otherwise known as the
"mandatory close-out rule," clearly vest upon Abacus the
obligation, not just the right, to cancel or otherwise liquidate
a customer's order, if payment is not received within three
days from the date of purchase.
8. The word "shall" as opposed to the word "may," is
imperative and operates to impose a duty, which may be
legally enforced. For transactions subsequent to an unpaid
order, the broker should require its customer to deposit
funds into the account sufficient to cover each purchase
transaction prior to its execution. These duties are imposed
upon the broker to ensure faithful compliance with the
margin requirements of the law, which forbids a broker from
extending undue credit to a customer.
9. The nature of the stock brokerage business enables
brokers, not the clients, to verify, at any time, the status of
the client's account. Brokers, therefore, are in the superior
position to prevent the unlawful extension of credit. Because
of this awareness, the law imposes upon them the primary
obligation to enforce the margin requirements.
Client Liable for the First, But Not for the Subsequent
Trades
10. These margin requirements are applicable only to
transactions entered into by the present
parties subsequentto the initial trades of April 10 and 11,
1997. Thus, we hold that Abacus can still collect from
respondent Ampil to the extent of the difference between
the latter's outstanding obligation as of April 11, 1997 less
the proceeds from the mandatory sell out of the shares
pursuant to the RSA Rules.
11. Petitioner's right to collect is justified under the general
law on obligations and contracts, i.e., Article 1236 of the
Civil Code, which provides: "Whoever pays for another may
demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been
beneficial to the debtor." (Emphasis supplied)
12. Since a brokerage relationship is essentially a contract
for the employment of an agent, principles of contract law
also govern the broker-principal relationship.
13. The right to collect cannot be denied to Abacus as
the initial transactions were entered pursuant to the
instructions of Ampil. The obligation of Ampil for stock
transactions made and entered into on April 10 and 11,
1997 were valid and the obligations incurred by him
concerning his stock purchases on these dates subsist. At
that time, there was no violation of the RSA yet. Abacus
fault arose only when it failed to: 1) liquidate the
transactions on the fourth day (T+4) following the stock
purchases; and 2) complete its liquidation no later than ten
days thereafter, applying the proceeds thereof as payment
for respondent's outstanding obligation.
14. In securities trading, the brokers are essentially the
counterparties to the stock transactions at the Exchange.
Since the principals of the broker are generally undisclosed,
the broker is personally liable for the contracts thus made.
Hence, Abacus, as broker, was duty-bound to advance the
payment to the settlement banks for Ampils trades, without
prejudice to the right of Abacus to collect later from the
client.Brokers have a right to be reimbursed for sums
advanced by them with the express or implied authorization
of the principal.
2. Gabionza v. Court of Appeals, G.R. No. 161057,
September 12, 2008
FACTS
Betty Go Gabionza (Gabionza) and Isabelita Tan (Tan) filed a
complaint charging respondents Luke Roxas (Roxas) and
Evelyn Nolasco (Nolasco) with several criminal acts. Roxas
was the president of ASB Holdings, Inc. (ASBHI) while
Nolasco was the senior vice president and treasurer of the
same corporation.
Gabionza and Tan had previously placed monetary
investment with the Bank of Southeast Asia (BSA). They
alleged that they were convinced by the officers of ASBHI to
lend or deposit money with the corporation. 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.
DBS Bank started to refuse to pay for the checks
purportedly by virtue of stop payment orders from ASBHI.
ASBHI filed a petition for rehabilitation and receivership with
the Securities and Exchange Commission (SEC), and it was
able to obtain an order enjoining it from paying its
outstanding liabilities. This lead to the filing of complaints by
the petitioners and others against ASBHI. The complaints
were for estafa under Article 315(2)(a) and (2)(d) of the
Revised Penal Code, estafa under Presidential Decree No.
1689, violation of the Revised Securities Act and violation of
the General Banking Act.
Task Force on Financial Fraud (Task Force), was created by
the Department of Justice (DOJ) which dismissed the said
complaints. Such dismissal was concurred by the in by the
assistant chief state prosecutor and approved by the chief
state prosecutor. Petitioners filed a motion for
reconsideration but it was denied.
With respect to the charges of estafa under Article 315(2) of
the Revised Penal Code 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 x x x;
that petitioners never directly dealt with Nolasco and Roxas;
and that a check was not a security as contemplated by the
Revised Securities Act.
However, the DOJ made a Resolution alleging that it also
made it clear that the false representations have been made
to petitioners prior to or simultaneously with the commission
of the fraud. The assurance given to them by ASBHI that it is
a worthy credit partner occurred before they parted with
their money. Relevantly, ASBHI is not the entity with whom
petitioners initially transacted with, and they averred that
they had to be convinced with such representations that
Roxas and the same group behind BSA were also involved
with ASBHI.
ISSUE
WON the charges against the corporation can also be pinned
against Roxas and Nolasco likewise.
HELD
YES.
The material misrepresentations have been made by the
agents or employees of ASBHI to petitioners, to the effect
that the corporation was structurally sound and financially
able to undertake the series of loan transactions that it
induced petitioners to enter into.
