CORPORATION LAW TSN 2017
Based on the Lectures of Fr. Agustin Nazareno
THIRD EXAM COVERAGE
February 2, 2018 - 1st half
(Jennifer Lim)
Today we begin with Republic Act 8799
otherwise known as the Securities Regulation Code.
Took into effect in the year 2000 (July 17, 2000 ingon ni
Father but July 19, 2000 sa codal. Please check na
lang.)
Securities Regulation Code Amended took over the
Revised Securities Code. The Revised Securities Code
took over from the Securities Code which was enacted
by an act of Congress. In 1906 together with ____ after
the enactment of the US Securities Act. It was a legal act
when the Americans took over the century. It was one of
the things they introduced other than Coca-Cola,
securities.
What is the law of the US? The Law of the US up to now
is still the Securities Code. Tiguwang na. Revised
Philippines Code, Securities Regulation Code. Parehas
sa ilang Consittution wa gyud minglahos pa, kita? Katulo
o kaupat. Ganahan kaayo ta mamanday ug balaod ug
Constitution.
Now, the SRC is classified as a blue-sky law. It has
been asked in the bar examination. What is a blue-sky
law? That terminology “blue-sky” came from the US
Supreme Court. The US SC in one case laid down the
rule that the Securities Act of the US is meant to
protect the unwary investing public of conartists and
chiselers who try to peddle defective if not inexistent
securities which purport to sell nothing more than a
blue feat of the blue sky.
Ang atong termino dinhi sa Pilipinas, there are so many
chiselers who purport to sell Jones Bridge sa Manila.
Kapila na nabaligya unya kapila na pud nay mupalit.
The language of the SC cannot be applied to
securities because inig pangilad nato bisan tangible
property mailad man ta ana. Ang ilaha lang mailad (sa
US) kay kana man intangible properties such as a
security.
We need a special protection (PH) because the normal
caveat emptor or principle cannot be applied. Palit kag
kabayo, maexamine man nimo ang kabayo. Muingon
ang tao na kining kabayu-a milabay nang tatlo ka tuig,
you can verify that. Tan-awon nimo ang kabayo.
Nigawas na bang wisdom tooth niya ig mugawas na
gane tiguwang na nah.
You can examine it physically but if you buy shares of
stock, unsaon man nimo pag tan aw? Caveat emptor na.
It’s the underlying the physical aspects that are
involved. What is this corporation? Does it have assets?
They produce financial statements and these financial
statements are audited. An independent external
auditor certifies that this inexistent risk corporation
accurately and timely tells the financial store of the
corporation in accordance with the generally accepted
activity. You can look at the financial statements. You
can rely on the financial statements that it is issuing
shares of stock.
Technically speaking, there should be a basic soundness
of the securities that are being sold. No security that is
based on standard and disclosure policy requires the law
should be required to be bought and sold. The law seeks
to establish that securities. How? By the system of
registration. You cannot sell securities unless you
register. Then, all the people associated with it must be
registered – issuer, broker, dealer, salespersons, natural
persons associated with the dealer, persons associated
with the broker.
DEFINITIONS
Who is the issuer?
He is the one who originates the security. It is not
only the corporation. The person who has control of the
corporation that issues the security is also an issuer. He
must be registered also. So, it is a system of registration.
The facility that enables the buying and selling is also
registered. The security is also registered. Muingon ba
ka aron na the place where the securities are bought
and sold are __. Muingon gani kag place, it is still
tangible property. Wa pa gyud diay ka mu-tugkad sa gi
lawmon sa Securities Law. Facility na ron dili na lugar.
Muingon gani kag stock market dili na lugar because
now it is possible for you to trade securities online. Dili
na ka kailangan muadto sa Wall Street.
Kaniadto, nya nay wall mag dala kag lata mutindog kas
one side ang buyers and the seller on the other side.
Mag singgit2x siya niya, makita siya sa tanan. Mao man
nang Wall Street. Have you seen it? How wide is it? Wa
mo na intresado ana? Jacinto is wider than Wall Street. .
I’ve been to Wall Street, gitan-aw nako ang kamubo
gamay diay dalana. Kaniadto cobblestone gud big part
of the Central Bank ilaha nang gipreserve. Kanang bato
nga murag bricks nya gitaod2x.. Mao man na kaniadto
ang dalan kinakugsan.
(Chika about 12 kilometers for a week travel of Henry
VIII)
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 CORPORATION LAW TSN 2017
Based on the Lectures of Fr. Agustin Nazareno
Very few of us realize the convenience of the facility we
now enjoy. Si Henry VIII musugot makigbalyo sa
ordinary worker. Wa gud sine niadto. Nya karon on
demand naa na. Daghan kaayo ug convenience.
Cobblestone of Wall Street is only equity of the New York
Stock exchange. Ang Pilipinas wa gani mi-1 percent. It is
a volume-inflated stock exchange. Kadako sa New York
Stock Exchange. Makati Stock Exchange wa gani maka
1%. Sunod sa New York? Unsa may kinadak-an? Tokyo.
Then we go down the line Zurich in Switzerland,
Frankfurt in Germany, and Paris in France. Those are
the world above capital.
Stock Exchange mao nay gabaligya ug shares of stock,
baligya ug option. Option is a right to purchase shares
of stock within a given period at a fixed price. Duna kay
option, naa kay katungod mupalit let’s say 1000 shares
of PLDT at this price within this period usa ka buwan.
Ikaw mag kupot ana mag huwat2x ka asa muy
ginaubsan. Maupos na usa ka bulan nya ang price nimo
at which you buy the share is strike price as they call it
is 1500 katapysan sa bulan mahimo na man nang 1400
is bought and sold. Unsa man buhaton nimo anang
imong option? Gision nimo nang imong option kinsa
may buang mupalit ug 1500 nga naa man diay 1400 sa
gawas.
PLACES TO RAISE CAPITAL
1. Stock Market
If you want capital adto ka sa stock market because
that is the cheapest capital. Muadto ka sa Bangko mag
bayad kag interest kada bulan muginansya man ka o
dili. To put it in simple terms, this is OPM not original
Filipino music but other people’s money. Dili man ka
mubayad ug interest og gusto ka muhatag kag dividend
ug muginansya ka. Gusto ka taguan ang ginansya issue
kag stock dividend. This is the cheapest way to run your
business by using other people’s money.
Of course, the people must trust you. Adto ka to raise
capital. Didto man sila tanan sila Bill Gates Warren
Buffett, mga dagko nga negosyante bisan pa kanang
Instik na murag naatrasan ug Volkswagen Jack Ma. 
Adto na si Jack Ma dira to raise capital.
2. Bond Market
Another place to go where you raise capital is the
bond market or the money market. Kasagaran na
muanhi corporation na. Wala na man silay control ug
mag sige anhi mag sige ug issue stock, lami ta dinhi
pero mag sige kog issue wa na control dili na ko
makapagusto ug dagan sa akoang kumpanya. Mao na
anhi ra ko diri sa bond market. Lapas na gani kag 1 year
maturity, bond na. Ang maturity period less than one
year, money market na. Bond market naay collateral,
money market way collateral within one year man mag
mature. This is the place where you also raise capital.
Kini is only second fiddle market. Hasta man lisura
musulod you have to prove to be profitable for 3 years
and prove a certain volume. Mao na sila dili muanha.
Asa man sila? Microsoft, Facebook, Google? Naa
gihapon na sila sa gamay na exchange.
DISTINCTIONS
Money Market Bond Market
Maturity period is less Maturity period exceeds
than 1 year. 1 year.
No Collateral. With Collateral.
For operating capital For long term capital
For IOU For Equity
NASDA it is an exchange just like the NY Stock
Exchange. National Association of Security Dealers and
Quotes, kanang mga gamay na capitalized na
corporation dinha mingsugod. Microsoft dinha promoted
now to Dow Jones. Dow Jones is an index made up of
30 to 50 companies chosen to somehow represent the
entire money market.
Daghan na nawala dinha niadto ang kinadak-an diha
Bethlehem Steel/US Steel pero wala naman steel ang
US karon. Napildi naman sa (EM) emerging countries
niadto tawag ani kay under-developed countries.
Developed countries are US and Japan. Under-
developed murag Pilipinas ba. Mao na ang
terminologies kaniadto pero wala na na karon- first
world, second world, third world. In emerging markets,
there is neither emerging nor developed markets that is
the special market of BRICS – Brazil Russia India China
Spain pero nagkagidlay man ang Spain, BRIC na lang.
They say it is characterized with countries which huge
money markets. Second, they have huge natural
resources.
Philippines have huge natural resources; forget it that’s
fake news. Nitoo gani ka ana fake news sa inyong
maestra, we do not have oil. If you do not have oil, you
lack the very essence of energy, no plastics, cannot
make our own car. Oil is our mother industry that gives
other industries. Wala tay iron, iron ore napuno na unta
nag railway kay steel man na ug skyscraper buildings,
cars, appliances.
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 CORPORATION LAW TSN 2017
Based on the Lectures of Fr. Agustin Nazareno
It’s not the US that is the richest in natural resources, it
is Russia. Mas dako pa ang Russia. It is so big that it is
said to have a small extension of Europe. China has
natural resources, ang mga tao.
(Talks about the war between North Korea and South
Korea when NK asked for China’s help)
China sent 1 million people. If a million people die that is
only statistics. US wala naki-alam. Truman was
president that time, he listened to the clamor of the
people na dili na ganahan ug war. 40 years later niapil
ug Vietnam War, nakalimot na man sa gera. When I
entered the society, I had a classmate who was a
metaphysics graduate. He worked for Atlas Mines –
copper. In the 60’s the start of Vietnam war. He was the
head for quality control. During Vietnam war. Nahurot
nang mga copper Himuon man bala sa Vietnam. Wala
nay quality control, it was all about volume. You can still
see the open pit mines in Cebu if you ride a plane from
Bacolod.
When you say bond market taas-taas ang lugway
unlike money market mubo. (Father compared the two
na gisulat sa board) for operating capital. For long term
capital, for IOU, for equity. Equity is for ownership, IOU
creditor.
3. Futures market
The third kind of capital market is the futures market.
There are many kinds of futures market- commodities,
metals which are either bass or precious, and currency.
As to commodities - grains, rice, oats, barley. Sold
through futures certificate, which says I can sell you 1
million bunions of rice at this price at 6 months from now.
Kinsa man imong baligyaan ana? Kanang gabaligya
anang Kellog cornflakes kay everyday man gabuhat
ana. Palit na kag futures contract kay biyaan ka inig mag
lahi2x kag presyo. Association and cooperatives of
farmers to make sure sa ginansya sa presyo na ihatag
nimo nako na makasigurado makabawi ko ug 10 or 15%
okay na.
How of your contract would be futures contract? Pwede
siguraduhon nimo 100% pero alkanse ka ana kay
bayran man nimo ning certificate. You play your risks.
You go to these markets not to raise capital but working
capital, you minimize risks.
As to currency, mga termino sa futures contract
ginatawag ug foreward cover. Kadungog gani mog
foreward cover sa ato pa futures contract na for
currency. Nanghulam kag dollars kay barato man
iyahang interest rates ug peso kay 7 pesos. Mag huwam
kag dollar aron makabayad unya ug mubayad na ka
muweaken man ang peso mao na gamiton nimo ang
futures contract. I will pay you dollars on such a date
pagkamature sa utang at a price when you began the
loan so forward cover.
Kini tanan except this (pertaining to futures contract), wa
sa Philippines. There is one SC decision which says that
this futures contract is gambling. It is gambling because
the way you sell is settle futures contract is a risk (?).
Example:
Dollar forward cover, somebody agrees to sell you 1
million dollars at 45 pesos pero dollar rate 6 months from
now. After 6 months nagkupot ka na sa papel nya karon
kay 40 pesos na lang man ang 1 dollar. Gision na lang
nimo. Gision na lang nya charge to experience ang 5
pesos. Nakaraos ka.
6 months from now, dollars went up to 53 pesos per
dollar imohang gikuptan 45 pesos per dollar. Lipay
kaayo ka. How do you settle? So 8 pesos difference. So
8 million pesos ang ihatag. Bayran man gihapon nimo.
SC says that is gambling when that is the way
futures contract is settled all over the world! Chicago,
London, Odessa. Mao na wa gyud ta mag sugod kay
maapil unta sa SRC each contract must be registered.
All these contracts and facilities must be registered. All
the people behind these- issuer, persons behind the
issuer, broker, and dealer.
What is the difference of a broker and a dealer?
Broker Dealer
Sells and buys for another Buys and sells for this own
account
He buys and sells for another; dealer buys and sells
for his own account. Dealer i.e. SSS mamalit ug shares
intended for itself; broker kay 5 Jewels maunsa ba kay
lisensya to buy for others. But the law says no person or
natural or juridical can be granted a license as dealer
and broker. You cannot be a broker and dealer at the
same time. Why? Because it is the person who holds
both licenses and there is strong temptation, broker gud
ka you begin to establish relationships with your clients
and they trust you. Inig dealer sad ka nakapalit niya ni
sour man. Matental ka mutawag sa imong client kay
nakakita man kag saka. Gipasa nimo sa imong kliyente
ang bati nga stock na makita nimo.
US Supreme Court says there should be a Chinese Wall
because of the Great Wall of China. In dealership and
brokership, there should be a Chinese wall.
Daghan man anomaly ang Securities Regulation Code.
But sometimes when the company is in a do drowns,
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 CORPORATION LAW TSN 2017
Based on the Lectures of Fr. Agustin Nazareno
pahulay ang transaction, ubos kaayo. Kung mutaas ang
interest sa mga bonds sa money market edi ang kwarta
mudagan diri. Ang US, Europe Japan, China, taas man
pirmi? Kay ang kwarta na gibo na Federal / Central
banks because of the financial crisis at Hague. Ilahang
problema mabalik ang kwarta to reduce the so- called
quantitative raising. You read Warren Buffett muubos
gani ang bond market- ubos ang bonds, saka ang stock
market- ubos gyud ang bonds. This is the entire system
handled by the entire SRC.
February 2, 2018 - 2nd half
(Marry Suan)
What is to be registered is a security. The problem
on a security is that RA 8799 does not define a security.
RA 8799 merely enumerates securities.
Section 3. Definition of Terms. —
3.1. "Securities" are shares, participation or
interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced
by a certificate, contract, instrument, whether
written or electronic in character. It includes:
a) Shares of stock, bonds, debentures, notes,
evidences of indebtedness, asset-backed
securities;
b) Investment contracts, certificates of interest
or participation in a profit sharing
agreement, certificates of deposit for a future
subscription;
c) Fractional undivided interests in oil, gas or
other mineral rights;
d) Derivatives like option and warrants;
e) Certificates of assignments, certificates of
participation, trust certificates, voting trust
certificates or similar instruments;
f) Proprietary or nonproprietary membership
certificates in corporations; and
g) Other instruments as may in the future be
determined by the Commission.
They specified here electronic evidence of shares
because once you have traded in the stock market in
many jurisdictions, you do not have shares of stock
certificate. It’s too cumbersome. Kanang mubaligya ta
ron tapos mubaligya na sad tapos mubaligya na sad.
Perminte na lang ug baligya. Unsaon nimo pag issue ug
shares of stock [certificate] ana? Sige kag issue ana.
Dako kaayog gasto. Ibutang na lang na nimo sa
computer. Mahibal-an na nimo kung breakeven ba ka.
Ginansya na ba ka gamay. Muandar na man ang
computer. Computer na man maoy muorder. Mao nay
ginaingon nila na muubos gani ang presyo, mas
musamot na ron ang deceleration of prices because of
program xxx. Ug musaka gani ang presyo, it is now
going up at very unrealistic pace because xxx of
program.
So the first set of enumerations for securities are
ownership, equities because it says:
a) Shares of stock, bonds, debentures, notes,
evidences of indebtedness, asset-backed
securities;
And then, you have:
b) Investment contracts, certificates of interest
or participation in a profit sharing
agreement, certificates of deposit for a future
subscription;
Now when you go into so-called investment
contracts, then you have what is probably the number
one case for securities. The case of SEC vs. W.J.
Howey Company, 328 US 293 (1946). That is a U.S.
case. This has been asked in our bar examination
because of the so-called Howey Test.
What is this case? This is a corporation – Howey
Company. They sold what was later on decided by the
SC as securities without registering. So they were
penalized. What is the reason they did not register?
According to them, we are selling not securities. So the
issue is what were they selling. What are the factual
configuration of that xxx? This is the story.
Originally, Howey owned a huge orange orchard. By the
way, fresh orange juice is one of the commodities that is
subject to futures contract. The American breakfast
always include orange juice. (chika about orange juice
and Americans)
That is the standard in the American breakfast. So much
so that there must be orange juice always. Ngano mang
problematic man na? Because they can control water
supply, insecticides, fertilizer but sometimes they cannot
control health(?). The best orange juice kana gyung
mahinog na. Winter na mahinog, mao na ang kinalamian
na orange. (more chika about orange juice)
Unsa may gibuhat ni Howey? Dako kaayo iyang orchard.
Iyang gi-subdivide. Tag tulo, tag lima ka acres. Unya nag
advertise sya. Sometimes, mapul-an na mog syudad
gusto mo mag garden. Diri namo. Ug kapuyan na ka,
ihatag ug ibalik namo. Ang imong gipalit namo nga 3 or 5
acres of orange trees. You give it back to us by way of
lease. And the consideration is bahin ta sa ginansya.
Kami maoy mutrabaho. Ikaw maoy tag-iya. Wa na kay
buhat. Pasagdi na lang mi kay kami kabalo na mi.
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 CORPORATION LAW TSN 2017
Based on the Lectures of Fr. Agustin Nazareno
Now, question: is that a security? Kanang ilang offer na
gihatag sa public na mupalit ug 5 hectares. Human ug
gusto ka ibalik nimo nila by way of lease. Unya 50-50
mo. Is that a security?
Ang ilang ingon, it’s not a security because you are free
to return it to us or not. Mahimo bang ikaw mismo maoy
mubungkal ana. Mahimo man. You can do it. You are not
forced. There is no compulsion. This is where the SC
comes out with a ruling and says that there are four
elements that make an investment contract a
security for purposes of the Securities Act:
1. There is an investment of money. Palit ka
anang farm. Investment of money man na.
2. There is an expectation of profits arising
from the investment.
3. [The investment of money is in] a common
enterprise.
4. The profits depend solely on the efforts of a
promoter or third party. It is not you, who is the
owner.
Naay bago kaso karon sa Philippines, which has
somewhat changed this. It’s a realty case where the SC
ruled that it is a security also, an investment contract, but
what was modified is that the expectation of profits
depends primarily on the efforts of a third party. Not
“solely” but “primarily.” So mao nay change nato sa
Howey Test.
