Professional Documents
Culture Documents
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DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the Petition for Review on Certiorari [1] assailing the
Decision[2] dated February 11, 2002 and Resolution dated July 3, 2002 of the Court
of Appeals in CA-G.R. SP No. 65217, entitled Performance Foreign Exchange
Corporation, petitioner, versus Securities and Exchange Commission, respondent.
Primary Purpose
To operate as a broker/agent between market participants in
transactions involving, but not limited to, foreign exchange, deposits,
interest rate instruments, fixed income securities, bonds/bills,
repurchased agreements of fixed income securities, certificate of
deposits, bankers acceptances, bills of exchange, over-the-counter option
of the aforementioned instruments, Lesser Developed Countrys (L.D.C.)
debt, energy and stock indexes and all related, similar or derivative
products, other than acting as a broker for the trading of securities
pursuant to the Revised Securities Act of the Philippines.
Secondary Purpose
SO ORDERED.
On April 23, 2001, petitioner issued an Order [11] making the Cease and Desist
Order permanent, thus:
On May 4, 2001, respondent filed a motion [12] praying that the said Order be
set aside. Petitioner, however, did not act on the motion. This prompted respondent
to file with petitioner a notice[13] dated June 14, 2001 that it is withdrawing its
motion in order to seek a more appropriate and speedy remedy.
The Court of Appeals ruled that petitioner acted with grave abuse of
discretion when it issued its challenged Orders without a positive factual
finding that respondent violated the Securities Regulation Code.
Petitioner, through the Solicitor General, contends that the Court of Appeals
erred in not applying the rule that factual findings of quasi-judicial bodies, like the
SEC, which have acquired expertise because their jurisdiction is confined to
specific matters, are generally accorded not only respect but even finality if such
findings are supported by substantial evidence.[18]
In its Comment,[19] respondent counters that the instant petition utterly lacks
merit and should be dismissed.
The issue for our resolution is whether petitioner SEC acted with grave
abuse of discretion in issuing the Cease and Desist Order and its subsequent Order
making it permanent.
Sec. 64. Cease and Desist Order. 64.1. The Commission, after
proper investigation or verification, motu proprio, or upon verified
complaint by any aggrieved party, may issue a cease and desist
order without the necessity of a prior hearing if in its judgment the act
or practice, unless restrained, will operate as a fraud on investors or
is otherwise likely to cause grave or irreparable injury or prejudice
to the investing public.
x x x. (Underscoring supplied)
Under the above provision, there are two essential requirements that must be
complied with by the SEC before it may issue a cease and desist order: First, it
must conduct proper investigation or verification; and Second, there must be a
finding that the act or practice, unless restrained, will operate as a fraud on
investors or is otherwise likely to cause grave or irreparable injury or prejudice to
the investing public.
Here, the first requirement is not present. Petitioner did not conduct proper
investigation or verification before it issued the challenged
orders. The clarificatoryconference undertaken by petitioner regarding respondents
business operations cannot be considered a proper investigation or verification
process to justify the issuance of the Cease and Desist Order. It was merely
an initial stage of such process, considering that after it issued the said order
following the clarificatory conference, petitioner still soughtverification from the
BSP on the nature of respondents business activity. Its letter to the BSP dated
February 8, 2001 states in part:
xxx
Petitioners act of referring the matter to the BSP is an essential part of the
investigation and verification process. In fact, such referral indicates that
petitioner concedes to the BSPs expertise in determining the nature of respondents
business. It bears stressing, however, that such investigation and verification, to be
proper, must be conducted by petitioner before, not after, issuing the Cease and
Desist Order in question. This, petitioner utterly failed to do. The issuance of such
order even before it could finish its investigation and verification on
respondents business activity obviously contravenes Section 64 of R.A. No. 8799
earlier quoted.
Worse, when respondent filed a motion praying that the same order be lifted for
being premature, petitioner, in its Order dated February 9, 2001, even denied the
motion despite its admission therein that it cannot determine certain material
facts involving respondents transactions and, as such, the matter must be referred
to the BSP for determination, thus:
In the light of the above circumstances, and the fact that the
Commission cannot determine whether such transactions are
actually executed in Singapore or Hongkong as alleged, and whether
the foreign currency rates used in the transactions are verifiable, it is
our position that the same be endorsed to the BSP.
In view of the foregoing, the cease and desist order stays against
the corporation until the latter shall be able to submit the appropriate
endorsement from the Bangko Sentral ng Pilipinasthat it can engage in
financial derivative transactions.
Which brings us to the second requirement. Before a cease and desist order
may be issued by the SEC, there must be a showing that the act or practice sought
to be restrained will operate as a fraud on investors or is likely to cause grave,
irreparable injury or prejudice to the investing public. Such requirement implies
that the act to be restrained has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be restrained can
only be determined after the BSP shall have submitted its findings to
petitioner. However, there is nothing in the questioned Orders that shows how the
public is greatly prejudiced or damaged by respondents business operation.
SO ORDERED.
CEMCO HOLDINGS, INC., G.R. No. 171815
Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus -
CHICO-NAZARIO, and
NACHURA, JJ.
Promulgated:
Respondent.
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DECISION
CHICO-NAZARIO, J.:
The Facts
Particulars Percentage
Existing shares of Cemco in UCHC 9%
Acquisition by Cemco of BCIs and ACCs 51%
shares in UCHC
Total stocks of Cemco in UCHC 60%
Percentage of UCHC ownership in UCC 60%
Indirect ownership of Cemco in UCC 36%
Direct ownership of Cemco in UCC 17%
Total ownership of Cemco in UCC 53%
I.
ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER
NATIONAL LIFES COMPLAINT AND THAT THE SECS RE-INTERPRETATION
OF THE TENDER OFFER RULE IS CORRECT, WHETHER OR NOT THAT
REINTERPRETATION CAN BE APPLIED RETROACTIVELY TO CEMCOS
PREJUDICE.
II.
WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE
DISPUTE BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT
REQUIRING CEMCO TO MAKE A TENDER OFFER FOR UCC SHARES.
III.
IV.
WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA
DECISION, IS AN INCOMPLETE JUDGMENT WHICH PRODUCED NO
EFFECT.[6]
Simply stated, the following are the issues:
[T]he Commission shall have, among others, the following powers and
functions:
xxxx
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.
This interpretation given by the SEC and the Court of
Appeals must be sustained.
xxxx
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 bottomline 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.[21]
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DECISION
PUNO, C.J.:
This petition for review seeks the reversal and setting aside
of the July 31, 2003 Decision [1] of the Court of Appeals that
affirmed the January 26, 2001 Cease and Desist Order (CDO) [2] of
public respondent Securities and Exchange Commission (SEC)
enjoining petitioner Power Homes Unlimited Corporations
(petitioner) officers, directors, agents, representatives and any
and all persons claiming and acting under their authority, from
further engaging in the sale, offer for sale or distribution of
securities; and its June 18, 2004 Resolution [3] which denied
petitioners motion for reconsideration.
The facts: Petitioner is a domestic corporation duly
registered with public respondent SEC on October 13, 2000 under
SEC Reg. No. A200016113. Its primary purpose is:
SO ORDERED.
SECURITIES AND
EXCHANGE COMMISSION, G.R. No. 135808
Petitioner,
Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA,*
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
INTERPORT RESOURCES VELASCO, JR.,
CORPORATION, MANUEL
NACHURA,**
S. RECTO, RENE S.
VILLARICA, PELAGIO REYES,
RICALDE, ANTONIO REINA, DE CASTRO, and
FRANCISCO ANONUEVO,
JOSEPH SY and SANTIAGO BRION,** JJ.
TANCHAN, JR.,
Respondents.
Promulgated:
October 6, 2008
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DECISION
CHICO-NAZARIO, J.:
III
Thus, under the new law, the PED has been abolished, and
the Securities Regulation Code has taken the place of the Revised
Securities Act.
As such, the PED Rules provided that the Hearing Officer may
require the parties to submit their respective verified position
papers, together with all supporting documents and affidavits of
witnesses. A formal hearing was not mandatory; it was within the
discretion of the Hearing Officer to determine whether there was
a need for a formal hearing.Since, according to the foregoing
rules, the holding of a hearing before the PED is discretionary,
then the right to cross-examination could not have been
demanded by either party.
xxxx
xxxx
(j) Imposes charges, fines and fees, which by law, it is
authorized to collect;
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xxxx
xxxx
Respondents have taken the position that this case is moot and
academic, since any criminal complaint that may be filed against
them resulting from the SECs investigation of this case has
already prescribed.[73] They point out that the prescription period
applicable to offenses punished under special laws, such as
violations of the Revised Securities Act, is twelve years under
Section 1 of Act No. 3326, as amended by Act No. 3585 and Act
No. 3763, entitled An Act to Establish Periods of Prescription for
Violations Penalized by Special Acts and Municipal Ordinances and
to Provide When Prescription Shall Begin to Act. [74] Since the
offense was committed in 1994, they reasoned that prescription
set in as early as 2006 and rendered this case moot. Such
position, however, is incongruent with the factual circumstances
of this case, as well as the applicable laws and jurisprudence.
The said case puts in perspective the nature of the investigation undertaken
by the SEC, which is a requisite before a criminal case may be referred to the
DOJ. The Court declared that it is imperative that the criminal prosecution be
initiated before the SEC, the administrative agency with the special competence.
SO ORDERED.
G.R. No. 180064 September 16, 2013
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 21, 2007 and
Resolution3 dated October 16, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 79297, which
reversed and set aside the Orders dated May 14, 2003 4 and July 16, 20035 of the Regional Trial
Court of Cauayan City, Isabela, Branch 19 (RTC), dismissing petitioners Jose(Jose) and Benjamin
Hanben U. Pua's (petitioners) complaint against respondent Citibank, N. A. (respondent).