The false representations made by the ASB agents who
dealt with the complainant-petitioners and who inveigled
them into investing their funds in ASB are properly
imputable to respondents Roxas and Nolasco, because they,
as ASBs president and senior vice president/treasurer,
respectively, respectively, in charge of its operations,
directed its agents to make the false representations to the
public, including the complainant-petitioners, in order to
convince them to invest their moneys in ASB. It is difficult to
make a different conclusion, judging from the fact that
respondents Roxas and Nolasco authorized and accepted for
ASB the fraud-induced loans.
3. SEC v. Prosperity.Com, Inc., G.R. No. 164197,
January 25, 2012
The 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, for the price of
US$234.00 (subsequently increased to US$294), 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
worth P50,000.00.
To benefit from this scheme, a PCI buyer must enlist and
sponsor at least two other buyers as his own down-lines.
These second tier of buyers could in turn build up their own
down-lines. For each pair of down-lines, the buyer-sponsor
received a US$92.00 commission. But referrals in a day by
the buyer-sponsor should not exceed 16 since the
commissions due from excess referrals inure to PCI, not to
the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda
Ventures, Inc. (GVI), which company stopped operations
after the Securities and Exchange Commission (SEC) issued
a cease and desist order (CDO) against it. As it later on
turned out, the same persons who ran the affairs of GVI
directed PCI's actual operations.
In 2001, disgruntled elements of GVI filed a complaint with
the SEC against PCI, alleging that the latter had taken over
GVI's operations. After hearing,1 the SEC, through its
Compliance and Enforcement unit, issued a CDO against
PCI. The SEC ruled that PCI's scheme constitutes an
Investment contract and, following the Securities
Regulations Code, it should have first registered such
contract or securities with the SEC.
Instead of asking the SEC to lift its CDO in accordance with
Section 64.3 of Republic Act (R.A.) 8799, PCI filed with the
Court of Appeals (CA) a petition for certiorari against the
SEC with an application for a temporary restraining order
(TRO) and preliminary injunction in CA-G.R. SP 62890.
Because the CA did not act promptly on this application for
TRO, on January 31, 2001 PCI returned to the SEC and filed
with it before the lapse of the five-day period a request to
lift the CDO. On the following day, February 1, 2001, PCI
moved to withdraw its petition before the CA to avoid
possible forum shopping violation.
During the pendency of PCI's action before the SEC,
however, the CA issued a TRO, enjoining the enforcement of
the CDO.3 In response, the SEC filed with the CA a motion to
dismiss the petition on ground of forum shopping. In a
Resolution,4 the CA initially dismissed the petition, finding
PCI guilty of forum shopping. But on PCI's motion, the CA
reversed itself and reinstated the petition. 5
In a joint resolution,6 CA-G.R. SP 62890 was consolidated
with CA-G.R. SP 64487 that raised the same issues. On July
31, 2003 the CA rendered a decision, granting PCI's petition
and setting aside the SEC-issued CDO.7 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.
The Issue Presented
The sole issue presented before the Court is whether or not
PCI's scheme constitutes an investment contract that
requires registration under R.A. 8799.
The Ruling of the Court
The Securities Regulation Code 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 court'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, 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.
Actually, PCI appears to be engaged in network marketing, a
scheme adopted by companies for getting people to buy
their products outside the usual retail system where
products are bought from the store's shelf. 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 buyers whom he
refers to the person who sold the product to him. The
network goes down the line where the orders to buy come.
The commissions, interest in real estate, and insurance
coverage worth P50,000.00 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 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.
4. SEC v Interport Resources Corporation, G.R. No.
135808, October 6, 2008
Doctrines: 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
respondents maybe 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.
Facts:
1) 6 Aug 1994 Board of Directors of IRC approved
a Memorandum of Agreement (MoA) with
Ganda Holdings Berhad (GHB).
a. Under the MoA, IRC acquired 100% or the
entire capital stock of Ganda Energy Holdings,
Inc. (GEHI), which would own and operate a
102 megawatt gas turbine power-generating
barge.
b. Also stipulated is that GEHI would assume a
five-year power purchase contract with
National Power Corp. At that time, GEHIs
power-generating barge was 97% complete
and would go on-line by mid-Sept 1994.
c. In exchange, IRC will issue to GHB 55% of the
expanded capital stock of IRC (amounting to
40.88 billion shares total par value of
P488.44 million)
d. On the side, IRC would acquire 67% of the
entire capital stock of Philippine Racing Club,
Inc. (PRCI). PRCI owns 25.724 hectares of real
estate property in Makati.
e. Under the Agreement, GHB, a member of the
Westmont Group of Companies in Malaysia,
shall extend or arrange a loan required to pay
for the proposed acquisition by IRC of PRCI.
2) 8 Aug 1994 IRC alleged that a press release
announcing the approval of the agreement was sent
through fax to Philippine Stock Exchange (PSE) and
the SEC, but that the fax machine of SEC could not
receive it. Upon the advice of SEC, IRC sent the press
release on the morning of 9 Aug 1994.
3) SEC averred that it received reports that IRC
failed to make timely public disclosures of its
negotiations with GHB and that some of its
directors heavily traded IRC shares utilizing
this material insider information.
4) 16 Aug 1994 SEC Chairman issued a directive
requiring IRC to submit to SEC a copy of its aforesaid
MoA with GHB and further directed all principal
officers of IRC to appear at a hearing before the
Brokers and Exchanges Dept (BED) of SEC to explain
IRCs failure to immediately disclose the information
as required by the Rules on Disclosure of Material
Facts by Corporations Whose Securities are Listed in
Any Stock Exchange or Registered/Licensed Under
the Securities Act
5) 19 Sept 1994 SEC Chairman issued an Order finding
that IRC violated the Rules on Disclosure when it
failed to make timely disclosure, and that some of
the officers and directors of IRC entered into
transactions involving IRC shares in violation of Sec
30, in relation to Sec 36 of the Revised Securities Act.