Remember, Howey test does not apply to any
security. This test applies only to a security as an
investment contract. But securities are very varied. For
instance, in the Philippines, we consider pre-need plans
as security. That is explicit in the Securities Regulation
Code, section 3.9.
3.9. "Pre-need plans" are contracts which provide
for the performance of future services or the
payment of future monetary considerations at the
time of actual need, for which planholders pay in
cash or installment at stated prices, with or without
interest or insurance coverage and includes life,
pension, education, interment, and other plans
which the Commission may from time to time
approve.
Naa naman roy pre-need retirement plan, pre-need
educational plan, pre-need funeral plan, pre-need
graduate studies plan. Lahi na ha kaysa pre-need
educational plan because that only normally covers just
college. Ikaw, karon ka magminyo unya nangambisyon
ka na aduna kay anak na madoctor. Unya karon medyo
nalisa ka na kay dia may xxx. Hundred thousand na
man ang semester. Kintahay manganak mo dayon after
sa wedding ninyo. The tuition fee is increasing. Pag abot
sa akong anak na madoctor na, P300 thousand per
semester na ang tuition. Perting pataya ana. Asa man
na pangitaon? Pre-need! Mao nay tubag. Bayad ka na.
When the need comes, the issuer of this security will
now make your plan real. Unya muingon kag unya kong
mamatay diay ko, ayaw kabalaka kay naay insurance
feature anang pre-need plan. If the owner is overtaken
by an untimely death, all his obligations are erased,
considered fully-paid. Is this a security or an insurance
policy? Remember insurance is covered by the
Insurance Commissioner and the Insurance Code.
Mao ning nakaproblema because in other jurisdictions,
pre-need plans are not classified as security precisely
because of the insurance [feature].
Again, Section 3.1(d):
) Derivatives like option and warrants;
Derivatives are securities. It is a security the
underlying asset of which is also a security. The
abstraction is already the xxx.
Example:
PDR (Philippine Depository Receipt). Underneath a PDR
is a share of stock of Rappler and the share of stock of
Rappler represents an inchoate interest in the assets of
Rappler. The shares of stock are not derivatives. They
are shares of stock. But PDR is a derivative.
Kinsa man nag-imbento aning derivative? Katong mga
physicists, PhDs in Math, atong 1970s. (chika about
space race, etc. and Credit Default Swaps)
Credit Default Swaps (CDS)
This is the kind of derivative that emboldened the
mortgage aggregators in the U.S. Naa kay mortgage.
Mahuman ning mortgage in 20 years. Gipahulam nimo
sya ug kwarta kaning nag mortgage. Unya ang balay
ang gimortgage. 20 years pa na nimo makuha. Mahimo
man na nimo idiscount. Bangko ka unya muadto kag
laing bangko unya ibaligya nimo ning mortgage. Tagaan
na lang kag 50% sa madawat nimo aning 20 years. Naa
nakay 50%. Ngano man na na gusto man ka ana? Kay
nagkagidlay na man imong bangko unya wala nakay
ipahulam. Maayo na lang nang naay gamay makuha
kaysa zero gyud ka.
So liquidate nimo ang receivables nimo. Karon, kung dili
lang kay usa ka mortgage imong gibaligya, daghan na
mortgage unya girambol nimo. Pareha rag last two.
Magkuha kag 10% na maayo na mortgage unya kuha
nasad ka ug mga 30% bati na mga mortgage. Imong
irambol. Unya iwholesale nimo. Mangita kag bangko na
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 CORPORATION LAW TSN 2017
Based on the Lectures of Fr. Agustin Nazareno
dako. Nganong mudawat man sad ang bangko ana? Sa
katapusan, ang dakong bangko ang mudawat ana. Naa
sad diay lain na security na gipadagan sa mga insurance
company. Muingon sila, mupaltos gani ng mga mortgage
dinha, kami maoy musalo ana. When there is a credit
default swap, kami maoy musalo. (chika about credit
default swaps and mortgage in the U.S.)
Over-the-counter securities are securities not
traded in the stock market and not valued.
How do you register a security?
You do not file a petition for registration of security.
Instead, you file what is found in Section 3.12. A
registration statement.
3.12. "Registration statement" is the application for
the registration of securities required to be filed with
the Commission.
Una ka mufloat ug shares of stock, you have to file a
registration statement. You file the articles and by-laws
of the corporation that is issuing the shares of stock. You
write the biography of all the major stockholders, what
their business activity is. And under oath, you say that
they have never been involved in any irregularity in any
stock market anywhere in the world. Mahibaw-an gani
na involved sila in any irregularity, not necessarily in the
Philippines but outside, you will be penalized. So imo
nang isuwat. Imong isuwat unsang gamitan sa kwarta,
unsang plano aning nag issue ug security. Karon ma-
approve na na. Di na i-approve na. The SEC will only
say that the security is now “in effect.”
The SEC will never say that the security has been
approved because it might be mistaken as endorsing the
security. It does not want to be the agent of the issuer.
So it will only say that it is in effect. Makabaligya ka na. if
there is a complaint, mu-investigate gihapon ang SEC
and it can order the temporary suspension of that
security. While they are being investigated, the
investigation is confidential. It cannot be covered by the
press. It is not open to the general public. It is just the
SEC that will investigate. Pareha na ug disbarment
proceedings, diba. Wala may maka-attend ana.
What is the reason why it is confidential? Because the
reputation in business takes years to build and it can be
lost by a careless disclosure, even if untrue.
Many times, it is the issuer itself who will ask for the
suspension of trading of their securities. They will say,
we are asking the Philippine Stock Exchange to stop
trading Aboitiz Ventures and Equities, Inc. Ngano man?
Daghan na mag xxx. That there is a new partner coming
in, that they are going to embark to a massive expansion
xxx. Give time to the general public to digest the news
that can influence the ordinary investor to either sell, buy
or hold securities.
From the registration statement, you make the brochure.
Kanang brochure, mao na nang naang pictures. Para na
sa mga pareho ni Trump. Magbaligya kag funeral plans,
naay mga kahoy, garden, langgam na naglupad-lupad.
Bayad ka para sa imong kamatayon pero wala gyuy
patay dinha [sa brochure].
The brochure must not distort the registration statement.
That is the rule. Usbon gani nimo, suspended na sad
nang trading. That is why they now ask the SEC to have
the brochure registered.
February 7, 2018
(Therese Candolita)
INTRODUCTION
The markets have been increasing since 2009 with
the intervention of the Bangko Sentral to prop up liquidity
in the markets. There has been excess cash. It started
about a year ago when Bangko Sentral decided to
decrease money supply, and they do that by basically
increasing the discount rate of the banks. There have
been several discount rate increases and the base of the
increase has been measured so as to prevent deflation;
to prevent panic. So most central banks coordinate but
all of a sudden everybody thinks it’s good, the return of
profits of corporations is very good and Trump just
inaugurated his new law: the tax cuts. Why does this
happen? One explanation is that the market is seeing an
increase in wages because the corporations are doing
well and they are adding incentives, so because of that
there might be more money than wages. If there is more
money, than there will be inflation. People are now
getting their money out of the stock market.
If you are an optimist, you look in the market and it’s
going down, you will see this as a buying opportunity.
That is if you have complete control of your source of
money.
The Securities Regulation Code is really a regulation
for the stock market because our bond market is not
really that well developed. Our bonds are also traded in
the stock market so it’s not a pronounced market in
itself. We don’t have a futures market, well, there is a
little futures market. In other words, there are brokers
who sell futures contracts for currency but they are
acting for the Singapore or Hongkong market. You can
get protection for your foreign currency denominated
loans if you want to hedge your loans but aside from that
no more futures market.
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Now let me tell you something about futures market.
Agricultural communities, those that are really holding
the physical assets, they say more than 60% of
agricultural commodities are controlled by 4
corporations. They are called the ABCD.
The 4 corporations that run the agricultural commodities
market: A is Archer Daniels Midland. B stands for Bunge.
C is Cargyll. D is Dreyfus.
60% of agricultural market, sila nag-gunit. The said
market is mainly grains, wheat, rice, corn, soya beans.
As of last night, it might become 3 na lang, because
Archer Daniels is already in advanced negotiation to
merge with Bunge. Cargyll, of all this 4, is the biggest
and it’s not rated in the stock market. It’s a family
corporation and they say it’s the biggest private
corporation in the world. What makes Cargyll unique is
that it has its own satellite system enough to cover the
world and so it knows exactly where the harvest is good
and where there is no harvest and how much the harvest
will be. So it has greater efficiency to deploy its capital,
and its satellite system is also leased out to these other
three. They help each other. Let’s say they have to
supply grain to South Africa and they are asking for corn
and Cargyll has no corn, so they borrow from each other.
That’s why they are ABCD together because together
they form a close-knit fraternity and they run the world.
Want to know how well they work together? Read the
book Merchants Of Grain. They say there’s a 5 th one
trying to come in. Glencore.
LESSON PROPER
We said that before you can offer your securities to
the public you must register. And you register it by filing
a registration certificate.
Are all securities brought and sold registered?
Not all. There are at least 2 kinds of securities exempt
from registration:
1. Exempt securities (Sec 9)
2. Securities involved in exempt transactions (Sec 10)
RA 8799
Section 9. Exempt Securities. – 9.1. The requirement
of registration under Subsection 8.1 shall not as a
general rule apply to any of the following classes of
securities:
(a) Any security issued or guaranteed by the
Government of the Philippines, or by any
political subdivision or agency thereof, or by
any person controlled or supervised by, and
acting as an instrumentality of said
Government.
Ang gobyerno gud ang nagpagawas sa kaugalingon
niya na securities, unya, pa-rehistrohon pa diay nimo
sya? There’s an old saying that the crown does not pay
taxes because it is impossible to pay to yourself. A king
does not tax himself.
Give an example of a government security:
Land bank bonds. They are used to pay landlords and
the government takes over their property or agricultural
estate and divides it to parcels of three except for the
retention area and then it is distributed to the landless.
These bonds are negotiable and brought and sold in the
secondary market. If you are the landlord and you have
a land bank bond, you can use that to pay the
government for like, your taxes.
There used to be a controversy. Let’s say you have 1M
worth of bonds that does not mature until 10 yrs from
now. If you pay that to the BIR, the BIR will say “It’s 10
yrs from now! So I will receive it at 10% of its value
because it’s not yet mature.”
A Ione landlord complained and he brought it to the
Supreme Court. The SC said that Land bank bonds must
be accepted by the government when used as payment
at its own face value. Land bank bonds are securities
because they can be traded in the stock market and
exempt because it is issued by a person controlled/
supervised or acting as an instrumentality of the state.
(b) Any security issued or guaranteed by the
government of any country with which the
Philippines maintains diplomatic relations, or
by any state, province or political subdivision
thereof on the basis of reciprocity: Provided,
That the Commission may require
compliance with the form and content for
disclosures the Commission may prescribe
So, if the US floats a bond here, that need not be
registered provided we can also float bonds there in the
US as a form of reciprocity.
(c) Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the
proper adjudicatory body.
(d) Any security or its derivatives the sale or
transfer of which, by law, is under the
supervision and regulation of the Office of the
Insurance Commission, Housing and Land Use
Rule Regulatory Board, or the Bureau of Internal
Revenue.
(e) Any security issued by a bank except its
own shares of stock.
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Why is the bank’s security need not be registered?
Because it is already scrutinized by the Bangko Sentral
ng Pilipinas. The exception is the shares of the bank
itself. Why? Because when the bank is formed, it is still
not open to be scrutinized deeply by the Bangko Sentral,
so it’s still in the SEC. So when a bank sells its own
shares, it has to register.
Section 10. Exempt Transactions. – 10.1. The
requirement of registration under Subsection 8.1 shall
not apply to the sale of any security in any of the
following transactions:
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee
in insolvency or bankruptcy.
Note, at any judicial sale. Please do understand this.
Because there is an estate--- it has securities and the
executor sells it in order to liquidate and divide it among
the heirs. Is that it? NO. Because those shares were
before in the market and they were registered. This
means that if you are an executor of an estate and you
say you need money to run the estate, the best way to
raise money is to float a bond. So you float a bond,
meaning you borrow money from the general public to
continue the estate.
Let’s say you have several real properties to be rented
out. It is the executor who decides that and he floats the
security. Before that bond is issued by the estate, it is
scrutinized by the court.
(b) By or for the account of a pledge holder, or
mortgagee or any of a pledge lien holder selling
of offering for sale or delivery in the ordinary
course of business and not for the purpose of
avoiding the provision of this Code, to liquidate
a bonafide debt, a security pledged in good faith
as security for such debt.
(c) An isolated transaction in which any
security is sold, offered for sale,
subscription or delivery by the owner
therefore, or by his representative for the
owner’s account, such sale or offer for sale
or offer for sale, subscription or delivery not
being made in the course of repeated and
successive transaction of a like character by
such owner, or on his account by such
representative and such owner or
representative not being the underwriter of
such security.
You have a corporation and that corporation is in need of
money to expand and operate. No bank will lend it
money so they go to the substantial stockholder there
and ask “Are you willing to buy all the issuance of
shares? We will increase the Authorized Capital Stock
then we will issue you fully paid shares of stock and this
will cost you 5M”
So you increase capital stock by 25% and suppose this
substantial stockholder will say “Ok”. Because the other
stockholders do not have the money. Usa ra man sya
kabuok. Baligyaan sya’g shares sa company, do you
have to register that? NO. Exempt, because the public is
not involved. Diba, sya ra man. Exempt, not from the
nature of the security itself but because of the
transaction.
(d) The distribution by a corporation actively
engaged in the business authorized by its
articles of incorporation, of securities to its
stockholders or other security holders as a stock
dividend or other distribution out of surplus.
Same reasoning with above. So when a corporation
gives out stock dividend, it is actually issuing new
security. That is an exempt transaction because the
public is not involved, these are already veteran
stockholders. Stockholders na sila daan, they are just
given more shares. So stock dividends of corporations
are normally exempt transactions and the securities
involved need not be registered.
So to get the common denominator what an exempt
security is, go through the examples in section 10
because that is where you find the list of exempt
transactions. Know the common denominator so that
when you are asked in the Bar, you have a way of
judging. When the market is not involved, such as when
a stockholder receives a stock dividend, that is exempt.
Those need not be registered.
BUT, just because you are exempt from registration, that
does not mean that you do not have to pay a fee. You
still have to pay a fee. Mas barato lang. But there is not
escaping payment of a fee to the SEC.
The rest of Sec 10 not discussed:
(e) The sale of capital stock of a corporation to
its own stockholders exclusively, where no
commission or other remuneration is paid or
given directly or indirectly in connection with the
sale of such capital stock.
(f) The issuance of bonds or notes secured by
mortgage upon real estate or tangible personal
property, when the entire mortgage together with
all the bonds or notes secured thereby are sold
to a single purchaser at a single sale.
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(g) The issue and delivery of any security in
exchange for any other security of the same
issuer pursuant to a right of conversion entitling
the holder of the security surrendered in
exchange to make such conversion: Provided,
That the security so surrendered has been
registered under this Code or was, when sold,
exempt from the provision of this Code, and that
the security issued and delivered in exchange, if
sold at the conversion price, would at the time of
such conversion fall within the class of securities
entitled to registration under this Code. Upon
such conversion the par value of the security
surrendered in such exchange shall be deemed
the price at which the securities issued and
delivered in such exchange are sold.
(h) Broker’s transaction, executed upon
customer’s orders, on any registered Exchange
or other trading market.
(i) Subscriptions for shares of the capitals stocks
of a corporation prior to the incorporation thereof
or in pursuance of an increase in its authorized
capital stocks under the Corporation Code,
when no expense is incurred, or no commission,
compensation or remuneration is paid or given
in connection with the sale or disposition of such
securities, and only when the purpose for
soliciting, giving or taking of such subscription is
to comply with the requirements of such law as
to the percentage of the capital stock of a
corporation which should be subscribed before it
can be registered and duly incorporated, or its
authorized, capital increase.
(j) The exchange of securities by the issuer with
the existing security holders exclusively, where
no commission or other remuneration is paid or
given directly or indirectly for soliciting such
exchange.
(k) The sale of securities by an issuer to fewer
than twenty (20) persons in the Philippines
during any twelve-month period.
(l) The sale of securities to any number of the
following qualified buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan
maintained by the Government of the
Philippines or any political subdivision
thereof or manage by a bank or other
persons authorized by the Bangko
Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the
Commission may rule by determine as
qualified buyers, on the basis of such
factors as financial sophistication, net
worth, knowledge, and experience in
financial and business matters, or
amount of assets under management.
February 8, 2018
(Miles Buhay)
So we have seen…
1. Registration of Securities;
2. Securities that are exempt from registration; and
3. Exempt transactions.
An exempt transaction is a sale of securities by
an issuer to fewer than 20 persons in the
Philippines during any 12-month period.
When does that happen?
When there is a small group that begins a corporation.
What is the minimum number of incorporators?
5-15. Even if you have 15, it is still exempt because it is
“a corporation selling to fewer than 20 persons.”
So when you file your articles of incorporation with the
SEC, together with that is an application for exemption
from registration. And for the exemption that you are
asking is letter (a) of Section 10: Exempt Securities.
Section 10. Exempt Transactions. – 10.1. The
requirement of registration under Subsection 8.1 shall
not apply to the sale of any security in any of the
following transactions:
(a) At any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee
in insolvency or bankruptcy.
Section 10.3 says:
10.3. Any person applying for an exemption under this
Section, shall file with the Commission a notice
identifying the exemption relied upon on such form
and at such time as the Commission by the rule may
prescribe and with such notice shall pay to the
Commission fee equivalent to one-tenth (1/10) of one
percent (1%) of the maximum value aggregate price
or issued value of the securities.
So 1/10 of 1%. That is the exception. Now, the fee for
registration is much higher.
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Registration of securities are filed and who signs the
registration statement?
Section 12. 4 says:
12.4. The registration statement shall be signed by
the issuer’s executive officer, its principal operating
officer, its principal financial officer, its comptroller, its
principal accounting officer, its corporate secretary, or
persons performing similar functions accompanied
by a duly verified resolution of the board of directors
of the issuer corporation. The written consent of the
expert named as having certified any part of the
registration statement or any document used in
connection therewith shall also be filed. Where the
registration statement shares to be sold by selling
shareholders, a written certification by such selling
shareholders as to the accuracy of any part of the
registration statement contributed to by such selling
shareholders shall be filed.
