SECURITIES REGULATION and Exchange Ayala land

Commission, 791 SCRA Creation of Mancom

Securities and Exchange Boiler Room 638, G.R. No. 196329, 1
Commission v. Price Registration with the SEC June 2016
Richardson Corporation, Abacus Capital and investment house
832 SCRA 560, G.R. No. Investment Corp. v.
197032, July 26, 2017 Tabujara, G.R. No.
197624, 23 July 2018
SEC v. Interport Must disclose publicly
Resources Corporation,
et al., G.R. No. 135808,
October 6, 2008
Babiera vs. Paglinawan, The case must be filed Securities and Exchange Commission v. Price
GR No. 168380, February first with the SEC before Richardson Corporation, 832 SCRA 560, G.R.
8, 2007 the DOJ No. 197032, July 26, 2017
Cemco Holding Inc. vs. Tender offer rule
Facts:
National Life Insurance
Company, G.R. No. Price Richardson Corporation is a Philippine
171815, August 7, 2007 corporation duly incorporated under Philippine
Philippine Veterans Bank Public Company laws. Its primary purpose is to provide
vs. Callangan, 655 SCRA Reportorial requirement administrative services which includes but is not
150, G.R. No. 191995, limited to furnishing all necessary and incidental
August 3, 2011 clerical, bookkeeping, mailing and billing services.

SEC v. Prosperity Com. Howey test Its former employee, Michelle S. Avelino, (Avelino)
Inc., G.R. No. 164197, executed a sworn affidavit at the National Bureau
January 25, 2012). of Investigation's Interpol Division, alleging that
Intestate Estate of Intra-corporate dispute in Price Richardson was "engaged in boiler room
Alexander T. Ty vs. CA, nature operations, wherein the company sells non[-]
356 SCRA 661, G.R. No. Sale between vendor and existent stocks to investors using high pressure
112872, G.R. No. vendee sales tactics."
114672, April 19, 2001
Yujuico vs. Quiambao, Intra corporate disputes Whenever this activity was discovered, the
513 SCRA 243, G.R. No. are transferred to the company would close and emerge under a new
168639, January 29, courts of general company name.
2007 jurisdiction acting as a
special commercial court The Regional Trial Court, Makati City issued three
GSIS v. CA, G.R. No. Proxy (3) search warrants against Capital International
183905; SEC, et al., v. and Price Richardson for violation of Section 28 of
Rosete, et al., G.R. No. the Securities Regulation Code. The Regional Trial
184275 both dated April Court ordered the seizure of Price Richardson's and
16, 2009 Capital International's office equipment,
SEC v. Performance Cease and desist order documents, and other items that were connected
Foreign Exchange Corp. with the alleged violation. The Securities and
G.R. 154131, July 20, Exchange Commission filed before the Department
2006 of Justice its complaint against Price Richardson
Securities and Exchange Intra corporate dispute and its incorporators and directors for violation of
Commission vs. Subic vis a vis administrative
Article 315(1)(b) of the Revised Penal Code and
Bay Golf and Country jurisdiction
Sections 26.3 and 28 of the Securities Regulation
Club, G.R. No. 179047, Rejection of registration
Code.
11 March 2015 of securities
The Securities and Exchange Commission alleged
Roman, Jr. vs. Securities Intra corporate dispute that Price Richardson was neither licensed nor
registered "to engage in the business of buying and specific acts of buying or selling of securities were
selling securities within the Philippines or act as alleged and substantiated by the SEC."
salesman, or an associated person of any broker or
The alleged investors' affidavits were not sufficient
dealer." As shown by the seized documents and
to find probable cause because the alleged
equipment, Price Richardson engaged in seeking
transactions transpired over the phone and while
clients for the buying and selling of securities,
these investors were not in the
thereby violating Sections 26.3 and 28 of the
Philippines. Moreover, since the traded stocks were
Securities Regulation Code. The Securities and
not of domestic corporations or from corporations
Exchange Commission claimed that Velarde-Albert
doing business in the Philippines, Philippine penal
and Resnick should be liable for acting as brokers
laws could not be applied.
or salesmen despite not being
registered. Meanwhile, the incorporators and Thus, SEC filed a petition for review before the SC.
directors' liability was based on being responsible
"for the corporate management with the obligation SEC claims that Secretary Gonzalez committed
to ensure that [Price Richardson operated within grave abuse of discretion in not finding probable
the bounds of law. cause to indict respondents.

