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Section 23(b), the alleged violation of Abacus, which provides the basis for
1/13 ABACUS SECURITIES CORP. v. RUBEN U. AMPIL Ampil’s defense, 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
1. Ampil opened a cash or regular account with Abacus for the purpose of buying SEC.
and selling securities. They became bound to the terms under the Account Section 25 lays down the rules to prevent indirect violations of Section 23 by
Application Form. brokers or dealers.
2. Ampil actively traded his account, and accumulated an obligation in favor of RSA Rule 25- 1 prescribes in detail the regulations governing cash accounts.
Abacus worth P6M. o Purchases shall be paid in full within 3 days after trade.
3. Ampil failed to settle his account for the transactions on Apr. 10/11. o If full payment not received, broker shall cancel or liquidate the
4. Abacus sold Ampil’s securities to set off against his unsettled obligations. There transaction.
remained a P3.3M balance. o If a transaction is cancelled/liquidated as a result of non-payment, prior
5. Abacus’ counsel demanded that Ampil settle the balance plus the agreed to any purchase during the next 90 days, customer shall be required to
penalty. deposit sufficient funds in the account to cover each transaction.
6. Ampil asked for an extension. Granted but still failed to pay. o Written application for an extension of time to pay is required to be
7. Despite failure to pay, Abacus purchased and sold securities for Ampil’s account submitted to PSE or SEC.
(April 25/26). This purpose is to regulate the volume of credit flow, by way of speculative
8. Abacus did not cancel or liquidate a substantial amount of Ampil’s stock transactions, into the securities market and redirect resources into more
transactions until months after. productive uses.
9. His defense was that he was induced to trade in a stock security with Abacus A related purpose of the governmental regulation of margins is the stabilization
because it allowed offset settlement where he is not obliged to pay the purchase of the economy.
price. The margin requirements set out in the RSA are primarily intended to achieve a
a. Rather, it waits for the customer to sell. And if there is a loss, Abacus macroeconomic purpose, the protection of the overall economy from excessive
only required the payment of the deficiency. speculation in securities. Their recognized secondary purpose is to protect small
b. If the customer profits, Abacus deducts the purchase price and delivers investors.
the surplus, after charging commission. The law places the burden of compliance with margin requirements primarily
c. Further, he said all his trades were not paid in cash at any time after upon the brokers and dealers.
purchase or 4 days after transaction (T+4), and none was cancelled by Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out
Abacus as agreed upon. rule,” clearly vest upon Abacus the obligation, not just the right, to cancel or
d. Abacus also did not apply with PSE/SEC an extension of time for the otherwise liquidate a customer’s order, if payment is not received within three
payment of his cash purchases. days from the date of purchase.
10. RTC: Abacus violated the Revised Securities Act when of failed to o The word “shall” as opposed to the word “may,” is imperative and
a. Require Ampil to pay for his stock purchases within 3 or 4 days from operates to impose a duty, which may be legally enforced.
trading o For transactions subsequent to an unpaid order, the broker should
b. request from the appropriate authority an extension of time for the require its customer to deposit funds into the account sufficient to
payment of Ampil’s cash purchases. cover each purchase transaction prior to its execution.
c. They were in pari delicto because Abacus allowed Ampil to trade his o These duties are imposed upon the broker to ensure faithful compliance
account actively without cash, inducing him to purchase which results with the margin requirements of the law, which forbids a broker from
to excessive credits. extending undue credit to a customer.
d. Ampil’s fault was incurring excessive credits and waiting to see how the Nonetheless, these margin requirements are applicable only to transactions
investment would turn out before invoking the RSA. entered into by the present parties subsequent to the initial trades of April 10
11. CA: Affirmed. and 11, 1997.
ISSUE: Whether there were violations of the RSA. YES.
o Abacus can still collect from Ampil to the extent of the difference 2 PHILIPPINE STOCK EXCHANGE v. CA
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 1. Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, sought to offer
Rules. its shares to the public, to raise funds.
NOTE: 2. PALI was issued a Permit to Sell its shares to the public by the SEC. PALI filed w/
A margin account is an account in which the broker lends the customer cash with the PSE an application to list its shares.
which to purchase securities. Unlike a cash account, a margin account allows an 3. BOG received a letter from the heirs of Marcos, requesting deferment of PALI’s
investor to buy securities with money that he does not have, by borrowing the application, claiming that:
money from the broker. The RSA limits margin borrowing to a maximum of 50% a. Late Pres. Marcos was the legal and beneficial owner of certain assets
of the amount invested. in PALI’s name
In securities trading, the brokers are essentially the counterparties to the stock b. TDC, a stockholder of PALI, continues to be held in trust by Panlilio for
transactions at the Exchange. Since the principals of the broker are generally Marcos.
undisclosed, the broker is personally liable for the contracts thus made. 4. BOG rejected PALI’s application, citing the serious claims, issues and
o Hence, Abacus had to advance the payments for Ampil’s trades. Brokers circumstances surrounding PALI’s ownership over its assets that adversely affect
have a right to be reimbursed for sums advanced by them with the the suitability of listing PALI’s shares in the stock exchange.
express or implied authorization of the principal, in this case, Ampil. 5. PALI wrote SEC Acting Chairman Yasay, requesting that the SEC review the PSE’s
The Court is not prepared to accept the self-serving assertions by an investor action on PALI’s listing application and institute such measures as are just and
that he was just an “innocent victim” in all the transactions where it appears that proper under the circumstances.
he is not an unsophisticated, small investor merely prodded by the stock broker 6. SEC reversed the PSE, ordering PSE to immediately cause the listing of the PALI
to speculate on the market with the possibility of large profits with low, or no shares in the Exchange. CA affirmed.
capital outlay but rather is an experienced and knowledgeable trader who is well 7. PSE argues: CA erred in ruling that the SEC had authority to order the PSE to list
versed in the securities market and who made his own investment decisions the shares of PALI in the stock exchange.
o Ampil’s conduct is precisely the behavior of an investor deplored by law. a. SEC does not have the power to reverse the decisions of the stock
o We find Ampil equally guilty in entering into the transactions in violation exchange.
of the RSA and RSA Rules. b. The business judgment rule precludes the reversal of PSE’s decision to
deny a listing application, absent a showing a bad faith on the part of
the PSE.
c. PALI did not comply with the listing rules and disclosure requirements.