So almost everybody of importance signs: CEO, COO,
CFO, comptroller, chief accountant, corporate secretary;
all of them sign. And also the Board of Directors because
they pass a resolution.
When you are a corporation still to be formed and
naturally, you get subscribers. Who will sign the
registration statement when there is still no
corporation?
It is my submission that the incorporators sign, the
treasurer, the interim treasurer and the interim secretary
because it says “persons performing similar functions
accompanied by a duly verified resolution of the board of
directors xxx.” So [they’re] the equivalent person: the
incorporators, the interim treasurer and the interim
secretary of the corporation.
12.5. (a) Upon filing of the registration statement, the
issuer shall pay to the Commission a fee of not more
than one-tenth (1/10) of one per centum (1%) of the
maximum aggregate price at which such securities
are proposed to be offered. The Commission shall
prescribe by the rule diminishing fees in inverse
proportion the value of the aggregate price of the
offering.
(b) Notice of the filing of the registration
statement shall be immediately published by the
issuer, at its own expense, in two (2) newspapers of
general circulation in the Philippines, once a week for
two (2) consecutive weeks, or in such other manner
as the Commission by the rule shall prescribe, reciting
that a registration statement for the sale of such
securities has been filed, and that aforesaid
registration statement, as well as the papers attached
thereto are open to inspection at the Commission
during business hours, and copies thereof, photostatic
or otherwise, shall be furnished to interested parties at
such reasonable charge as the Commission may
prescribe.
12.6. Within forty-five (45) days after the date of
filing of the registration statement, or by such later
date to which the issuer has consented, the
Commission shall declare the registration statement
effective or rejected, unless the applicant is allowed to
amend the registration statement as provided in
Section 14 hereof. The Commission shall enter an
order declaring the registration statement to be
effective if it finds that the registration statement
together with all the other papers and documents
attached thereto, is on its face complete and that the
requirements have been complied with. The
Commission may impose such terms and conditions
as may be necessary or appropriate for the protection
of the investors.
Notice that the Commission (SEC) does not approve the
registration statement. The SEC only declares it
effective or rejected unless the applicant is allowed to
amend the registration statement as provided in Section
14 hereof.
12.7. Upon affectivity of the registration statement, the
issuer shall state under oath in every prospectus that
all registration requirements have been met and that
all information are true and correct as represented by
the issuer or the one making the statement. Any
untrue statement of fact or omission to state a
material fact required to be stated herein or necessary
to make the statement therein not misleading shall
constitute fraud.
If it is found out later that there is an untrue
statement of fact or omission to state a material fact
required to be stated, necessary in order to make the
statement therein misleading, this shall constitute fraud.
Then that will be the cause for rejection and revocation
of the registration of securities.
Section 13. Rejection and Revocation of
Registration of Securities. – 13.1. The Commission
may reject a registration statement and refuse
registration of the security there-under, or revoke the
affectivity of a registration statement and the
registration of the security there-under after the due
notice and hearing by issuing an order to such effect,
setting forth its finding in respect thereto, if it finds
that: (a) The issuer:
(i) Has been judicially declared
insolvent;
(ii) Has violated any of the provision
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of this Code, the rules promulgate
pursuant thereto, or any order of the
Commission of which the issuer has
notice in connection with the offering
for which a registration statement has
been filed
(iii) Has been or is engaged or is
about to engage in fraudulent
transactions;
(iv) Has made any false or misleading
representation of material facts in any
prospectus concerning the issuer or
its securities;
(v) Has failed to comply with any
requirements that the Commission
may impose as a condition for
registration of the security for which
the registration statement has been
filed; or
(b) The registration statement is on its face
incomplete or inaccurate in any material
respect or includes any untrue statements of
a material fact required to be stated therein or
necessary to make the statement therein not
misleading; or
(c) The issuer, any officer, director or
controlling person performing similar
functions, or any under writer has been
convicted, by a competent judicial or
administrative body, upon plea of guilty, or
otherwise, of an offense involving moral
turpitude and /or fraud or is enjoined or
restrained by the Commission or other
competent or administrative body for
violations of securities, commodities, and
other related laws.
For the purposes of this subsection, the term
"competent judicial or administrative body" shall
include a foreign court of competent jurisdiction as
provided for under Rules of Court.
Untrue statement. Untrue statement as to whom?
Letter (a) as to the issuer. You did not state there
that the issuer has been judicially declared insolvent.
Unya nahapay naman diay na siya. Ah, when they find
out, that is fraud. The security which has already been
registered will be stopped from being bought and sold.
Or that the issuer has violated any provisions in this
Code (SRC) or that the issuer has engaged or is about
to engage in fraudulent transaction or the issuer has
made any false or misleading representation of
material facts in any prospectus concerning the
issuer or its securities.
(Father continues to read enumeration in Section 13..)
Now, if the issuer or any person in charge of the
issuer, has been found upon a plea of guilty or otherwise
of an offense involving moral turpitude and /or fraud or is
enjoined or restrained by the Commission or other
competent or administrative body which, according to
this provision, includes a foreign court of competent
jurisdiction.
So if you are a member of the Board of Directors of the
issuer, and you have discovered you have shares that
are in trouble in, let us say, the stock exchange of
Singapore. Then you would be guilty of fraudulent
statement. The security will be stopped from being
bought and sold.
REMEMBER!
Forty-five (45) days; in substance and form, okay na
ang imong registration statement; the SEC will issue a
pronouncement: “The security is now effective.” So you
begin to trade. Unya naay musumbong. Kining tawhana
(This person) mao man ning gikasab-an
(scolded/reprimanded) sa SEC sa Singapore. The SEC
will have no choice but to order the suspension of the
trading of the security.
I told you that one time, this very famous Richard Wee of
HongKong who’s reportedly the most wealthy overseas
Chinese. (Storytelling… It was claimed (by the
corporation) that Richard Wee graduated, when in fact
he did not. The corporation was fined for the inaccuracy)
Alright, suspension of registration; you read that.
It’s up to you.
Reportorial requirements and then the specific
provision that includes pre-need plans, Section 16.
CHAPTER IV REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – No person shall sell
or offer for sale to the public any pre-need plan except
in accordance with rules and regulations which the
Commission shall prescribe.
xxx
The pre-need plan is a security. It is not registered
with the insurance Commission even if it has an
insurance feature.
Example:
Kanang gapamaligya ug pre-need plans, muingon na
sila: “Pila ka kandila ang gusto nimo sa imong haya?”
“Gusto ba nimo naay red carpet?” “Kanang naay libro na
magpirma-pirma kanang mga [mamisita]?” Apil na tanan
sa imong plan, magbayad lang ka every month for three
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(3) years. Kung mamatay ka wa pa mahuman ang three
(3) years? Okay na because it has an insurance feature.
Let’s say your pre-need plan is for your wife. Ikaw may
nipalit ana for your wife, so you own the plan but the
beneficiary is your wife. Mamatay na imong wife, bayran
ka kay imong mang gitagaan ug plan. Unya kung ika’y
mamatay unya wa pa man nimo mabayri tanan. Okay
lang; insurance feature.
Those who sell that plan must be registered because all
salespersons according to the definition of terms, all the
salespersons/salesman in 3.13 …
3.13. "Salesman" is a natural person, employed as
such as an agent, by a dealer, issuer or broker to buy
and sell securities.
They must be registered. Pangutan-a nang nagabaligya
nimo ug plan kung naa ba na silay registration. Wala.
Kinsa may muregister? Kadtong mupirma didto sa
opisina. Once he signs then the company is already
bound with the plan that you bought. Kadtong nipirma,
mao tuy registered with the SEC.
But technically speaking, the law says “associated
persons” must also be registered; associated persons of
the broker or dealer is an employee thereof who directly
exercises control of supervisory authority but does not
include a salesman or an agent or a person whose
function is merely clerical or miniscule. An associated
person must also be registered.
CHAPTER IV REGULATION OF PRE-NEED PLANS
Section 16. Pre-Need Plans. – xxx
Such rules shall regulate the sale of pre-need plans by,
among other things, requiring the registration of pre-
need plans, licensing persons involved in the sale of pre-
need plans, requiring disclosures to prospective plan
holders, prescribing advertising guidelines, providing for
uniform accounting system, reports and recording
keeping with respect to such plans, imposing capital,
bonding and other financial responsibility, and
establishing trust funds for the payment of benefits under
such plans.
What happened to CAP (College Assurance Plan)?
What happened to PetPlans? What happened to these
plans? They are no longer around. So many people left
holding an empty bag.  I bet some of you here had
CAP. Mao may uso sa una. Ginikanan intawon nipalit ug
CAP.
Now, there is a requirement in the SRC that you
must have an independent director in your corporation.
The SRC requires the following corporations to have
independent directors:
1. Corporations that are listed in the stock
market;
- So, they sell.
2. Corporation who, though are not listed in the
stock market, sell securities that are
required to be registered;
- Let us say you float a bond. Then you
registered your bond. Your shares of
stock are not registered because you
are not selling shares of stock in the
open market. But you borrowed money
so, therefore, your security must be
registered. Once you have sold the
security that will require registration,
then you must have an independent
director.
3. The requirement is present here in Section
17:
17.2 xxx
(c) An issuer with assets of at least Fifty million
pesos (P50,000,000.00) of such other amount as the
Commission shall prescribe, an having two hundred
(200) or more shareholders each holding at least one
hundred (100) share of a class of its equity securities:
Provided, however, That the obligation of such issuer
to file report 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 reduced to less than one hundred (100).
- If the corporation has
o at least P50 million in assets
and you have
o 200 or more stockholders
o with at least 100 shares each
of a class of equity, then you
must have independent
directors.
“Independent Directors” is described in Section 38.
How many independent directors are required to be
present in the board of the corporations required to
have them?
A: Section 38 says:
xxx shall have at least two (2) independent directors or
such independent directors shall constitute at least
twenty percent (20%) of the members of such board
whichever is the lesser. xxx
So if you are required to have independent directors,
you cannot have less than two (2) of them.
What is the meaning of an Independent Director?
Section 38 says:
xxx a person other than an officer or employee of the
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corporation, its parent or subsidiaries, or any other
individual having a relationship with the corporation,
which would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.
So if you are a director, you cannot have more than 5%
of the outstanding capital stocks of the corporation. [If]
you have more than 5% of the outstanding capital stock
of the corporation you hope that ? ? ?
If you are in a relationship with that corporation or with
its parent or the subsidiary, that makes you no longer
independent. Then, you cannot be an independent
director.
Example:
Suppose you are the auditor of the holding
corporation. You cannot be an independent
director of the subsidiary. Suppose you are the
auditor of the subsidiary. You cannot be an
independent director of the holding corporation.
This is a requirement that the Philippines copied from
the Sarbanes-Oxley (SOX) Law.
PLDT is SOX-compliant; Meralco; ABS-CBN; Ayala
Corporation; San Miguel Corporation…
What is the thinking behind this?
If you are a publicly listed company you have obligations
to the investing company.
Who will answer for the obligations of the
corporation to the investing company?
Not those who are substantial stockholders. They have
their own interests to protect. They are even willing to
sacrifice the welfare of the investing public just to
advance their own interest. So you must pick somebody
who is not connected with the company.
Is that not a contradiction, because to be connected with
the company you must have some proprietary interest in
the company? So they put: you cannot be an
independent director if you have more than five percent
(5%) of the outstanding capital stocks. Ikaw maoy
magbantay para sa investing company. That is your job
as an independent director.
Banks have to have an independent director by virtue of
the General Banking Law. I was an independent director
for fifteen (15) years.
Sometimes, you have to express your comment explicitly
in the minutes of the meeting because it is required by
the Banko Sentral. Why? Because Banking is replete
with public interest.
The secretary of the corporation makes sure, especially
if it involves a DOSRI loan, the independent director
must sign first. The independent director is made to sign
first.
So he makes an independent judgment. Dili lang kay
musunod sila sa kadaghanan. The rule of the BSP is
una mu-sign ang independent director. Sa ato pa, there
is something wrong with that rule.
Alright, we come now on the Rule on percentages.
A number of percentages that you have to remember:
five percent (5%).
February 14, 2018
(Paul Jordan Berguia)
What are the numbers, figures and percentages that
you need to remember in the securities regulation
code?
In the Philippines, if you buy shares of stock and you
end up buying at least 5% of the outstanding capital
stock of a corporation. What happens? You need to
make a disclosure.
What is the disclosure you have to make?
The disclosure as to the beneficial owners of the
shares of stock that you are buying. Kadaghanan gusto
mupalit, dili man sila gusto mukuha ug certificate. Palit
sila, naa ra sa kamot sa broker. Your shares remain with
the broker. Why? Because you are just a “panther” (kini
ba ang term? Lol. Wakanda forever ni siya nga Panther
or another term? Basta Panther daw ana si Father) you
buy now, then later on you sell. Dula dula ra man ka.
That’s why you are called a panther. So kada mupalit ka
and mangayo kag certificate of stock, mubayad ka? Sa
kada palit nimo mubayad ka? Taas ang imong costs sa
transaction eh. So, mag loan ka? Sa records ana kinsa
may mu-appear didto nga titular owner? It is the broker
because he holds this street certificate. This certificate of
stock of the seller indorsed in blank. The broker now
needs to reveal who is the beneficial owner of this stock.
(Again, review your ownership terminologies. What is
the contracting terminology of the beneficial owner? Civil
law term, naked owner. Why is he called naked? As we
all know, ownership is a bundle of rights. Wala siya
anang uban nga rights dira, ang naa ra iya ang titular
ownership. Owner in title only. Kinsa may makahimulos
ana? The beneficial owner)
Once you have purchased at least 5%, you need to
make a disclosure. So the SRC, does not assume that
the titular owner is the beneficial owner.
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 CORPORATION LAW TSN 2017
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Now, here is the problem - here is a foreign investor,
sitting somewhere in London, he calls his corresponding
broker in Hongkong. Ana siya “buy PLDT Philippines,
25K shares, AT THE MARKET” what is the meaning of
that? That means whatever price it is trading in the
market at the time of making the order, paliton nimo na.
Execute it! Now, he is in Hongkong, he cannot buy it in
the Philippines. So what does the HK broker do? He
calls a broker in the Philippines and he tells a broker
“buy PLDT Philippines, 25K shares, at the market”
Execute dayon ang broker, karon let us assume nga 5%
na siya sa outstanding capital stock, unsa may i-report
sa broker? He will say the HK broker is the beneficial
owner. The Philippine stock market will then
communicate this fact to the HK broker. “Who is the
beneficial broker?” Muana dayon ni si HK broker,
“HONGKONG SHANGHAI BANK-LONDON”. Follow up
na pud siya (Philippine stock market) didto
(HONGKONG SHANGHAI BANK-LONDON) “Who is the
beneficial broker?” Muingon na pud didto, “it is FIDELITY
BONDS” (institutional investor, so institutionalized that it
is divided into units, that is also traded in the London
stock exchange) Ma-question na pud siya, nganong
mamalit man ni siya? Is there a question of nationality,
now? WALA, kay nangayo ra man ni siya. Wa man siya
nangayo ug Certificate of stock. Sa ato pa, ang broker
gihapon didto ang listed as the owner.
Another number: 10% (PSE increased it to 15% as of
today)
The rule under PSE until 3 days ago was if you are a
corporation whose shares of stocks are listed in the SE,
at least 10% of your outstanding shares of stock
must be floated. FLOATED, meaning available siya sa
stock market. Why is it 10%? The rule in the Philippines,
if you are a public utility, within 10 years from the
beginning of your utility, you must sell to the public at
least 10% of your outstanding shares of stock. But now
the rule is, the PSE increased the float. IT MUST BE
15%. That must be the number available to the public.
What is the consequence? Until you bring it down to
more than 15%, it means it would be up for grabs.
Anybody can gain control to that corporation just by
buying and selling in the stock market.
Public Float of a company shall refer to the portion of the
issued and outstanding shares that are freely available
and tradable in the market and are non-strategic in
nature or those not meant for the purpose of gaining
substantial influence on how the company is being
managed. Significant shareholdings of 10% or more of
the total issued and outstanding shares of the company
are considered strategic and thus, excluded in the public
float of the company.
(Taken from: http://www.sec.gov.ph/wp-
content/uploads/2015/10/2017_PressRelease_ToIncreas
eMPOTo20Percent.pdf)
Another number: 15%.
SEC. 19. Tender Offers. –
19.1. Any person or group of persons acting in concert
who intends to acquire at least fifteen per cent (15%) of
any class of any equity security of a listed corporation or
of any class of any equity security of a corporation with
assets of at least Fifty Million Pesos (P50,000,000.00)
and having two hundred (200) or more stockholders with
at least one hundred (100) shares each or who intends
to acquire at least thirty per cent (30%) of such equity
over a period of twelve (12) months shall make a tender
offer to stockholders by filing with the Commission a
declaration to that effect; and furnish the issuer, a
statement containing such of the information required in
Section 17 of this Code as the Commission may
prescribe. Such person or group of persons shall
publish all requests or invitations for tender, or materials
making a tender offer or requesting or inviting letters of
such a security. Copies of any additional material
soliciting or requesting such tender offers subsequent to
the initial solicitation or request shall contain such
information as the Commission may prescribe, and shall
be filed with the Commission and sent to the issuer not
later than the time copies of such materials are first
published or sent or given to security holders.
(a) Any solicitation or recommendation to the holders of
such a security to accept or reject a tender offer or
request or invitation for tenders shall be made in
accordance with such rules and regulations as the
Commission may prescribe.
(b) Securities deposited pursuant to a tender offer or
request or invitation for tenders may be withdrawn by or
on behalf of the depositor at any time throughout the
period that the tender offer remains open and if the
securities deposited have not been previously accepted
for payment, and at any time after sixty (60) days from
the date of the original tender offer or request or
invitation, except as the Commission may otherwise
prescribe.
(c) Where the securities offered exceed that which a
person or group of persons is bound or willing to take up
and pay for, the securities that are subject of the tender
offer shall be taken up as nearly as may be pro rata,
disregarding fractions, according to the number of
securities deposited by each depositor. The provisions of
this subsection shall also apply to securities deposited
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within ten (10) days after notice of an increase in the
consideration offered to security holders, as described in
paragraph (e) of this subsection, is first published or sent
or given to security holders.
(d) Where any person varies the terms of a tender offer
or request or invitation for tenders before the expiration
thereof by increasing the consideration offered to
holders of such securities, such person shall pay the
increased consideration to each security holder whose
securities are taken up and paid for whether or not such
securities have been taken up by such person before the
variation of the tender offer or request or invitation.