The Facts
On December 2, 2002, petitioners filed before the RTC a Complaint6 for declaration of nullity of
contract and sums of money with damages against respondent, 7 docketed as Civil Case No. 19-
1159.8 In their complaint, petitioners alleged that they had been depositors of Citibank Binondo
Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada Ang, Citibank Binondos Branch
Manager, invited Jose to a dinner party at the Manila Hotel where he was introduced to several
officers and employees of Citibank Hongkong Branch (Citibank Hongkong). 9 A few months after,
Chingyee Yau (Yau), Vice-President of Citibank Hongkong, came to the Philippines to sell securities
to Jose. They averred that Yau required Jose to open an account with Citibank Hongkong as it is one
of the conditions for the sale of the aforementioned securities.10 After opening such account, Yau
offered and sold to petitioners numerous securities11 issued by various public limited companies
established in Jersey, Channel I sands. The offer, sale, and signing of the subscription agreements
of said securities were all made and perfected at Citibank Binondo in the presence of its officers and
employees.12 Later on, petitioners discovered that the securities sold to them were not registered
with the Securities and Exchange Commission (SEC)and that the terms and conditions covering the
subscription were not likewise submitted to the SEC for evaluation, approval, and
registration.13 Asserting that respondents actions are in violation of Republic Act No.8799, entitled
the "Securities Regulation Code" (SRC), they assailed the validity of the subscription agreements
and the terms and conditions thereof for being contrary to law and/or public policy.14
For its part, respondent filed a motion to dismiss15 alleging, inter alia, that petitioners complaint
should be dismissed outright for violation of the doctrine of primary jurisdiction. It pointed out that the
merits of the case would largely depend on the issue of whether or not there was a violation of the
SRC, in particular, whether or not there was a sale of unregistered securities. In this regard,
respondent contended that the SRC conferred upon the SEC jurisdiction to investigate compliance
with its provisions and thus, petitioners complaint should be first filed with the SEC and not directly
before the RTC.16
Petitioners opposed17 respondents motion to dismiss, maintaining that the RTC has jurisdiction over
their complaint. They asserted that Section 63of the SRC expressly provides that the RTC has
exclusive jurisdiction to hear and decide all suits to recover damages pursuant to Sections 56 to 61
of the same law.18
In an Order19 dated May 14, 2003, the RTC denied respondents motion to dismiss. It noted that
petitioners complaint is for declaration of nullity of contract and sums of money with damages and,
as such, it has jurisdiction to hear and decide upon the case even if it involves the alleged sale of
securities. It ratiocinated that the legal questions or issues arising from petitioners causes of action
against respondent are more appropriate for the judiciary than for an administrative agency to
resolve.20
Respondent filed an omnibus motion21 praying, among others, for there consideration of the
aforesaid ruling, which petitioners, in turn, opposed. 22 In an Order23 dated July 16, 2003, the RTC
denied respondents omnibus motion with respect to its prayer for reconsideration. Dissatisfied,
respondent filed a petition for certiorari before the CA.24
The CA Ruling
In a Decision25 dated May 21, 2007, the CA reversed and set aside the RTCs Orders and dismissed
petitioners complaint for violation of the doctrine of primary jurisdiction. The CA agreed with
respondents contention that since the case would largely depend on the issue of whether or not the
latter violated the provisions of the SRC, the matter is within the special competence or knowledge
of the SEC. Citing the case of Baviera v. Paglinawan26(Baviera), the CA opined that all complaints
involving violations of the SRC should be first filed before the SEC.27
Aggrieved, petitioners moved for reconsideration,28 which was, however, denied by the CA in a
Resolution29dated October 16, 2007.Hence, this petition.
The essential issue in this case is whether or not petitioners action falls within the primary
jurisdiction of the SEC.
Petitioners reiterate their original position that the SRC itself provides that civil cases for damages
arising from violations of the same law fall within the exclusive jurisdiction of the regional trial
courts.30
On the contrary, respondent maintains that since petitioners complaint would necessarily touch on
the issue of whether or not the former violated certain provisions of the SRC, then the said complaint
should have been first filed with the SEC which has the technical competence to resolve such
dispute.31
At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to support
its position that all complaints involving purported violations of the SRC should be first referred to the
SEC. A careful reading of the Baviera case would reveal that the same involves a criminal
prosecution of a purported violator of the SRC, and not a civil suit such as the case at bar. The
pertinent portions of the Baviera ruling thus read:
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it
must first be referred to an administrative agency of special competence, i.e., the SEC. Under the
doctrine of primary jurisdiction, courts will not determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact. The Securities Regulation Code is a
special law. Its enforcement is particularly vested in the SEC.
Hence, all complaints for any violation of the Code and its implementing rules and regulations should
be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint
to the DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier quoted.
We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he
filed his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can be ascribed
to the DOJ in dismissing petitioners complaint.32 (Emphases and underscoring supplied)
Records show that petitioners complaint constitutes a civil suit for declaration of nullity of contract
and sums of money with damages, which stemmed from respondents alleged sale of unregistered
securities, in violation of the various provisions of the SRC and not a criminal case such as that
involved in Baviera.
In this light, when the Court ruled in Baviera that "all complaints for any violation of the [SRC] x x x
should be filed with the SEC,"33 it should be construed as to apply only to criminal and not to civil
suits such as petitioners complaint.
Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law; 34 it cannot be
inferred but must be explicitly stated therein. Thus, when Congress confers exclusive jurisdiction to a
judicial or quasi-judicial entity over certain matters by law, this, absent any other indication to the
contrary, evinces its intent to exclude other bodies from exercising the same.
It is apparent that the SRC provisions governing criminal suits are separate and distinct from those
which pertain to civil suits. On the one hand, Section 53 of the SRC governs criminal suits involving
violations of the said law, viz.:
53.1. The Commission may, in its discretion, make such investigations as it deems necessary to
determine whether any person has violated or is about to violate any provision of this Code, any rule,
regulation or order thereunder, or any rule of an Exchange, registered securities association,
clearing agency, other self-regulatory organization, and may require or permit any person to file with
it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts
and circumstances concerning the matter to be investigated. The Commission may publish
information concerning any such violations, and to investigate any fact, condition, practice or matter
which it may deem necessary or proper to aid in the enforcement of the provisions of this Code, in
the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which this Code relates: Provided,
however, That any person requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the purpose of such investigation:
Provided, further, That all criminal complaints for violations of this Code, and the implementing rules
and regulations enforced or administered by the Commission shall be referred to the Department of
Justice for preliminary investigation and prosecution before the proper court:
Provided, furthermore, That in instances where the law allows independent civil or criminal
proceedings of violations arising from the same act, the Commission shall take appropriate action to
implement the same: Provided, finally, That the investigation, prosecution, and trial of such cases
shall be given priority.
On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil suits
involving violations of the same law. Among these, the applicable provisions to this case are
Sections 57.1 and 63.1 of the SRC which provide:
SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports.
or
(b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code,
by the use of any means or instruments of transportation or communication, by means of a
prospectus or other written or oral communication, which includes an untrue statement of a
material fact or omits to state a material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading (the purchaser
not knowing of such untruth or omission), and who shall fail in the burden of proof that he did
not know, and in the exercise of reasonable care could not have known, of such untruth or
omission, shall be liable to the person purchasing such security from him, who may sue to
recover the consideration paid for such security with interest thereon, less the amount of any
income received thereon, upon the tender of such security, or for damages if he no longer
owns the security.
xxxx
SEC. 63. Amount of Damages to be Awarded. 63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court which shall have
exclusive jurisdiction to hear and decide such suits. The Court is hereby authorized to award
damages in an amount not exceeding triple the amount of the transaction plus actual damages.
Based on the foregoing, it is clear that cases falling under Section 57of the SRC, which pertain to
civil liabilities arising from violations of the requirements for offers to sell or the sale of securities, as
well as other civil suits under Sections 56, 58, 59, 60, and 61 of the SRC shall be exclusively brought
before the regional trial courts. It is a well-settled rule in statutory construction that the term "shall" is
a word of command, and one which has always or which must be given a compulsory meaning, and
it is generally imperative or mandatory.35 Likewise, it is equally revelatory that no SRC provision of
similar import is found in its sections governing criminal suits; quite the contrary, the SRC states that
criminal cases arising from violations of its provisions should be first referred to the SEC. 1wphi1
Therefore, based on these considerations, it stands to reason that civil suits falling under the SRC
are under the exclusive original jurisdiction of the regional trial courts and hence, need not be first
filed before the SEC, unlike criminal cases wherein the latter body exercises primary jurisdiction.
All told, petitioners' filing of a civil suit against respondent for purported violations of the SRC was
properly filed directly before the RTC.
WHEREFORE, the petition is GRANTED. Accordingly, the Court of Appeals' Decision dated May 21,
2007 and Resolution dated October 16,2007 in CA-G.R. SP No. 79297 are hereby REVERSED and
SET ASIDE. Let Civil Case No. 19-1159 be REINSTATED and REMANDED to the Regional Trial
Court of Cauayan City, Isabela, Branch 19 for further proceedings.
SO ORDERED.
DECISION
PEREZ, J.:
Before us is another cautionary tale of an investment arrangement which, at the outset, appeared good,
unraveling unhappily as a deal toogoodtobetrue.
This petition for review on certiorari under Rule 45 of the Rules of Court assails the Decision 1 of the Court of
Appeals in CAG.R. SP No. 112781 affirming the Resolutions2 of the Secretary of Justice in I.S. No. 2007
1054 which, among others, dismissed the criminal complaint for violation of Section 28 of Republic Act No.
8799, the Securities Regulation Code, filed by petitioner Securities and Exchange Commission (SEC) against
respondent Oudine Santos (Santos).
Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary
perpetrator, Michael H.K. Liew (Liew), a selfstyled financial guru and Chairman of the Board of Directors of
Performance Investment Products Corporation (PIPCBVI), a foreign corporation registered in the British
Virgin Islands.
To do business in the Philippines, PIPCBVI incorporated herein as Philippine International Planning Center
Corporation (PIPC Corporation).
Because the head of PIPC Corporation had gone missing and with it the monies and investment of a
significant number of investors, the SEC was flooded with complaints from thirtyone (31) individuals
against PIPC Corporation, its directors, officers, employees, agents and brokers for alleged violation of
certain provisions of the Securities Regulation Code, including Section 28 thereof. Santos was charged in
the complaints in her capacity as investment consultant of PIPC Corporation, who supposedly induced
private complainants Luisa Mercedes P. Lorenzo (Lorenzo) and Ricky Albino P. Sy (Sy), to invest their monies
in PIPC Corporation.
x x x [D]ue to the inducements and solicitations of the PIPC corporations directors, officers and
employees/agents/brokers, the former were enticed to invest their hardearned money, the minimum
amount of which must be US$40,000.00, with PIPCBVI, with a promise of higher income potential of an
interest of 12 to 18 percentum (%) per annum at relatively lowrisk investment program. The private
complainants also claimed that they were made to believe that PIPC Corporation refers to Performance
Investment Product Corporation, the Philippine office or branch of PIPCBVI, which is an entity engaged in
foreign currency trading, and not Philippine International Planning Center Corporation. 3
Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a complaintaffidavit for
violation of Sections 8,4 265 and 286 of the Securities Regulation Code before the Department of Justice
which was docketed as I.S. No. 20071054. Among the respondents in the complaintaffidavit were the
principal officers of PIPC: Liew, Chairman and President; Cristina GonzalezTuason, Director and General
Manager; Ma. Cristina BautistaJurado, Director; and herein respondent Santos.