6) IRC filed an Omnibus Motion (later an Amended
Omnibus Motion) alleging that SEC had no authority
to investigate the subject matter, since under Sec 8
of PD 902-A, as amended by PD 1758, jurisdiction
was conferred upon the Prosecution and Enforcement
Dept (PED) of SEC
7) IRC also claimed that SEC violated their right to due
process when it ordered that the respondents appear
before SEC and show cause why no administrative,
 civil or criminal sanctions should be imposed on
them, and thus, shifted the burden of proof to the
respondents. They filed a Motion for Continuance of
Proceedings.
8) No formal hearings were conducted in connection
with the Motions.
9) 25 Jan 1995 SEC issued an Omnibus Order: creating
a special investigating panel to hear and decide the
case in accordance with Rules of Practice and
Procedure before the PED, SEC; to recall the show
cause orders; and to deny the Motion for
Continuance for lack of merit.
10) Respondents filed a petition before the CA
questioning the Omnibus Orders and filed a
Supplemental Motion wherein they prayed for the
issuance of a writ of preliminary injunction.
11) 5 May 1995 CA granted their motion and issued a
writ of preliminary injunction, which effectively
enjoined SEC from filing any criminal, civil or
administrative case against the respondents.
Issues:
1. Do sections 8, 30, and 36 of the Revised Securities Act
require the enactment of implementing rules to make them
binding and effective? No.
2. Does the right to cross-examination be demanded during
investigative proceedings before the PED? No.
3. May a criminal case still be filed against the respondents
despite the repeal of Sections 8, 30, and 36 of the Revised
Securities Act? Yes.
4. Did SEC retain the jurisdiction to investigate violations of
the Revised Securities Act, re-enacted in the Securities
Regulations Code, despite the abolition of the PED? Yes.
5. Does the instant case prescribed already? No.
6. Is CA justified in denying SECs Motion for Leave to
Quash SEC Omnibus Orders? Yes.
Ruling: The petition is impressed with merit.
* It should be noted that while the case was pending in SC,
RA 8799 (Securities Regulation Code) took effect on 8
August 2000.
Section 8 of PD 902-A, as amended, which created the PED,
was already repealed as provided for in Sec 76 of Securities
Regulation Code.
Thus, under the new law, the PED has been abolished, and
the Securities Regulation Code has taken the place of the
Revised Securities Act.
On the merits:
1) Sections 8, 30, and 36 of the Revised Securities Act
(RSA) do not require the enactment of implementing
rules to make them binding and effective.
The mere absence of implementing rules cannot
effectively invalidate provisions of law, where a
reasonable construction that will support the law
may be given.
Absence of any constitutional or statutory infirmity,
which may concern Secs 30 and 36 of RSA, the
provisions are legal and binding.
Every law has in its favour the presumption of
validity. Unless and until a specific provision of the
law is declared invalid and unconstitutional, the
same is valid and binding for all intents and
purposes.
The Court does not discern any vagueness or
ambiguity in Sec 30 and 36 of RSA
o Sec 30 Insiders duty to disclose when
trading
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:
 1. 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
2. the inherent unfairness involved
when a party takes advantage of
such information knowing it is
unavailable to those with whom he
is dealing.
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.
In some cases, however, there may be
valid corporate reasons for
nondisclosure of material information.
Where such reasons exist, an issuers
decision not to make any public
disclosures is not ordinarily considered
as a violation of insider trading. At the
same time, the undisclosed
information should not be improperly
used for non-corporate purposes,
particularly to disadvantage other
persons with whom an insider might
transact, and therefore the insider
must abstain from entering into
transactions involving such securities.
o Sec 36 Directors, officers and principal
stockholders
A straightforward provision that
imposes upon:
1. a beneficial owner of more than 10
percent of any class of any equity
security or
2. a director or any officer of the
issuer of such security
the obligation to submit a statement
indicating his or her ownership of the
issuers securities and such changes in
his or her ownership.
Sections 30 and 36 of the RSA 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.
Sec 30 prevented the unfair use of non-public
information in securities transactions, while Sec 36
allowed the Sec to monitor the transactions entered
into by corporate officers and directors as regards
the securities of their companies.
The lack of implementing rules cannot suspend the
effectivity of these provisions.
2) The right to cross-examination is not absolute and
cannot be demanded during investigative proceedings
before the PED.
Sec 4, Rule 1 of the PED Rules of Practice and
Procedure, categorically stated that the proceedings
before the PED are summary in nature, not
necessarily adhering to or following the technical
rules of evidence obtaining in the courts of law
3) The Securities Regulation Code (SRC) did not repeal
Sections 8, 30, and 36 of the Revised Securities Act since
said provisions were re-enacted in the new law.
when the repealing law punishes the act previously
penalized under the old law, the act committed
before the re-enactment continues to be an offense
and pending cases are not affected.
o Sec 8 of RSA, which previously provided for
the registration of securities and the
information that needs to be included in the
 registration statements, was expanded under
Sec 12 of the Securities Regulations Code.