So, unsa man ning TENDER OFFERS? It says here,
“any person or group of persons acting in concert who
intends to acquire at least fifteen per cent (15%) of any
class of any equity security of a listed corporation or of
any class of any equity security of a corporation with
assets of at least Fifty Million Pesos (P50,000,000.00)
and having two hundred (200) or more stockholders with
at least one hundred (100) shares each or who intends
to acquire at least thirty per cent (30%) of such equity
over a period of twelve (12) months shall make a tender
offer to stockholders by filing with the Commission a
declaration to that effect;”
So, 15% outright acquisition or 30% creeping
acquisition. Nganong creeping man? Because it is over
a period of 12 months. This a terminology of the stock
exchange. You must make a tender offer. Meaning, you
must announce that you are willing to buy at least 15%
of existing stockholders. So all stockholders are given
equal opportunity to avail of the price that you are
offering within a given period. What happens if
everybody wants to sell? Then it must be proportionate.
Ang limit ra pud ana niya is 15%. Give everybody a
chance equally of the price.
In the case of CEMCO HOLDING VS. NATIONAL
LIFE INSURANCE, G.R. No. 171815, this is about a
local corporation – Union Cement. It was owned by
PHINMA, part of the del Rosario group. Right after
Ramos’ administration, everybody thought that
Philippines is already taking off and no turning back. So
they doubled their borrowing capacity to the US, but the
problem is, they borrowed using the foreign currency
and they’re earning in pesos. Ug sa dihang nibaliktad
man ang agi sa Pinas, imbis pataas, nibaba man na.
nagkabuang sila karon ug bayad eh. Dili sila
makabayad, so ilang gibaligya ang ilang corportation sa
Holcim. Now, when Holcim decided that they will buy,
they wanted to escape this clause – tender offer. Since
there is an intermediate corporation here which is wholly
owned by PHINMA. (nag draw siya sa board diri guys,
huhu wa koy copy) and then this CEMCO holdings is
55% owner of Union Cement. Instead of buying this
shares by CEMCO, they bought CEMCO itself and they
said we are not obliged to tender our offer since what we
purchased is not the shares of stock of Union Cement
which was traded in the stock market. Kining CEMCO
man among gipalit. Ang sakyanan among gipalit dili ang
ligid! Are they exempted from the tender offer rule? The
SC said, they are still bound. Because the law says,
DIRECTLY OR INDIRECTLY, subject ka sa tender
offer rule.
CEMCO HOLDINGS, INC. vs. NATIONAL LIFE
INSURANCE COMPANY OF THE PHILIPPINES, INC.
GR No. 171815, August 7, 2007
Chico-Nazario, J.
FACTS: Union Cement Corporation (UCC), a publicly-
listed company, has two principal stockholders – UCHC,
a non-listed company, with shares amounting to 60.51%,
and petitioner Cemco with17.03%. Majority of UCHC’s
stocks were owned by BCI with 21.31% and ACC with
29.69%. Cemco, on the other hand, owned 9% of UCHC
stocks. In a disclosure letter, BCI informed the Philippine
Stock Exchange (PSE) that it and its subsidiary ACC had
passed resolutions to sell to Cemco BCI’s stocks in
UCHC equivalent to 21.31% and ACC’s stocks in UCHC
equivalent to 29.69%.
As a consequence of this disclosure, the PSE inquired
as to whether the Tender Offer Rule under Rule 19 of the
Implementing Rules of the Securities Regulation Code is
not applicable to the purchase by petitioner of the
majority of shares of UCC. The SEC en banc had
resolved that the Cemco transaction was not covered by
the tender offer rule. Feeling aggrieved by the
transaction, respondent National Life Insurance
Company of the Philippines, Inc., a minority stockholder
of UCC, sent a letter to Cemco demanding the latter to
comply with the rule on mandatory tender offer. Cemco,
however, refused.
Respondent National Life Insurance Company of the
Philippines, Inc. filed a complaint with the SEC asking it
to reverse its 27 July 2004 Resolution and to declare the
purchase agreement of Cemco void and praying that the
mandatory tender offer rule be applied to its UCC
shares.
The SEC ruled in favor of the respondent by reversing
and setting aside its 27 July 2004Resolution and
directed petitioner Cemco to make a tender offer for
UCC shares to respondent and other holders of UCC
shares similar to the class held by UCHC in accordance
with Section 9(E), Rule 19 of the Securities Regulation
Code.
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On petition to the Court of Appeals, the CA rendered a
decision affirming the ruling of the SEC. It ruled that the
SEC has jurisdiction to render the questioned decision
and, in any event, Cemco was barred by estoppel from
questioning the SEC’s jurisdiction.
It, likewise, held that the tender offer requirement under
the Securities Regulation Code and its Implementing
Rules applies to Cemco’s purchase of UCHC stocks.
Cemco’s motion for reconsideration was likewise denied.
ISSUES:
1. Whether or not the SEC has jurisdiction over
respondent’s complaint and to require Cemco to make a
tender offer for respondent’s UCC shares.
2. Whether or not the rule on mandatory tender offer
applies to the indirect acquisition of shares in a listed
company, in this case, the indirect acquisition by Cemco
of 36% of UCC, a publicly-listed company, through its
purchase of the shares in UCHC, a non-listed company.
HELD: 1. YES. In taking cognizance of respondent’s
complaint against petitioner and eventually rendering a
judgment which ordered the latter to make a tender offer,
the SEC was acting pursuant to Rule19(13) of the
Amended Implementing Rules and Regulations of the
Securities Regulation Code, to wit:
“ 13. Violation If there shall be violation of this Rule by
pursuing a purchase of equity shares of a public
company at threshold amounts without the required
tender offer, the Commission, upon complaint, may
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.”
The foregoing rule emanates from the SEC’s power and
authority to regulate, investigate or supervise the
activities of persons to ensure compliance with the
Securities Regulation Code, more specifically the
provision on mandatory tender offer under Section
19thereof. Moreover, petitioner is barred from
questioning the jurisdiction of the SEC. It must be
pointed out that petitioner had participated in all the
proceedings before the SEC and had prayed for
affirmative relief.
2. YES. Tender offer is a publicly announced intention by
a person acting alone or in concert with other persons to
acquire equity securities of a public company.
A public company is defined as a corporation which is
listed on an exchange, or a corporation with assets
exceeding P50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than
100 shares of such company .
Stated differently, a tender offer isan offer by the
acquiring person to stockholders of a public company for
them to tender their shares therein on the terms
specified in the offer.
Tender offer is in place to protect minority shareholders
against any scheme that dilutes the share value of their
investments. It gives the minority shareholders the
chance to exit the company under reasonable terms,
giving them the opportunity to sell their shares at the
same price as those of the majority shareholders. The
SEC and the Court of Appeals ruled that the indirect
acquisition by petitioner of 36% of UCC shares through
the acquisition of the non-listed UCHC shares is covered
by the mandatory tender offer rule. The legislative intent
of Section 19 of the Code is to regulate activities relating
to acquisition of control of the listed company and for the
purpose of protecting the minority stockholders of a
listed corporation. Whatever may be the method by
which control of a public company isobtained, either
through the direct purchase of its stocks or through an
indirect means, mandatory tender offer applies. As
appropriately held by the Court of Appeals:
The petitioner posits that what it acquired were stocks of
UCHC and not UCC. By happenstance, as a result of
the transaction, it became an indirect owner of UCC.
We are constrained, however, to construe ownership
acquisition to mean both direct and indirect. What is
decisive is the determination of the power of control.
The legislative intent behind the tender offer rule makes
clear that the type of activity intended to be regulated is
the acquisition of control of the listed company through
the purchase of shares. Control may [be] effected
through a direct and indirect acquisition of stock, and
when this takes place, irrespective of the means, a
tender offer must occur. The bottom line of the law is to
give the shareholder of the listed company the
opportunity to decide whether or not to sell in connection
with a transfer of control. x x x
Now, 30% creeping, karong buwana palit kag 5%,
declare ka sa beneficial interest. March, palit na sad kag
singko, edi 10 na. palit na pud ka Mayo, Agosto, baynte
na. hinay hinay na hantod sa naabot ug 30% before the
year ends, subject na dayon ka sa tender offer rule.
Imoha untang ipahibalo ang kadaghanan para tanan
maka avail sa presyo. That’s the idea- transparency.
February 15, 2018
(Carra Tito)
RECAP OF LAST MEETING’S DISCUSSION:
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Now, we said that we must remember 5%, 15%,
30% and finally 50%. If you buy 50% of the
outstanding capital stock of the corporation, then
you must make a general offer, it is not just a tender
offer.
Example of General offer:
“I am buying everybody else.” It is the price of my
last transaction when I hit 50%.
Why is this rule in the Securites regulation?
To give a chance to the minority stockholders to avail of
the market price.
Market price is that which the particular share is
bought and sold. So you make a general offer if you
purchase 50%, within the 1 year period. So take note
that is the 1 year period. Lapas na ka sa 30, maghinay
hinay na ka palit. Di nimo dayonon ug 50. You will have
to buy the other 50%.That is very expensive. If you pay
for a corporation more than 50% of its outstanding
capital stock, that is very expensive because you don’t
need the 50% anymore. You control it 50% +1. That’s
how they look at it in finance.
Remember, tender offer, you will buy according to their
percentage of outstanding capital stock if everybody
makes a tender offer. They cannot expect to be bought
all their shares. If there is many, you have to allocate.
Give a chance to everyone.
PROXY SOLICITATION RULE
Now, we come to the proxy solicitation rule. That’s
section 20. What are the rules with respect to proxies
in publicly traded corporations?
1. Proxies must be issued and proxy solicitation
must be made in accordance with the rules and
regulations to the issuing commission.
So if you solicit proxies from the others, you must follow
these rules:
a) Proxies must be in writing
b) Signed by the stockholder or his duly
authorized representative and
c) Filed before the scheduled meeting with the
corporate secretary.
As I told you, most of the corporations that are broad-
based stockholder, they have a cut-off date. Normally it
is 1 month before the meeting. The stock and transfer
book is closed. There are no transactions after the cut-
off date that are recognized. Why? It is from there you
determine what is the majority is, and determine the
proxies. You can no longer get proxies beyond that date.
If you’re looking for proxies, you must put it in writing.
You write who are the people available. And it must be
explicit that you are asking for a proxy. In other words,
there is no implicit proxy solicitation. Proxy solicitation
must be express and in order to do that, you must
submit a proxy statement. You must say what is the
proxy for. Because you are interested in amending the
articles to raise the capital.
You must make this available to everybody. If you are
the controlling stockholder at that time, then it will be at
the expense of the corp. because all you need is a
resolution from the bod.
But, can somebody make a proxy solicitation to
counter your proxy solicitation?
YES. If you so do it, then an adverse proxy solicitation,
then the corporation must open its books to these
adverse proxy solicitations. You must give them the
addresses of all the stockholders. You must give them
the reckoning of their holdings according to their cut-off
date.
As to the mailing of the proxies that are for the minority,
it will be after ____. Now, it is no longer expensive.
Why? When this was made, there was no internet.
Mailing expense. So anybody can counter your proxy
solicitations.
How about the shares of stock of the corporation
that are long. In other words, we _______ because the
certificate of stocks was _____. What happens to those?
Can they be issued voting proxies? The rule is under
20.4. (I think Father meant. Section 20.11.2.18)
20.11.2.18. No member of the Stock Exchange and no
broker/dealer shall give any proxy, consent or
authorization, in respect of any security carried for the
account of a customer to a person other than the
customer, without the express written authorization of
such customer. The proxy executed by the broker
shall be accompanied by a certification under oath
stating that before the proxy was given to the broker,
he had duly obtained the written consent of the
persons in whose account the shares are held.
So, you solicit proxy through the broker but
ultimately to the owner. It is the owner who will tell the
broker “my shares of stock with you under your name
will vote for these following people as my proxy.” So the
broker cannot issue proxy by his own authority.
Now, in 20.5, “A broker or dealer who holds or
acquires the proxy for at least 10% of such percentage
as the commission may prescribe in the outstanding
shares of the issuer shall submit a report identifying
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the beneficial owner within 10 days after such
acquisition or its own account or customer to the issuer
of the security to the exchange where the security is
traded and to the commission.
What is a dealer?
A dealer is one who buys or sells shares for his own
account.
What is a broker?
A broker buys or sells for the account of others
10% ha. But under the Philippine stock exchange, it is
5%. The rule in the Philippines now under the Phil.
stock exchange, if you purchase 5%, you must disclose
the beneficial owner. They can do it because the
Philippine Stock Exchange is the so called SRO (Self-
Regulating Organization).
There is a very important case:
GSIS vs. CA & ANTHONY ROSETE (G.R. No. 183905,
April 16, 2009)
NOTE: FATHER GAVE A VERY LONG DISCUSSION
OF THIS CASE SO I’M GIVING A LONG VERSION OF
THE DIGEST.
GOVERNMENT SERVICE, INSURANCE
SYSTEM, Petitioner, vs. THE HON. COURT OF
APPEALS, (8TH DIVISION), ANTHONY V. ROSETE,
MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F.
FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L.
IBAÑEZ, and FRANCIS GILES PUNO, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 184275 April 16, 2009
SEC COMMISSIONER JESUS ENRIQUE G.
MARTINEZ IN HIS CAPACITY AS OFFICER-IN-
CHARGE OF THE SECURITIES AND EXCHANGE
COMMISSION and HUBERT G. GUEVARA IN HIS
CAPACITY AS DIRECTOR OF THE COMPLIANCE
AND ENFORCEMENT DEPT. OF
SECURITIES Petitioners, vs. ANTHONY V. ROSETE,
MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F.
FRANCISCO, CHRISTIAN S. MONSOD, ELPIDIO L.
IBAÑEZ, and FRANCIS GILES Respondents.
FACTS: The annual stockholders’ meeting (annual
meeting) of the MANILA ELECTRIC COMPANY
(MERALCO) was scheduled on 27 May 2008. In
connection with the annual meeting, proxies were
required to be submitted on or before 17 May 2008,
and the proxy validation was slated for five days later,
or 22 May.
In view of the resignation of Camilo Quiason, the
position of corporate secretary of Meralco became
vacant. On 15 May 2008, the board of directors of
Meralco designated Jose Vitug to act as corporate
secretary for the annual meeting. However, when the
proxy validation began on 22 May, the proceedings
were presided over by respondent Anthony Rosete
(Rosete), assistant corporate secretary and in-house
chief legal counsel of Meralco. Private respondents
nonetheless argue that Rosete was the acting
corporate secretary of Meralco. Petitioner Government
Service Insurance System (GSIS), a major shareholder
in Meralco, was distressed over the proxy validation
proceedings, and the resulting certification of proxies in
favor of the Meralco management.
On 23 May 2008, GSIS filed a complaint with the
Regional Trial Court (RTC) of Pasay City, docketed as
R-PSY-08-05777-C4 seeking the declaration of certain
proxies as invalid. Three days later, on 26 May, GSIS
filed a Notice with the RTC manifesting the dismissal of
the complaint. On the same day, GSIS filed an Urgent
Petition with the Securities and Exchange Commission
(SEC) seeking to restrain Rosete from "recognizing,
counting and tabulating, directly or indirectly, notionally
or actually or in whatever way, form, manner or means,
or otherwise honoring the shares covered by" the
proxies in favor of respondents Manuel Lopez, Felipe
Alfonso, Jesus Francisco, Oscar Lopez, Christian
Monsod, Elpidio Ibañez, Francisco Giles-Puno "or any
officer representing MERALCO Management," and to
annul and declare invalid said proxies. GSIS also
prayed for the issuance of a Cease and Desist Order
(CDO) to restrain the use of said proxies during the
annual meeting scheduled for the following day. A
CDO to that effect signed by SEC Commissioner Jesus
Martinez was issued on 26 May 2008, the same day
the complaint was filed. During the annual meeting held
on the following day, Rosete announced that the
meeting would push through, expressing the opinion
that the CDO is null and void.
On 28 May 2008, the SEC issued a Show Cause Order
(SCO) against private respondents, ordering them to
appear before the Commission on 30 May 2008 and
explain why they should not be cited in contempt. On
29 May 2008, respondents filed a petition for certiorari
with prohibition with the Court of Appeals, praying that
the CDO and the SCO be annulled. The petition was
docketed as CA-G.R. SP No. 103692.
Many developments involving the Court of Appeals’
handling of CA-G.R. SP No. 103692 and the conduct of
several of its individual justices are recounted in our
Resolution dated 9 September 2008 in A.M. No. 08-8-
11-CA (Re: Letter Of Presiding Justice Conrado M.
Vasquez, Jr. On CA-G.R. SP No. 103692). On 23 July
2008, the Court of Appeals Eighth Division promulgated
a decision in the case with the following dispositive
portion:
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WHEREFORE, premises considered, the May
26, 2008 complaint filed by GSIS in the SEC is
hereby DISMISSED due to SEC’s lack of
jurisdiction, due to forum shopping by
respondent GSIS, and due to splitting of
causes of action by respondent GSIS.
Consequently, the SEC’s undated cease and
desist order and the SEC’s May 28, 2008 show
cause order are hereby DECLARED VOID AB
INITIO and without legal effect and their
implementation are hereby permanently
restrained.
The May 26, 2008 complaint filed by GSIS in
the SEC is hereby barred from being
considered, out of equitable considerations, as
an election contest in the RTC, because the
prescriptive period of 15 days from the May 27,
2008 Meralco election to file an election
contest in the RTC had already run its course,
pursuant to Sec. 3, Rule 6 of the interim Rules
of Procedure Governing Intra-Corporate
Controversies under R.A. No. 8799, due to
deliberate act of GSIS in filing a complaint in
the SEC instead of the RTC.
Let seventeen (17) copies of this decision be
officially TRANSMITTED to the Office of the
Chief Justice and three (3) copies to the Office
of the Court Administrator:
(1) for sanction by the Supreme Court against
the "GSIS LAW OFFICE" for unauthorized
practice of law,
(2) for sanction and discipline by the Supreme
Court of GSIS lawyers led by Atty. Estrella
Elamparo-Tayag, Atty. Marcial C. Pimentel,
Atty. Enrique L. Tandan III, and other GSIS
lawyers for violation of Sec. 27 of Rule 138 of
the Revised Rules of Court, pursuant to
Santayana v. Alampay, A.C. No. 5878, March
21, 2005 454 SCRA 1, and pursuant to Land
Bank of the Philippines v. Raymunda Martinez,
G.R. No. 169008, August 14, 2007:
(a) for violating express provisions of
law and defying public policy in
deliberately displacing the Office of the
Government Corporate Counsel
(OGCC) from its duty as the exclusive
lawyer of GSIS, a government owned
and controlled corporation (GOCC), by
admittedly filing and defending cases
as well as appearing as counsel for
GSIS, without authority to do so, the
authority belonging exclusively to the
OGCC;
(b) for violating the lawyer’s oath for
failing in their duty to act as faithful
officers of the court by engaging in
forum shopping;
(c) for violating express provisions of
law most especially those on
jurisdiction which are mandatory; and
(d) for violating Sec. 3, Rule 2 of the
1997 Rules of Civil Procedure by
deliberately splitting causes of action in
order to file multiple complaints: (i) in
the RTC of Pasay City and (ii) in the
SEC, in order to ensure a favorable
order.