Private complainants, Lorenzo and Sy, in their affidavits annexed to SECs complaintaffidavit, respectively
narrated Santos participation in how they came to invest their monies in PIPC Corporation: chanRoblesvirtualLa wlibrary
1. Lorenzos affidavit
xxxx
2. I heard about PIPC Corporation from my friend Derrick Santos during an informal gathering sometime in
March 2006. He said that the investments in PIPC Corporation generated a return of 1820% p.a. every two
(2) months. He then gave me the number of his sister, Oudine Santos who worked for PIPC Philippines to
discuss the investment further.
3. I then met with Oudine Santos sometime during the first week of April 2006 at PIPC Philippines lounge x
x x. Oudine Santos conducted for my personal benefit a presentation of the characteristics of their
investment product called Performance Managed Portfolio (PMP). The main points of her presentation are
indicated in a summary she gave me, x x x: chanRoble svirtualLawlibrary
xxxx
4. I asked Oudine Santos who were the traders, she said their names were confidential.
5. Oudine Santos also emphasized in that same meeting that I should keep this transaction to myself
because they were not allowed to conduct foreign currency trading. However, she assured me that I should
not worry because they have a lot of big people backing them up. She also mentioned that they were
applying for a seat in the stock exchange.
7. Oudine Santos then gave me instructions on how to place my money in PMP and made me sign a
Partnership Agreement. x x x.
xxxx
8. Soon thereafter, pursuant to the instructions Oudine Santos gave me, I remitted US$40,000.00 to ABN
AMRO Hong Kong.
9. Afterwards, I received a letter dated 17 April 2006, signed by Michael H.K. Liew, welcoming my
investment.
xxxx
10. Sometime on May 2006, I added another US$ 60,000.00 to my then subsisting account #181372, thus
totaling US$100,000.00. This amount, pursuant to the instructions of Oudine Santos, was remitted to
Standard Chartered Bank.
xxxx
14. Then sometime on May 2007, I planned to pull out my remaining US$100,000.00 investment in PIPC
Philippines. On 22 May 2007, I met with Oudine Santos at the 15th Floor of Citibank Tower in Makati City. I
told her I wanted to terminate all my investments.
15. Oudine Santos instead said that PIPC Philippines has a new product I might be interested in. x x x She
explained that this product had the following characteristics: chanRoblesvirtualLa wlibrary
xxxx
16. Oudine Santos reiterated these claims in an email she sent me on 22 May 2007. x x x.
17. Enticed by these assurances and promises of large earnings, I put in FOUR HUNDRED THOUSAND US
DOLLARS (US$400,000.00) in PMP (RZB), which became account # R149432.
18. Pursuant to the instructions Oudine Santos gave me, I remitted the amount of US$ 400,000.00 to RZB
Austria, Singapore Branch.
xxxx
22. I tried calling Oudine Santos and was finally able to reach her at around 7 in the morning. She
confirmed what Leah Caringal told me. I told her then that I want full recovery of my investment in
accordance with their 100% principal guarantee. To this day[,] I have not received my principal investment. 7
5. Sys affidavit
2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15
years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain routine
transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to
wait in her cubicle. It was there that the bank manager introduced me to another bank client, Ms. Oudine
Santos. After exchanging pleasantries, and in the course of a brief conversation, Ms. Santos told me that she
is a resident of Damarias Village and was working as an investment consultant for a certain company,
Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office
at the Citibank Tower in Makati so that she could explain the investment products that they are offering. I
gave her my contact number and finished my transaction with the bank for that day;
3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the business lounge of
[PIPC] located at the 15th Floor of Citibank Tower, Makati. During the meeting, Ms. Santos enticed me to
invest in their Performance Managed Portfolio which she explained was a risk controlled investment program
designed for individuals like me who are looking for higher investment returns than bank deposits while still
having the advantage of security and liquidity. She told me that they were engaged in foreign currency
trading abroad and that they only employ professional and experienced foreign exchange traders who
specialize in trading the Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told
her that I did not have any experience in foreign currency trading and was quite conservative in handling my
money;
4. Ms. Santos quickly allayed my fears by emphasizing that the capital for any investment with [PIPC] is
secure. She then trumpeted [PIPCs] track record in the Philippines, having successfully solicited investments
from many wealthy and wellknown individuals since 2001;
5. Ms. Santos convinced me to invest in Performance Management Portfolio I x x x [which] features full
protection for the principal investment and a 60%40% sharing of the profit between the client and [PIPC]
respectively;
6. In November of 2006, I decided to invest USD 40,000 specifically in Performance Management Portfolio I
x x x. After signing the Partnership Agreement, x x x, I was instructed by Ms. Santos to deposit the amount
by telegraphic transfer to [PIPCs] account in ABN AMRO Bank Hong Kong. I did as instructed;
xxxx
8. Sometime January to March of 2007, [Santos] was convincing me to make an additional investment
under a second product, Performance Management Portfolio II [PMP II] which provides a more limited
guarantee for the principal investment of USD 100,000 and a 80%20% sharing of the profit between the
client and [PIPC] respectively. In both schemes, the clients participation will be limited to choosing two
currencies which will in turn be traded by professional traders abroad. Profit earned from the transaction will
then be remitted to the clients account every 8 weeks;
xxxx
10. After I made my USD 40,000 PMP I investment, Ms. Santos invited me to meet Mr. Michael Liew in the
business lounge some time during the first quarter of this year. My impression was that he was quite
unassuming considering that he was the head of an international investment firm. x x x.8
On the whole, Lorenzo and Sy charge Santos in her capacity as investment consultant of PIPC Corporation
who actively engaged in the solicitation and recruitment of investors. Private complainants maintain that
Santos, apart from being PIPC Corporations employee, acted as PIPC Corporations agent and made
representations regarding its investment products and that of the supposed global corporation PIPCBVI.
Facilitating Lorenzos and Sys investment with PIPC Corporation, Santos represented to the two that
investing with PIPC Corporation, an affiliate of PIPCBVI, would be safe and fullproof.
In SECs complaintaffidavit, it charged the following: chanRoblesvirtualLa wlibrary
xxxx
12. This case stems from the act of fraud and chicanery masterfully orchestrated and executed by the
officers and agents of PIPC Corp. against their unsuspecting investors. The deception is founded on the basic
fact that neither PIPC Corp. nor its officers, employees and agents are registered brokers/dealers, making
their numerous transactions of buying and selling securities to the public a blatant violation of the provisions
of the SRC, specifically Sections 8 and 28 thereof. Their illegal offer/sale of securities in the form of the
Performance Management Partnership Agreement to the public was perpetrated for about nine (9) years
and would have continued were it not for the alleged, and most probably, contrived and deliberate
withdrawal of the entire funds of the corporation by Michael H.K. Liew. The [scam] was masked by a
supposed offshore foreign currency trading scheme promising that the principal or capital infused will be
guaranteed or fully protected. Coupled with this [full] guarantee for the principal is the prospect of profits at
an annual rate of 12 to 18%. [One of] the other enticements provided by the subject company were free
use of its business either for personal or business purposes, free subscription of imported magazines, [trips]
abroad, and insurance coverage, just to name a few. Fully convinced and enamored [by the] thought of
earning higher rates of interest along with the promise of a guaranteed [capital] the investors placed and
entrusted their money to PIPC Corp., only to find out later [that they] had been deceived and taken for a
ride.
xxxx
17. Sometime in 2006, an investigation was undertaken by the [Compliance and Enforcement Division of
the SEC] on the [account] of PIPC Corp. Per its Articles of Incorporation, PIPC Corp. was authorized to
engage [in the] dissemination of information on the current flow of foreign exchange (forex) as x x x
precious metals such as gold, silver, and oil, and items traded in stock and securities/commodities
exchanges around the world. To be more specific, PIPC Corp. [was] authorized to act only as a research
arm of their foreign clients.
xxxx
22. x x x.
23. A careful perusal of the complaintaffidavits revealed that for every completed investment transaction,
a company brochure, depending on the type of investment portfolio chosen, was provided to each investor
containing the following information on Performance BVI and its investment product called Performance
Managed Portfolio or PMP, the points of which are as follows:
a. Investors funds will be placed into a fixed deposit account with a PIPC designated
bank and shall not be exposed for trading purposes. The PIPC designated bank
shall then extend a margin line request for trading based on the deposit;
b. PIPC shall open a separate account which will contain an amount of not more than
30% of its own funds to serve as a profit and loss account;
c. Trading will commence with PIPC designated bank closely monitoring the
performance to ensure that if losses are incurred trading will cease immediately
should the 20% stop limit be hit;
d. Profits will be credited into the Profit and Loss account with PIPC designated bank
account. Losses will be debited from the same account up to the controlled 20%
limit;
g. The funds of various investors are pooled, batched and deposited with PIPC
designated bank account acting as custodian bank, to form a massive asset base.
This account is separate and distinct from the Profit and Loss Account. The line
from this pooled fund is then entrusted to full time professional and experienced
foreign traders who each specialize in the following currencies: Japanes Yen, Euro,
British Pound, Swiss Francs and Australian Dollar. Profits generated from trading
these major currencies is credited into the Profit and Loss Account, which at the
end of the eight calendar week lockin period, will be distributed among the
investors. Investors are informed of their account status thru trading statements
issued by PIPC every time there is a trade made in their respective accounts.
xxxx
25. Furthermore, it was relayed by the officers and agents to complainantsinvestors that PIPC Corp. is the
Philippine office of the Performance Group of Companies affiliates situated in different parts of the world,
particularly China, Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands (BVI),
even reaching Switzerland. With such basic depiction of the legitimacy and stability of PIPC Corp.,
complainantsinvestors deduced that it was clothed with the authority to solicit, offer [and] sell securities.
As regards the officers and agents of [PIPC Corp.], they secured proper individual licenses with the SEC as
brokers/dealers of securities to enable to solicit, offer and/or sell the same.