In defense, the incorporators and directors denied Price Richardson filed its Comment, insists that
knowing or agreeing to the offenses charged. They Section 28 of the Securities Regulation Code
countered that they already transferred their prohibits anyone from engaging in the business of
respective shares to various individuals in buying and selling securities without registration
December 2000, as shown by their registered from the Securities and Exchange Commission if
Deeds of Absolute Sale of Shares of Stock. those transactions are offered "to the public within
the Philippines." This provision does not apply in
The prosecutor dismissed the complaint filed by the this case because the alleged buyers of securities
SEC for lack of probable cause. According to the were not citizens of or resided in the Philippines.
prosecutor, complainant SEC failed to adduce Additionally, the allegedly sold or offered securities
evidence showing respondent Price's alleged were registered outside the Philippines, where the
unauthorized trading. While it is true that based on alleged sales also transpired. Hence, these sales
the certification issued by the SEC, respondent- are not under the Philippine jurisdiction.
corporation has no license to buy or sell securities,
it does not, however, follow, that said corporation Issue: WON there is probable cause to indict
had indeed engaged in such business. It is respondents for violation of Sections 26.3 and 28 of
imperative for complainant to prove the the Securities Regulation Code and Article 315(1)
respondent-corporation's affirmative act of buying (b) of the Revised Penal Code
and selling securities to constitute the offense Held: YES
charged. It cannot be established on the expedient
reason that a corporation is not license[d] or An examination of the records reveals that
authorized to trade securities. He who alleges a probable cause exists to file an information against
positive statement has the burden of proving the respondent Price Richardson for violating the laws.
same. Based on the Certification dated October 11, 2001
The CA affirmed the decision of State Prosecutor. issued by the Market Regulation Department of the
The Court of Appeals found that the affidavits Securities and Exchange Commission, respondent
executed by Price Richardson's employees were Price Richardson "has never been issued any
merely surmises. They did not have personal secondary license to act as broker/dealer in
knowledge of the security trading since their jobs securities, investment house and dealer in
were limited to persuading people to get newsletter government securities." Petitioner also certified
subscriptions. Indeed, the documents seized from that respondent Price Richardson "is not, under any
Price Richardson's office showed a transaction circumstances, authorized or licensed to engage
between it and an investor. However, "no clear and and/or solicit investments from clients.
Despite these circumstances, Price Richardson's i) Confirmation of Trade issued by the respondent
office show possible sales of securities. These to MR. Junzo Watanabe who bought 2500 shares of
documents include: OWTNF at $3.90 per share and sold 1500 Geoalert
(GEOA) shares for which he paid $3,525 ...
a) A company brochure consisting of 8 pages which
declares that it is a financial consultant geared j) First Hawaiian Bank check issued by Junzo
towards portfolio investment advice and other Watanabe payable to the Order of Price
financial services to investors ... Richardson[.]

b) Detailed Quotes of OWTNF Otis-Winston Ltd. Also, Petitioner further supports its charges by
shares downloaded from the Bloomberg.com submitting the complaint-affidavits and letters of
website which indicates its price, return, individuals who transacted with Price Richardson.
fundamentals and other matters ...
In addition, respondent Price Richardson stated in
c) Confirmation of Trade issued by the respondent its Memorandum:
to its client MR. PETER VAN DER HAEGEN which
indicates that he bought on Oc[to]ber 16, 2001 750 If this Honorable Court were to consider the set-up
Otis-[W]inston Ltd at $4.15 price per share for of Price Richardson, it was as if it engaged in
$3,112.50 ... outsourced operations wherein persons located in
the Philippines called up persons located in foreign
d) Confirmation of Trade issued by the respondent locations to inform them of certain securities
to MR. RENNY NAIR who bought 500 shares of available in certain locations, and to determine if
Hugo International (HGOI) at $5.75 per share for they wanted to buy these securities which are
which he paid $2,932.50 ... and Telegraphic offered in a different country.