Its application contained misrepresentations and misleading
statements, and concealed material information.
ISSUE: W/N the SEC had authority to order the PSE to list the shares of PALI in the
stock exchange. NONE.
ISSUE: WON the SEC has the authority to initiate and file any suit (civil, criminal or
administrative) against IRC and its directors with respect to Sec 30 (inside trading)
and Sec. 36 (directors, officers and principal stockholders) of the Revised Securities
Act- YES
the shares of stock. “generally available” is a matter which may be adjudged given the particular circumstances of the case—the standards
2 A material fact is one that induces or tends to induce or otherwise affect the sale or purchase of securities. cannot remain at a standstill.
3 It is the standard on which most of our legal doctrines stand.
4 SEC vs. CA and CUALOPING SECURITIES CORPORATION AND FIDELITY STOCK Any peremptory judgment by the SEC, without such proceedings having first
TRANSFERS, INC been initiated, would be precipitate.
1. Cualoping Securities Corp is a stockbroker while Fidelity Stock Transfer is the ISSUE: WON the imposition of by the SEC of a 50K fine is proper. YES.
stock transfer agent of Philex Mining.
2. In 1988, certificate of stocks of PHILEX representing 1.4M shares were stolen This time, it is the regulatory power of the SEC which is involved. When, on
from the premises of FIDELITY. These are stock dividends returned to FIDELITY appeal to the Court of Appeals, the latter set aside the fines imposed by the SEC,
for lack of forwarding addresses to shareholders. the latter, in its instant petition, can no longer be deemed just a nominal party
3. Later, the stolen stock certificates ended in the hands of a certain Lopez who but a real party in interest sufficient to pursue an appeal to this Court.
then brough the stolen stock certificates to CUALOPING for trading and sale. The Revised Securities Act is designed, in main, to protect public investors from
4. Upon inspection of CUALOPING, the certificates bore the apparent indorsement fraudulent schemes by regulating the sale and disposition of securities.
in blank of the owners of the certificates and the words “Signature Verified” While both FIDELITY and CUALOPING are guilty of being negligent, to constitute,
apparently of FIDELITY were stamped on each and every certificate. It also however, a violation of the Revised Securities Act that can warrant an imposition
showed the usual initials of the officers of FIDELITY. of a fine under Section 29(3), in relation to Section 46 of the Act, fraud or deceit,
5. CUALOPING stamped the certificate with “Indorsement guaranteed” and not mere negligence, on the part of the offender must be established.
thereafter traded the same with the stock exchange. Fraud here is akin to bad faith which implies a conscious and intentional design
6. When the certificates were sold, the certificates were delivered to FIDELITY for to do a wrongful act for a dishonest purpose or moral obliquity.
the cancellation of stock certificates. FIDELITY conducted an investigation and However, the court said that they are still liable to pay the fine not under the
found that 2 of its employees were involved. Revised Securites Act, but under SEC-BED Memorandum Circular No. 9 Series of
7. FIDELITY rejected the issuance of new certificates in favor of the buyers alleging 1987 which provides:
that the signatures of the owners of the certificates were allegedly forged. o From transfer agent back to clearing house and/or broker — not longer
8. FIDELITY sought for the opinion of SEC which ordered FIDELITY to replace all the than ten (10) days from receipt of documents provided there is a "good
subject shares and to cause the transfer thereof in the names of the buyers and delivery," where there is no "good delivery," the certificate and the
CUALOPING is ordered to pay a fine of 50k for violating Sec. 29(3) of the Revised accompanying documents shall be returned to the clearing house or
Securities Act. broker not later than two (2) days after receipt thereo
9. Commission En Bank ruled that both are negligent and therefore, both will jointly Although this was not brought up in the lower courts, a court has the authority
replace the subject shares and pay the fine. to include all such issues in passing upon and resolving the controversy.
10. CA reversed the order setting aside the SEC’s adjudication without prejudice to
the right of persons injured.
ISSUE: WON the SEC can exercise its adjudicative function. NO.
This case, it might be recalled, has started only on the basis of a request by
FIDELITY for an opinion from the SEC. The stockholders who have been deprived
of their 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.
SEC's exclusive jurisdiction would require an assertion of a right by a proper party
against another who, in turn, contests it.
In the case, 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.
5 PINEDA V. LANTIN have revealed so fully that its main aim was have an order of the Securities and
Exchange Commission reviewed
1. In a letter addressed to SEC. La and Lopez (stockholders) complained of the Even assuming that they just wanted to stop the investigation, SC still has juris.
actions of Bacolod-Murcia Milling, and its Pres. (Araneta) with respect to the incidental orders of the SEC.
a. Violated acts in violation of the AoI, the Corp. Code, and the rules of SEC The role of SEC in our national economy cannot be minimized. The legislature
2. Pineda as Comm. of SEC ordered investigation has entrusted to it the serious responsibility of enforcing all laws affecting
a. It ordered subpoena duces tecum to Araneta corporations and other forms of associations not otherwise vested in some other
b. Araneta argued that with the approval of RA 1143, the power given to government offices. Being charged, therefore, with overseeing the operations of
SEC to conduct investigations has been qualified and made subject to those various corporate enterprises from which our government derives great
the condition that investigations must be conducted in accordance with revenues and income, it cannot afford to be impeded or restrained in the
the rules adopted by the Comm. performance of its functions by writs of injunction emanating from tribunals
c. And, since SEC had not yet adopted such rules, it could not proceed with subordinate to this Court.
the investigation
3. Pineda denied the petition filed by Araneta
4. Bacolod-Murcia and Araneta filed Motion to Quash and Discontinue Entire
Proceedings
a. Same contentions (fact no. 2 b)
b. Denied
5. Bacolod-Murcia and Araneta filed SCA for prohib. Before the CFI
6. SEC field MTD. Beyond the juris. Of CFI
7. CFI: MTD was denied
8. SEC filed MR. only the SC may review orders of SEC. that CFI was beyond its juris.
– dismissed
Under the Rules of Court and the law applicable to the case at bar, a Court of
First Instance has no jurisdiction to grant injunctive reliefs against the Securities
and Exchange Commission. That power is lodged exclusively with this Court
whenever a party is aggrieved by or disagrees with an order or ruling of the
Securities and Exchange Commission, his remedy is to come to this Court on a
petition for review. He is not permitted to seek relief from courts of general
jurisdiction.