26. Official SEC documents would show that while PIPC Corp. is indeed registered with the SEC, it having
engaged in the solicitation and sale of securities was contrary to the purpose for which it was established
which is only to act as a financial research. Corollarily, PIPC Corp.s officers, agents, and brokers were not
licensed to solicit, offer and sell securities to the public, a glaring violation of Sections 8 and 28 of the SRC. 10
In refutation, Santos denied intentionally defrauding complainants Lorenzo and Sy: chanRoble svirtualLawlibrary
12. I cannot understand how I can be charged of forming, or even of being a part of, a syndicate formed
with the intention of carrying an unlawful or illegal act, transaction, enterprise or scheme. If this charge has
reference to PIPC Corp. then I certainly cannot be held liable therefore. As I mentioned above, I joined PIPC
Corp. only in April 2005 and, by that time, the company was already in existence for over four years. I had
no participation whatsoever in its creation or formation, as I was not even connected with PIPC Corp. at the
time of its incorporation. In fact, I have never been a stockholder, director, general manager or officer of
PIPC Corp. Further, PIPC Corp. was duly registered with the Securities and Exchange Commission and was
organized for a legitimate purpose, and certainly not for the purpose of perpetrating a fraud against the
public.
13. That I was an employee and, later on, an independent information provider of PIPC Corp. is of little
consequence. My duties as such were limited to providing information about the corporate clients of PIPC
Corp. that had been expressly requested by interested individuals. I performed my assigned job without any
criminal intent or malice. In this regard, I have been advised that offenses penalized under the RPC are
intentional felonies for which criminal liability attaches only when it is shown that the malefactors acted with
criminal intent or malice. There can be no crime when the criminal mind is wanting. In this case, I
performed my task of providing requested information about the clients of PIPC Corp. without any intent to
violate the law. Thus, there can be no criminal liability.
[14]. I have also been advised that under the law, the directors and officers of a corporation who act for and
in behalf of the corporation, who keep within the lawful scope of their authority, and act in good faith, do not
become liable, whether civilly or otherwise, for the consequences of their acts, as these acts are properly
attributed to the corporation alone. The same principle should apply to individual, like myself, who was only
acting within the bounds of her assigned tasks and had absolutely no decisionmaking power in the
management and supervision of the company.
[15]. Neither can I be liable of forming a syndicate with respect to PIPCBVI. To reiterate, at no time was I
ever a stockholder, director, employee, officer or agent of PIPCBVI. Said company is simply one of many
companies serviced by PIPC Corp. I had no participation whatsoever in its creation and/or in the direction of
its daytoday affairs.
xxxx
19. Further, I have been advised by counsel that conspiracy must be established by positive and conclusive
evidence. It cannot be based on mere conjecture but must be established as a fact. In this case, no proof of
conspiracy was presented against me. In fact, it appears that I have been dragged in to this allegation based
on the hearsay statement of Felicia Tirona that I was one of the inhouse account executives or work
force of PIPCBVI and PIPC Corp. There was no allegation whatsoever of any illegal act done by me to
warrant the institution of criminal charges against me. If at all, only Michael Liew should be held criminally
liable, as he was clearly the one who absconded with the money of the investors of PIPCBVI. Mr. Liew has
since disappeared and efforts to locate him have apparently proved to be futile to date.
xxxx
23. In the first place, I did not receive any money or property from any of the complainants. As clearly
shown by the documents submitted to this Honorable Office, particularly, the Portfolio Management
Partnership Agreement, Security Agreement, Declaration of Trust, bank statements and acknowledgement
receipts, complainants delivered their money to PIPCBVI, not to PIPC Corp. Complainants deposited their
investment in PIPCBVIs bank account, and PIPCBVI would subsequently issue an acknowledgement
receipt. No part of the said money was ever delivered to PIPC Corp. or to me.
24. Indeed, complainants own evidence show that the Portfolio Management Partnership Agreement,
Security Agreement and Declaration of Trust were executed between PIPCBVI and the individual
complainants. Further, paragraph 2 of the Declaration of Trust explicitly stated that PIPCBVI hold the said
amount of money UPON TRUST for the Beneficiary Owner. The complainants cannot, therefore, hold PIPC
Corp., or any of its officers or employees, with misappropriating their money or property when they were
fully aware that they delivered their money to, and transacted solely with, PIPCBVI, and not PIPC Corp.
25. It also bears stressing that of the twentyone (21) complainants in this case, only complainant Ricky
Albino Sy alleged that he had actually dealt with me. Complainant Sy himself never alleged that he
delivered or entrusted any money or property to me. On the contrary, complainant Sy admitted that he
deposited his investment of U.S.$40,000.00 by bank transfer to PIPCBVIs account in the ABN Amro Bank.
That the money was delivered to PIPCBVI, and not to me, is shown by the fact that the receipt was issued
by PIPCBVI. I never signed or issued any acknowledgement receipt, as I never received any such money.
Neither did I ever gain physical or juridical possession of the said money.11 (Emphasis and underscoring
supplied).
Santos defense consisted in: (1) denying participation in the conspiracy and fraud perpetrated against the
investorcomplainants of PIPC Corporation, specifically Sy and Lorenzo; (2) claiming that she was initially
and merely an employee of, and subsequently an independent information provider for, PIPC Corporation;
(3) PIPC Corporation being a separate entity from PIPCBVI of which Santos has never been a part of in any
capacity; (4) her not having received any money from Sy and Lorenzo, the two having, in actuality, directly
invested their money in PIPCBVI; (5) Santos having dealt only with Sy and the latter, in fact, deposited
money directly into PIPCBVIs account; and (6) on the whole, PIPCBVI as the other party in the
investment contracts signed by Sy and Lorenzo, thus the only corporation liable to Sy and Lorenzo and the
other complainants.
On 18 April 2008, the DOJ, in I.S. No. 20071054, issued a Resolution signed by a panel of three (3)
prosecutors, with recommendation for approval of the Assistant Chief State Prosecutor, and ultimately
approved by Chief State Prosecutor Jovencito R. Zuo, indicting: (a) Liew and GonzalezTuason for violation
of Sections 8 and 26 of the Securities Regulation Code; and (b) herein respondent Santos, along with
Cristina GonzalezTuason and 12 others for violation of Section 28 of the Securities Regulation Code. The
same Resolution likewise dismissed the complaint against 8 of the respondents therein for insufficiency of
evidence. In the 18 April 2008 Resolution, the DOJ discussed at length the liability of PIPC Corporation and
its officers, employees, agents and all those acting on PIPC Corporations behalf, to wit:chanRoble svirtualLawlibrary
Firstly, complainant SEC filed the instant case for alleged violation by respondents [therein, including herein
respondent, Santos,] of Section 8 of the SRC.
Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Based on the above provision of the law, complainant SEC is now accusing all respondents [therein,
including Santos,] for violating the same when they allegedly sold and/or offered for sale unregistered
securities.
However, Section 8.5 thereof provides that The Commission may audit the financial statements, assets and
other information of a firm applying for registration of its securities whenever it deems the same necessary
to insure full disclosure or to protect the interest of the investors and the public in general.
The abovequoted provision is loud and clear and needs no further interpretation. It is the firm through its
authorized officers that is required to register its securities with the SEC and not the individual persons
allegedly selling and/or offering for sale said unregistered securities. To do otherwise would open the
floodgates to numerous complaints against innocent individuals who have no hand in the control, decision
making and operations of said investment company.
Clearly, it is only the PIPC Corp. and respondents Michael H. Liew and Cristina GonzalezTuason being the
President and the General Manager respectively, of PIPC Corp. who violated Section 8 of the SRC.
xxxx
Respondents Liew and Tuason are directors and officers of PIPC Corp. who exercise power of control and
supervision in the management of said corporation. Surely they cannot claim having no knowledge of the
operations of PIPC Corp. visvis its scope of authority since they are the ones who actually created and
manage the same. They are well aware that PIPC Corp. is a mere financial research facility and has nothing
to do with selling or offering for sale securities to the general public. But despite knowledge, they continue
to recruit and deceive the general public by making it appear that PIPC Corp. is a legitimate investment
company.
Moreover, they cannot evade liability by hiding behind the veil of a corporate fiction. x x x.
xxxx
In the case at bar, the investors were made to believe that PIPC Corp. and PIPCBVI is one and the same
corporation. There is nothing on record that would show that private complainants were informed that PIPC
Corp. and PIPCBVI are two entities distinct and separate from one another. In fact, when they invested
their money, they dealt with PIPC Corp. and the people acting on its behalf but when they signed documents
they were provided with ones bearing the name of PIPCBVI. Clearly, this obvious and intentional confusion
of names of the two entities is designed to defraud and later to avoid liabilities from their victims. Therefore,
the defense of a corporate fiction is unavailing in the instant case.
xxxx
Buying and selling of securities is an indispensable element that makes one a broker or dealer. So if one is
not engaged in the business of buying and selling of securities, naturally he or she cannot be considered as
a broker or dealer. However, a person may be considered as an agent of another, juridical or natural person,
if it can be inferred that he or she acts as an agent of his or her principal as abovedefined. One can also be
an investor and agent at the same time.
An examination of the records and the evidence submitted by the parties, we have observed that all
respondents are investors of PIPCBVI, same with the private complainants, they also lost thousands of
dollars. We also noted the fact that most of the private complainants and alleged brokers or agents are long
time friends if not blood related individuals. Notably also is the fact that most of them are highly educated
businessmen/businesswomen who are financially welloff. Hence, they are regarded to be wiser and more
prudent and expected to exercise due diligence of a good father of a family in managing their finances as
compared to those who are less fortunate in life.
However, we still need to delve deeper into the facts and the [evidence] on record to determine the degree
of respondents participations and if on the basis of their actions, it can be inferred that they acted as
employeesagents or investoragents of PIPC Corp. or PIPCBVI then are liable under Section 28 of the SRC
otherwise, they cannot be [blamed] for being mere employees or investors thereof.
xxxx
Oudine Santos. Investment Consultant of PIPC Corp. who allegedly invited, convinced and assured private
complainants Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy to invest in PIPC Corp. To prove their
allegations, respondents attached email exchanges with respondent Santos regarding the details in investing
with PIPCBVI. Respondent Santos failed to submit counteraffidavit despite subpoena.
xxxx
After painstakingly going over the record and the supporting documents attached thereto and after carefully
evaluating the respective claims and defenses raised by all the parties, the undersigned panel of prosecutors
has a reason to believe that Section 28 of the SRC has been violated and that the following respondents are
probably guilty thereof and should, therefore, be held for trial:
1. Cristina GonzalezTuason
2. x x x.
xxxx
13. Oudine Santos
The abovenamed respondents, aside from being officers, employees or investors, clearly acted as agents of
PIPC Corp. who made representations regarding PIPC Corp. and PIPCBVI investment products. They
assured their clients that investing with PIPCBVI will be 100% guaranteed. In addition, they also facilitated
their clients investments with PIPCBVI and some, if not all, even received money investors as evidenced by
the acknowledgement receipts they signed and on behalf of PIPCBVI. The documentary evidence submitted
by witnesses and their categorical and positive assertion of facts which, taken together corroborate one
another, prevails over the defense of denial raised by the abovenamed respondents which are mostly self
serving in nature.