Transfer from Oman U.A.E. Exchange Centre & Co.
LLC made by Mr. Nair to PRICE RICHARDSON to The evidence gathered by petitioner and the
the latter's bank account No. 103-719221-0 in statement of respondent Price Richardson are facts
China Banking Corporation in the amount of sufficient enough to support a reasonable belief
$2932.50 ... that respondent is probably guilty of the offense
charged.
e) Confirmation of Trade issued by the respondent
to MR. JOHANNES DE KORTE who bought 500 However, elarde-Albert and Resnick cannot be
shares of Otis-Winston Ltd (OWTNF) at $5.05 per indicted for violations of the Securities Regulation
share for which he paid $2,575.50 ... Code and the Revised Penal Code.

f) Confirmation of Trade issued by the respondent Petitioner failed to allege the specific acts of
to MR. JUERGEN GEIGER who bought 2500 shares respondents Velarde-Albert and Resnick that could
of Hugo International at $4.65 per share for which be interpreted as participation in the alleged
he paid $11,857.50 ... violations.1âwphi1 There was also no showing,
based on the complaints, that they were deemed
g) Confirmation of Trade issued by the respondent responsible for Price Richardson's violations.
to MR. ZULKEPLI HAMID who bought 2000 shares
of OWTNF at $5.05 per share for which he paid A corporation's personality is separate and distinct
$10,302 ... from its officers, directors, and shareholders. To be
held criminally liable for the acts of a corporation,
h) Telegraphic Transfers issued by China Banking there must be a showing that its officers, directors,
Corporation to Union Bank of California and shareholders actively participated in or had the
International NY with Price Richardson as the Order power to prevent the wrongful act.
Party and M.L. Vitale as the beneficiary in the
amount of $2000 and Citibank Belgium as the SEC v. Interport Resources Corporation, et
Beneficiary Bank ... al., G.R. No. 135808, October 6, 2008

FACTS:
On 6 August 1994, the Board of Directors of of Agreement. Its directors, Manuel Recto, Rene
Interport Resources Corporation (IRC) approved a Villarica and Pelagio Ricalde, also appeared before
Memorandum of Agreement with Ganda Holdings the SEC on 22 August 1994 to explain IRC's alleged
Berhad (GHB). Under the Memorandum of failure to immediately disclose material information
Agreement, IRC acquired 100% or the entire as required under the Rules on Disclosure of
capital stock of Ganda Energy Holdings, Inc. Material Facts.
(GEHI), which would own and operate a 102
On 19 September 1994, the SEC Chairman issued
megawatt (MW) gas turbine power-generating
an Order finding that IRC violated the Rules on
barge. The agreement also stipulates that GEHI
Disclosure of Material Facts, in connection with the
would assume a five-year power purchase contract
Old Securities Act of 1936, when it failed to make
with National Power Corporation. At that time,
timely disclosure of its negotiations with GHB. In
GEHI's power-generating barge was 97% complete
addition, the SEC pronounced that some of the
and would go on-line by mid-September of 1994.
officers and directors of IRC entered into
In exchange, IRC will issue to GHB 55% of the
transactions involving IRC shares in violation of
expanded capital stock of IRC amounting to 40.88
Section 30, in relation to Section 36, of the Revised
billion shares which had a total par value of
Securities Act.
P488.44 million.
Respondent’s Contention:
On the side, IRC would acquire 67% of the entire
capital stock of Philippine Racing Club, Inc. (PRCI). Respondents filed an Omnibus Motion alleging that
PRCI owns 25.724 hectares of real estate property the SEC had no authority to investigate the subject
in Makati. Under the Agreement, GHB, a member matter, since under Section 8 of Presidential
of the Westmont Group of Companies in Malaysia, Decree No. 902-A, as amended by Presidential
shall extend or arrange a loan required to pay for Decree No. 1758, jurisdiction was conferred upon
the proposed acquisition by IRC of PRCI. the Prosecution and Enforcement Department
(PED) of the SEC. Respondents also claimed that
IRC alleged that on 8 August 1994, a press release
the SEC violated their right to due process when it
announcing the approval of the agreement was
ordered that the respondents appear before the
sent through facsimile transmission to the
SEC and "show cause why no administrative, civil
Philippine Stock Exchange and the SEC, but that
or criminal sanctions should be imposed on them,"
the facsimile machine of the SEC could not receive
and, thus, shifted the burden of proof to the
it. Upon the advice of the SEC, the IRC sent the
respondents. Lastly, they sought to have their
press release on the morning of 9 August 1994.