Further details of the information required to
be disclosed by the registrant are explained.
o Sec 30 of RSA has been re-enacted as Sec 27
of SRC, still penalizing an insiders misuse of
material and non-public information about the
issuer, for the purpose of protecting public
investors
o Sec 23 of SRC was practically lifted from Sec
36 of RSA.
The legislature had not intended to deprive the
courts of their authority to punish a person charged
with violation of the old law that was repealed
4) The SEC retained the jurisdiction to investigate violations
of the Revised Securities Act, re-enacted in the
Securities Regulations Code, despite the abolition of the
PED.
Sec 53 of SRC clearly provides that criminal
complaints for violations of rules and regulations
enforced or administered by SEC shall be referred to
the DOJ for preliminary investigation, while the SEC
nevertheless retains limited investigatory powers.
SEC may still impose the appropriate administrative
sanctions under Sec 54.
5) The instant case has not yet prescribed.
Respondents point out that the prescription period
applicable to offenses punished under special laws is
12 years. Since the offense was committed in 1994,
they reasoned that prescription set in as early as
2006 and rendered this case moot.
It is an established doctrine that a preliminary
investigation interrupts the prescription period. A
preliminary investigation is essentially
determination whether an offense has been
committed, and whether there is probable cause for
the accused to have committed as offense.
6) The CA was justified in denying SECs Motion for Leave
to Quash SEC Omnibus Orders dated 23 October 1995.
Since it found other issues that were more important
than whether or not the PED was the proper body to
investigate the matter, CA denied SECs motion for
leave to quash SEC Omnibus Orders.
In all, the SC 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 respondents maybe investigated by the
appropriate authority under the proper rules of procedure of
the Securities Regulations Code for violations of Secs 8, 30,
and 36 of the Revised Securities Act
5. Philippine Veterans Bank v. Callangan, G.R. No.
191995, August 3, 2011
Factual Antecedents
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.2
a
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.3
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,
2005.4 When the SEC En Banc also dismissed the Bank'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).5
On March 6, 2008, the CA dismissed the petition and
affirmed the assailed SEC ruling, with the modification that
the assessment of the penalty be recomputed from May 31,
2004.6
The CA also denied the Bank's motion for
reconsideration,7 opening the way for the Bank's petition for
review on certiorari filed with this Court. 8
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.9
The Motion for Reconsideration
The Bank reiterates that it is not a "public company" subject
to the reportorial requirements under Section 17.1 of the
SRC because its shares can be owned only by a specific
group of people, namely, World War II veterans and their
widows, orphans and compulsory heirs, and is not open to
the investing public in general. The Bank also asks the Court
to take into consideration the financial impact to the cause
of "veteranism"; compliance with the reportorial
requirements under the SRC, if the Bank would be
considered a "public company," would compel the Bank to
spend approximately P40 million just to reproduce and mail
the "Information Statement" to its 400,000 shareholders
nationwide.
The Court's Ruling
We DENY the motion for reconsideration for lack of
merit.
To determine whether the Bank is a "public company"
burdened with the reportorial requirements ordered by the
SEC, we look to Subsections 17.1 and 17.2 of the SRC, which
provide:
Section 17. Periodic and Other Reports of Issuers. -
17.1. Every issuer satisfying the requirements in Subsection
17.2 hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after the end of
the issuer's fiscal year, or such other time as the
Commission may prescribe, an annual report which shall
include, among others, a balance sheet, profit and loss
statement and statement of cash flows, for such last fiscal
year, certified by an independent certified public
accountant, and a management discussion and analysis of
results of operations; and
b) Such other periodical reports for interim fiscal periods
and current reports on significant developments of the
issuer as the Commission may prescribe as necessary to
keep current information on the operation of the business
and financial condition of the issuer.
17.2. The reportorial requirements of Subsection 17.1 shall
apply to the following:
c) An issuer with assets of at least Fifty million pesos
(P50,000,000.00) or such other amount as the
Commission shall prescribe, and having two hundred
(200) or more holders each holding at least one
hundred (100) shares of a class of its equity
securities: Provided, however, That the obligation of such
issuer to file reports shall be terminated ninety (90) days
after notification to the Commission by the issuer that the
number of its holders holding at least one hundred (100)
shares is reduced to less than one hundred (100).
(emphases supplied)
We also cite Rule 3(1)(m) of the Amended Implementing
Rules and Regulations of the SRC, which defines a "public
company" as "any corporation with a class of equity
securities listed on an Exchange or with assets in excess
of Fifty Million Pesos (P50,000,000.00) and having two
hundred (200) or more holders, at least two hundred
(200) of which are holding at least one hundred (100)
shares of a class of its equity securities."
From these provisions, it is clear that a "public
company," as contemplated by the SRC, 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 records establish, and the Bank does not dispute, that
the Bank has assets exceeding P50,000,000.00 and has
395,998 shareholders. It is thus considered a public
company that must comply with the reportorial
requirements set forth in Section 17.1 of the SRC.
The Bank also argues that even assuming it is considered a
"public company" pursuant to Section 17 of the SRC, the
Court should interpret the pertinent SRC provisions in such a
way that no financial prejudice is done to the thousands of
veterans who are stockholders of the Bank. Given that the
legislature intended the SRC to apply only to publicly traded
companies, the Court should exempt the Bank from
complying with the reportorial requirements.