A formal or written contract of agency between two or more persons is not necessary for one to become an
agent of the other for as long as it can be inferred from their actions that there exists a principalagent
relationship between them on the one hand and the PIPC Corp. or PIPCBVI on the other hand, then, it is
implied that a contract of agency is created.
As to their contention that they are not officers or employees of PIPC Corp., the Supreme Court ruled that
one may be an agent of a domestic corporation although he or she is not an officer thereto. x x x. The basis
of agency is representation; the question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or substantial evidence;
though that fact or extent of authority of the agents may not, as a general rule, be established from the
declarations of the agents alone, if one professes to act as agent for another, he or she is estopped to deny
her agency both as against the asserted principal and third persons interested in the transaction in which he
or she is engaged.
Further, they cannot raise the defense of good faith for the simple reason that the SRC is a special law
where criminal intent is not an essential element. Mere violation of which is punishable except in some
provisions thereof where fraud is a condition sine qua non such as Section 26 of the said law.
xxxx
WHEREFORE, the foregoing considered, it is respectfully recommended that this resolution be APPROVED
and that:
1. An information for violation of Section 8 of the SRC be filed against respondent PIPC Corp.,
MICHAEL H. LIEW and CRISTINA GONZALEZTUASON;
2. An information for violation of Section 26 thereof be also filed against respondents MICHAEL
H. LIEW and CRISTINA GONZALEZTUASON; and
4. The complaint against MAYENNE CARMONA, YEYE SAN PEDROCHOA, MIA LEGARDA,
NICOLE ORTEGA, DAVID CHUAUNSU, STANLEY CHUAUNSU, DEBORAH V. YABUT,
CHRISTINE YU and JONATHAN OCAMPO be dismissed for insufficiency of evidence. 12
(Emphasis supplied)
In sum, the DOJ panel based its finding of probable cause on the collective acts of the majority of the
respondents therein, including herein respondent Santos, which consisted in their acting as employees
agent and/or investoragents of PIPC Corporation and/or PIPCBVI. Specifically alluding to Santos as
Investment Consultant of PIPC Corporation, the DOJ found probable cause to indict her for violation of
Section 28 of the Securities Regulation Code for engaging in the business of selling or offering for sale
securities, on behalf of PIPC Corporation and/or PIPCBVI (which were found to be an issuer13 of securities
without the necessary registration from the SEC) without Santos being registered as a broker, dealer,
salesman or an associated person.
On separate motions for reconsideration of the respondents therein, including herein respondent Santos, the
DOJ panel issued a Resolution dated 2 September 2008 modifying its previous ruling and excluding
respondent Victor Jose Vergel de Dios from prosecution for violation of Section 28 of the Securities
Regulation Code, thus: chanRoble svirtualLawlibrary
After an assiduous reevaluation of the facts and the evidence submitted by the parties in support of their
respective positions, the undersigned panel finds x x x [that the] rest of the respondents mainly rehashed
their earlier arguments except for a few respondents who, in one way or another, failed to participate in the
preliminary investigation; hence raising their respective defenses for the first time in their motions for
reconsideration.
xxxx
With respect to respondents Luis Jimbo Aragon and Oudine Santos who also claimed to have not received
subpoenas, this panel, after thoroughly evaluating their respective defenses, finds them to be similarly
situated with the other respondents who acted as agents for and in behalf of PIPC Corp. and/or PIPCBVI;
hence, their inclusion in the information is affirmed.
xxxx
x x x As to the issue on whether or not PMPA is a security contract, we rule in the affirmative, as supported
by the herein below provisions of the SRC, particularly: chanRoble svirtualLawlibrary
Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each prospective purchaser.
Under the SRCs Amended Implementing Rules and Regulations, specifically Rule 3, par. 1 subpar. G, an
investment contract has been defined as a contract, transaction or scheme (collectively contract), whereby
a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of
others. It is likewise provided in the said provision that an investment contract is presumed to exist
whenever a person seeks to use the money or property of others on the promise of profits and a common
enterprise is deemed created when two (2) or more investors pool their resources creating a common
enterprise, even if the promoter receives nothing more than a brokers commission. Undoubtedly, the PMPA
is an investment contract falling within the purview of the term securities as defined by law.
xxxx
It bears to emphasize that the purpose of a preliminary investigation and/or confrontation between the
partylitigants is for them to lay down all their cards on the table to properly inform and apprise the other of
the charges against him/her, to avoid suprises and to afford the adverse party all the opportunity to defend
himself/herself based on the evidence submitted against him/her. Thus, failure on the part of the defaulting
party to submit evidence that was then available to him is deemed a waiver on his part to submit it in the
same proceedings against the same party for the same issue.
WHEREFORE, the foregoing premises considered, the undersigned panel of prosecutors respectfully
recommends that the assailed resolution be modified by dismissing the complaint against Victor Jose Vergel
De Dios and that the Information filed with the appropriate court for violation of Section 28 of the SRC be
amended accordingly.14
Respondent Santos filed a petition for review before the Office of the Secretary of the DOJ assailing the
Resolutions dated 18 April 2008 and 2 September 2008 and claiming that she was a mere clerical
employee/information provider who never solicited nor recruited investors, in particular complainants Sy and
Lorenzo, for PIPC Corporation or PIPCBVI. Santos also claimed dearth of evidence indicating she was a
salesman/agent or an associated person of a broker or dealer, as defined under the Securities Regulation
Code.
The SEC filed its Comment opposing Santos petition for review. Thereafter, the Office of the Secretary of the
DOJ, through its then Undersecretary Ricardo R. Blancaflor, issued a Resolution dated 1 October 2009 which,
as previously adverted to, excluded respondent Santos from prosecution for violation of Section 28 of the
Securities Regulation Code. For a complete picture, we quote in full the disquisition of the Secretary of the
DOJ: chanRoblesvirtualLa wlibrary
[Santos] argues that while Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy mentioned two (2) instances
wherein she allegedly enticed them to invest, their own pieces of evidence, particularly the Annex E series
(several Details of Profit distribution & Renewal of Partnership Agreement bearing different dates
addressed to Ricky Albino P. Sy with stamped signature for PIPCBVI), indicate that they invested and
reinvested their money with PIPCBVI repeatedly and even earned profits from these transactions through
direct dealing with PIPCBVI and without her participation. In addition, she maintains that Luisa Mercedes P.
Lorenzo and Ricky Albino P. Sy had several opportunities to divest or withdraw their respective investments
but opted not to do so at their own volitions.
xxxx
The sole issue in this case is whether or not respondent Santos acted as agent of PIPC Corp. or had enticed
Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPCBVIs investment products.
SEC. [28]. Registration of Brokers, Dealers, Salesmen and Associated Persons. 28.1. No person
shall engage in the business of buying or selling securities in the Philippines as a broker or dealer unless
registered as such with the Commission.
28.2. No registered broker or dealer shall employ any salesman or any associated person, and no issuer
shall employ any salesman, who is not registered as such with the Commission.
Jurisprudence defines an agent as a business representative, whose function is to bring about, modify,
affect, accept performance of, or terminate contractual obligations between principal and third persons. x x
x On the other hand, the Implementing Rules of the SRC simply provides that an agent or a salesman is a
person employed as such or as an agent, by the dealer, issuer or broker to buy and sell securities x x x.
A judicious examination of the records indicates the lack of evidence that respondent Santos violated
Section 28 of the SRC, or that she had acted as an agent for PIPC Corp. or enticed Luisa Mercedes P.
Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPCBVIs investment products.
The annex D (Welcome to PMP Letter dated [17 April 2006] addressed to Luisa Mercedes P. Lorenzo
signed by Michael Liew as president of PIPCBVI), Annex E (Fixed Deposit Advice Letter dated [26 June
2006] addressed to Luisa Mercedes P. Lorenzo and stamped signature for PIPCBVI), and Annex H
(Welcome to PMP Letter dated [30 May 2007] addressed to Luisa Mercedes P. Lorenzo signed by Michael
Liew as President of PIPCBVI) of the complaintaffidavit dated [11 September 2007] of Luisa Mercedes P.
Lorenzo show that she directly dealt with PIPCBVI in placing her investment. The same is true with regard
to Annex A series (Portfolio Management Partnership Agreement between Ricky Albino P. Sy and PIPCBVI,
Security Agreement between Ricky Albino P. Sy and PIPCBVI, and Declaration of Trust between Ricky Albino
P. Sy and PIPCBVI), Annex B (Official Receipt dated 09 November 2006 issued by PIPCBVI), Annex C
(Welcome to PMP Letter dated [10 November 2006] addressed to Ricky Albino P. Sy and signed by Michael
[Liew] as President of PIPCBVI), and Annex D (Fixed Deposit Advice Letter dated [29 January 2007]
addressed to Ricky Albino P. Sy with stamped signature for PIPCBVI) of the complaintaffidavit dated [26
September 2007] of Ricky Albino P. Sy. These documents categorically show that the parties therein, i.e.,
Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy and PIPCBVI, transacted with each other directly without
any participation from respondent Santos. These documents speak for themselves. Moreover, it bears
stressing that Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy admit in their respective affidavits that they
directly deposited their investments by bank transfer to PIPCBVIs offshore bank account.
Annex B (Printed background of the PMP of [PIPC]BVI enumerating the features of said product) and
Annex C (Printed Procedures in PMP Account Opening instructing the client what to do in placing his/her
investment) of the complaintaffidavit of Luisa Mercedes P. Lorenzo actually supports the allegations of
respondent Santos that there were printed forms/brochures for distribution to persons requesting the same.
These printed/prepared handouts contain the assurances or guarantees of PIPCBVI and the instructions on
where and how to deposit the investors money.
Likewise, Luisa Mercedes P. Lorenzos Annex A (2006 GIS of PIPC Corp. listing the stockholders, board of
directors an[d] officers thereof), Annex F (Deposit Confirmation dated [14 June 2006] from Standard
Chartered Bank) and Annexes I to L (SEC Certifications stating that PIPC Corp., PIPC, PIPCBVI and
Performance Investment Products Ltd., respectively, are not registered issuer of securities nor licensed to
offer or sell securities to the public) are not evidence against respondent Santos. Her name is not even
mentioned in any of these documents. If at all, these documents are evidence against PIPC Corp. and its
officers named therein.