The two provisions (Section 1 of Rule 43 of RoC and Sec 35 of RA 635- setting
forth the powers of SEC) clearly pronounce that only SC possesses the
jurisdiction to review or pass upon the legality or correctness of any order or
decision of the Securities and Exchange Commission, and, as circumstances
might warrant, to modify, reverse, or, set aside the same.
It was urged by Bacolod-Murcia and Araneta that the principal purpose of their
action in the lower court was not to have an order of the Securities and Exchange
Commission reviewed but to have the investigation stopped because of an
alleged lack of jurisdiction to proceed with the same
The contention carries no weight. This Court has thoroughly read through the
petition for prohibition with the lower court. But, even a cursory reading would
6 CEMCO V. NATIONAL LIFE INSURANCE CORP. In taking cognizance of respondents complaint against petitioner and eventually
rendering a judgment which ordered the latter to make a tender offer, the SEC
1. Union Cement Corporations (UCC) is a publicly-listed company. It has
two was acting pursuant to the Amended Implementing Rules and Regulations of the
Securities Regulation Code6
principal stockholders: UCHC – 60.51%; and Cemco – 17.03%.
The rule emanates from the SECs power and authority to regulate, investigate or
2. Majority of UCHC stocks are owned by: BCI – 21.31%; ACC (BCI’s
subsidiary) – supervise the activities of persons to ensure compliance with the Securities
29.69%; and Cemco – 9% Regulation Code, more specifically the provision on mandatory tender offer
3. In a letter, BCI and ACC informed the Philippine Stock Exchange of their under Section 19 thereof.
resolutions to sell their stocks in UCHC to Cemco. As a result of the acquisition, The provisions bestow upon the SEC the general adjudicative power which is
Cemco’s total beneficial ownership, direct and indirect, in UCC has increased by implied from the express powers of the Commission or which is incidental to, or
36% and amounted to at least 53% of the shares of UCC. reasonably necessary to carry out, the performance of the administrative duties
4. PSE inquired with the SEC as to whether the Tender Offer Rule under Rule 19 of entrusted to it. As a regulatory agency, it has the incidental power to conduct
the Implementing Rules of the Securities Regulation Code is not applicable to the hearings and render decisions fixing the rights and obligations of the parties.
purchase by petitioner of the majority of shares of UCC. Director Callangan of Moreover, CEMCO is barred from questioning the jurisdiction of the SEC. CEMCO
SEC Corporate Finance Department confirmed that the SEC en banc had resolved had participated in all the proceedings before the SEC and had prayed for
that the Cemco transaction was not covered by the tender offer rule.
affirmative relief. In fact, petitioner defended the jurisdiction of the SEC in its
Comment dated 15 September 2004, filed with the SEC.
5. Respondent National Life Insurance Company of the Philippines (NLIC), minority
stockholder of UCC, sent a letter to Cemco demanding the latter to comply with
SECOND ISSUE
the rule on mandatory tender offer. Cemco refused.
Tender offer is a publicly announced intention by a person acting alone or in
6. Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco,
concert with other persons to acquire equity securities of a public company 7.
as buyer, and the transaction was consummated and closed.
7. NLIC then filed a complaint with the SEC asking it to reverse its Resolution and to Tender offer is in place to protect minority shareholders against any scheme that
declare the purchase agreement of Cemco void and praying that the mandatory dilutes the share value of their investments. It gives the minority shareholders
the chance to exit the company under reasonable terms, giving them the
tender offer rule be applied to its UCC shares.
8. Cemco and other impleaded parties argued that the tender offer rule applied opportunity to sell their shares at the same price as those of the majority
only to a direct acquisition of the shares of the listed company and did not extend shareholders
to an indirect acquisition arising from the purchase of the shares of a holding Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under
company of the listed firm. the foregoing provision was increased to thirty-five percent (35%). It is further
9. SEC reversed its resolution. It ruled in favor of NLIC and directed provided therein that mandatory tender offer is still applicable even if the
petitioner Cemco to make a tender offer for UCC shares to respondent and other acquisition is less than 35% when the purchase would result in ownership of over
holders of UCC shares. CA held that SEC has jurisdiction over the petition and 51% of the total outstanding equity securities of the public company.
affirmed SEC. The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner
of 36% of UCC shares through the acquisition of the non-listed UCHC shares is
ISSUE: covered by the mandatory tender offer rule. This interpretation given by the SEC
1. WON SEC has jurisdiction. YES. and the Court of Appeals must be sustained.
2. WON the transaction was covered under the mandatory tender offer rule. YES. o It is a rule that construction given to a statute by an administrative
agency charged with the interpretation and application of that statute
FIRST ISSUE is entitled to great weight by the courts, unless such construction is
clearly shown to be in sharp contrast with the governing law or statute.
SEC and CA accurately pointed out that the coverage of the mandatory tender
6 13. Violation - If there shall be violation of this Rule by pursuing a purchase of equity shares of a public 7Public company - a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00
company at threshold amounts without the required tender offer, the Commission, upon complaint, may and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company.
nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to the
imposition of other sanctions under the Code.
offer rule covers not only direct acquisition but also indirect acquisition or “any 7 POWER HOMES UNLIMITED CORP. v. SEC
type of acquisition.” This is clear from the discussions of the Bicameral
Conference Committee on the Securities Act of 2000. 1. Power Homes (PHUC) is a domestic corporation duly registered with public
The legislative intent of Section 19 of the Code is to regulate activities relating to respondent SEC.
acquisition of control of the listed company and for the purpose of protecting a. Its purpose is to engage in the transaction of promoting, acquiring,
the minority stockholders of a listed corporation. Whatever may be the method managing, leasing, obtaining options on, development, and
by which control of a public company is obtained, either through the direct improvement of real estate properties for subdivision and allied
purchase of its stocks or through an indirect means, mandatory tender offer purposes, and in the purchase, sale and/or exchange of said subdivision
applies. and properties through network marketing. 8
2. On the basis of the letters of respondent Noel Manero and Romulo Munsayac to
check whether the business of Power Homes is legitimate, public respondent SEC
held a conference
3. PHUC submitted to public respondent SEC copies of its marketing course module
and letters of accreditation/authority or confirmation from Crown Asia, Fil-
Estate Network and Pioneer 29 Realty Corporation.