On this point, the Bank is apparently referring to the
obligation set forth in Subsections 17.5 and 17.6 of the SRC,
which provide:
Section 17.5. Every issuer which has a class of equity
securities satisfying any of the requirements in Subsection
17.2 shall furnish to each holder of such equity
security an annual report in such form and containing
such information as the Commission shall prescribe.
Section 17.6. Within such period as the Commission may
prescribe preceding the annual meeting of the holders of
any equity security of a class entitled to vote at such
meeting, the issuer shall transmit to such holders an annual
report in conformity with Subsection 17.5. (emphases
supplied)
In making this argument, the Bank ignores the fact
that the first and fundamental duty of the Court is to
apply the law. Construction and interpretation come
only after a demonstration that the application of the
law is impossible or inadequate unless interpretation
is resorted to. In this case, we see the law to be very
clear and free from any doubt or ambiguity; thus, no
room exists for construction or interpretation.
Additionally, and contrary to the Bank's claim, the Bank's
obligation to provide its stockholders with copies of its
annual report is actually for the benefit of the veterans-
stockholders, as it gives these stockholders access to
information on the Bank's financial status and operations,
resulting in greater transparency on the part of the Bank.
While compliance with this requirement will undoubtedly
cost the Bank money, the benefit provided to the
shareholders clearly outweighs 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.
6. Citibank N.A. v. Tanco-Gabaldon, G.R. No. 198444,
September 4, 2013
FACTS:
On September 21, 2007, Gabaldon, Tanco and the Heirs of
Ku Tiong Lam (Lam) filed with the Securities and Exchange
Commissions Enforcement and Prosecution Department1
(SEC-EPD) a complaint for violation of the Revised Securities
Act (RSA) and the Securities Regulation Code (SRC) against
petitioners Citibank N.A. (Citibank) and its officials,
Citigroup Private Bank (Citigroup) and its officials,3 and
petitioner Carol Lim (Lim), who is Citigroups Vice-President
and Director. In their Complaint, the respondents alleged
that Gabaldon, Tanco and Lam were joint account holders of
petitioner Citigroup. Sometime in March 2000, the
respondents met with petitioner Lim, who induced them
into signing a subscription agreement for the purchase of
USD 2,000,000.00 worth of Ceres II Finance Ltd. Income
Notes. In September of the same year, they met again with
Lim for another investment proposal, this time for the
purchase of USD 500,000.00 worth of Aeries Finance II Ltd.
Senior Subordinated Income Notes. In a January 2003
statement issued by the Citigroup, the respondentslearned
that their investments declined, until their account was
totally wiped out. Upon verification with the SEC, they
learned that the Ceres II Finance Ltd. Notes and the Aeries
Finance II Ltd. Notes were not duly registered securities.
They also learned that Ceres II Finance Ltd., Aeries Finance II
Ltd. and the petitioners, among others, are not duly-
registered security issuers, brokers, dealers or agents.
Hence, the respondents prayed in their complaint that: (1)
the petitioners be held administratively liable;5 (2) the
petitioners be liable to pay an administrative fine pursuant
to Section 54(ii), SRC; (3) the
petitioners existing registration/s or secondary license/s to
act as a broker/dealer in securities, government securities
eligible dealer, investment adviser of an investment
house/underwriter of securities and transfer agent
be revoked; and (4) criminal complaints against the
petitioners be filed and endorsed to the Department of
Justice (DOJ) for investigation.
Petitioners Citibank and Citigroup claimed that they did not
receive a copy of the complaint and it was only after the
Bangko Sentral ng Pilipinas (BSP) wrote them on October
26, 2007 that they were furnished a copy.
They replied to the BSP disclaiming any participation by the
Citibank or its officers on the transactions and products
complained of. Citibank and Citigroup furnished a copy of its
letter to the SEC-EPD and the respondents
counsel.
On August 1, 2008, the SEC-EPD asked from the petitioners
certain documents to be submitted during a scheduled
conference, to which they complied. The petitioners,
however, reiterated its position that they are not
submitting to the jurisdiction of the SEC. The petitioners
were also required to submit other documents. Thereafter,
in an order dated December 8, 2008, the SEC-EPD
terminated its investigation on the ground that the
respondents action has already prescribed.7 According to
the SEC-EPD, [t]he aforesaid complaint was filed before the
[SEC-EPD] on 21 September 2007 while a similar complaint
was lodged before the [DOJ] on October 2005. Seven (7)
years had lapsed before the filing of the action before the
SEC while the complaint instituted before the DOJ was filed
one month after the expiration of the allowable period.8 It
appears that on October 24, 2005,the respondents had
already filed with the Mandaluyong City Prosecutors Office
a complaint for violation of the RSA and SRC but it was
referred to the SEC pursuant to Baviera v. Prosecutor
Paglinawan. In 2009, petitioners Citibank and Citigroup
received a copy of the respondents Notice of Appeal and
Memorandum of Appeals but the officials did not, as
according to them, the latter were not connected with them.
Citibank also alleged that they did not receive any order to
file a Reply Memorandum, in contravention of Section 11-5,
Rule XI of the 2006 SEC Rules of Procedure. It turned out,
however, that an order was issued by the SEC, dated
February 26, 2009, requiring the petitioners to file their
reply. On November 6, 2009, petitioners Citibank and
Citigroup received the SEC en banc Decision12 dated
October 15, 2009 reinstating the complaint and ordering the
immediate investigation of the case. Petitioner Lim, who
was then based in Hong Kong, learned of the rendition of
the SEC decision
Rulings:Given the absence of a prescriptive period for the
enforcement of the criminal liability in violations of the SRC,
Act No. 3326 now comes into play. Panaguiton, Jr. v.