Further, it is important to note that in the Request Form, one of the documents being distributed by
respondent Santos x x x, it is categorically stated therein that said request shall not be taken as an
investment solicitation x x x, but is mainly for the purpose of providing me with information. Clearly, this
document proves that respondent Santos did not or was not involved in the solicitation of investments but
merely shows that she is an employee of PIPC Corp. In addition, the Information Dissemination Agreement
between her employer PIPC Corp. and PIPCBVI readably and understandably provides that she is prohibited
from soliciting investments in behalf of PIPCBVI and her authority is limited only to providing interested
persons with the necessary information regarding how to communicate directly with PIPC. Parenthetically,
the decision to sign the partnership Agreement with PIPCBVI to invest and repeatedly reinvest their monies
with PIPCBVI were made by Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy themselves without any
inducement or undue influence from respondent Santos.
xxxx
WHEREFORE, the assailed resolution is hereby MODIFIED, the Chief State Prosecutor is directed to EXCLUDE
respondent Oudine Santos from the Information for violation of Section 28 of the Securities and Regulation
Code, if any has been filed, and report the action taken thereon within ten (10) days from receipt hereof.15
Expectedly, after the denial of the SECs motion for reconsideration before the Secretary of the DOJ, the SEC
filed a petition for certiorari before the Court of Appeals seeking to annul the 1 October 2009 Resolution of
the DOJ.
The Court of Appeals dismissed the SECs petition for certiorari and affirmed the 1 October 2009 Resolution
of the Secretary of the DOJ:chanRoble svirtualLawlibrary
Prescinding from the foregoing, a person must first and foremost be engaged in the business of buying and
selling securities in the Philippines before he can be considered as a broker, a dealer or salesman within the
coverage of the Securities Regulation Code. The record in this case however is bereft of any showing that
[Santos] was engaged in the business of buying and selling securities in the Philippines, whether for herself
or in behalf of another person or entity. Apart from [SECs] sweeping allegation that [Santos] enticed Sy and
Lorenzo and solicited from them investments for PIPCBVI without first being registered as broker, dealer or
salesman with SEC, no evidence had been adduced that shows [Santos] actual participation in the alleged
offer and sale of securities to the public, particularly to Sy and Lorenzo, within the Philippines. There was
likewise no exchange of funds between Sy and Lorenzo, on one hand, and [Santos], on the other hand, as
the price of certain securities offered by PIPCBVI. There was even no specific proof that [Santos]
misrepresented to Sy and Lorenzo that she was a licensed broker, dealer or salesperson of securities,
thereby inducing them to invest and deliver their hardearned money with PIPCBVI. In fact, the
Information Dissemination Agreement between PIPC Corporation, [Santos employer], and PIPCBVI clearly
provides that [Santos] was prohibited from soliciting investments in behalf of PIPCBVI and that her
authority is limited only to providing prospective client with the necessary information on how to
communicate directly with PIPC. Thus, it is obvious that the final decision of investing and reinvesting their
money with PIPCBVI was made solely by Sy and Lorenzo themselves.
xxxx
WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby DENIED and,
consequently, DISMISSED. The assailed Resolutions dated [1 October 2009] and [23 November 2009] of
the Secretary of Justice in I.S. No. 20071054 are hereby AFFIRMED.16
Hence, this appeal by certiorari raising the sole error of Santos exclusion from the Information for violation
of Section 28 of the Securities Regulation Code.
Generally, at the preliminary investigation proper, the investigating prosecutor, and ultimately, the Secretary
of the DOJ, is afforded wide latitude of discretion in the exercise of its power to determine probable cause to
warrant criminal prosecution. The determination of probable cause is an executive function where the
prosecutor determines merely that a crime has been committed and that the accused has committed the
same.17 The rules do not require that a prosecutor has moral certainty of the guilt of a person simply for
preliminary investigation purposes.
However, the authority of the prosecutor and the DOJ is not absolute; it cannot be exercised arbitrarily or
capriciously. Where the findings of the investigating prosecutor or the Secretary of the DOJ as to the
existence of probable cause are equivalent to a gross misapprehension of facts, certiorari will lie to correct
these errors.18
While it is our policy not to interfere in the conduct of preliminary investigations, we have, on more than one
occasion, adhered to some exceptions to the general rule: chanRoblesvirtualLa wlibrary
1. when necessary to afford adequate protection to the constitutional rights of the accused;
9. where the charges are manifestly false and motivated by the lust for vengeance;
10. when there is clearly no prima facie case against the accused and a motion to quash on
that ground has been denied.19 (Italics supplied).
In excluding Santos from the prosecution of the supposed violation of Section 28 of the Securities Regulation
Code, the Secretary of the DOJ, as affirmed by the appellate court, debunked the DOJ panels finding that
Santos was prima facie liable for either: (1) selling securities in the Philippines as a broker or dealer, or (2)
acting as a salesman, or an associated person of any broker or dealer on behalf of PIPC Corporation and/or
PIPCBVI without being registered as such with the SEC.
To get to that conclusion, the Secretary of the DOJ and the appellate court ruled that no evidence was
adduced showing Santos actual participation in the final sale by PIPC Corporation and/or PIPCBVI of
unregistered securities since the very affidavits of complainants Lorenzo and Sy proved that Santos had
never signed, neither was she mentioned in, any of the investment documents between Lorenzo and Sy, on
one hand, and PIPC Corporation and/or PIPCBVI, on the other hand.
The conclusions made by the Secretary of the DOJ and the appellate court are a myopic view of the
investment solicitations made by Santos on behalf of PIPC Corporation and/or PIPCBVI while she was not
licensed as a broker or dealer, or registered as a salesman, or an associated person of a broker or dealer.
We sustain the DOJ panels findings which were not overruled by the Secretary of the DOJ and the appellate
court, that PIPC Corporation and/or PIPCBVI was: (1) an issuer of securities without the necessary
registration or license from the SEC, and (2) engaged in the business of buying and selling securities. In
connection therewith, we look to Section 3 of the Securities Regulation Code for pertinent definitions of
terms:chanRoble svirtualLawlibrary
xxxx
3.3. Broker is a person engaged in the business of buying and selling securities for the account of others.
3.4. Dealer means [any] person who buys [and] sells securities for his/her own account in the ordinary
course of business.
3.5. Associated person of a broker or dealer is an employee thereof whom, directly exercises control of
supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely
clerical or ministerial.
xxxx
3.13. Salesman is a natural person, employed as such [or] as an agent, by a dealer, issuer or broker to
buy and sell securities.
To determine whether the DOJ Secretarys Resolution was tainted with grave abuse of discretion, we pass
upon the elements for violation of Section 28 of the Securities Regulation Code: (a) engaging in the business
of buying or selling securities in the Philippines as a broker or dealer; or (b) acting as a salesman; or (c)
acting as an associated person of any broker or dealer, unless registered as such with the SEC.
Tying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation and/or PIPCBVI, a
corporation which sold or offered for sale unregistered securities in the Philippines. To escape probable
culpability, Santos claims that she was a mere clerical employee of PIPC Corporation and/or PIPCBVI and
was never an agent or salesman who actually solicited the sale of or sold unregistered securities issued by
PIPC Corporation and/or PIPCBVI.
Solicitation is the act of seeking or asking for business or information; it is not a commitment to an
agreement.20
Santos, by the very nature of her function as what she now unaffectedly calls an information provider,
brought about the sale of securities made by PIPC Corporation and/or PIPCBVI to certain individuals,
specifically private complainants Sy and Lorenzo by providing information on the investment products of
PIPC Corporation and/or PIPCBVI with the end in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on Sys or Lorenzos investments, Santos procured the
sale of these unregistered securities to the two (2) complainants by providing information on the investment
products being offered for sale by PIPC Corporation and/or PIPCBVI and convincing them to invest therein.
No matter Santos strenuous objections, it is apparent that she connected the probable investors, Sy and
Lorenzo, to PIPC Corporation and/or PIPCBVI, acting as an ostensible agent of the latter on the viability of
PIPC Corporation as an investment company. At each point of Sys and Lorenzos investment, Santos
participation thereon, even if not shown strictly on paper, was prima facie established.
In all of the documents presented by Santos, she never alleged or pointed out that she did not receive extra
consideration for her simply providing information to Sy and Lorenzo about PIPC Corporation and/or PIPC
BVI. Santos only claims that the monies invested by Sy and Lorenzo did not pass through her hands. In
short, Santos did not present in evidence her salaries as a supposed mere clerical employee or information
provider of PIPCBVI. Such presentation would have foreclosed all questions on her status within PIPC
Corporation and/or PIPCBVI at the lowest rung of the ladder who only provided information and who did
not use her discretion in any capacity.
We cannot overemphasize that the very information provided by Santos locked the deal on unregistered
securities with Sy and Lorenzo.
In fact, Sy alleged in his affidavit, which allegation was not refuted by Santos, that he was introduced to
Santos while he performed routine transactions at his bank: chanRoblesvirtualLa wlibrary
2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15
years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain routine
transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to
wait in her cubicle. It was there that the bank manager introduced me to another bank client, Ms. Oudine
Santos. After exchanging pleasantries, and in the course of a brief conversation, Ms. Santos told me that she
is a resident of Damarias Village and was working as an investment consultant for a certain company,
Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office
at the Citibank Tower in Makati so that she could explain the investment products that they are offering. I
gave her my contact number and finished my transaction with the bank for that day;
3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the business lounge of
[PIPC] located at the 15th Floor of Citibank Tower, Makati. During the meeting, Ms. Santos enticed me to
invest in their Performance Managed Portfolio which she explained was a risk controlled investment program
designed for individuals like me who are looking for higher investment returns than bank deposits while still
having the advantage of security and liquidity. She told me that they were engaged in foreign currency
trading abroad and that they only employ professional and experienced foreign exchange traders who
specialize in trading the Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told
her that I did not have any experience in foreign currency trading and was quite conservative in handling my
money;21
28. I also categorically deny complainant Sys allegation that I enticed him to enter into a Partnership
Agreement with PIPCBVI. In the first place, I came to know complainant Sy only when he was referred to
me by a mutual acquaintance, Ms. Ana Liliosa Santos, who was then the Manager of the Bank of the
Philippine Islands, Pasong Tamo Branch. Ms. Ana Santos set up a meeting between complainant Sy and me
because complainant Sy wanted to know more about PIPCBVI. As with the other individuals who expressed
interest in PIPC Corp.s client companies, I then provided complainant Sy with additional information about
PIPCBVI. The decision to enter into the aforementioned Partnership Agreement with PIPCBVI was made
by complainant Sy alone without any inducement or undue influence from me, as in fact I only met him
twice the first one was on the meeting set up by Ms. Ana Santos and the second one was to introduce him
to Michael Liew. Indeed, complainant Sy appears to be a welleducated person with years of experience as
a businessman. It is reasonable to assume that before entering into the said Partnership Agreement with
PIPCBVI, complainant Sy had fully understood the nature of the agreement and that in entering thereto, he
had been motivated by a desire to earn a profit and had believed, as I myself have been led to believe, that
PIPCBVI was a legitimate business concern which offered a reasonable return on investment, Moreover,
complainant Sy could have withdrawn his initial investment of US$40,000.00 on its date of maturity, i.e., 26
January 2007, as indicated in the PIPCBVIs letter dated 10 November 2006, a copy of which is attached to
complainant Sys Sworn Statement. Complainant Sy, however, obviously decided on his own volition to keep
his investment with PIPCBVI presumably because he wanted to gain more profit therefrom. Complainant Sy
in fact admitted that he received monetary returns from PIPCBVI in the total amount of US$2,439.12. 22
What is palpable from the foregoing is that Sy and Lorenzo did not go directly to Liew or any of PIPC
Corporations and/or PIPCBVIs principal officers before making their investment or renewing their prior
investment. However, undeniably, Santos actively recruited and referred possible investors to PIPC
Corporation and/or PIPCBVI and acted as the gobetween on behalf of PIPC Corporation and/or PIPCBVI.