4. The SEC visited the business premises of petitioner wherein it gathered
documents (certificates of accreditation to several real estate companies, and
lists of Business Center Owners who are qualified to acquire real estate
properties).
5. On the same day, after finding petitioner to be engaged in the sale or offer for
sale or distribution of investment contracts, the SEC issued a CDO since PHUC
failed to register these as required by law.
6. Petitioner moved for the lifting of the CDO, which public respondent SEC denied
for lack of merit.
7. CA affirmed the decision of the SEC.
1. Union Bank sought SEC Chairman Yasay’s opinion on whether the Full Material BACKGROUND:
Disclosure Rule on banks is applicable 1. Nestle’s capital stock was increased from P300M (3M shares) to P600M.
a. Yasay said that such requirement does not apply to security of banks which 2. It underwent the necessary procedures involving Board and SH approvals and
are exempt under the Revised Securities Act, but if the stocks are traded, effected the filings to secure the approval of the increase of authorized CS by SEC
then they are covered and certain reports have to be filed. (which was granted).
2. SEC then wrote to Union Bank asking it to explain why it should not be penalized 3. Nestle paid P50k as filing fees.
for failing to submit a Proxy or Infromation Statement as to the meeting held by 4. Nestle only has 2 principal SH: San Miguel (SMC) and Nestle S.A.
it, thus violating the Full Material Disclosure Rule
a. SEC fined Union Bank with P91K as penalty for failing to file said report FACTS:
3. Union Bank argues that is not required to file the prescribed report because its 1. The BoD approved the resolutions authorizing the issuance of 344,500 shares
securities are exempt from registration requirements under the Revised out of the previously authorized but unissued CS of Nestle, exclusively to SMC
Securities Act (RSA) and Nestle SA.
a. SMC: 168,800; Nestle SA: 175,700
ISSUE: WON Union Bank is still subject to SEC Rules. YES 2. Nestle filed a letter with the SEC seeking exemption of its proposed issuance of
additional shares to its existing principal SHs from:
RSA Sec. 5, a, 3 – Exempt Securities from Registration – Any security issued or a. The registration requirement of Sec. 4 of the Revised Securities Act
guaranteed by any banking institution authorized to do business in the b. Payment of the fee required under Sec. 6(c).
Philippines, the business of which is substantially confined to banking, or a 3. Nestle’s main contentions:
financial institution licensed to engage in quasi-banking, and is supervised by the a. Sec. 6(a)(4). Exempt transactions. The requirement of registration shall
Central Bank. not apply to the sale of any security in any of the ff. transactions:
o The registration exemption does not mean it is exempt from reportorial i. the issuance of additional capital stock of a corporation sold or
requirements distributed by it among its own stockholders exclusively,
o Union Bank, as a bank, is primarily subject to the control of the BSP; and as where no commission or other remuneration is paid or given
a corporation trading its securities in the stock market, it is under the directly or indirectly in connection with the sale or distribution
supervision of the SEC. of such increased capital stock.
o the mere fact that in regard to its banking functions, petitioner is already b. The use of the term ‘increased capital stock’ should be interpreted to
subject to the supervision of the BSP does not exempt the former from refer to additional capital stock or equity participation of the existing
reasonable disclosure regulations issued by the SEC stockholders as a consequence of either an increase of the authorized
o Moreover, Union Bank is a listed corporation in the stock exchange. Thus, it capital stock or the issuance of unissued capital stock.
must adhere both to the banking laws, and the rules promulgated by SEC c. RE: Exemption from fee (Sec. 6)
o The RSA rules are designed to ensure full, fair and accurate disclosure of i. SEC could not collect fees for “the same transaction” twice. It
information to protect the investing public already paid P50k as filing fees to the SEC
4. SEC denied the requests. Section 6(a)(4) is applicable only where there is an
increase in the authorized CS of a corporation.
a. However, SEC said that the transaction may be considered under Sec.
6(b): The commission may exempt transactions if it finds that the
enforcement of the requirements of registration is not necessary in the
public interest and for the protection of the investors by reason of the
small amount involved or the limited character of the public offering.
5. Sec advised Nestle to file the appropriate request and pay the fee under Sec. 6
(one-tenth of 1% of the maximum aggregate price or issued value of the
securities shall be collected for granting a general or particular exemption from under the Revised Securities Act are not necessary in the public interest and for
registration). the protection of the investors by reason of the small amount of stock that is
6. CA: Sustained. proposed to be issued or because the potential buyers are very limited in number
and are in a position to protect themselves.
ISSUES: In fine, Nestle’s proposed construction of Section 6(a) (4) would establish an
1. Whether the transaction involved can be exempted from the registration inflexible rule of automatic exemption of issuances of additional, previously
requirements. NO. authorized but unissued, capital stock.
2. Whether Nestle has to pay the required fees under Sec. 6 (c). YES. SC must reject an interpretation which may disable the SEC from rendering
protection to investors, in the public interest, precisely when such protection
RE: EXEMPTION FROM THE REGISTRATION REQUIREMENTS may be most needed.
Both the SEC and the CA resolved the ambiguity by construing Section 6(a)(4) as
referring only to the issuance of shares of stock as part of and in the course of RE: PAYMENT OF FEES
increasing the authorized capital stock of Nestlé. The fee collected by the SEC was assessed in connection with the examination
In this case, since the 344,500 shares of Nestlé capital stock are proposed to be and approval of the certificate of increase of authorized capital stock then
issued from already authorized but still unissued capital stock and since the submitted by Nestle.
present authorized capital stock of 6M shares is not proposed to be further The fee provided for in Section 6 (c) which Nestle will be required to pay if it does
increased, the SEC and the CA rejected Nestle’s petition. file an application for exemption under Section 6 (b), is quite different:
SC upheld SEC and CA’s construction of the provision. o This is a fee specifically authorized by the Revised Securities Act, (not
The reading by the SEC of the scope of application of Section 6(a)(4) permits the Corporation Code) in connection with the grant of an exemption
greater opportunity for the SEC to implement the statutory objective of from normal registration requirements imposed by that Act.
protecting the investing public by requiring proposed issuers of capital stock to
inform such public of the true financial conditions and prospects of the
corporation.