The promulgation of the said decision provoked a
searing controversy, as detailed in our Resolution in
A.M. No. 08-8-11-CA. Nonetheless, the appellate
court’s decision spawned three different actions
docketed with their own case numbers before this
Court. One of them, G.R. No. 183933, was initiated by
a Motion for Extension of Time to File Petition for
Review filed by the Office of the Solicitor General
(OSG) in behalf of the SEC, Commissioner Martinez in
his capacity as officer-in-charge of the SEC, and
Hubert Guevarra in his capacity as Director of the
Compliance and Enforcement Department of the
SEC. However, the OSG did not follow through with the
filing of the petition for review adverted to; thus, on 19
January 2009, the Court resolved to declare G.R. No.
183933 closed and terminated.
The two remaining cases before us are docketed as
G.R. No. 183905 and 184275. G.R. No. 183905
pertains to a petition for certiorari and prohibition filed
by GSIS, against the Court of Appeals, and
respondents Rosete, Lopez, Alfonso, Francisco,
Monsod, Ibañez and Puno, all of whom serve in
different corporate capacities with Meralco or First
Philippines Holdings Corporation, a major stockholder
of Meralco and an affiliate of the Lopez Group of
Companies. This petition seeks of the Court to declare
the 23 July 2008 decision of the Court of Appeals null
and void, affirm the SEC’s jurisdiction over the petition
filed before it by GSIS, and pronounce that the CDO
and the SCO orders are valid. This petition was filed in
behalf of GSIS by the "GSIS Law Office;" it was signed
by the Chief Legal Counsel and Assistant Legal
Counsel of GSIS, and three self-identified "Attorney[s],"
presumably holding lawyer positions in GSIS.
The OSG also filed the other petition, docketed as G.R.
No. 184275. It identifies as its petitioners the SEC,
Commissioner Martinez in his capacity as OIC of the
SEC, and Hubert Guevarra in his capacity as Director
of the Compliance and Enforcement Department of the
SEC – the same petitioners in the aborted petition for
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review initially docketed as G.R. No. 183933. Unlike
what was adverted to in the motion for extension filed
by the same petitioners in G.R. No. 183933, the petition
in G.R. No. 184275 is one for certiorari under Rule 65
as indicated on page 3 thereof, and not a petition for
review. Interestingly, save for the first page which
leaves the docket number blank, all 86 pages of this
petition for certiorari carry a header wrongly identifying
the pleading as the non-existent petition for review
under G.R. No. 183933. This petition seeks the
"reversal" of the assailed decision of the Court of
Appeals, the recognition of the jurisdiction of the SEC
over the petition of GSIS, and the affirmation of the
CDO and SCO.
ISSUE: We now examine whether the SEC has
jurisdiction over the petition filed by GSIS. To recall,
SEC has sought to enjoin the use and annul the
validation, of the proxies issued in favor of several of
the private respondents, particularly in connection with
the annual meeting.
RULING:
A. Jurisdiction is conferred by no other source but law.
Both sides have relied upon provisions of Rep. Act No.
8799, otherwise known as the Securities Regulation
Code (SRC), its implementing rules (Amended
Implementing Rules or AIRR-SRC), and other related
rules to support their competing contentions that either
the SEC or the trial courts has exclusive original
jurisdiction over the dispute.
GSIS primarily anchors its argument on two correlated
provisions of the SRC. These are Section 53.1 and
Section 20.1, which we cite:
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: xxx (emphasis supplied)
SEC. 20. Proxy Solicitations. – 20.1. Proxies
must be issued and proxy solicitation must be
made in accordance with rules and regulations
to be issued by the Commission;
The argument, stripped of extravagance, is that since
proxy solicitations following Section 20.1 have to be
made in accordance with rules and regulations issued
by the SEC, it is the SEC under Section 53.1 that has
the jurisdiction to investigate alleged violations of the
rules on proxy solicitations. The GSIS petition invoked
AIRR-AIRR-SRC Rule 20, otherwise known as "The
Proxy Rule," which enumerates the requirements as to
form of proxy and delivery of information to security
holders. According to GSIS, the information statement
Meralco had filed with the SEC in connection with the
annual meeting did not contain any proxy form as
required under AIRR-SRC Rule 20.
On the other hand, private respondents argue before
us that under Section 5.2 of the SRC, the SEC’s
jurisdiction over all cases enumerated in Section 5 of
Presidential Decree No. 902-A was transferred to the
courts of general jurisdiction or the appropriate regional
trial court. The two particular classes of cases in the
enumeration under Section 5 of Presidential Decree
No. 902-A which private respondents especially refer to
are as follows:
xxx
(2) Controversies arising out of intra-corporate,
partnership, or association relations, between
and among stockholders, members, or
associates; or association of which they are
stockholders, members, or associates,
respectively;
3) Controversies in the election or appointment
of directors, trustees, officers or managers of
corporations, partnerships, or associations;
xxx
In addition, private respondents cite the Interim Rules
on Intra-Corporate Controversies (Interim Rules)
promulgated by this Court in 2001, most pertinently,
Section 2 of Rule 6 (on Election Contests), which
defines "election contests" as follows:
SEC. 2. Definition. – An election contest refers
to any controversy or dispute involving title or
claim to any elective office in a stock or
nonstock corporation, the validation of
proxies, the manner and validity of elections
and the qualifications of candidates, including
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the proclamation of winners, to the office of
director, trustee or other officer directly elected
by the stockholders in a close corporation or by
members of a nonstock corporation where the
articles of incorporation or bylaws so provide.
(emphasis supplied)
The correct answer is not clear-cut, but there is one. In
private respondents’ favor, the provisions of law they
cite pertain directly and exclusively to the statutory
jurisdiction of trial courts acquired by virtue of the
transfer of jurisdiction following the passage of the
SRC. In contrast, the SRC provisions relied upon by
GSIS do not immediately or directly establish that
body’s jurisdiction over the petition, since it
necessitates the linkage of Section 20 to Section 53.1
of the SRC before the point can bear on us.
On the other hand, the distinction between "proxy
solicitation" and "proxy validation" cannot be dismissed
offhand. The right of a stockholder to vote by proxy is
generally established by the Corporation Code, but it is
the SRC which specifically regulates the form and use
of proxies, more particularly the procedure of proxy
solicitation, primarily through Section 20. AIRR-SRC
Rule 20 defines the terms solicit and solicitation:
The terms solicit and solicitation include:
A. any request for a proxy whether or not
accompanied by or included in a form of proxy
B. any request to execute or not to execute, or
to revoke, a proxy; or
C. the furnishing of a form of proxy or other
communication to security holders under
circumstance reasonably calculated to result in
the procurement, withholding or revocation of a
proxy.
It is plain that proxy solicitation is a procedure that
antecedes proxy validation. The former involves the
securing and submission of proxies, while the latter
concerns the validation of such secured and submitted
proxies. GSIS raises the sensible point that there was
no election yet at the time it filed its petition with the
SEC, hence no proper election contest or controversy
yet over which the regular courts may have jurisdiction.
And the point ties its cause of action to alleged
irregularities in the proxy solicitation procedure, a
process that precedes either the validation of proxies or
the annual meeting itself.
Under Section 20.1, the solicitation of proxies must be
in accordance with rules and regulations issued by the
SEC, such as AIRR-SRC Rule 4. And by virtue of
Section 53.1, the SEC has the discretion "to make such
investigations as it deems necessary to determine
whether any person has violated" any rule issued by it,
such as AIRR-SRC Rule 4. The investigatory power of
the SEC established by Section 53.1 is central to its
regulatory authority, most crucial to the public interest
especially as it may pertain to corporations with publicly
traded shares. For that reason, we are not keen on
pursuing private respondents’ insistence that the GSIS
complaint be viewed as rooted in an intra-corporate
controversy solely within the jurisdiction of the trial
courts to decide. It is possible that an intra-corporate
controversy may animate a disgruntled shareholder to
complain to the SEC a corporation’s violations of SEC
rules and regulations, but that motive alone should not
be sufficient to deprive the SEC of its investigatory and
regulatory powers, especially so since such powers are
exercisable on a motu proprio basis.
At the same time, Meralco raises the substantial point
that nothing in the SRC empowers the SEC to annul or
invalidate improper proxies issued in contravention of
Section 20. It cites that the penalties defined by the
SEC itself for violation of Section 20 or AIRR-SRC Rule
20 are limited to a reprimand/warning for the first
offense, and pecuniary fines for succeeding
offenses.43 Indeed, if the SEC does not have the power
to invalidate proxies solicited in violation of its
promulgated rules, serious questions may be raised
whether it has the power to adjudicate claims of
violation in the first place, since the relief it may extend
does not directly redress the cause of action of the
complainant seeking the exclusion of the proxies.
There is an interesting point, which neither party raises,
and it concerns Section 6(g) of Presidential Decree No.
902-A, which states:
SEC. 6. In order to effectively exercise such
jurisdiction, the Commission shall possess the
following powers:
xxx
(g) To pass upon the validity of the issuance
and use of proxies and voting trust agreements
for absent stockholders or members;
xxx
As promulgated then, the provision would confer on the
SEC the power to adjudicate controversies relating not
only to proxy solicitation, but also to proxy validation.
Should the proposition hold true up to the present, the
position of GSIS would have merit, especially since
Section 6 of Presidential Decree No. 902-A was not
expressly repealed or abrogated by the SRC.
Yet a closer reading of the provision indicates that such
power of the SEC then was incidental or ancillary to the
"exercise of such jurisdiction." Note that Section 6 is
immediately preceded by SECTION 5, which originally
conferred on the SEC "original and exclusive
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jurisdiction to hear and decide cases" involving
"controversies in the election or appointments of
directors, trustees, officers or managers of such
corporations, partnerships or associations." The cases
referred to in Section 5 were transferred from the
jurisdiction of the SEC to the regular courts with the
passage of the SRC, specifically Section 5.2. Thus, the
SEC’s power to pass upon the validity of proxies in
relation to election controversies has effectively been
withdrawn, tied as it is to its abrogated jurisdictional
powers.
Based on the foregoing, it is evident that the linchpin in
deciding the question is whether or not the cause of
action of GSIS before the SEC is intimately tied to an
election controversy, as defined under Section 5(c) of
Presidential Decree No. 902-A. To answer that, we
need to properly ascertain the scope of the power of
trial courts to resolve controversies in corporate
elections.
B. Shares of stock in corporations may be divided into
voting shares and non-voting shares, which are
generally issued as "preferred" or "redeemable"
shares. Voting rights are exercised during regular or
special meetings of stockholders; regular meetings to
be held annually on a fixed date, while special
meetings may be held at any time necessary or as
provided in the by-laws, upon due notice. The
Corporation Code provides for a whole range of
matters which can be voted upon by stockholders,
including a limited set on which even non-voting
stockholders are entitled to vote on. On any of these
matters which may be voted upon by stockholders, the
proxy device is generally available.
Under Section 5(c) of Presidential Decree No. 902-A, in
relation to the SRC, the jurisdiction of the regular trial
courts with respect to election-related controversies is
specifically confined to "controversies in the election or
appointment of directors, trustees, officers or managers
of corporations, partnerships, or associations."
Evidently, the jurisdiction of the regular courts over so-
called election contests or controversies under Section
5(c) does not extend to every potential subject that may
be voted on by shareholders, but only to the election of
directors or trustees, in which stockholders are
authorized to participate under Section 24 of the
Corporation Code.
This qualification allows for a useful distinction that
gives due effect to the statutory right of the SEC to
regulate proxy solicitation, and the statutory jurisdiction
of regular courts over election contests or
controversies. The power of the SEC to investigate
violations of its rules on proxy solicitation is
unquestioned when proxies are obtained to vote on
matters unrelated to the cases enumerated under
Section 5 of Presidential Decree No. 902-A. However,
when proxies are solicited in relation to the election of
corporate directors, the resulting controversy, even if it
ostensibly raised the violation of the SEC rules on
proxy solicitation, should be properly seen as an
election controversy within the original and exclusive
jurisdiction of the TRIAL COURTS by virtue of Section
5.2 of the SRC in relation to Section 5(c) of Presidential
Decree No. 902-A.
The conferment of original and exclusive jurisdiction on
the regular courts over such controversies in the
election of corporate directors must be seen as
intended to confine to one body the adjudication of all
related claims and controversy arising from the election
of such directors. For that reason, the aforequoted
Section 2, Rule 6 of the Interim Rules broadly defines
the term "election contest" as encompassing all
plausible incidents arising from the election of
corporate directors, including: (1) any controversy or
dispute involving title or claim to any elective office in a
stock or nonstock corporation, (2) the validation of
proxies, (3) the manner and validity of elections and
(4) the qualifications of candidates, including the
proclamation of winners. If all matters anteceding the
holding of such election which affect its manner and
conduct, such as the proxy solicitation process, are
deemed within the original and exclusive jurisdiction of
the SEC, then the prospect of overlapping and
competing jurisdictions between that body and the
regular courts becomes frighteningly real. From the
language of Section 5(c) of Presidential Decree No.
902-A, it is indubitable that controversies as to the
qualification of voting shares, or the validity of votes
cast in favor of a candidate for election to the board of
directors are properly cognizable and adjudicable by
the regular courts exercising original and exclusive
jurisdiction over election cases. Questions relating to
the proper solicitation of proxies used in such election
are indisputably related to such issues, yet if the
position of GSIS were to be upheld, they would be
resolved by the SEC and not the regular courts, even if
they fall within "controversies in the election" of
directors.
The Court recognizes that GSIS’s position flirts with the
abhorrent evil of split jurisdiction, allowing as it does
both the SEC and the regular courts to assert
jurisdiction over the same controversies surrounding an
election contest. Should the argument of GSIS be
sustained, we would be perpetually confronted with the
spectacle of election controversies being heard and
adjudicated by both the SEC and the regular courts,
made possible through a mere allegation that the
anteceding proxy solicitation process was errant, but
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the competing cases filed with one objective in mind –
to affect the outcome of the election of the board of
directors. There is no definitive statutory provision that
expressly mandates so untidy a framework, and we are
disinclined to construe the SRC in such a manner as to
pave the way for the splitting of jurisdiction.
Unlike either Section 20.1 or Section 53.1, which
merely alludes to the rule-making or investigatory
power of the SEC, Section 5 of Pres. Decree No. 902-A
sets forth a definitive rule on jurisdiction, expressly
granting as it does "original and exclusive jurisdiction"
first to the SEC, and now to the regular courts. The fact
that the jurisdiction of the regular courts under Section
5(c) is confined to the voting on election of officers, and
not on all matters which may be voted upon by
stockholders, elucidates that the power of the SEC to
regulate proxies remains extant and could very well be
exercised when stockholders vote on matters other
than the election of directors.
That the proxy challenge raised by GSIS relates to the
election of the directors of Meralco is undisputed. The
controversy was engendered by the looming annual
meeting, during which the stockholders of Meralco
were to elect the directors of the corporation. GSIS very
well knew of that fact. On 17 March 2008, the Meralco
board of directors adopted a board resolution stating:
RESOLVED that the board of directors of the
Manila Electric Company (MERALCO)
delegate, as it hereby delegates to the
Nomination & Governance Committee the
authority to approve and adopt appropriate
rules on: (1) nomination of candidates for
election to the board of directors; (2)
appreciation of ballots during the election
of members of the board of directors; and
(3) validation of proxies for regular or special
meetings of the stockholders.
In addition, the Information Statement/Proxy form filed
by First Philippine Holdings Corporation with the SEC
pursuant to Section 20 of the SRC, states:
REASON FOR SOLICITATION OF VOTES
The Solicitor is soliciting proxies from
stockholders of the Company for the purpose
of electing the directors named under the
subject headed ‘Directors’ in this
Statement as well as to vote the matters in the
agenda of the meeting as provided for in the
Information Statement of the Company. All of
the nominees are current directors of the
Company.
Under the circumstances, we do not see it
feasible for GSIS to posit that its challenge to
the solicitation or validation of proxies bore no
relation at all to the scheduled election of the
board of directors of Meralco during the annual
meeting. GSIS very well knew that the
controversy falls within the contemplation of an
election controversy properly within the
jurisdiction of the regular courts. Otherwise, it
would have never filed its original petition with
the RTC of Pasay. GSIS may have withdrawn
its petition with the RTC on a new assessment
made in good faith that the controversy falls
within the jurisdiction of the SEC, yet the reality
is that the reassessment is precisely wrong as
a matter of law.
So, proxy is an ancilliary issue to an election contest.
And the one that has jurisdiction over the election
contest necessarily has jurisdiction over the proxy issue
related to the election contest. That’s the ruling of the
Court.
If it were in another setting, SEC. But because it is
an election contest, it is the intra-corporate body. So
correct si Anthony Rosete. Wa makalusot si Winston
Garcia. Wa makalusot si Gandingco(?).
A proxy is similar to a registration statement. You
must complete data – what is the purpose of the proxy,
what is the purpose of the action you are seeking
approval, who are the people behind it, etc. You must
describe it. Otherwise, you are not authorized.
February 21, 2018
(Lizette Estillore)
17.2. The reportorial requirements of Subsection 17.1
shall apply to the following:
(a) An issuer which has sold a class of its
securities pursuant to a registration under
section 12 hereof:
Provided however, That the obligation of
such issuer to file reports shall be
suspended for any fiscal year after the
year such registration became effective if
such issuer, as of the first day of any such
fiscal year, has less than one hundred
(100) holder of such class securities or
such other number as the Commission
shall prescribe and it notifies the
Commission of such;
(b) An issuer with a class of securities listed for
trading on an Exchange; and
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(c) An issuer with assets of at least Fifty million
pesos (50,000,000.00) or such other amount
as the Commission shall prescribe, and
having two hundred (200) or more holder each
holding at least one hundred (100) share of a
class of its equity securities:
Provided, however, That the obligation of
such issuer to file report shall be terminate
ninety (90) days after notification to the
Commission by the issuer that the number
of its holders holding at least one hundred
(100) share reduced to less than one
hundred (100).