The DOJs and Court of Appeals reasoning that Santos did not sign the investment contracts of Sy and
Lorenzo is specious. The contracts merely document the act performed by Santos.
Individual complainants and the SEC have categorically alleged that Liew and PIPC Corporation and/or PIPC
BVI is not a legitimate investment company but a company which perpetrated a scam on 31 individuals
where the president, a foreign national, Liew, ran away with their money. Liews absconding with the monies
of 31 individuals and that PIPC Corporation and/or PIPCBVI were not licensed by the SEC to sell securities
are uncontroverted facts.
The transaction initiated by Santos with Sy and Lorenzo, respectively, is an investment contract or
participation in a profit sharing agreement that falls within the definition of the law. When the investor is
relatively uninformed and turns over his money to others, essentially depending upon their representations
and their honesty and skill in managing it, the transaction generally is considered to be an investment
contract.23 The touchstone is the presence of an investment in a common venture premised on a reasonable
expectation of profits to be derived from the entrepreneurial or managerial efforts of others. 24
At bottom, the exculpation of Santos cannot be preliminarily established simply by asserting that she did not
sign the investment contracts, as the facts alleged in this case constitute fraud perpetrated on the public.
Specially so because the absence of Santos signature in the contract is, likewise, indicative of a scheme to
circumvent and evade liability should the pyramid fall apart.
Lastly, we clarify that we are only dealing herein with the preliminary investigation aspect of this case. We
do not adjudge respondents guilt or the lack thereof. Santos defense of being a mere employee or simply
an information provider is best raised and threshed out during trial of the case.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CAG.R. No. SP No.
112781 and the Resolutions of the Department of Justice dated 1 October 2009 and 23 November 2009
are ANNULLED and SET ASIDE. The Resolution of the Department of Justice dated 18 April 2008 and 2
September 2008 are REINSTATED. The Department of Justice is directed to include respondent Oudine
Santos in the Information for violation of Section 28 of the Securities and Regulation Code.
SO ORDERED.
DECISION
SERENO, C.J.:
G.R. No. 187702 is a Petition for Certiorari under Rule 65 of the Rules of Court seeking to nullify the Court of
Appeals (CA) Decision1 dated 18 March 2009 in CA-G.R. SP No. 106006. G.R. No. 189014 is a Petition for
Review on Certiorari under Rule 45 of the Rules of Court assailing the same Decision, as well as the CA
Resolution2 dated 9 July 2009. On 12 October 2009, the Court resolved to consolidate the two cases. 3
The CA Decision ruled that because controversies involving the validation of proxies are considered election
contests under the Interim Rules of Procedure Governing Intra-Corporate Controversies, they are properly
cognizable by the regular courts, not by the Securities and Exchange Commission. The CA Resolution denied
the motion for reconsideration filed by Astra Securities Corporation.
FACTS
Omico Corporation (Omico) is a company whose shares of stock are listed and traded in the
Philippine Stock Exchange, Inc.4 Astra Securities Corporation (Astra) is one of the stockholders of Omico
owning about 18% of the latters outstanding capital stock.5
Omico scheduled its annual stockholders meeting on 3 November 2008. 6 It set the deadline for submission
of proxies on 23 October 2008 and the validation of proxies on 25 October 2008.
Astra objected to the validation of the proxies issued in favor of Tommy Kin Hing Tia (Tia), representing
about 38% of the outstanding capital stock of Omico.7 Astra also objected to the inclusion of the proxies
issued in favor of Tia and/or Martin Buncio, representing about 2% of the outstanding capital stock of
Omico.8
Astra maintained that the proxy issuers, who were brokers, did not obtain the required express written
authorization of their clients when they issued the proxies in favor of Tia. In so doing, the issuers were
allegedly in violation of SRC Rule 20(11)(b)(xviii)9 of the Amended Securities Regulation Code (SRC or
Republic Act No. 8799) Rules.10 Furthermore, the proxies issued in favor of Tia exceeded 19, thereby giving
rise to the presumption of solicitation thereof under SRC Rule 20(2)(B)(ii)(b) 11 of the Amended SRC Rules.
Tia did not comply with the rules on proxy solicitation, in violation of Section 20.1 12 of the SRC.
Despite the objections of Astra, Omicos Board of Inspectors declared that the proxies issued in favor of Tia
were valid.13
On 27 October 2008, Astra filed a Complaint14 before the Securities and Exchange Commission (SEC)
praying for the invalidation of the proxies issued in favor of Tia. Astra also prayed for the issuance of a cease
and desist order (CDO) enjoining the holding of Omicos annual stockholders meeting until the SEC had
resolved the issues pertaining to the validation of proxies.
On 30 October 2008, SEC issued the CDO enjoining Omico from accepting and including the questioned
proxies in determining a quorum and in electing the members of the board of directors during the annual
stockholders meeting on 3 November 2008.15
Attempts to serve the CDO on 3 November 2008 failed, and the stockholders meeting proceeded as
scheduled with 52.3% of the outstanding capital stock of Omico present in person or by proxy.16 The
nominees for the board of directors were elected upon motion. 17
Astra instituted before the SEC a Complaint18 for indirect contempt against Omico for disobedience of the
CDO. On the other hand, Omico filed before the CA a Petition for Certiorari and Prohibition 19imputing grave
abuse of discretion on the part of the SEC for issuing the CDO.
RULING OF THE CA
In the assailed Decision dated 18 March 2009, the CA declared the CDO null and void. 20
The CA held that the controversy was an intra-corporate dispute. 21 The SRC expressly transferred the
jurisdiction over actions involving intra-corporate controversies from the SEC to the regional trial
courts.22 Furthermore, Section 2, Rule 623 of the Interim Rules of Procedure Governing Intra-Corporate
Disputes,24 provides that any controversy or dispute involving the validation of proxies is an election contest,
the jurisdiction over which has also been transferred by the SRC to the regular courts. 25 cralawred
Thus, according to the CA, the SEC committed grave abuse of discretion in taking cognizance of Astras
complaint.26 The CDO was a patent nullity, for an order issued without jurisdiction is no order at all.
Aggrieved by the CA Decision, the SEC filed before us the instant Petition for Certiorari docketed as G.R. No.
187702.27 Meanwhile, Astra filed a Motion for Reconsideration before the CA, 28 which subsequently denied
the motion in the assailed Resolution dated 9 July 2009.
On 14 September 2009, Astra filed the instant Petition for Review on Certiorari docketed as G.R. No.
189014.29 The Court consolidated the two petitions on 12 October 2009. 30
ISSUE
Whether the SEC has jurisdiction over controversies arising from the validation of proxies for the election of
the directors of a corporation.
OUR RULING
About a month after the CA issued the assailed Decision, this Court promulgated GSIS v. CA,31 which
squarely answered the above issue in the negative.
In that case, we observed that Section 632(g) of Presidential Decree No. (P.D.) 902-A dated 11 March 1976
conferred on SEC the power [t]o pass upon the validity of the issuance and use of proxies and voting trust
agreements for absent stockholders or members. Section 6, however, opens thus: In order to effectively
exercise such jurisdiction x x x. This opening clearly refers to the preceding Section 5. 33 The Court pointed
out therein that the power to pass upon the validity of proxies was merely incidental or ancillary to the
powers conferred on the SEC under Section 5 of the same decree. With the passage of the SRC, the powers
granted to SEC under Section 5 were withdrawn, together with the incidental and ancillary powers
enumerated in Section 6.
While the regular courts now had the power to hear and decide cases involving controversies in the election
of directors, it was not clear whether the SRC also transferred to these courts the incidental and ancillary
powers of the SEC as enumerated in Section 6 of P.D. 902-A. Thus, in GSIS v. CA, it was necessary for the
Court to determine whether the action to invalidate the proxies was intimately tied to an election
controversy. Hence, the Court pronounced: chanRoblesvirtualLa wlibrary
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. 34 x x x.
The ruling harmonizes the seeming conflict between the Amended SRC Rules promulgated by the SEC and
the Interim Rules of Procedure Governing Intra-Corporate Disputes promulgated by the Court.
SRC Rule 20(11)(b)(xxi) of the Amended SRC Rules provides: chanRoble svirtualLawlibrary
xxxx
xxxx
b. Proxy
xxxx
xxi. In the validation of proxies, a special committee of inspectors shall be designated or appointed by
the Board of Directors which shall be empowered to pass on the validity of proxies. Any dispute that may
arise pertaining thereto, shall be resolved by the Securities and Exchange Commission upon
formal complaint filed by the aggrieved party, or by the SEC officer supervising the proxy
validation process. (Emphasis supplied)
On the other hand, these are the provisions of Section 1, Rule 1; and Section 2, Rule 6 of the Interim Rules
of Procedure Governing Intra-Corporate Disputes: chanRoblesvirtualLa wlibrary
RULE 1
General Provisions
SECTION 1. (a) Cases Covered These Rules shall govern the procedure to be observed in civil
cases involving the following:
a) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or
partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation, partnership, or association; cralawlawlibrary
b) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or
association of which they are stockholders, members, or associates, respectively; cralawlawlibrary
xxxx
RULE 6
Election Contests
xxxx
SECTION 2. Definition. An election contest refers to any controversy or dispute involving title or
claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and
validity of elections, and the qualifications of candidates, including 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 non-stock corporation where the articles of incorporation or by-laws so provide. (Emphases supplied)
The Court explained that the power of the SEC to regulate proxies remains in place in instances when
stockholders vote on matters other than the election of directors. 35 The test is whether the controversy
relates to such election. All matters affecting the manner and conduct of the election of directors are
properly cognizable by the regular courts. Otherwise, these matters may be brought before the SEC for
resolution based on the regulatory powers it exercises over corporations, partnerships and associations.