By limiting the class of exempt transactions contemplated by the last clause of
Section 6(a)(4) to issuances of stock done in the course of and as part of the
process of increasing the authorized capital stock of a corporation, the SEC is
enabled
o to examine issuances by a corporation of previously authorized but
unissued capital stock, on a case-to-case basis, under Section 6(b);
o to grant or withhold exemption from the normal registration
requirements depending upon the perceived level of need for
protection by the investing public in particular cases.
Nestlé argues that the issuance of previously authorized but unissued CS would
automatically constitute an exempt transaction, without regard to the length of
time which may have intervened between the last increase in authorized capital
stock and the proposed issuance during which time the condition of the
corporation may have substantially changed, and without regard to whether the
existing stockholders to whom the shares are proposed to be issued are only two
giant corporations as in the instant case, or are individuals numbering in the
hundreds or thousands.
SEC ruled: An issuance of previously authorized but still unissued capital stock
may, in a particular instance, be held to be an exempt transaction by the SEC
under Section 6(b) so long as the SEC finds that the requirements of registration
10 ROY NICOLAS v. CA and BLESILO BUAN Nicolas did not state the reasons and the factors behind the losses incurred in
the course of the transactions. It is an incomplete record yielding easily to the
1. Roy Nicolas and Blesito Buan entered into a Portfolio Management Agreement inclusion or deletion of certain matters.
(PMA) wherein Nicolas was to manage the stock transactions of Buan for 3 Hence, no evidentiary value can be attributed to these statements.
months w/ automatic renewal clause.
2. However, Buan terminated the agreement and requested for an accounting of (2) Nicolas was unlicensed.
all transactions made by Nicolas. Nicolas traded securities for the account of others without the necessary license
3. 3 weeks after the termination of the agreement, Nicolas demanded from Buan from the SEC. This omission was in violation of Section 19 of the Revised
P68,263.67 representing his management fees. Demands went unheeded. Securities Act which provides that no broker shall sell any securities unless he is
4. Nicolas filed a complaint for collection of sum of money against Buan. Buan registered with the SEC.
contended that Nicolas mismanaged his transactions resulting in losses, thus, not An unlicensed person may NOT recover compensation for services as a broker
entitled to any management fees. where a statute requiring a license is applicable and such statute or ordinance
is of a regulatory nature, which was enacted in the exercise of the police power
ISSUE: W/N Nicolas was entitled to the management fees. NO, BECAUSE OF 2 for the purpose of protecting the public.
REASONS. Stock market trading, a technical and highly specialized institution in the
Philippines, must be entrusted to individuals with proven integrity, competence
Under the PMA. Buan would pay Nicolas 20% of all realized profits every end of and knowledge, who have due regard to the requirements of the law.
the month as management fees. The key word in the provision is profits. The purpose of the statute requiring the registration of brokers selling securities
Like any services rendered or performed, stock brokers are entitled to and the filing of data regarding securities which they propose to sell, is to protect
commercial fees or compensation under the Revised Securities Act Rule 19-13: the public and strengthen the securities mechanism.
“Charges by brokers or dealers, if any, for service performed, including
miscellaneous services such as collection of monies due for principal,
dividends, interests, exchange or transfer of securities, appeals, safekeeping or
custody of securities, and other services, shall be reasonable and not unfairly
discriminatory between customers.”
ISSUES:
1. WON the buying member of shares can refuse to accept a delivery made beyond
the period stipulated in the exchange contracts it executed with the selling
member. NO.
2. WON the Rules can affect contracts involving third persons. YES.
FIRST ISSUE:
To resolve the issues raised by the parties, we first examine the nature and
purposes of an exchange:
Exchange - a voluntary association or corporation organized for the purpose of
furnishing to its members a convenient and suitable place to transact their
business of promoting uniformity in the customs and usages of merchants, of
inculcating principles of justice and equity in trade, of facilitating the speedy
adjustment of business disputes, of acquiring and disseminating valuable
commercial and economic information and generally of securing to its members o Unless the buying member timely notifies the seller that he is canceling
the benefits of cooperation in the furtherance of their legitimate pursuits. his orders, then the orders placed by the buying member still stand.
Like any other association, an exchange has the power to adopt its own o LLL must, therefore, accept the delivery of the shares of stocks. If the
constitution, by-laws, rules and regulations so far as they are not contrary to law shares had doubled or trebled in value, it could demand delivery of
or public policy and which will secure to the members exclusive rights and what it purchased.
privileges which the courts have fully recognized. o The rule is clear. It was the duty of LLL to make a demand in the event
Anyone who becomes a member of the exchange voluntarily submits himself CMS failed to deliver within the stipulated time.
to the operation of these rules and is expected to be bound by and to respect
them. SECOND ISSUE:
There is no dispute that the exchange contracts in question were drawn up on The contention that rules and regulations of the exchange should not apply to or
the floor of the Makati Stock Exchange between two (2) member stockbrokers, affect contracts which may involve third persons is without merit.
CMS as the seller and LLL, as the buyer for and on orders of the third parties. Carolina Industries, Inc., v. CMS Stock Brokerage, Inc. - rules and regulations of
As members of the stock exchange, they are bound by the rules and by-laws of the Stock Exchange form part of the contract. Such rules and regulations become
the exchange. special terms of the contract.