cases tried jointly given the identical factual
The SEC averred that it received reports that IRC situations surrounding the alleged violation
failed to make timely public disclosures of its committed by the respondents.
negotiations with GHB and that some of its
During the proceedings before the Court of
directors, respondents herein, heavily traded IRC
Appeals, respondents filed a Supplemental Motion,
shares utilizing this material insider information. On
wherein they prayed for the issuance of a writ of
16 August 1994, the SEC Chairman issued a
preliminary injunction enjoining the SEC and its
directive requiring IRC to submit to the SEC a copy
agents from investigating and proceeding with the
of its aforesaid Memorandum of Agreement with
hearing of the case against respondents herein.
GHB. The SEC Chairman further directed all
The Court of Appeals granted their motion and
principal officers of IRC to appear at a hearing
issued a writ of preliminary injunction, which
before the Brokers and Exchanges Department
effectively enjoined the SEC from filing any
(BED) of the SEC to explain IRC's failure to
criminal, civil or administrative case against the
immediately disclose the information as required by
respondents herein.
the Rules on Disclosure of Material Facts.
CA Ruling:
In compliance with the SEC Chairman's directive,
the IRC sent a letter dated 16 August 1994 to the
SEC, attaching thereto copies of the Memorandum
The Court of Appeals promulgated a Decision on 1.
20 August 1998. It determined that there were no
Sections 8, 30 and 36 of the Revised
implementing rules and regulations regarding
Securities Act do not require the enactment
disclosure, insider trading, or any of the provisions
of implementing rules to make them binding
of the Revised Securities Acts which the
and effective.
respondents allegedly violated. The Court of
Appeals likewise noted that it found no statutory In the absence of any constitutional or statutory
authority for the SEC to initiate and file any suit for infirmity, which may concern Sections 30 and 36 of
civil liability under Sections 8, 30 and 36 of the the Revised Securities Act, this Court upholds these
Revised Securities Act. Thus, it ruled that no civil, provisions as legal and binding. It is well settled
criminal or administrative proceedings may possibly that every law has in its favor the presumption of
be held against the respondents without violating validity. Unless and until a specific provision of the
their rights to due process and equal protection. It law is declared invalid and unconstitutional, the
further resolved that absent any implementing same is valid and binding for all intents and
rules, the SEC cannot be allowed to quash the purposes. The mere absence of implementing rules
assailed Omnibus Orders for the sole purpose of re- cannot effectively invalidate provisions of law,
filing the same case against the respondents. where a reasonable construction that will support
the law may be given.
The Court of Appeals further decided that the Rules
of Practice and Procedure Before the PED, which The necessity for vesting administrative authorities
took effect on 14 April 1990, did not comply with with power to make rules and regulations is based
the statutory requirements contained in the on the impracticability of lawmakers' providing
Administrative Code of 1997. Section 8, Rule V of general regulations for various and varying details
the Rules of Practice and Procedure Before the PED of management. To rule that the absence of
affords a party the right to be present but without implementing rules can render ineffective an act of
the right to cross-examine witnesses presented Congress, such as the Revised Securities Act, would
against him, in violation of Section 12(3), Chapter empower the administrative bodies to defeat the
3, Book VII of the Administrative Code. legislative will by delaying the implementing rules.