Department of Justice27 expressly ruled that Act No.
3326 is the law applicable to offenses under special
laws which do not provide their own prescriptive
periods.28
Section 1 of Act No. 3326 provides:
Violations penalized by special acts shall, unless
otherwise provided in such acts, prescribe in accordance
with the following rules: (a) after a year for offenses
punished only by a fine or by imprisonment for not more
than one month, or both; (b) after four years for those
punished by imprisonment for more than one month, but
less than two years; (c) after eight years for those punished
by imprisonment for two years or more, but less than six
years; and (d) after twelve years for any other offense
punished by imprisonment for six years or
more, except the crime of treason, which shall prescribe
after twenty years. Violations penalized by municipal
ordinances shall prescribe after two months. (Emphasis
ours)
Under Section 73 of the SRC, violation of its provisions or the
rules and regulations is punishable with imprisonment of not
less than seven (7) years nor more than twenty-one (21)
years. Applying Section 1 of Act No. 3326, a criminal
prosecution for violations of the SRC shall,
therefore, prescribe in twelve (12) years.
Hand in hand with Section 1, Section 2 of Act No. 3326
states that prescription shall begin to run from the day of
the commission of the violation of the law, and if the same
be not known at the time, from the discovery thereof and
the institution of judicial proceedings for its investigation
and punishment. In Republic v. Cojuangco, Jr.29 the
Court ruled that Section 2 provides two rules for determining
when the prescriptive period shall begin to run: first, from
the day of the commission of the violation of the law, if
such commission is known; and second, from
its discovery, if not then known, and the institution of
judicial proceedings for its investigation and punishment.30
The respondents alleged in their complaint that the
transactions occurred between September 2000, when they
purchased the Subscription Agreement for the purchase of
USD 2,000,000.00 worth of Ceres II Finance Ltd. Income
Notes, and July 31, 2003, when their Ceres II Finance
Ltd. account was totally wiped out. Nevertheless, it was only
sometime in November 2004 that the respondents
discovered that the securities they purchased were actually
worthless. Thereafter, the respondents filed on October 23,
2005 with the Mandaluyong City Prosecutors Office
a complaint for violation of the RSA and SRC. In Resolution
dated July 18, 2007, however, the prosecutors office
referred the complaint to the SEC.31 Finally, the
respondents filed the complaint with the SEC on September
21, 2007. Based on the foregoing antecedents, only seven
(7) years lapsed since the respondents invested their funds
with the petitioners, and three (3) years since the
respondents discovery of the alleged offenses, that the
complaint was correctly filed with the SEC for investigation.
Hence, the respondents complaint was filed well within the
twelve (12)-year prescriptive period provided by Section 1 of
Act No. 3326.
7. Pua v. Citibank, N.A., G.R. No. 180064, September
16, 2013
The Facts
On December 2, 2002, petitioners filed before the RTC a
Complaint[6] for declaration of nullity of contract and sums of
money with damages against respondent,[7] docketed as
Civil Case No. 19-1159.[8] In their complaint, petitioners
alleged that they had been depositors of Citibank Binondo
Branch (Citibank Binondo) since 1996. Sometime in 1999,
Guada Ang, Citibank Binondos Branch Manager, invited Jose
to a dinner party at the Manila Hotel where he was
introduced to several officers and employees of Citibank
Hongkong Branch (Citibank Hongkong).[9] A few months
after, Chingyee Yau (Yau), Vice-President of Citibank
Hongkong, came to the Philippines to sell securities to Jose.
They averred that Yau required Jose to open an account with
Citibank Hongkong as it is one of the conditions for the sale
of the aforementioned securities. [10] After opening such
account, Yau offered and sold to petitioners numerous
securities[11] issued by various 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 in the
presence of its officers and employees.[12] Later on,
petitioners discovered that the securities sold to them were
not registered with the Securities and Exchange Commission
(SEC) and that the terms and conditions covering the
subscription were not likewise submitted to the SEC for
evaluation, approval, and registration. [13] Asserting that
respondents actions are in violation of Republic Act No.
8799, entitled the Securities Regulation Code (SRC), they
assailed the validity of the subscription agreements and the
terms and conditions thereof for being contrary to law
and/or public policy.
For its part, respondent filed a motion to dismiss alleging, inter
alia, that petitioners complaint should be dismissed outright
for violation of the doctrine of primary jurisdiction. It pointed
out that the merits of the case would largely depend on the
issue of whether or not there was a violation of the SRC, in
particular, whether or not there was a sale of unregistered
securities. In this regard, respondent contended that the
SRC conferred upon the SEC jurisdiction to investigate
compliance with its provisions and thus, petitioners
complaint should be first filed with the SEC and not directly
before the RTC.
Petitioners opposed respondents motion to dismiss,
maintaining that the RTC has jurisdiction over their
complaint. They asserted that Section 63 of the SRC
expressly provides that the RTC has exclusive jurisdiction to
hear and decide all suits to recover damages pursuant to
Sections 56 to 61 of the same law.