In this case, the shares of stocks were bought by petitioner for and on orders of
FIRST ISSUE: Rene Ledesma, Jose Ma. Lopez, Alfredo Ramos and Cesar A. Lopez, Jr. As a
The rule at issue in the instant case is Section I, Article V9 of the Rules and general rule and subject to certain limitations, a customer who engages a
Regulations. broker to execute an order on a stock or produce exchange confers authority
Sec.1(3) of Art. 5 of the Rules provides that “15 days shall be considered a on such broker to conduct the transaction according to the rules and
reasonable period of time within which to effect delivery, unless otherwise established customs of the exchange on which he deals, and the customer is
stated in the sales contract.” thereby bound by such rules and customs, even though he may not have actual
o The exchange contracts in the instant case falls under the “unless” knowledge of them.
clause. The parties merely stipulated a period (10-20 days) but such There are certain limitations such as when the rules and customs of the exchange
qualification does not in any way change the nature of the exchange vary or contradict the contract between the customer and his broker, or change
contracts. the legal relations of the parties or when they are illegal or unreasonable,where
The buying member’s duties under Sec. 1(4) of Art. 5 of the Rules remain: the customers are not bound. However, these limitations are not at all attendant
o It shall be the buyer’s duty to advise the selling member in writing in in the present case.
case the latter fails to delivery the stocks sold under a delayed delivery
contract; and
AS TO THE ALLEGATION THAT THE CMS ALSO VIOLATED THE CONTRACT, MAKING
THEM IN PARI DELICTO – RULES ON NCC ON RESCISSION OF CONTRACT DO NOT
o In the event that the seller is unable to make delivery within said period,
APPLY
the buying member shall deliver a copy of his letter of demand to the
Court held that time is of the essence in these particular contracts because of
chairman of the Floor Trading and Arbitration Committee who may
the speculative and fluctuating value of stocks.
purchase the shares for the selling member’s accounts.
Under the applicable rule, the failure of the seller to deliver the stocks does not
More than any person, it is the buyer who should be aware whether or not what give the buying member the right to rescind the contract. If the selling member
he purchased has been delivered to him. Because of this awareness, the fails or refuses to deliver, it may be compelled through the Chairman of the Floor
Exchange imposes upon him the primary obligation of giving notice. Trading and Arbitration Committee to purchase the same for the selling
The rule also provides a remedy in case the selling member fails to deliver the member's account. There being a special remedy agreed upon by the members,
stocks ordered from the seller. (REMEDY LAST PAR. IN THIS DIGEST!!!)
9 In the event of a Selling Member failing to make delivery within a reasonable period of time of shares sold under delayed Fifteen days shall be considered a reasonable period of time within which to effect delivery unless otherwise stated in the
delivery contract, it shall be the Buying Member duty to advise the Selling Member in writing giving him 1 full business sales contract.
day from the time of receipt of said letter of demand to make delivery. In the event a Selling Member is unable to make delivery within said period, the Buying Member shall deliver a copy of
The Buying Member shall obtain a written receipt from the Selling Member on the duplicate copy of the letter of demand. his letter of demand to the Chairman of the Floor Trading & Arbitration Committee who may purchase the shares for the
This receipt must state the time of delivery of the letter of demand to the Selling Member. Selling Member's Account.
the right of rescission under the New Civil Code as invoked by the petitioner is 16 SEC vs. Performance Foreign Exchange Corp.,
inapplicable.
1. Performance was registered under SEC with a purpose under its Articles “to
operate as a broker/agent between market participants in transactions
involving, but not limited to, foreign exchange, deposits, certificate of deposits,
bills of exchange and all related, similar or derivative products, other than acting
as a broker for the trading of securities pursuant to the Revised Securities Act of
the Philippines.
a. Secondary purpose is to engage as a money changer
2. SEC sent a letter to Performance requiring it to appear before the Compliance
and Enforcement Department (CED) for a clarificatory conference
a. After the meeting CED director said that there is a possible violation of the
SRC because it was found engaged in the trading of foreign currency futures
contracts without a license. CED issued a cease and desist order.
b. SEC Chairman sent a letter to BSP requesting whether transactions
involving financial derivatives can be undertaking by those performing
quasi-banking functions.
c. Despite the SEC Chairman’s letter, SEC denied the MR of Performance as
regards the cease and desist order. And eventually made such order
permanent.
i. It even stated in the denial that the SEC cannot determine
whether such transactions are executed in Singapore or HK;
and whether the foreign currency rates are verifiable
d. Performance elevated the case to the CA
3. BSP, in the meantime wrote to SEC Chairman saying that the activity of
Performance is valid.
ISSUE: WON the issuance of the Cease and Desist Order is valid. NO
SRC provides that the Cease and Desist order may be issued by the SEC after
proper investigation or verification, motu proprio or upon verified complaint.
This is without need of a prior hearing if the act or practice, unless restrained,
will operate as fraud on investors or will cause grave and irreparable injury to
the prejudice of the investing public.
o The requisites are:
it must conduct proper investigation or verification
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, there was no proper investigation or verification
o the clarificatory conference is not an investigation – it was merely the initial
stage. In fact, SEC Chairman even asked for verification from the BSP
o it even admitted it cannot determine certain facts – where the execution
was made or whether the rates used are verifiable
o They even issued the Cease and Desist Order even before the BSP opinion 17 PHILIPPINE STOCK EXCHANGE, INC. v. CA, SEC, and PUERTO AZUL
came out
Thus, since there was no proper investigation, they could not determine whether 1. Puerto Azul Land (PALI) sought to offer its shares to the public in order to raise
the act will operate as fraud to the public unless restraind funds to develop its properties and pay its loans.
2. SEC issued PALI a Permit to Sell its shares to the public.
3. PALI sought to course the trading of its shares through PSE, for which it filed with
PSE an application to list its shares.
4. Before it could act upon PALI’s application, the Board of Governors of the PSE
received a letter from the heirs of Ferdinand Marcos, requesting PALI’s
application to be deferred, claiming that:
a. The late Marcos was the legal and beneficial owner of certain properties
forming part of the Puerto Azul Beach Hotel and Resort Complex which
PALI claims to be among its assets.
b. The Ternate Development Corporation (TDC), which is among the
stockholders of PALI, is in trust by Panlilio for Marcos (how his estate).
5. PALI: They are not claiming the properties as their assets. Further, TDC only owns
1.2% of PALI.
6. PSE was informed that a TRO was issued enjoining the Marcoses from interfering
with the approval by PSE of the initial public offering of PALI.