We said that the Revised Security Code requires
any (?) of failed securities that reach at least 10% of the
outstanding capital stock to make known, disclose the
beneficial owner. However, the PSE has lowered the
requirement. It now requires 5% and that has been
sanctioned by the SEC. Not only for listed
corporations, but it also include corporations once their
total assets reach P50 million and there are at least of
two hundred (200) of which are holding at least one
hundred (100) shares each. You are also required once
you pay at least 10% of the outstanding capital stock to
disclose the beneficial ownership.
At any times proper to this is if the purchase is outside
the Philippines and uses intermediaries - that is when
this requirements sometimes become difficult to comply
with.
Example:
You are a retirement fund in Germany. You employ
wealth manager of an investment bank - HSBC. The
manager contacts a Singapore brokerage. The
stock broker contacts a broker here in the PSE
because they want to buy PLDT or Jollibee shares of
stock. So when they ask the broker who bought the
shares in excess of 5% of the OCS of Jollibee, can
he tell who the beneficial owner is? They will only
say that it is from the broker in Singapore. The
moment that they go out the Philippine territory, the
problem is that this law is a municipal law and not an
international law. Muana ka sa Singapore – “Who is
the beneficial owner here?” “We do not know. This
was just asked by the wealth manager in
Singapore.” Pangutan-on na sad nimo ang
Singapore wealth manager and he will just answer
“Wala man. Gitawag lang man mi to work on this
retirement fund.” Finally, when you go to the
retirement fund and ask – “Who is the benfecial
owner.” Muingon na sila – “Kadaghan ani among
mga retirees.” Because the retirement fund is not
the beneficial owner, isn’t it? It is for some other
people. That is the problem of this requirement.
Section 19. Tender Offers. –
19.1 Any person or group of persons acting in concert
who intends to acquire at least 15% of any class of
any equity security of a listed corporation of any class
of any equity security of a corporation with assets of at
least fifty million pesos (50,000,000.00) and having
two hundred(200) or more stockholders at least one
hundred shares each or who intends to acquire at
least thirty percent(30%) of such equity over a period
of twelve months(12) shall make a tender offer to
stockholders by filling with the Commission a
declaration to that effect; and furnish the issuer, a
statement containing such of the information required
in Section 17 of this Code as the Commission may
prescribe. Such person or group of persons shall
publish all request or invitations or tender offer or
requesting such tender offers subsequent to the initial
solicitation or request shall contain such information
as the Commission may prescribe, and shall be filed
with the Commission and sent to the issuer not alter
than the time copies of such materials are first
published or sent or given to security holders.
(a) Any solicitation or recommendation to the
holders of such a security to accept or reject a
tender offer or request or invitation for tenders
shall be made in accordance with such rules
and regulations as may be prescribe.
(b) Securities deposited pursuant to a tender offer
or request or invitation for tenders may be
withdrawn by or on behalf of the depositor at
any time throughout the period that tender
offer remains open and if the securities
deposited have not been previously accepted
for payment, and at any time after sixty (60)
days from the date of the original tender offer
to request or invitation, except as the
Commission may otherwise prescribe.
(c) Where the securities offered exceed that
which person or group of persons is bound or
willing to take up and pay for, the securities
that are subject of the tender offers shall be
taken up us nearly as may be pro data,
disregarding fractions, according to the
number of securities deposited to each
depositor. The provision of this subject shall
also apply to securities deposited within ten
(10) days after notice of increase in the
consideration offered to security holders, as
described in paragraph (e) of this subsection,
is first published or sent or given to security
holders.
(d) Where any person varies the terms of a
tender offer or request or invitation for tenders
before the expiration thereof by increasing the
consideration offered to holders of such
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securities, such person shall pay the
increased consideration to each security
holder whose securities are taken up and paid
for whether or not such securities have been
taken up by such person before the variation
of the tender offer or request or invitation.
19.2. It shall be lawful for any person to make any
untrue statement of a material fact or omit to state any
material fact necessary in order to make the
statements made in the light of the circumstances
under which they are made, not mis-leading, or to
engaged to any fraudulent, deceptive or manipulative
acts or practices, in connection with any tender offer
or request or invitation for tenders, or any solicitation
for any security holders in opposition to or in favor of
any such favor of any such offer, request, or invitation.
The Commission shall, for the purposes of this
subsection, define and prescribe means reasonably
designed to prevent, such acts and practices as are
fraudulent, deceptive and manipulative.
Once you buy 15%, then you must make a tender
offer. You must make an announcement. So any
stockholder who wants to sell, even if the small ones,
they can have this benefit. If there are so many who
want to sell, then it will be on pro-rata. Here is
somebody who owns 10% of the OCS. He wants to
avail of the tender offer. You get 10% of the 15% - that
is extent that you will buy from that offer.
How do the investors treat this? They try to scurry
around it. Instead of buying 15% at any one time, you
just by 14.5%. Then you wait for one year. Then you
buy again up to 29.5% so you will not be under the 30%
rule because if you also buy 30%, you end up to make a
tender offer. Hulat na sad ka another year. By the time,
people will already know that you want to take over the
company. Patas-anay man na siya sa presyo. Mahal na
kaayo pagsulod nimo.
They say that this tender offer rules put a premium on
what otherwise would be unbridled trading of shares of
stock because people *begin to know*, then they will put
a premium. Mu-mahal nuon ang shares of stock.
When you buy at least 50%, you must make a
general offer. You will be committed to buy everybody
else at the same price of your last transaction. So once
again, what do you do when you want to increase from
29.5% to 50%? After one year, palit ka ug 49% of the
OCS so you do not have to make a general offer. How
do you control the company when you only have 49%?
Mangita ka ug proxy. Mao na na.
Section 20. Proxy solicitations. - 20.1. Proxies must
be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by
the Commission
20.2. Proxies must be in writing, signed by the
stockholder or his duly authorized representative and
file before the scheduled meeting with the corporate
secretary.
20.3. Unless otherwise provided in the proxy, it shall
be valid only for the meeting for which it is intended.
No proxy shall be valid only for the meting for which it
is intended. No proxy shall be valid and effective for a
period longer than five (5) years at one time.
20.4. No broker or dealer shall give any proxy, consent
or any authorization, in respect of any security carried
for the account of the customer, to a person other than
the customer, without written authorization of such
customer.
20.5. A broker or dealer who holds or acquire the
proxy for at least ten percent (10%) or such
percentage as the commission may prescribe of the
outstanding share of such issuer, shall submit a report
identifying the beneficial owner of ten days after such
acquisition, for its own account or customer, to the
issuer of security, to the exchange where the security
is traded and to the Commission.
Proxy Solicitation
We said that as to the proxy, the substantial and formal
requirements are under the jurisdiction of SEC. But
because of the land mark case of GSIS by PGM
Winston Garcia vs. Anthony Rosete and CA, in the
context of an election contest – in view of the annual
election of the members of the board – that does not fall
under the jurisdiction of the SEC but under the
jurisdiction of the intra-corporate court because of
Section 5.2 which says:
5.2. The Commission’s jurisdiction over all cases
enumerated under section 5 of Presidential Decree
No. 902-A is hereby transferred to the Courts of
general jurisdiction or the appropriate Regional Trial
Court:
Provided, That the Supreme Court in the exercise
of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over
the cases.
The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one
(1) year from the enactment of this Code. The
Commission shall retain jurisdiction over pending
suspension of payment/rehabilitation cases filed as of
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30 June 2000 until finally disposed.
Notice that the RTC is a court of general jurisdiction.
But then the SC is given authority of the SEC to
designate a specific sala to hear and decide cases that
have been enumerated in Section of PD 902-A. One of
those cases is election contest because those election
contests have been placed by the SRC Section 9.2
under the jurisdiction of the intra-corporate court so
named and designated by the SC, then ancillary issues
by solicitation of proxies or the sufficiency of proxies will
now be under the jurisdiction of the intra-corporate court
and not the SEC.
The moment a broker or dealer who holds or acquire the
proxy for at least ten percent (10%) or such percentage
as the commission may prescribe of the outstanding
share of such issuer, the broker or dealer shall submit a
report identifying the beneficial owner of ten days after
such acquisition.
Section 21. Fees of Tender Offers and Certain
Proxy Solicitations. – At the time of filling with the
Commission of any statement required under Section
19 for any tender offer or Section 72.2 for issuer
purchases, or Section 20 for proxy or consent
solicitation, The Commission may require that the
person making such filing pay a fee of not more than
one-tenth (1/10)(1%) of;
21.1. The propose aggregate purchase price in the
case of a transaction under Section 20 or 72.2; or
21.2. The proposed payment in cash, and ion value
of any securities or property to be transferred in the
acquisition, merger or consolidating, or the cash
and value of any securities proposed to be
received upon the sale disposition of such assets in
the case of a solicitation under Section 20. The
Commission shall prescribe by rule diminishing
fees in inverse proportion to the value of the
aggregate price of the offering.
There are certain fees that are required. Even if
your securities are exempt from registration, you pay a
certain fee much lower. If not exempt, then with all the
more reason you pay certain fees. Every year this fees
increase because the SEC is granted authority to raise
the fees.
*not discussed
Section 22. Internal Record Keeping and
Accounting Control. – Every issuer which has a class
of securities that satisfies the requirements of
Subsection 17.2 shall:
22.1. Device and maintain a system of internal
accounting controls sufficient to provide reasonable
assurance that:
(a) Transactions and access to assets are
pursuant to management authorization;
(b) Financial statements are provided in
conformity with generally accepted
accounting principles that are adopted by
the Accounting standards council and the
rules promulgated by the Commission with
the regard to the preparation of the
financial statements; and
(c) Recorded assets are compared with
existing assets at reasonable intervals and
differences are reconciled.
Section 23. Transactions of Directors officers and
Principal Stockholders. –
23.1. Every person who is directly or indirectly the
beneficial owner of more than ten per centum (10%) of
any class of any equity security which satisfies the
requirements of subsection 17.2, or who is a director or
an officer of the issuer of such security, shall file, at the
time either such requirement is first satisfied or after ten
days after he becomes such a beneficial owner,
director, or officer, a statement form the Commission
and, if such security is listed for trading on an
exchange, also with the exchange of the amount of all
the equity security of such issuer of which he is the
beneficial owner, and within ten days after the close of
each calendar month thereafter, if there has been a
change in such ownership at the close of the calendar
month and such changes in his ownership as have
occurred during such calendar month.
23.2. For the purpose of preventing the unfair use of
information which may have been obtained by such
beneficial owner, director or officer by reason of his
relationship to the issuer, any profit realized by him
from any purchase or sale, or any sale or purchase, of
any equity security of such issuer within any period of
less than (6) months unless such security was acquired
in good faith in connection with a debt previously
contracted, shall inure to and be recoverable by the
issuer, irrespective of any intention of holding the
security purchased or of not repurchasing the security
sold for a period exceeding six (6) months. Suit to
recover such profit may be instituted before the
Regional Trial Court by the issuer, or by the owner of
any security of the issuer in the name and in behalf of
the issuer if the issuer shall fail or refuse to bring such
suit within sixty (60) days after request or shall fail
diligently to prosecute the same thereafter, but not such
shall be brought more than two years after the date
such profit was realized. This Subsection shall not be
construed to cover any transaction were such beneficial
owner was not such both time of the owner or the sale,
or the sale of purchase, of the security involved, or any
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transaction or transactions which the Commission by
rules and regulations may exempt as not
comprehended within the purpose of this subsection.
23.3. It shall be unlawful for any such beneficial owner,
director or officer, directly or indirectly, to sell any equity
security of such issuer if the person selling the
principal:
(a) Does not own the security sold: or
(b) If owning the security, does not deliver not
deliver it against such sale within 20 days
thereafter, or does not within five days
after such sale deposit in the mails or the
unusual channels of transportation; but no
person shall be deemed to have violated
this subsection if he proves not
withstanding the exercise of good faith he
was unable to make such delivery in such
time, or that to do so would cause undue
inconvenience or expense.
23.4. The provisions of subsection 23.2 shall not apply
to any purchase and sale, or sale and purchase, and
the provisions of Subsection 23.3 shall not apply to any
sale, of an equity security not then or thereafter held by
him and an investment account, by a dealer in the
ordinary course of his business and incident to the
establishment or maintenance by him of a primary or
secondary market, otherwise than on an Exchange, for
such security. The Commission may, by such rules and
regulations as it deems necessary or appropriate in the
public interest, define and prescribe terms and
conditions with respect to securities held in an
investment account and transactions made in the
ordinary course of business and incident to the
establishment or maintenance of a primary or
secondary market.
PROHIBITIONS AND FRAUD, MANIPULATION AND
INSIDER TRADING
Section 24. Manipulation of Security Prices;
Devices and Practices. –
24.1 It shall be unlawful for any person acting for
himself or through a dealer or broker, directly or
indirectly:
(a) To create a false or misleading appearance of
active trading in any listed security traded in
an Exchange of any other trading market
(hereafter referred to purposes of this Chapter
as "Exchange"):
(i) By effecting any transaction in such
security which involves no change in the
beneficial ownership thereof;
(ii) By entering an order or orders for the
purchase or sale of such security with
the knowledge that a simultaneous
order or orders of substantially the
same size, time and price, for the sale
or purchase of any such security, has or
will be entered by or for the same or
different parties; or
(iii) By performing similar act where there is
no change in beneficial ownership.
(b) To affect, alone or with others, a securities or
transactions in securities that: (I) Raises their
price to induce the purchase of a security,
whether of the same or a different class of the
same issuer or of controlling, controlled, or
commonly controlled company by others; or
(iii) Creates active trading to induce such a
purchase or sale through manipulative
devices such as marking the close, painting
the tape, squeezing the float, hype and dump,
boiler room operations and such other similar
devices.
(c) To circulate or disseminate information that
the price of any security listed in an Exchange
will or is likely to rise or fall because of
manipulative market operations of any one or
more persons conducted for the purpose of
raising or depressing the price of the security
for the purpose of inducing the purpose of
sale of such security.
(d) To make false or misleading statement with
respect to any material fact, which he knew or
had reasonable ground to believe was so
false or misleading, for the purpose of
inducing the purchase or sale of any security
listed or traded in an Exchange.
(e) To effect, either alone or others, any series of
transactions for the purchase and/or sale of
any security traded in an Exchange for the
purpose of pegging, fixing or stabilizing the
price of such security; unless otherwise
allowed by this Code or by rules of the
Commission.
24.2. No person shall use or employ, in connection
with the purchase or sale of any security any
manipulative or deceptive device or contrivance.
Neither shall any short sale be effected nor any stop-
loss order be executed in connection with the
purchase or sale of any security except in accordance
with such rules and regulations as the Commission
may prescribe as necessary or appropriate in the
public interest for the protection of investors.
24.3. The foregoing provisions notwithstanding the
Commission, having due regard to the public interest
and the protection of investors, may, by rules and
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regulations, allow certain acts or transactions that may
otherwise be prohibited under this Section.
Wash Sales, Section 24(a)
You effect any transaction with such securities which
involves no change in the beneficial ownership thereof.
Example:
Mutawag ka sa Broker A to sell(?) Manila Mining
500,000 shares at 1 centavo per share. Unya tawag
nasad ka lain broker – Broker B – to buy 500,000
shares of Manila Mining at 1 centavo per share.
Ikaw nibaligya, ikaw ra sad nipalit. Ikaw nibaligya,
ikaw ra sad nipalit kay natulog naman tong Manila
Mining. Wala man gyud nag buy or sell ana. So you
are making it appear that there is transaction. That
is called a manipulative transaction. Imong gitunto
ang market. Ang mga tao sad “Uy, nilihok naman
ang Manila Mining. There must be something going
on which I do not know. Sulod na ta ana kay
mauwahi man ta.”
Kinsa ma’y mabulahan ana? The stock brokers because
they charge you commission and the government also
taxes you – capital gains tax. Here, you simulate a
transaction. That is called Wash Sale. Madani nimo
ang mga tao. This is different with the Wash Sale in
Taxation. Take note.
(Talks about TRAIN LAW, casino, betting games)
There is also an improvement of that which is called
a MATCH ORDER. This time duha ka ka-tao. You will
act as seller. Your friend will act as buyer. Your order to
sell is matched with his order to buy. 30 minutes later,
he will sell and I will buy. Daghan na. You just go
through Section 24.
Section 25. Regulation of Option Trading. –
No member of an Exchange shall, directly or indirectly
endorse or guarantee the performance of any put, call,
straddle, option or privilege in relation to any security
registered on a securities exchange. The terms "put",
"call", "straddle", "option", or "privilege" shall not include
any registered warrant, right or convertible security.
What is the difference between put-option and call
option?
 CALL OPTION. An option to buy certain shares
at a given price
 PUT OPTION. An option to sell certain shares
at a given price
 STRADDLE. An option to buy and sell.
What is MARKING THE CLOSE?
The stock market section in the newspaper mupagawas
na sila na mao ni ang shares of stock of SMC and
indicate there the opening price and closing price. The
opening price is the first transaction and the closing price
is the last transaction. Makita na nimo kung nisaka or
niubos. Kung interesado ka, kung musaka, bantayan
nimo ang time. Pag mag close na ang market, palabyon
na nimo gamay tapos muhabol ka ug order – patas-on
nimo ang price arun musaka ang close kay mao man na
ang basehan the next day. So you mark the close,
purposely patas-an nimo ang presyo kay ugma mo-
unload na ug daghan unya nagkagidlay naman ang
price ana.
*not discussed
Section 26. Fraudulent Transactions. –
It shall be unlawful for any person, directly or
indirectly, in connection with the purchase or sale of
any securities to:
26.1. Employ any device, scheme, or artifice to
defraud;
26.2. Obtain money or property by means of any
untrue statement of a material fact of any omission to
state a material fact necessary in order to make the
statements made, in the light of the circumstances
under which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or
course of business which operates or would operate
as a fraud or deceit upon any person.
INSIDER TRADING
Section 27. Insider’s Duty to Disclose When
Trading. –
27.1. It shall be unlawful for an insider to sell or buy a
security of the issuer, while in possession of material
information with respect to the issuer or the security
that is not generally available to the public, unless:
(a) The insider proves that the information was not
gained from such relationship; or
(b) If the other party selling to or buying from the
insider (or his agent) is identified, the insider
proves:
(i) that he disclosed the information to the
other party, or
(ii) that he had reason to believe that the other
party otherwise is also in possession of the
information.
A purchase or sale of a security of the issuer made by
an insider defined in Subsection 3.8, or such insider’s
spouse or relatives by affinity or consanguinity within
the second degree, legitimate or common-law, shall be
presumed to have been effected while in possession of
material nonpublic information if transacted after such
information came into existence but prior to
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dissemination of such information to the public and the
lapse of a reasonable time for market to absorb such
information:
Provided, however, That this presumption shall be
rebutted upon a showing by the purchaser or seller that
he was aware of the material nonpublic information at
the time of the purchase or sale.