The Issue Before the Court
The essential issue in this case is whether or not petitioners
action falls within the primary jurisdiction of the SEC.
Petitioners reiterate their original position that the SRC itself
provides that civil cases for damages arising from violations
of the same law fall within the exclusive jurisdiction of the
regional trial courts.[30]
On the contrary, respondent maintains that since
petitioners complaint would necessarily touch on the issue
of whether or not the former violated certain provisions of
the SRC, then the said complaint should have been first filed
with the SEC which has the technical competence to resolve
such dispute.[31]
The Courts Ruling
The petition is meritorious.
At the outset, the Court observes that respondent
erroneously relied on the Baviera ruling to support its
position that all complaints involving purported violations of
the SRC should be first referred to the SEC. A careful reading
of the Baviera case would reveal that the same involves a
criminal prosecution of a purported violator of the SRC, and
not a civil suit such as the case at bar. The pertinent
portions of the Baviera ruling thus read:
A criminal charge for violation of the Securities
Regulation Code is a specialized dispute. Hence, it
must first be referred to an administrative agency of
special competence, i.e., the SEC. Under the doctrine of
primary jurisdiction, courts will not determine a controversy
involving a question within the jurisdiction of the
administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the
specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact.
The Securities Regulation Code is a special law. Its
enforcement is particularly vested in the SEC. Hence, all
complaints for any violation of the Code and its
implementing rules and regulations should be filed
with the SEC. Where the complaint is criminal in nature,
the SEC shall indorse the complaint to the DOJ for
preliminary investigation and prosecution as provided in
Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that
petitioner committed a fatal procedural lapse when
he filed his criminal complaint directly with the
DOJ. Verily, no grave abuse of discretion can be ascribed to
the DOJ in dismissing petitioners complaint
Records show that petitioners complaint constitutes a civil
suit for declaration of nullity of contract and sums of money
with damages, which stemmed from respondents alleged
sale of unregistered securities, in violation of the various
provisions of the SRC and not a criminal case such as that
involved in Baviera.
In this light, when the Court ruled in Baviera that all
complaints for any violation of the [SRC] x x x should be
filed with the SEC,[33] it should be construed as to apply
only to criminal and not to civil suits such as petitioners
complaint.
Moreover, it is a fundamental rule in procedural law that
jurisdiction is conferred by law; [34] it cannot be inferred but
must be explicitly stated therein. Thus, when Congress
confers exclusive jurisdiction to a judicial or quasi-judicial
entity over certain matters by law, this, absent any other
indication to the contrary, evinces its intent to exclude other
bodies from exercising the same.
It is apparent that the SRC provisions governing criminal
suits are separate and distinct from those which pertain to
civil suits. On the one hand, Section 53 of the SRC governs
criminal suits involving violations of the said law, viz.:
SEC. 53. Investigations, Injunctions and Prosecution of
Offenses.
53.1. The Commission may, in its discretion, make such
investigations as it deems necessary to determine whether
any person has violated or is about to violate any provision
of this Code, any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities association,
clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in
writing, under oath or otherwise, as the Commission shall
determine, as to all facts and circumstances concerning the
matter to be investigated. The Commission may publish
information concerning any such violations, and to
investigate any fact, condition, practice or matter which it
may deem necessary or proper to aid in the enforcement of
the provisions of this Code, in the prescribing of rules and
regulations thereunder, or in securing information to serve
as a basis for recommending further legislation concerning
the matters to which this Code relates: Provided, however,
That any person requested or subpoenaed to produce
documents or testify in any investigation shall
simultaneously be notified in writing of the purpose of such
investigation: Provided, further, That all criminal complaints
for violations of this Code, and the implementing rules and
regulations enforced or administered by the Commission
shall be referred to the Department of Justice for preliminary
investigation and prosecution before the proper
court:Provided, furthermore, That in instances where the law
allows independent civil or criminal proceedings of violations
arising from the same act, the Commission shall take
appropriate action to implement the same:Provided, finally,
That the investigation, prosecution, and trial of such cases
shall be given priority.
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. Among these, the applicable provisions to this
case are Sections 57.1 and 63.1 of the SRC which provide:
SEC. 57. Civil Liabilities Arising in Connection With
Prospectus, Communications and Reports. 57.1. Any
person who:
(a) Offers to sell or sells a security in violation of
Chapter III;
or
(b) Offers to sell or sells a security, whether or not exempted
by the provisions of this 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.
xxxx
SEC. 63. Amount of Damages to be Awarded. 63.1. 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.
Based on the foregoing, it is clear that cases falling under
Section 57 of the SRC, which pertain to civil liabilities arising
from violations of the requirements for offers to sell or the
sale of securities, as well as other civil suits under Sections
56, 58, 59, 60, and 61 of the SRC shall be exclusively
brought before the regional trial courts. It is a well-
settled rule in statutory construction that the term shall is
a word of command, and one which has always or which
must be given a compulsory meaning, and it is generally
imperative or mandatory.[35]Likewise, it is equally revelatory
that no SRC provision of similar import is found in its
sections governing criminal suits; quite the contrary, the
SRC states that criminal cases arising from violations of its
provisions should be first referred to the SEC.

Therefore, based on these considerations, it stands to
reason that civil suits falling under the SRC are under the
exclusive original jurisdiction of the regional trial courts and
hence, need not be first filed before the SEC, unlike criminal
cases wherein the latter body exercises primary jurisdiction.