7. The Board of Governors of PSE, however, rejected PALI’s application, citing the
existence of serious claims and issues surrounding PALI’s ownership over its
assets.
8. PALI wrote a letter to SEC, bringing into its attention the action taken by PALI and
requested that SEC, in the exercise of its supervisory and regulatory powers over
stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSE’s action and
institute such measures as are just and proper under the circumstances.
9. SEC: In favor of PALI.
10. CA: Affirmed. SEC had both jurisdiction and authority to look into the decision of
PSE, pursuant to Section 3 of the Revised Securities Act in relation to Section 6(j)
and 6(m) of P.D. No. 902-A, and Section 38(b) of the Revised Securities Act, and
for the purpose of ensuring fair administration of the exchange.
ISSUE: Whether SEC had the power to reverse PSE’s actions. YES, but it did not do so
in this case because there was no bad faith.
The question as to what policy is, or should be relied upon in approving the
registration and sale of securities in the PSE is not for the Supreme Court to
determine, but is left to the sound discretion of the Securities and Exchange
Commission.
In mandating the SEC to administer the Revised Securities Act, and in
performing its other functions under pertinent laws, the Revised Securities Act,
under Section 3, gives the SEC the power to promulgate such rules and
regulations as it may consider appropriate in the public interest for the
enforcement of the said laws.
The second paragraph of Section 4 of the said law, on the other hand, provides 18 SEC v. PROSPERITY.COM
that no security, unless exempt by law, shall be issued, endorsed, sold,
transferred or in any other manner conveyed to the public, unless registered in 1. Prosperity.Com, Inc. (PCI) sold computer software and hosted websites.
accordance with the rules and regulations that shall be promulgated in the public 2. PCI devised a scheme, patterned after that of Golconda Ventures, Inc. (GVI). GVI
interest and for the protection of investors by the Commission. stopped operations after the SEC issued a cease and desist order (CDO) against
Presidential Decree No. 902-A, on the other hand, provides that the SEC, as it. The scheme:
regulatory agency, has supervision and control over all corporations and over the a. For US$234, a buyer acquires from it an internet website of a 15MB
securities market as a whole, and as such, is given ample authority in determining capacity.
appropriate policies. b. By referring to PCI his own down-line buyers, a first-time buyer could
Notwithstanding the regulatory power of the SEC over the PSE, and the earn commissions, interest in real estate, and insurance coverage
resultant authority to reverse the PSE’s decision in matters of application for worth P50k.
listing in the market, the SEC may exercise such power only if the PSE’s c. These second tier of buyers could in turn build up their own down-
judgment is attended by bad faith. lines. For each pair of down-lines, the sponsor received US$92.
In reaching its decision to deny the application for listing of PALI, PSE considered 3. Persons who ran the affairs of GVI directed PCI’s actual operations.
important facts, which, in the general scheme, brings to serious question the 4. Disgruntled officers of GVI filed a complaint with the SEC against PCI, alleging
qualification of PALI to sell its shares to the public through the stock exchange. that PCI had taken over GVI’s operations.
During the time for receiving objections to the application, PSE heard from the 5. SEC issued a CDO against PCI. Found that PCI’s scheme constitutes an
representative of Marcos and his family who claim the properties of PALI to be Investment contract, thus, it should have first registered such contract or
part of the Marcos estate. securities with the SEC.
o In time, the PCGG confirmed this claim.
o In fact, an order of sequestration has been issued covering the ISSUE: W/N PCI’S scheme constitutes an investment contract. NO, BECAUSE THE
properties of PALI, and suit for reconveyance to the state has been filed LAST REQUISITE OF THE HOWEY TEST IS LACKING,
in the Sandiganbayan Court.
o How the properties were effectively transferred, despite the An investment contract is a contract, transaction, or scheme where a person
sequestration order, from the TDC and MSDC to Panlilio, and to PALI, in invests his money in a common enterprise and is led to expect profits primarily
only a short span of time, are not yet explained to the Court, but it is from the efforts of others. SRC treats investment contracts as securities that
clear that such circumstances give rise to serious doubt as to the have to be registered with the SEC before they can be distributed and sold.
integrity of PALI as a stock issuer. For an investment contract to exist, the ff elements, referred to as
PSE was in the right when it refused application of PALI, for a contrary ruling was the Howey test must concur:
not to the best interest of the general public. 1. a contract, transaction, or scheme
The purpose of the Revised Securities Act, after all, is to give adequate and 2. an investment of money
effective protection to the investing public against fraudulent representations, 3. investment is made in a common enterprise
4. expectation of profits
or false promises, and the imposition of worthless ventures.
5. profits arising primarily from the efforts of others.
Example: The long-term commercial papers that large companies, like San
Miguel Corporation, offer to the public for raising funds that it needs for
expansion. When an investor buys these papers or securities, he invests his
money in SMC with an expectation of profits arising from the efforts of those
who manage and operate that company. SMC has to register these commercial
papers with the SEC before offering them to investors.
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 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.
o The US$234 it gets from its clients is merely a consideration for the sale 19 SEC v CA (same case as number 4)
of the websites.
Actually, PCI appears to be engaged in network marketing. 1. Cualoping is a stockbroker, while Fidelity is the stock transfer agent of Philex
o The commissions, interest in real estate, and insurance coverage are Mining Corporation.
incentives to down-line sellers to bring in other customers. These can 2. 1.4M shares of stock (stock dividends that were returned for lack of forwarding
hardly be regarded as profits from investment of money under addresses of the shareholders concerned) of Philex were stolen from the
the Howey test. premises of Fidelity.
o PCI expects profit from the network marketing of its products. 3. The stolen stock certificates ended in the hands of Agustin Lopez.
4. Lopez brought such stock certificates to Cualoping for trading and sale with the
stock exchange.
a. All of the said stock certificates bore the signature in blank of the
owners thereof and a verification of such signatures by Fidelity.
5. Cualoping traded the same with the stock exchange. After the stock exchange
awarded and confirmed the sale of the stocks represented by said certificates to
different buyers, the same were delivered to Fidelity for the cancellation of the
stocks certificates and for issuance of new certificates in the name of the new
buyers.