27.2. For purposes of this Section, information is
"material nonpublic" if:
(a) It has not been generally disclosed to the
public and would likely affect the market price
of the security after being disseminated to the
public and the lapse of a reasonable time for
the market to absorb the information; or
(b) would be considered by a reasonable person
important under the circumstances in
determining his course of action whether to
buy, sell or hold a security.
27.3. It shall be unlawful for any insider to communicate
material nonpublic information about the issuer or the
security to any person who, by virtue of the
communication, becomes an insider as defined in
Subsection 3.8, where the insider communicating the
information knows or has reason to believe that such
person will likely buy or sell a security of the issuer
whole in possession of such information
27.4. (a) It shall be unlawful where a tender offer has
commenced or is about to commence for:
(i) Any person (other than the tender offeror)
who is in possession of material nonpublic
information relating to such tender offer, to
buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if
such person knows or has reason to believe
that the information is nonpublic and has
been acquired directly or indirectly from the
tender offeror, those acting on its behalf, the
issuer of the securities sought or to be
sought by such tender offer, or any insider of
such issuer; and
(ii) Any tender offeror, those acting on its behalf,
the issuer of the securities sought or to be
sought by such tender offer, and any insider
of such issuer to communicate material
nonpublic information relating to the tender
offer to any other person where such
communication is likely to result in a violation
of Subsection 27.4 (a)(I).
(b) For purposes of this subsection the term "securities
of the issuer sought or to be sought by such tender
offer" shall include any securities convertible or
exchangeable into such securities or any options or
rights in any of the foregoing securities.
Who is an insider?
3.8. "Insider" means
(a) the issuer;
(b) a director or officer (or any person performing
similar functions) of, or a person controlling
the issuer;
(c) a person whose relation or former relationship
to the issuer gives or gave him access to
material information about the issuer or the
security that is not generally available to the
public;
(d) A government employee, director, or officer of
an exchange, clearing agency and/or self-
regulatory organization who has access to
material information about an issuer or a
security that is not generally available to the
public; or
(e) a person who learns such information by a
communication from any forgoing insiders.
INSIDER INFORMATION
This is a material information about the issuer or the
security which is not available to the public, but is
material because it influences any reasonable person in
deciding whether sell, buy, or hold the particular security.
Example:
Malampaya in Palawan traded in the stock market.
Oriental Petroleoum is one of the players there.
Kintahay nag sige sila deal. Gawas na ang oil. Ang
isa sa mga engineer nga nakakita, hulbot sa iyang
cellphone tawag sa iyang asawa nga tua sa Makati
na mupalit na shares kay naa na naigo nga oil. That
is insider trading. He is in possession of material
information about the issuer and it will influence any
objective investor as to his decision to buy, sell, or
hold.
Now the problem is STRUCTUCAL INSIDER TRADING.
Many of these big firms, they give advance disclosures
to the big investors which are normally institutional
funds. Tawag sila Investors Conference. They present
a big product that Apple is going to launch – iPhone 13.
Papilion ka nila. Why? Because you are an institutional
investor. You have a big stake. You pull-out from Apple,
it will influence the price of the stocks. That is the
problem because there is such a thing as advanced
investors’ conference that somehow give them an
advance notice of material information not otherwise
known to the general investing public. The US SEC
wants to put an end to that but it is very difficult because
some of the biggest investors are the government itself.
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February 22, 2018
(Zarah Domingo)
Insider Trading
The whole idea of the Securities Regulation Code,
all transactions are made known to the public that is
why there is a ticker-tape. Now it is an electronic tape.
All transactions in the stock market are recorded.
All issued shares there have a symbol. There is a
number there and a smaller number above, that is the
number of shares that were involved in this one
transaction. Then there is the price, nagdagan na, sige
dagan. Sunod na sad na transaction.
So, because it is open to the public, then the real price of
the shares of stock will come out, because all the seller
and buyers are supposed to be there in the market.
So if you have information but you do not let the market
know about it, you take advantage of that. That is not
allowed, if your shares of stock are traded.
Illustration:
Exploration for oil company: You are exploring for oil,
you already know you hit oil. So nobody else knows
about that. You buy shares and then the rest of the
public begin to know, and they find out that you knew
about it already at the time that they transacted. That
is insider trading.
The most famous insider trading story was Mr.
Boysky. He was an MAA (Mergers and Acquisition’s
Bank) Lawyer of an Investment Bank. He is hired by
consolidated banks that enter into mergers. Sila ang in-
charge sa pagpangita ug source of funds to buy shares
and also the correct valuation of the thing you are about
to purchase, that requires a lot of work. Mr. Boysky,
paghapit na magconclude ang transaction, what does he
do? He quietly goes down to the levator and goes down
to the street level and then he goes to an ordinary
telephone booth (in the 80s, there are no messages or
text), and he has a pocket full of coins and dials to his
bank in Switzerland (in which he has an account) and he
says ‘buy me this shares of stock traded in Wallstreet’,
magsugod na ug broker ani na shares kay naa na man
siya account didtu palit siya shares didtua. Pagkahuman
sa merger, saka ang presyo sa surviving corporation or
the new corporation if it is a consolidation, ginansya
siya, baligya na sad niya. Datu na kayo siya, 10 years
na niya ginabuhat. Until one afternoon, naay nituktok sa
iyahang opisina na men in black holding a warrant of
arrest for Insider Trading. Wala siya’y nahimu pero
ngadtu sa presohan, nagcompromise agreement siya,
nareduce iyahang sentence, paggawas niya nakasulat
siya ug libro, nadatu na pud siya kay na best seller man.
Karun naa na balaud na you cannot profit from your
crime.
Nganu nasakpan man siya? Wallstreet and the New York
Stock Exchange, they now have a program that tracks
business transactions in the New York Stock Exchange
for purposes of tracing insider trading.
Let us say this is the stock and it is trading. Naa na gali
good news that will enhance the value of the shares of
stock, let’s say there is now a merger, saka dayun na.
So this is the time when the merger finally occurred.
They trace it back, kini, this is a spike, somebody bought
shares of stock here, can this be explained? If it cannot
be explained because there is no good news, it means
there is insider training. Tan-awun nila kung kang
Boysky, dili man ni kang Boysky kay kang Boysky
gamay ra man kayo, only a couple of million, gamay ra
kayo na. Mau na ilang pangitaon.diri—kinsa man ni, ang
Swiss Bank man diay ni kay sa tanto niya sige ug tawag,
nakakita man ang bangko na nidatu man ning tawhana,
kita bangko tig-sunod lang ta niya, unya daku man ang
kwarta sa bangko, mau nan ni spike. Nakit-an na siya,
ma-trace naman iyahang pangalan sa stock because the
beneficial owner must be disclosed.
There are millions of transactions a day. How do you
trace it? Naa sila mga tao na maganalyze lang ani na
transactions. That is how they trace insider trading.
Do you remember Mr. Ongpin. A famous case here.
He used to be an accountant. He worked for SGV, he
became the managing partner of SGV and pirated by
Marcos. Then he was made trade secretary, then finance
secretary, until Marcos was deposed. He had money
with him.
Philex Mining –Gold. At the time, 3000 dollars per tri-
ounce, that was the peak. Philex was the biggest gold
mining in the Philippines, so much so that the big
investors have placements in Philex because they have
shares of stock. The investors are indirectly the
government like GSIS, SSS, Landbank, Development
Bank, they have investments in Philex. Philex was in
doldrums because people knew that thy have not found
new ore. Then, all of a sudden, somebody became
interested to gain control over Philex. So DBP, SSS,
GSIS, suddenly came together and they sold their
holdings of Philex at a very hefty price of the traded price
in the stockmarket. (Say, the traded price in the market
is only P3, but the substantial sotckholders sold at P6).
So in the news, it was reported that the government
finally got its investments. Suddenly, it was revealed that
the one who bought it was Roberto Ongpin. 2 months
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later, Ongpin turns around and sells his shares to
Manuel V. Pangilinan at P15 per share. Mas daku pa
siya ug ginansya. They also found out that Ongpin
bought those shares out of a loan granted by DBP. So
ang DBP, tagiya gud siya ug Philex Shares, gitagaan ni
niyang tawhana ug kwarta arun ipalit niya aning shares,
gi-gisa siya sa iyahang kaugalingung mantika. Nahimu
na nga kaso karun on insider trading. He was acquitted.
There was no proof that he knew that Pangilinan was
interested, but everyone knew. Kay si Pangilinan kung
interesado siya, 15% pa lang he has to disclose already,
if you buy 50% you have to make a general offer. But
they say the real power behind it is the First Gentleman
(who ordered it).
The thesis is Insider Trading in the Philippines is
harap-harapan.
During the time of Erap, there was an ambitious guy by
the name of Edward Go, he was the owner of Equitable
Bank and Trust Company, somewhere in the bottom 10
of commercial banks. Nagdamgo siya na ma-Top 3 siya,
that he will be in the stratosphere of BPI etc. Equitable
Bank thought of slowly buying up other commercial
banks. He knew that there was a big clask in PCI Bank.
The original owners of that Bank were Montelibano who
was part owner of Meralco together with the Lopezes
and Montinola of Ammon Trading. When Marcos took
over, Lopez fled, gikuha na ni Marcos ang shares ni
Lopez. To make the story short, the Lopez shares
became sequestered shares and the government
became the owner of these. The Cory government said
that those shares can be bought by dollar credits. Lopez
wanted to buy but he doesn’t have enough so he went to
Gokongwei, they paid the dollar debt in the US then they
came back and they bought PCI Bank so they gain
control (30% si Lopez, 30% si Gokongwei, and the
remaining were those owned by Montinola, Montelibano,
etc)
Now, here comes Edward Go who wants to buy PCI
Bank to make him Number 4. Guduol niya si Erap and
Erap told SSS and GSIS to buy shares of PCI Bank but
you go in tandem with Edward Go. Edward Go became
45% of that vehicle (30% SSS, 20% GSIS, then 100%
na sila). SIla ang nipalit sa 60% share ni Gokongwei and
Lopez). This is layering.
Nadakpan man tu si Erap na naay ghost account (Jose
Velarde). Bagsak ang equitable bank due to bank run.
Mau tu gibaligya ang Equitable PCI Bank, nahimung
BDO na mau nan a-number 1. Ingun pa ni Henry Sy,
“sometimes, the one who wins is the counter-puncher.”
Those transactions, they are all insider trading.
There were no disclosures. They don’t even track the
trading to explain why it is going up. BDO did not say
stop the trading of my stocks so that I can explain why
my shares are going up. It is not told in the public.
In the US, the moment your shares of stock go up to
10%, there must be something. Do you know something
which the general public does not know?
As retailer, Walmart is 10 times bigger than Amazon.
It is so big that 20% of the total exports of China is
Walmart. Its shares of stock suddenly went down by
10%, shares of stock has been going down, 3%, 4%
10%, 20%. Their actual shares are going down because
people are already beginning to buy in the web. Gamay
ra kayo ni in comparison sa Walmart pero the trend, naa
na.
2 years ago, gi-pirate sa Walmart ang Number 2 sa
Amazon sa ilahang website trading. Gi-pirate nila ang IT
sa Amazon sa ilahang web trading. Karun wala man
nisaka sa web sales sa Walmart pareho kapaspas sa
Amazon. So ang conclusion sa mga investors “wala na
paglaum ni na mga tawhana, patay na ni, unload na.”
Nganu kusog man kayo? Because the institutional
investors received data in the slow rise of their web
sales earlier than the general public. So they had the
chance to dump their shares of stock of Walmart, ahead
of everybody else. Ang uban tao, kusog man kayo so
apil na lang pud sila. Now, that is insider trading.
Now there was an investigation, kana tanan mga big
funds why you were able to dump ahead of everybody
else. That is how the pressure is on portfolio managers.
Mau na mga na-convict 3 years ago, fastest going funds
in New York. There were 3 Asians then (Father refers to
them as “bunguton”). Tung isa, naa siya gihire na
mangulitao (Father meant that a man was hired to court)
sa assistant secretary ni Steve Jobs, General Manager
of Apple, para lang makakuha sa strategy. Nadakpan,
Insider trading. If you have insider trading muginansya
ka, mutubo imung portfolio, you attract other investors.
Mudaghan imung funds, mangita na pud ko ani ug
insider trading. Ikaw ang pinaka-ngilngigan, adtu tanan
nimu. Samut ka ug kapressure (kay musunod man sila
nimu.)
There must be material information. There was a
problem given sometime in the Bar Examinations. Naa
giabangan ni na function room ni na top hotel in Manila.
They were made up of 2 of the top corporations involved
in Plastics in Manila. They were discussing mergers. So
gitawag sila sa inhouse restaurant na naay musulod na
waiter. This waiter, he was asked, gisugo siya na duulun
ning tawhana na naa sa sulod. Nakita niya mga
computation, share price and assets unya arguments,
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Based on the Lectures of Fr. Agustin Nazareno
nakita niya na merger ni. Sugo dayun siya papalit ug
shares of stock. Nangutang siya palit shares of stock. Is
he guilty of insider trading?
Remember, the trade, you buy or sell because you are in
possession of information. Is he in possession of
information? No, he was only guessing. Naay share
price, naa duha ka company—pangagpas tu niya. Dili tu
information na nakuha na nagmerge mi. This one is
intelligent guess work. That is not insider trading.
So be careful when you are given a problem in the Bar
Examination. It might be because the defenses are:
1.) The information that I used was not a secret, it
was already available. The information has long
been disclosed.
2.) The one I sold it to or bought from me, knew at
that time the transaction was made kay ako siya
gisultian, gipairma nako siya. So I did not take
advantage.
3.) I was not in possession of the information. The
material information might have been in
existence at the time of the transaction but I did
not possess it. Sulagma lang tu.
Those are the defenses against insider trading. Be
familiar with the defenses.
February 23, 2018 1st half
(April Liz Parreno)
These are the three practices that our outlaw in the
Security Regulations Code:
1.) Manipulative Practices
2.) Fraudulent Practices
3.) Insider trading Practices
OBLIGATION TO DISCLOSE
If you are a listed issuer in the securities stock
market, you have the obligation to disclose any event or
change of the circumstances in your issuer or of the
securities which may influence the investors in their
judgment whether to sell, buy, or hold the security.
If you go to the Philippine Stock Exchange, in a sale,
then you go to Disclosures and it is listed there that the
disclosures that are being made by the different
corporations that are listed.
For example, Century Pacific Group makes a disclosure:
“We have purchased the controlling shares for
Shakeys.” They announce that. So Shakeys is now part
of Century Pacific group. CPG is listed in the Stock
Exchange.
Do not confuse that with Pacific Century, that is a
Hongkong Corp. Before that, SMIDC made an
announcement that they are already in advance stage to
acquire Goldilocks. Just recently they made
announcement that they decided to discontinue their
negotiation and are parting as friends. Wala natuloy.
You must make a disclosure if it has dependency to be a
material information that could influence the investor in
his decision to buy, sell, or hold the particular security.
MARGIN TRADING
What is margin trading?
It is the practice of buying and selling shares of
stocks on the stock market on credit.
Who provides you the credit?
The one who provides is the broker himself.
Why would the broker give you credit so you can
buy and sell shares of stock?
Because you have collateral with the broker. Shares
of stock which you asked the broker to buy for you and it
is in a long position, in other words, you do not ask a
certificate over that shares of stock and you just let the
broker hold it. Those shares of stocks may be used as
collateral if you’ve already ran out of money.
Just in case you want to trade in the Stock Market, the
first thing you do is look for broker. For example,
Metrobank. They have stock agency. If you’ve found a
broker to your liking, you establish contract. The broker
would say, “I do not know you.” Unless you are Henry
Sy. Obviously you are not lol. So you’re not known, the
broker will tell you, “I suggest you open an account with
us”. So you open an account, you deposit 1M pesos.
You now have money with the broker. You can now call
the broker and say, “get me Century Pacific 1,000
shares ‘at the market’ ”.
Whatever its price at the market, you are willing to pay –
that is what “at the market” means. So he will use your
deposit and buy your shares. He will either send you a
text according to your instructions, if you want via text or
via phone call. So he will ask you if you want certificate
of Stock. And you say “No”, because you do not want to
pay extra for the certificate so he holds it for you.
Can you receive dividends? Yes, he gives you the
dividends. He holds it.
Suppose your 1M is already totally spent and you still
want to buy some shares. You want to buy it on credit.
Can you now tell the broker, “can I buy shares of stock
on margin?”. The broker can extend you credit. In which
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case you are now buying shares of stock on borrowed
money from the broker.
What is the limit of the broker in extending credit for
you to buy shares of stock?
The limit is found in Section 48.1 of SRC
xxx
For the extension of credit, such rues and regulations
shall be based on the following standard:
An amount not greater than the whichever is the higher
of –
a.) Sixty five per centum (65%) of the current
market price of the security, or
b.) One hundred per centum (100%) of the lowest
market price of the security during the
preceding thirty six (36) calendar months, but
not more than seventy-five per centum (75%)
of the current market price.
Can you sell securities which you do not own yet?
Muingon ka sa imong broker, “sell San Miguel at the
market”.
“Wala man kay San miguel sir.”
“Basta sell lang, akong order na nimo”.
Locally that happens when the price of shares of stocks
are going down. That is what you do, you sell short the
security.
*NOTE: I think Fr wrote an illustration on the board but
absent ata ko ani na day so sorry guys, use your
imagination na lang sa hehe*
This is the number of securities; this is the price. Let
say the price of shares of stock is starting here and
hinay hinay na kanaog and sige pa gyud kanaog. So
muingon ka “I will make money while the market is going
down”.
Buy low, sell high. That is if the market is going up.
When the market is going down, people will sell high and
buy low.
Pag abot na diri 90 na, muingon ka sell 1,000 San
Miguel shares, wala pa ka ana. Tagbuon nimo diri sa
hapon, palit ka, mao na gamiton na and ideliver nimo
ganihang buntag na wala pa ka. That’s called “SELLING
SHORT”.
Muingon gani sila, “the market, people are shorting San
Miguel”. That means there are already many people who
are selling San Miguel shares na wala pa sila, hoping to
catch if it naa na sa ubos.
Ang problema nimo if di nimo pagpadayon, mukalit lang
saka. Ibaligya nimo diri, palit ka diri. Mas taas na nuon
imong gibaligya. Unsay mahitabo sa naga speculate?