All told, petitioners' filing of a civil suit against respondent
for purported violations of the SRC was properly filed
directly before the RTC.
8. SEC v. Santos, G.R. No. 195542, March 19, 2014
Facts:
Sometime in 2007, an investment scam was exposed with
the disappearance of Michael H.K. Liew (Liew), Chairman of
the Board of Directors of PIPC-BVI, a foreign corporation
registered in the British Virgin Islands. To do business in the
Philippines, PIPC-BVI incorporated here as Philippine
International Planning Center Corporation (PIPC
Corporation). Per its Articles of Incorporation, PIPC Corp. was
authorized to act only as a research arm of their foreign
clients.
When Liew absconded the country together with the entire
investment funds, the Securities and Exchange Commission
(SEC) was flooded with complaints from 31 individuals
against PIPC Corporation, its directors, officers, and agents
for alleged violation of the Securities Regulation Code.
Oudine Santos was charged in her capacity asinvestment
consultant of PIPC Corporation, for supposedly actively
engaging in the solicitation of private complainants Luisa
Lorenzo (invested USD500K) and Ricky Albino Sy (invested
USD 40K) to invest their monies in PIPC Corporation.
The investment product sold to complainants was called
Performance Managed Portfolio (PMP) which earned on
offshore foreign currency trading. It promised full protection
for the principal investment with profit of 12-18% per annum
with the profit shared between the client and PIPC.
Santos, in her defense, denied participation in the
conspiracy and fraud perpetrated against the investors and
claimed that she acted in good faith and was merely an
employee of, and subsequently an independent information
provider for, PIPC Corporation.
SEC filed a complaint with the DOJ which then issued
Resolutions charging Liew and Cristina Gonzalez-Tuason for
violation of Sections 8 and 26 of the Securities Regulation
Code. Meanwwhile Oudine Santos was charged for violation
of Section 28 of the SRC for engaging in the business of
selling or offering for sale securities, on behalf of PIPC
Corporation and/or PIPC-BVI (which were found to be an
issuer of securities without the necessary registration from
the SEC) without her being registered as a broker, dealer,
salesman or an associated person.
Santos filed a Petition for Review with the DOJ Secretary,
who issued the present challenged Resolution excluding
Santos from prosecution for violation of Section 28 on the
ground of lack of evidence that Santos acted as an agent for
PIPC Corp. and on the fact that Santos had never signed,
neither was she mentioned in, any of the investment
documents.
Held:
Determination of Probable Cause
1. Generally, at the preliminary investigation proper, the
investigating prosecutor, and ultimately, the Secretary of
the DOJ, is afforded wide latitude of discretion in the
exercise of its power to determine probable cause to warrant
criminal prosecution.
2. The determination of probable cause is an executive
function where the prosecutor determines merely that a
crime has been committed and that the accused has
committed the same. The rules do not require that a
prosecutor has moral certainty of the guilt of a person
simply for preliminary investigation purposes.
3. However, the authority of the prosecutor and the DOJ is
not absolute; it cannot be exercised arbitrarily or
capriciously. Where the findings of the investigating
prosecutor or the Secretary of the DOJ as to the existence of
probable cause are equivalent to a gross misapprehension
of facts, certiorari will lie to correct these errors.
Section 28, Securities Regulation Code (Unregistered
Securities Broker)
4. The elements for violation of Section 28 of the
Securities Regulation Code are: (a) engaging in the
business of buying or selling securities in the Philippines as
a broker or dealer; or (b) acting as a salesman; or (c) acting
as an associated person of any broker or dealer, unless
registered as such with the SEC.
5. Solicitation is the act of seeking or asking for business or
information; it is not a commitment to an agreement. While
Santos was not a signatory to the contracts on Sys or
Lorenzos investments, Santos procured the sale of the
unregistered securities to them by providing information on
the investment products being offered for sale by PIPC
Corporation and/or PIPC-BVI and convincing them to invest
therein. At each point of Sys and Lorenzos investment,
Santos participation thereon, even if not shown strictly on
paper, was prima facie established.
6. Santos never alleged that she did not receive extra
consideration for her simply providing information to Sy and
Lorenzo about PIPC Corporation and/or PIPC-BVI. Santos only
claims that the monies invested by Sy and Lorenzo did not
pass through her hands. In short, Santos did not present in
evidence her salaries as a supposed mere clerical
employee or information provider of PIPC-BVI. Such
presentation would have foreclosed all questions on her
status within PIPC Corporation and/or PIPC-BVI at the lowest
rung of the ladder who only provided information and who
did not use her discretion in any capacity.
7. The exculpation of Santos cannot be preliminarily
established simply by asserting that she did not sign the
investment contracts, as the facts alleged in this case
constitute fraud perpetrated on the public. The absence of
Santos signature in the contract is, likewise, indicative of a
scheme to circumvent and evade liability should the
pyramid fall apart.
Investment Contract
8. The transaction initiated by Santos with Sy and Lorenzo is
an investment contract or participation in a profit sharing
agreement that falls within the definition of the law. When
the investor is relatively uninformed and turns over his
money to others, essentially depending upon their
representations and their honesty and skill in managing it,
the transaction generally is considered to be
an investment contract. The touchstone is the presence
of an investment in a common venture premised on a
reasonable expectation of profits to be derived from
the entrepreneurial or managerial efforts of others.