6. Fidelity rejected the issuance of new certificates in favor of the buyers because
the signatures of the owners of the certificates were allegedly forged by 2 of its
employees, thus the cancellation and new issuance thereof cannot be effected.
7. Fidelity sought an opinion on the matter from SEC
a. SEC i) ordered the 2 stock transfer agencies to jointly replace the subject
shares and for Fidelity to cause the transfer thereof in the names of the
buyers, and ii) for each to pay a fine; CA reversed.
ISSUE: WON SEC had the authority to rule in such wise- NO AS TO FIRST PART, YES
AS TO SECOND PART.
As regards the portion of the SEC decision which ordered the replacement of the
subject shares and for the transfer thereof in the name of the buyers, such calls
for the exercise of SEC’s adjudicative jurisdiction.
o 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- 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 endorsee.
As regards the portion of the SEC decision which ordered the payment of a fine,
such is an exercise of the regulatory power of the SEC.
o The SEC is given the authority to impose a) suspension or revocation of
registration/permit or b) fine if after proper notice and hearing, it finds
that there is a violation of the Revised Securities Act, its rules, or its
orders.
o Both Fidelity and Cualoping have been guilty of negligence in the
conduct of their affairs involving the questioned certificates of stock. To 20 SALES V. SEC
constitute, however, a violation of the Revised Securities Act that can
warrant an imposition of a fine, fraud or deceit, not mere negligence, 1. State Investment House entered into a sales agreement with Sipalay Mining
on the part of the offender must be established. Fraud here is akin to whereby the latter sold to the former 2.6M common shares of its capital stock,
bad faith which implies a conscious and intentional design to do a on the condition that State Investment shall not sell more than 1M shares per
wrongful act for a dishonest purpose or moral obliquity. buyer.
In this case, therefore, Fidelity and Cualoping may not be made 2. Subsequently, the restriction on the sale of the shares was modified by allowing
liable. sale in blocks from 1M shares to 5M shares per buyer. State Investment sold the
The violation by Fidelity, however, of SEC-BED Memorandum Circular No. 9, 200M shares to Anselmo Trinidad & Co., Inc. (ATCO).
series of 1987 as regards the delivery of stock certificates (failure to return to the 3. During the time that ATCO held the shares, it voted them in the stockholders'
clearing house or broker not later than 2 days after receipt of the certificates of meetings of Sipalay Mining.
stock where there is no good delivery thereof), calls for the imposition of a fine. 4. Later on, ATCO in turn sold 198.5M of the shares to VULCAN.
5. By resolution of the BODs of Sipalay Mining, its President was directed to sign
the certificate of stock that would effect the transfer.
6. Prior to the scheduled annual stockholders’ meeting of Sipalay Mining,
petitioners filed before the SEC a petition to nullify the sale of the shares to
VULCAN, with a prayer for the issuance of a writ of preliminary injunction to
enjoin VULCAN from voting the shares.
7. The SEC temporarily restrained VULCAN from voting its 198.5M shares at the
1979 annual stockholders’ meeting pending resolution of petitioners’ petition
for the issuance of a writ of preliminary injunction.
8. The annual stockholders’ meeting of Sipalay Mining proceeded without the
participation of VULCAN’s 198.5M shares and the members of the BODs were
elected.
9. Petitioners were able to elect candidates from their group.
10. SEC lifted the injunction and ruled that the shares of VULCAN be allowed to vote.
Furthermore, SEC created a committee to oversee the election of the BOD.
11. It is this election of members of the board of directors on July 18, 1979, which is
being questioned by respondent Vulcan wherein it prays that the stockholders'
meeting on the aforementioned date be declared null and void.
The sale of the shares of stock had long been perfected and is presumed valid
until declared otherwise.
The Court is not at liberty to review whether or not the decision of the board to
direct its President to sign the stock certificate was to the best interest of the
corporation: It is a well-known rule of law that questions of policy or of
management are left solely to the honest decision of officers and directors of a
corporation, and the court is without authority to substitute its judgment for the
judgment of the board of directors; the board is the business manager of the
corporation, and so long as it acts in good faith its orders are not reviewable by
courts.
Moreover, there is legal basis to support the SEC's view that "considering that 21 PHILIPPINE VETERANS BANK V. CALLANGAN
the questioned shares constitute the majority, it is more equitable that the same
be allowed to vote rather than be enjoined. 1. Callangan, Dir. Of the Corporation Finance Dept. of SEC, sent Veterans a letter
The Court will not deprive a stockholder of his right to vote his shares in the a. That it qualifies as a public company under the SRC
annual stockholders' meeting, except upon a clear showing of its lawful denial b. The bank is thus required to comply with the reportorial requirements
under the articles of incorporation or by-laws of the corporation, as it is a right 2. Veterans responded that it should not be considered as a public company
inherent in stock ownership. because it is a private one whose shares of stock are available only to a limited
class or sector (WWII veterans only)
NOTE: Guys eto lang nakita kong issue about securities, puro Corp and REM yung iba 3. Callangan rejected Veterans explanation and assessed it a penalty of 1.9M for
huhu. failing to comply from 2001 to 2003
4. MR was denied. SEC EB also dismissed appeal. CA affirmed SEC
ISSUE: Whether Veterans Bank is a public company burdened with the reportorial
requirements under SRC. YES.
Bank asks the Court to take into consideration the financial impact to the cause
of veteranism; if the Bank would be considered a public company, would compel
the Bank to spend approximately 40M just to reproduce and mail the
Information Statement to its 400,000 shareholders nationwide.
SRC: a public company is any corporation with a class of equity securities listed
on an Exchange or with assets in excess of 50M and having 200 or more holders,
at least 200 of which are holding at least 100 shares of a class of its equity
securities.
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
Records establish, and the Bank does not dispute, that the Bank has assets
exceeding 50M and has 395,998 shareholders. It is thus considered a public
company
Bank also argues that even assuming it is considered a public company, the Court
should interpret the pertinent SRC provisions in such a way that no financial
prejudice is done to the thousands of veterans “furnish to each holder of such
equity security an annual report”
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
Contrary to the Banks claim, the Banks 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 Banks
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.
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.