To assert that a law is less than a law, because it is
ISSUE/S:
made to depend on a future event or act, is to rob
1. Whether or not the CA erred in ruling that the Legislature of the power to act wisely for the
there can be no civil, criminal, or public welfare whenever a law is passed relating to
administrative proceedings that may a state of affairs not yet developed, or to things
possibly be held against the respondents future and impossible to fully know. It is well
since there were no implementing rules and established that administrative authorities have the
regulations regarding disclosure, insider power to promulgate rules and regulations to
trading, or any of the provisions of the implement a given statute and to effectuate its
Revised Securities Acts. (YES) policies, provided such rules and regulations
2. Whether or not the CA erred in ruling that conform to the terms and standards prescribed by
the PED Rules of Practice and Procedure the statute as well as purport to carry into effect its
was invalid since Section 8, Rule V thereof general policies. Nevertheless, it is undisputable
failed to provide for the parties' right to that the rules and regulations cannot assert for
cross-examination in violation of the themselves a more extensive prerogative or deviate
Administrative Code of 1987. (YES) from the mandate of the statute. Moreover, where
3. Whether or not the SEC retained jurisdiction the statute contains sufficient standards and an
despite the abolition of PED. (YES) unmistakable intent, as in the case of Sections 30
4. Whether the present case has already and 36 of the Revised Securities Act, there should
prescribed. (NO) be no impediment to its implementation.
HELD: This Court does not discern any vagueness or
ambiguity in Sections 30 and 36 of the Revised
Securities Act, such that the acts proscribed and/or The provision explains in simple terms that the
required would not be understood by a person of insider's misuse of nonpublic and undisclosed
ordinary intelligence. information is the gravamen of illegal conduct. The
intent of the law is the protection of investors
Section 30 of the Revised Securities Act
against fraud, committed when an insider, using
reads:
secret information, takes advantage of an
Sec. 30. Insider's duty to disclose when uninformed investor. Insiders are obligated to
trading. - (a) It shall be unlawful for an disclose material information to the other party or
insider to sell or buy a security of the issuer, abstain from trading the shares of his corporation.
if he knows a fact of special significance This duty to disclose or abstain is based on two
with respect to the issuer or the security factors: first, the existence of a relationship giving
that is not generally available, unless (1) access, directly or indirectly, to information
the insider proves that the fact is generally intended to be available only for a corporate
available or (2) if the other party to the purpose and not for the personal benefit of
transaction (or his agent) is identified, (a) anyone; and second, the inherent unfairness
the insider proves that the other party involved when a party takes advantage of such
knows it, or (b) that other party in fact information knowing it is unavailable to those with
knows it from the insider or otherwise. whom he is dealing.

(b) "Insider" means (1) the issuer, (2) a In the United States (U.S.), the obligation to
director or officer of, or a person disclose or abstain has been traditionally imposed
controlling, controlled by, or under common on corporate "insiders," particularly officers,
control with, the issuer, (3) a person whose directors, or controlling stockholders, but that
relationship or former relationship to the definition has since been expanded. The term
issuer gives or gave him access to a fact of "insiders" now includes persons whose relationship
special significance about the issuer or the or former relationship to the issuer gives or gave
security that is not generally available, or them access to a fact of special significance about
(4) a person who learns such a fact from the issuer or the security that is not generally
any of the foregoing insiders as defined in available, and one who learns such a fact from an
this subsection, with knowledge that the insider knowing that the person from whom he
person from whom he learns the fact is learns the fact is such an insider. Insiders have
such an insider. theduty to disclose material facts which are known
to them by virtue of their position but which are
c) A fact is "of special significance" if (a) in not known to persons with whom they deal and
addition to being material it would be likely, which, if known, would affect their investment
on being made generally available, to affect judgment. In some cases, however, there may be
the market price of a security to a valid corporate reasons for the nondisclosure of
significant extent, or (b) a reasonable material information. Where such reasons exist, an
person would consider it especially issuer's decision not to make any public disclosures
important under the circumstances in is not ordinarily considered as a violation of insider
determining his course of action in the light trading. At the same time, the undisclosed
of such factors as the degree of its information should not be improperly used for non-
specificity, the extent of its difference from corporate purposes, particularly to disadvantage
information generally available previously, other persons with whom an insider might transact,
and its nature and reliability. and therefore the insider must abstain from
(d) This section shall apply to an insider as entering into transactions involving such securities.