Astra endeavors to remove the instant case from the ambit of GSIS v. CA by arguing that 1) the validation
of proxies in this case relates to the determination of the existence of a quorum; and 2) no actual voting for
the members of the board of directors was conducted, as the directors were merely elected by motion.
Indeed, the validation of proxies in this case relates to the determination of the existence of a quorum.
Nonetheless, it is a quorum for the election of the directors, and, as such, which requires the presence in
person or by proxy of the owners of the majority of the outstanding capital stock of Omico. 36 Also, the fact
that there was no actual voting did not make the election any less so, especially since Astra had never
denied that an election of directors took place.
We find no merit either in the proposal of Astra regarding the two (2) viable, non-exclusive and successive
legal remedies to question the validity of proxies.37 It suggests that the power to pass upon the validity of
proxies to determine the existence of a quorum prior to the conduct of the stockholders meeting should lie
with the SEC; but, after the stockholders meeting, questions regarding the use of invalid proxies in the
election of directors should be cognizable by the regular courts, since there was already an election to speak
of.
First, this interpretation is akin to the argument struck down by the Court in GSIS v. CA. If the Court adopts
the suggestion, 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 x x x process was errant, but the competing cases [were] filed with one objective in mind to
affect the outcome of the election of the board of directors.38
Second, the validation of proxies serves a number of purposes, including determining the existence of a
quorum and ascertaining the authenticity of proxies to be used for the election of directors at the
stockholders meeting. Section 2, Rule 6, of the Interim Rules of Procedure Governing Intra-Corporate
Disputes provides that an election contest covers any controversy or dispute involving the validation of
proxies, in general. Thus, it can only refer to all the beneficial purposes that validation of proxies can bring
about when made in connection with a forthcoming election of directors. Thus, there is no point in making
distinctions between who has jurisdiction before and who has jurisdiction after the election of directors, as
all controversies related thereto whether before, during or after shall be passed upon by regular courts
as provided by law.
As in the instant cases, GSIS v. CA is a consolidation of two cases, one of which was filed by a private party
and the other by the SEC itself. In both cases, the parties were aggrieved by the CA ruling, so they filed the
cases seeking a pronouncement from the Court that it recognizes the jurisdiction of the SEC over the
controversy.
Calling to mind established jurisprudential principles, the Court therein ruled that quasi-judicial agencies do
not have the right to seek the review of an appellate court decision reversing any of their rulings. 39 This is
because they are not real parties-in-interest. Thus, the Court expunged the petition filed by the SEC for the
latters lack of capacity to file the suit. So it must be in the instant cases.
WHEREFORE, the petition in G.R. No. 187702 is EXPUNGED for lack of capacity of petitioner to file the
suit.
The petition in G.R. No. 189014 is DENIED. The Court of Appeals Decision dated 18 March 2009 and
Resolution dated 9 July 2009 in CA-G.R. SP No. 106006 are AFFIRMED.
SO ORDERED. chanroblesvirtuallawlibrary
Endnotes:
1
Rollo (G.R. No. 187702), pp. 43-55; penned by Associate Justice Myrna Dimaranan Vidal, with Associate
Justices Martin S. Villarama, Jr. (now a Member of this Court) and Rosalinda Asuncion-Vicente concurring.
Rollo (G.R. No. 189014), p. 42; penned by Associate Justice Myrna Dimaranan Vidal, with Associate Justices
2
Martin S. Villarama, Jr. (now a Member of this Court) and Magdangal M. de Leon concurring.
3
Id. at 388-389.
4
Rollo (G.R. No. 187702), p. 110.
5
Id. at 60.
6
Id. at 44.
7
Id. at 46, 133.
8
Id.
9
SRC RULE 20. Disclosures to Stockholders Prior to Meeting (formerly, SRC Rule 20 The Proxy Rule)
xxxx
xxxx
b. Proxy
xxxx
xviii. 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.
(Emphasis supplied.)
10
Rollo (G.R. No. 187702), p. 46.
11
SRC RULE 20. Disclosures to Stockholders Prior to Meeting (formerly, SRC Rule 20 The Proxy Rule)
xxxx
2. Definitions
xxxx
B. Solicitation
12
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.
13
Rollo (G.R. No. 187702), p. 46.
14
Id. at 59-71.
15
Id. at 110-113.
16
Id. at 47; rollo (G.R. No. 189014), p. 176.
17
Rollo (G.R. No. 189014), p. 177.
18
Id. at 170-185.
19
Rollo (G.R. No. 187702), pp. 73-109.
20
Id. at 54.
21
Id. at 49.
22
Id. at 49-50.
23
SECTION 2. Definition. An election contest refers to any controversy or dispute involving title or
claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and
validity of elections, and the qualifications of candidates, including 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 non-stock corporation where the articles of incorporation or by-laws so provide. (Emphasis supplied)
24
A.M. No. 01-2-04-SC, 13 March 2001.
25
cralawre d Rollo (G.R. No. 187702), p. 51.
26
Id. at 52.
27
Id. at 2-41.
28
Rollo (G.R. No. 189014), pp. 23-41.
29
Id. at 45-92.
30
Id. at 388.
31
603 Phil. 676 (2009).
32
SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers: chanRoble svirtualLawlibrary
a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it
has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply; cralawlawlibrary
b) To issue writs of attachment in cases in which it has jurisdiction, in order to preserve the rights of parties
and in such cases the pertinent provisions of the Rules of Court shall apply; cralawla wlibrary
c) To appoint one or more receivers of the property, real and personal, which is the subject of the action
pending before the Commission in accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of the parties-litigants and/or protect the
interest of the investing public and creditors: Provided, however, That the Commission may, in appropriate
cases, appoint a rehabilitation receiver of corporations, partnerships or other associations not supervised or
regulated by other government agencies who shall have, in addition to the powers of a regular receiver
under the provisions of the Rules of Court, such functions and powers as are provided for in the succeeding
paragraph d) hereof: Provided, further, That the Commission may appoint a rehabilitation receiver of
corporations, partnerships or other associations supervised or regulated by other government agencies, such
as banks and insurance companies, upon request of the government agency concerned: Provided, finally,
That upon appointment of a management committee, rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body shall be suspended accordingly.
d) To create and appoint a management committee, board, or body upon petition or motu proprio to
undertake the management of corporations, partnerships or other associations not supervised or regulated
by other government agencies in appropriate cases when there is imminent danger of dissipation, loss,
wastage or destruction of assets or other properties of paralization of business operations of such
corporations or entities which may be prejudicial to the interest of minority stockholders, parties-litigants or
the general public: Provided, further, That the Commission may create or appoint a management committee,
board or body to undertake the management of corporations, partnerships or other associations supervised
or regulated by other government agencies, such as banks and insurance companies, upon request of the
government agency concerned.
The management committee or rehabilitation receiver, board or body shall have the power to take custody
of, and control over, all the existing assets and property of such entities under management; to evaluate the
existing assets and liabilities, earnings and operations of such corporations, partnerships or other
associations; to determine the best way to salvage and protect the interest of the investors and creditors; to
study, review and evaluate the feasibility of continuing operations and restructure and rehabilitate such
entities if determined to be feasible by the Commission. It shall report and be responsible to the Commission
until dissolved by order of the Commission: Provided, however, That the Commission may, on the basis of
the findings and recommendation of the management committee, or rehabilitation receiver, board or body,
or on its own findings, determine that the continuance in business of such corporation or entity would not be
feasible or profitable nor work to the best interest of the stockholders, parties-litigants, creditors, or the
general public, order the dissolution of such corporation entity and its remaining assets liquidated
accordingly. The management committee or rehabilitation receiver, board or body may overrule or revoke
the actions of the previous management and board of directors of the entity or entities under management
notwithstanding any provision of law, articles of incorporation or by-laws to the contrary.
The management committee, or rehabilitation receiver, board or body shall not be subject to any action,
claim or demand for, or in connection with, any act done or omitted to be done by it in good faith in the
exercise of its functions, or in connection with the exercise of its power herein conferred.
e) To punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent
provisions of, and penalties prescribed by, the Rules of Court; cralawla wlibrary
f) To compel the officers of any corporation or association registered by it to call meetings of stockholders or
members thereof under its supervision; cralawlawlibrary
g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent
stockholders or members; cralawla wlibrary
h) To issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission
and in appropriate cases order the examination, search and seizure of all documents, papers, files and
records, tax returns, and books of accounts of any entity or person under investigation as may be necessary
for the proper disposition of the cases before it, notwithstanding the provisions of any law to the contrary.
i) To impose fines and/or penalties for violation of this Decree or any other laws being implemented by the
Commission, the pertinent rules and regulations, its orders, decisions and/or rulings; cralawla wlibrary
j) To authorize the establishment and operation of stock exchanges, commodity exchanges and such other
similar organization and to supervise and regulate the same; including the authority to determine their
number, size and location, in the light of national or regional requirements for such activities with the view
to promote, conserve or rationalize investment; cralawla wlibrary
k) To pass upon, refuse or deny, after consultation with the Board of Investments, Department of Industry,
National Economic and Development Authority or any other appropriate government agency, the application
for registration of any corporation, partnership or association or any form of organization falling within its
jurisdiction, if their establishment, organization or operation will not be consistent with the declared national
economic policies; cralawlawlibrary
l) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law, including the
following: chanRoblesvirtualLa wlibrary
3. Refusal to comply or defiance of any lawful order of the Commission restraining commission
of acts which would amount to a grave violation of its franchise;
6. Failure to file required reports in appropriate forms as determined by the Commission within
the prescribed period;
m) To exercise such powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted to the Commission to
achieve the objectives and purposes of this Decree.
In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted by
the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer as
may be created or designated by the Commission for the purpose. The decision, ruling or order of any such
Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting en
banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The
Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of cases
falling within its jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the
Supreme Court by petition for review in accordance with the pertinent provisions of the Rules of Court.
(Emphasis supplied.)
33
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 existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide
cases involving: chanRoblesvirtualLa wlibrary
a) Devices or schemes employed by or any acts, of the board of directors, business associates, its officers or
partners, 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; cralawla wlibrary
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; cralawla wlibrary
34
Supra note 31, at 707-708.
35
Id. at 709.
36
THE CORPORATION CODE OF THE PHILIPPINES, Sec. 24.
37
Rollo (G.R. No. 189014), p. 66.
38
GSIS v. CA, supra at 709.
39
Id. at 696.