Mga bankers ba, mahurot man ilang gideposito sabroker
unya active kayo ang market. Sige ka lang saka,
bagsak, saka na sad, bagsak. Maka apas ka ana, ma
milyonaryo ka ana kay paspas man kayo.
The problem is wala na kay kwarta kay nahurot naman
so on credit na ka. Muingon ka sa broker, “sell”.
Tagbuon nimo nisaka sa taas, “buy”. Aron matagbungan
nimo imong giballigya.
This is more prevalent in the Philippine exchange
because we are still using stock certificate. So our
clearing period is three days. Kay i-deliver pa man, tan-
awon pa ang certifiacte kung genuine ba ni then dal-on
pa sa settling apparatus -- registered na tanan sa SEC
ha.
But shorting, you can even do it in two separate days
because the clearing is three days. Whereas, if it is
already uncertificated, you have to do it within one day,
kanang shorting. Kanang imo gibaligya na wala pa ka,
kailangan before the day ends you have to cover it kay
ang clearing period is one day kay uncertificated man.
That now answers the question. Yes, you can sell
securities which you do not own yet.
You can short provided you do not violate the clearing
requirements. Ma violate gani ka, wala kay shares na
ipakita, nipusta ka na wala diay kay kwarta. In the stock
market that is fraudulent but selling shares at the
moment which you do not have but which later on you
can cover before the clearing requirement, which is
alright. You can do it.
Know the restrictions on trading on margin.
According to section 48.2 of SRC
Section 48.2. No member of an Exchange or broker or
dealer shall, directly or indirectly, extend or maintain
credit or arrange for the extension or maintenance of
credit or for any customer:
a.) On any security unless such credit is extended
and maintained in accordance with the rule s
and regulations which the Commissioner shall
prescribe under this Section including rules
setting credit in relation to net capital of such
member, broker, or dealer;
Gitawag ka na sa broker, you have made transaction of
credit. When your collateral which is long held by the
broker, the current value goes down, it goes down lower
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than 75% of market value. What happens? Broker will
make a broker’s call.
Unsay may pasabot ana? Dugangi imong collateral kay
its already insufficient according to the rules of SRC.
How do you reduce your debt and put it under the limits
of the SRC?
a.) You can take part of your credit aron your
collateral will be securing smaller amount kay
niubos man ang value; or
b.) you can add to the collateral.
Take note that is a broker’s call.
Section 49. Restrictions on Borrowings by
Members, Brokers, and Dealers –
It shall be unlawful for any registered broker or dealer,
or member of an Exchange, directly or indirectly:
49.1 To permit in the ordinary course of business as a
broker or dealer his aggregate indebtedness including
customer’s credit balances, to exceed such percentage
of the net capital (exclusive of fixed assets and value of
Exchange membership) employed in the business, but
not exceeding in any case two thousand per centum
(2,000%) as the Commission may by rules and
regulations prescribe as necessary or appropriate in
the public interest or for the protection of investors.
This is now the limit of the broker or dealer as to how
much credit he can avail. To exceed 2,000% of the net
capital exclusive of fixed assets and value of exchange
membership,
Your exchange membership is an asset ha but its not
included in the computation of how much you can
extend. Why?
If the stock market is very active, the stock market seat
is very expensive. The running price of seat of stock
market is 35-50million. Your fixed assets, your house,
your land, your building, that’s not included in the
determiantion of your assets in excessive of which you
cannot go beyond 2,000% of whatever you lend to the
customers. How about professionals?
What is an ODD LOT DEALER?
In stock market floor, there are specialists. The
common lot in the stock market is you cannot buy less
than 100 shares. 100 shares is 1 lot.
But let’s say PLDT, since its 15000/share, 1 lot of PLDT
is 10 shares. Dako naman. That’s an exception.
The normal lot kung mupalit ka is 100shares. Naay
estante diha ug elchon, mupalit kag lechon. What is the
common lot in lechon kung mupalit ka? ¼ kilo, kapalit
ka? Unya nihapit kag kan-on diha. Palit kag duha ka
gramo, ibaligya na sad nimo. Duha ka gramo kay naa
naman kay kan-on, ikaw lang man isa mukaon. Ibaligya
nimo, dili na bitaw kag magtigba tigba. Mao ni siya, odd
lot dealer.
Naay mga salin salin na shares of stock, paliton na niya,
isa or diha ka buok, magtigom na siya. Ikaw, nagbaligya
ka tanang shares of stock nimo, wa pa nabalhin,
nagdeclare silag stock dividend, makadawat kag duwa
tulo ka shares because you are still listed as the owner
even after you had the transaction.
So naa kay dividend 4 ka shares, unsaon man nimo
pagbaligya na kailangan man 100 shares? It will not be
transacted in the stock market. Muadto ka sa odd lot
dealer. Muingon ka, “Naa man koy upat ka shares”.
Muingon siya, “sige pangitaon ta kag lain”.
Magtigom siya until mabuo niya ang 100, then there can
already be a lot and he can already be listed and
transacted. Tanda-i na ninyo kay dili na isulti diha.
There are specialists. They concentrate on a
particular industry, let’s say banking. There are many
issues in the PSE. If you are somebody from abroad,
you will contact these specialists if you want to make a
sizeable investment in the banking industry.
Floor reader
Professional speculator acting for himself and as agent
for others. He depends entirely upon profits derived from
trading for his own account and does not receive
commissions. Have you seen the movie trading places?
*Talks about the movie starring Eddie Murphy whose
role was floor reader *
Broker, dealers, sales man, associated person, they are
all registered in the SEC.
When will they terminate their registration?
The registration shall be automatically terminated
upon cessation his affiliation with said registered broker
dealer or with an issuer in the case of salesman
employed, appointed, authorized by the issuer; promptly
following any sub cessation of affiliation with the
registered broker, dealer, as the case may be, shall file
with the commission a notice of separation of such
salesman or associated person.
You are a registered salesman of a particular broker or
dealer; you are a registered associate of a particular
broker or dealer. The moment you disassociate, you lose
your registration. Mubalhin ka ug laing broker, apply na
sad ka ug laing registration under that broker.
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Why is that? To avoid so called “rogue salesmen, row
associates”. Kanang mu operate lang on their own.
Maayo pa ng naay broker, kay naa man nay sureties na
gi-file sa stock exchange to be answer for any damages
that they may be responsible for because of trading.
Kanang mga associates, mga salesman, mga
empleyado na, wala man silay bond. Tingali manikas
sila, nibalhin na sila, sige na silag tubag sa telepono,
sige silag order, di na kabntay ang kliyente. That is why
it is employer-specific. The registration of sales person,
associates, they are employer-specific.
February 23, 2018 2nd half
(Shahata Tagtagan)
We have practically taken up the salient points of
SRC. Let us now move to PD 912-A, also known as the
SEC REORGANIZATION DECREE. It’s called that
because when it was passed in March 11, 1976, it
transferred the SEC from the jurisdiction of the Finance
Department to directly under the President of the
Republic. It was given quasi-judicial jurisdiction.
What were the cases placed under the jurisdiction of
the SEC?
It is mentioned in Section 5.
SECTION 5. In addition to the regulatory and
adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other
forms of associations registered with it as expressly
granted under the existing laws and decrees, it shall
have original and exclusive jurisdiction to hear and
decide cases involving:
a) Devices and schemes employed by or any acts, of the
board of directors, business associates, its officers or
partnership, amounting to fraud and misrepresentation
which may be detrimental to the interest of the public
and/or of the stockholder, partners, members of
associations or organizations registered with the
Commission;
xxx
That’s the first class of cases. Then there are three
others. These cases are now being transferred to the
intra-corporate court which is supposed to be one of the
branches of the RTC that is designated by the SC as an
intra-corporate court. So, this was transferred by Section
5.2 of R.A. 8799 (SRC)
Second group of cases:
SECTION 5. xxx
b) Controversies arising out of intra-corporate or
partnership relations, between and among stockholders,
members, or associates; between any or all of them and
the corporation, partnership or association of which they
are stockholders, members or associates, respectively;
and between such corporation, partnership or
association and the state insofar as it concerns their
individual franchise or right to exist as such entity;
xxx
This is called INTRA-CORPORATE DISPUTES.
Controversies within the corporation.
SECTION 5. xxx
c) Controversies in the election or appointments of
directors, trustees, officers or managers of such
corporations, partnerships or associations;
xxx
These are called ELECTION
CONTROVERSIES/INTRA-CORPORATE ELECTION
CONTROVERSIES.
SECTION 5. xxx
d) Petitions of corporations, partnerships or associations
to be declared in the state of suspension of payments in
cases where the corporation, partnership or association
possesses sufficient property to cover all its debts but
foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to
cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee
created pursuant to this Decree.
Suspension of payments cases of corporations. It is
now transferred to the jurisdiction NOT of the intra-
corporate court, but now because of the passage of
FRIA Law 2010, it created an insolvency court to be
designated by the SC. It’s one of the branches of the
RTC solely for insolvency proceedings. Involuntary and
voluntary, including suspension of payments and
rehabilitation.
1ST GROUP OF CASES [Refer to Section 5 (a)].
The popular shortcut for these cases is
PYRAMIDING CASES. Why is it called such? Because
once the fraud is full-blown, a pyramid structure
becomes evident. [Fr. draws something sa board.]
You tell the public, you sell it to the public. Place your
money with us, you will get 2% a month, which means
24% interest that we will pay every month. 2 x 12 = 24.
Interest rates are normally reckoned in annual terms.
When we say that the ten-year treasury US bond will
now yield 2.9%, that’s not for the whole ten years.
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Annually, makakuha ka 2.9% based on the money you
parted with to buy that treasury. That’s the yield.
Muingon ning pyramiding scheme, butangan namig
kwarta namo, 2% imong makuha kada bulan. Then they
will say, P100,000.00 minimum. Unsaon man pag bayad
diri, kanang 2% a month? Kaya pa na, kay
P100,000.000 gud ang minimum na ihatag nimo. Pila
may 2% sa P100,000.00? P2,000.00. Makabayad pa sa
first month maski wala kay negosyo, out of the principal
na iyang gihatag. Mulapas na gani mga walo kabuan,
lisod na ka ana. Manguha pa gyud dugang pa na mga
tao. As you can see, it becomes a pyramid.
Unsa may ilang negosyo? WALA! Tinonto na, unsaon
man nila pagbayad sa interest, gikan na sa sa principal
sa musulod. Hastang naa pay sigeg butang ug kwarta,
muapil diri, dili ni sila mahutdan kwarta pamayad kay
gamay lang man kayo ilang gibayad, 2% lang man out
of the principal, bayad kada bulan. Muundang na gani
ang recruitment, din a, mabulilyaso na sila, wa diay mo
negosyo. That’s why it is called a pyramiding scheme.
Actually, it is originally called PONZI SCHEME (an
Italian man from the 19th century. He carried his
pyramiding scheme in New York. Story about Mr. Ponzi.)
Here comes the so-called NETWORKING
SCHEMES e.g. Amway, Herbalife. It used to be the
ruling of the US SC, that these schemes, magrecruit ka,
attend ka seminar nila etc, maengganyo kag apil hantod
mubayad ka sa fee aron makabaligya ka ng products
nila. You get a hefty commission for selling. If you recruit
others, you also have an overriding commission of his __
sales. Kato sila makarecruit gani sila, you also have
overriding commission. Where are they getting all these
commissions? Nganong maka afford man ning
kumpanya muhatag ug commission? The normal answer
given is, because there is no indirect cost. They do not
have a warehouse, they do not have stores. Kamo may
tig baligya.
US SC said, for as long as there is a substance, whether
it’s a product or a service that has commercial value, it is
NOT a pryramiding scheme. Daghan man gihapon
gareklamo. The new subject of complaint is Herbalife.
July 18, 2016. This is Reuters (?). Herbalife settles
pyramiding scheme case with the regulator. After the
Herbalife case was brought to the regulators of the SEC,
they passed this ___. If the networking scheme
resembles the pyramid, even if there’s commercial
value, commodity or service that is involved, if the
organization earns more from membership fee than
the actual sale of these products, it is a pyramiding
scheme. (Class: Aaahh… )
Adto dayon sila manguha, mangwarta, tanan mga tao
ilang kumbinsuhon. Hala pamaligya mo, madatu mo,
tan-awon imong balay. So that is the ruling now. You
google it, Herbalife pyramiding scheme.
2ND GROUP OF CASES [Refer to Section 5 (b)]
When is it an intra-corporate controversy?
It seems that in the definition, it’s enough if the
protagonists are all constituents of the corporation.
Stockholder vs. officer, members of the corporation vs.
trustee, director vs. director. That is just one question.
The so-called PARTY REQUIREMENT. The status or
relationship of the parties. If it is stockholder vs. director,
you are already halfway there.
You still have to answer a second question. What is
that? The nature of the question that is the subject of the
controversy. That is what the SC said in the case of
MATLING INDUSTRY AND COMMERCIAL
CORPORATION VS RICARDO CORUS. 633 SCRA
12 , October 13, 2010. If it is the Corporation Code or
the SRC that is used in order to resolve the dispute, then
it is an intra-corporate proceeding.
So, you already have the constituents. Stockholder vs.
stockholder, all the stockholders vs. the corporation, etc.
If the issue as to the parties is already complied with,
now it is the nature of the controversy. To resolve the
controversy, what is needed, the application of the Civil
Code, or the SRC? If it is SRC, then it is intra-corporate
controversy.
Illustration:
Ako stockholder. You are stockholder. I send you my
shares of stock. I signed the deed of sale you drew
up. Then I tell you, “I will surrender to you the
certificate of stock covering the share I sold to you
as soon as my brother who comes from Cebu
arrives here”, kay sya magdala ato. In the meantime,
xxx (sorry guys di klaro) Issuehan ko nimog cheke.
Wa man mutunga ang brother from Cebu. Sige kag
gukod. Unya di naman mutubag ___ diri ra gihapon
ko sa Davao. The issue is, which forum has
jurisdiction over our dispute? Kung ikiha tika, i-file
diretso sa intra-corporate court? Wala namay raffle
dira, the jurisdiction of the sala is specific. If it is not
an intra-corporate controversy, there must still be a
raffle.
You go down the checklist in the Matling Corporation
case:
1) Parties – are they corporate parties? In the example,
yes. Both are stockholders. It fulfills the first test.
2) What provision of the law is going to be used to settle
or resolve the controversy? Is it the Corporation Code?
The SRC? NO. It is the Civil Code, because it is a SALE,
a controversy as to a sale. The contract has been
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perfected. Nipirma naman ko. Then, it is partially
executed. Gibayran naman ko. Now, it’s my turn to
produce the evidence of that which was __. Unsa man
ang kasuhan? Specific performance na, ordinary court.
That is not an intra-corporate controversy.
3RD GROUP OF CASES [Refer to Section 5 ( c)]
Somebody has been appointed as vice president for
personnel of this big corporation. He is also a
stockholder. He’s been appointed for ten consecutive
years. All of a sudden, the next year, he is no longer
appointed. He’s dismissed. File sya ug illegal separation
complaint with the Department of __ (Labor?). Regular
employee man ako, ten years na pud ko personnel.
Unya bigla nila ko gipahawa, wa koy sultihi unsay sala
nako. Nalagot ba sila sakong nawong? It is not a ground
for dismissal under the Labor Code, so I am illegally
dismissed. There are many cases like that. SC said: You
cannot make it powers to the Labor Arbiter to look
into the internal workings of the Board of Directors.
That is beyond its jurisdiction. So that jurisdiction
case is within the jurisdiction of the intra-corporate court,
because it has to do with the inner workings of the Board
of Directors and Board of Trustees.
REMEMBER, there are two exceptions.
1) That administrator of Araneta University
Corporation, who was a regular faculty member before
he was appointed by the Board to be Vice President.
After ten years, he was no longer appointed. He brought
the case to a labor court. The Labor Arbiter said, yes I
have jurisdiction. Upheld by the SC, because he was
not only managerial employee appointed by the
court, he was also a regular faculty member. He
cannot be dismissed from the university, but he can be
removed from his position as Vice President. In this
case, he goes back to teaching because he is a regular
faculty employee. Therefore, his rights to security of
tenure were violated.
2) The Insular Life Subdivision case. They changed
their Articles of Incorporation and By-Laws to make his
position a board-appointed position. They appointed him
first for one year. The following year they no longer
appointed him and said “You are out”. SC said: That
amendment was actually a way to circumvent his
security of tenure right which is already vested.
Therefore, the Labor Arbiter can disregard the vote of
the Board of Trustees, because there is deprivation and
violation of security of tenure.
4TH GROUP OF CASES - suspension of payments
[Refer to Section 5 (d)]
This is a recognized proceeding in FRIA. If you are a
corporation and you have sufficient assets to meet your
liabilities, but your assets are not ripening at the same
time as your obligations becoming due. So what will you
do? You ask for an order suspending payments. Aron
mahinog imong assets, tagaan kag lugway na panahon
aron makabayad ka sa imong mga obligations. That is
why the proceeding is called PETITION FOR
SUSPENSION OF PAYMENTS.
Under the old Insolvency Law, you have:
1) Suspension of payments of corporations; and
2) Suspension of payments of individuals.
The suspension of payments of individuals has been
erased from FRIA. It’s no longer there, so there is no
more of this petition.
Who has jurisdiction over suspension of payments
of corporations?
The FRIA courts. Not the intra-corporate courts
because that is now one of the insolvency proceedings.
Before, when it was the SEC who has the jurisdiction,
dako kaayo na na problema. Supposed the SEC finds
out in the proceeding, in the inventory of assets, di man
diay tinuod, you actually have sufficient assets to meet
your liabilities. Therefore, this is not a petition for
suspension of payments, this is an insolvency
proceeding. Unya wala man jurisdiction ang SEC. SEC
dismisses the case. Maayo lang kung muapply na sad
siya with the regular courts, because the regular courts
at the time has jurisdiction. If he does not apply, edi
magkabuang ang mga creditors. You need to have at
least 1/3 of the credits and you file a petition and it
becomes an involuntary petition for insolvency. Now, that
is solved because that is now in the same court. If the
court finds you have less assets than liabilities, he just
converts it, he just issues an order. “Order amending the
petition”. Muingon ang petitioner, “I don’t want to
amend!”. But he has less assets than liabilities, so this is
now converted into a petition for insolvency, NOT for
suspension.
So those are the four classes of suits that are being
transferred to the regular courts from the SEC. Also
included are those that were involved in the quasi-
judicial powers exercised by the SEC. Gamay na lang
ang jurisdiction sa SEC. That was because Marcos
wanted to control the corporations when he issued P.D.
902-A
We are ready for another exam 
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