defined in subsection (b) (3) hereof only to Respondents further aver that under Section 30 of
the extent that he knows of a fact of special the Revised Securities Act, the SEC still needed to
significance by virtue of his being an insider. define the following terms: "material fact,"
"reasonable person," "nature and reliability"
and "generally available." In determining ruled in TSC Industries, Inc. v. Northway, Inc., that
whether or not these terms are vague, these terms the determination of materiality "requires delicate
must be evaluated in the context of Section 30 of assessments of the inferences a `reasonable
the Revised Securities Act. To fully understand how shareholder' would draw from a given set of facts
the terms were used in the aforementioned and the significance of those inferences to him."
provision, a discussion of what the law recognizes
(b.2) Nature and Reliability - The factors
as a fact of special significance is required, since
affecting the second definition of a "fact of special
the duty to disclose such fact or to abstain from
significance," which is of such importance that it is
any transaction is imposed on the insider only in
expected to affect the judgment of a reasonable
connection with a fact of special significance.
man, were substantially lifted from a test of
Under the law, what is required to be disclosed is a materiality pronounced in the case In the Matter of
fact of "special significance" which may be (a) Investors Management Co., Inc.:
a material fact which would be likely, on being
Among the factors to be considered in
made generally available, to affect the market price
determining whether information is material
of a security to a significant extent, or (b) one
under this test are the degree of its
which a reasonable person would consider
specificity, the extent to which it differs
especially important in determining his course of
from information previously publicly
action with regard to the shares of stock.
disseminated, and its reliability in light of its
(a) Material Fact - The concept of a "material nature and source and the circumstances
fact" is not a new one. As early as 1973, the Rules under which it was received.
Requiring Disclosure of Material Facts by
(c) Materiality Concept - A discussion of the
Corporations Whose Securities Are Listed In Any
"materiality concept" would be relevant to both a
Stock Exchange or Registered/Licensed Under the
material fact which would affect the market price of
Securities Act, issued by the SEC on 29 January
a security to a significant extent and/or a fact
1973, explained that "[a] fact is material if it
which a reasonable person would consider in
induces or tends to induce or otherwise affect the
determining his or her cause of action with regard
sale or purchase of its securities." Thus, Section 30
to the shares of stock. Significantly, what is
of the Revised Securities Act provides that if a fact
referred to in our laws as a fact of special
affects the sale or purchase of securities, as well as
significance is referred to in the U.S. as the
its price, then the insider would be required to
"materiality concept" and the latter is similarly not
disclose such information to the other party to the
provided with a precise definition. In Basic v.
transaction involving the securities. This is the first
Levinson, the U.S. Supreme Court cautioned
definition given to a "fact of special significance."
against confining materiality to a rigid formula.
(b.1) Reasonable Person - The second definition
Moreover, materiality "will depend at any given
given to a fact of special significance involves the
time upon a balancing of both the indicated
judgment of a "reasonable person." This Court, in
probability that the event will occur and the
such cases, differentiated the reasonable and
anticipated magnitude of the event in light of the
prudent man from "a person with training in the
totality of the company activity." The materiality
law such as a prosecutor or a judge," and identified
concept is judgmental in nature and it is not
him as "the average man on the street," who
possible to translate this into a numerical
weighs facts and circumstances without resorting
formula. The Committee's advice to the [SEC]
to the calibrations of our technical rules of evidence
is to avoid this quest for certainty and to
of which his knowledge is nil. Rather, he relies on
continue consideration of materiality on a
the calculus of common sense of which all
case-by-case basis as disclosure problems
reasonable men have in abundance. In the same
are identified.
vein, the U.S. Supreme Court similarly determined
its standards by the actual significance in the (d) Generally Available - Section 30 of the
deliberations of a "reasonable investor," when it Revised Securities Act allows the insider the
defense that in a transaction of securities, where securities of such issuer of which he is the
the insider is in possession of facts of special beneficial owner, and within ten days after
significance, such information is "generally the close of each calendar month
available" to the public. Whether information found thereafter, if there has been a change in
in a newspaper, a specialized magazine, or any such ownership during such month, shall
cyberspace media be sufficient for the term file with the Commission, and if such
"generally available" is a matter which may be security is registered on a securities
adjudged given the particular circumstances of the exchange, shall also file with the exchange,
case. The standards cannot remain at a standstill. A a statement indicating his ownership at the
medium, which is widely used today was, at some close of the calendar month and such
previous point in time, inaccessible to most. changes in his ownership as have occurred
Furthermore, it would be difficult to approximate during such calendar month.
how the rules may be applied to the instant case,
Section 36(a) refers to the "beneficial owner."
where investigation has not even been started.
Beneficial owner has been defined in the following
Respondents failed to allege that the negotiations
manner: First, to indicate the interest of a
of their agreement with GHB were made known to
beneficiary in trust property (also called "equitable
the public through any form of media for there to
ownership"); and second, to refer to the power of a
be a proper appreciation of the issue presented.
corporate shareholder to buy or sell the shares,
Section 36(a) of the Revised Securities Act though the shareholder is not registered in the
corporation's books as the owner. Usually,
As regards Section 36(a) of the Revised Securities
beneficial ownership is distinguished from naked
Act, respondents claim that the term "beneficial
ownership, which is the enjoyment of all the
ownership" is vague and that it requires
benefits and privileges of ownership, as against
implementing rules to give effect to the law.
possession of the bare title to property.
Section 36(a) of the Revised Securities Act is a
straightforward provision that imposes upon (1) a Even assuming that the term "beneficial ownership"
beneficial owner of more than ten percent of any was vague, it would not affect respondents' case,
class of any equity security or (2) a director or any where the respondents are directors and/or officers
officer of the issuer of such security, the obligation of the corporation, who are specifically required to
to submit a statement indicating his or her comply with the reportorial requirements under
ownership of the issuer's securities and such Section 36(a) of the Revised Securities Act. The
changes in his or her ownership thereof. The said validity of a statute may be contested only by one
provision reads: who will sustain a direct injury as a result of its
enforcement.
Sec. 36. Directors, officers and principal
stockholders. - (a) Every person who is Sections 30 and 36 of the Revised Securities Act
directly or indirectly the beneficial owner of were enacted to promote full disclosure in the
more than ten per centum of any [class] of securities market and prevent unscrupulous
any equity security which is registered individuals, who by their positions obtain non-public
pursuant to this Act, or who is [a] director information, from taking advantage of an
or an officer of the issuer of such security, uninformed public. No individual would invest in a
shall file, at the time of the registration of market which can be manipulated by a limited
such security on a securities exchange or by number of corporate insiders. Such reaction would
the effective date of a registration stifle, if not stunt, the growth of the securities
statement or within ten days after he market. To avert the occurrence of such an event,
becomes such a beneficial owner, director Section 30 of the Revised Securities Act prevented
or officer, a statement with the Commission the unfair use of non-public information in
and, if such security is registered on a securities transactions, while Section 36 allowed
securities exchange, also with the the SEC to monitor the transactions entered into by
exchange, of the amount of all equity
corporate officers and directors as regards the respective verified position papers, together with all
securities of their companies. supporting documents and affidavits of witnesses.
A formal hearing was not mandatory; it was within
For the same reason, the Court of Appeals made an
the discretion of the Hearing Officer to determine
evident mistake when it ruled that no civil, criminal
whether there was a need for a formal hearing.
or administrative actions can possibly be had
Since the holding of a hearing before the PED is
against the respondents in connection with
discretionary, then the right to cross-examination
Sections 8, 30 and 36 of the Revised Securities Act
could not have been demanded by either party.
due to the absence of implementing rules. These
provisions are sufficiently clear and complete by Secondly, it must be pointed out that Chapter 3,
themselves. Their requirements are specifically set Book VII of the Administrative Code, entitled
out, and the acts which are enjoined are "Adjudication," does not affect the investigatory
determinable. In particular, Section 8 of the functions of the agencies. The law creating the
Revised Securities Act is a straightforward PED, Section 8 of Presidential Decree No. 902-A, as
enumeration of the procedure for the registration amended, defines the authority granted to the PED
of securities and the particular matters which need The law creating PED empowers it to investigate
to be reported in the registration statement violations of the rules and regulations promulgated
thereof. The Decision, dated 20 August 1998, by the SEC and to file and prosecute such cases. It
provides no valid reason to exempt the respondent fails to mention any adjudicatory functions insofar
IRC from such requirements. The lack of as the PED is concerned. Thus, the PED Rules of
implementing rules cannot suspend the effectivity Practice and Procedure need not comply with the
of these provisions. Thus, this Court cannot find provisions of the Administrative Code on
any cogent reason to prevent the SEC from adjudication, particularly Section 12(3), Chapter 3,
exercising its authority to investigate respondents Book VII.
for violation of Section 8 of the Revised Securities
3.
Act.
The SEC retained the jurisdiction to
2.
investigate violations of the Revised
The right to cross-examination is not Securities Act, re-enacted in the Securities
absolute and cannot be demanded during Regulations Code, despite the abolition of
investigative proceedings before the PED. the PED.

In its assailed Decision dated 20 August 1998, the Section 53 of the Securities Regulations Code
Court of Appeals pronounced that the PED Rules of clearly provides that criminal complaints for
Practice and Procedure was invalid since Section 8, violations of rules and regulations enforced or
Rule V thereof failed to provide for the parties' right administered by the SEC shall be referred to the
to cross-examination, in violation of the Department of Justice (DOJ) for preliminary
Administrative Code of 1987 particularly Section investigation, while the SEC nevertheless retains
12(3), Chapter 3, Book VII thereof. This ruling is limited investigatory powers. Additionally, the SEC
incorrect. may still impose the appropriate administrative
sanctions under Section 54 of the aforementioned
Firstly, Section 4, Rule I of the PED Rules of
law.
Practice and Procedure, categorically stated that
the proceedings before the PED are summary in In this case, the SEC already commenced the
nature and does not need to follow the technical investigative proceedings against respondents as
rules of evidence obtaining in the courts of law. early as 1994. Respondents were called to appear
The Rules of Court may apply in said proceedings before the SEC and explain their failure to disclose
in suppletory character whenever practicable. pertinent information on 14 August 1994.
Thereafter, the SEC Chairman, having already
Moreover, the PED Rules provided that the Hearing
made initial findings that respondents failed to
Officer may require the parties to submit their
make timely disclosures of their negotiations with
GHB, ordered a special investigating panel to hear the Court of Appeals from conducting a preliminary
the case. The investigative proceedings were investigation, any preliminary investigation
interrupted only by the writ of preliminary conducted by the DOJ would have been a futile
injunction issued by the Court of Appeals, which effort since the SEC had only started with its
became permanent by virtue of the Decision, dated investigation when respondents themselves applied
20 August 1998, in C.A.-G.R. SP No. 37036. During for and were granted an injunction by the Court of
the pendency of this case, the Securities Appeals.
Regulations Code repealed the Revised Securities
Moreover, the DOJ could not have conducted a
Act. As in Morato v. Court of Appeals, the repeal
preliminary investigation or filed a criminal case
cannot deprive SEC of its jurisdiction to continue
against the respondents during the time that issues
investigating the case; or the regional trial court, to
on the effectivity of Sections 8, 30 and 36 of the
hear any case which may later be filed against the
Revised Securities Act and the PED Rules of
respondents.
Practice and Procedure were still pending before
4. the Court of Appeals. After the Court of Appeals
declared the aforementioned statutory and
The instant case has not yet prescribed.
regulatory provisions invalid and, thus, no civil,
It should be noted that the SEC started criminal or administrative case may be filed against
investigative proceedings against the respondents the respondents for violations thereof, the DOJ
as early as 1994. This investigation effectively would have been at a loss, as there was no
interrupted the prescription period. However, said statutory provision which respondents could be
proceedings were disrupted by a preliminary accused of violating.
injunction issued by the Court of Appeals on 5 May
Accordingly, it is only after this Court corrects the
1995, which effectively enjoined the SEC from filing
erroneous ruling of the Court of Appeals in its
any criminal, civil, or administrative case against
Decision dated 20 August 1998 that either the SEC
the respondents herein. Thereafter, on 20 August
or DOJ may properly conduct any kind of
1998, the appellate court issued the assailed
investigation against the respondents for violations
Decision in C.A. G.R. SP. No. 37036 ordering that
of Sections 8, 30 and 36 of the Revised Securities
the writ of injunction be made permanent and
Act. Until then, the prescription period is deemed
prohibiting the SEC from taking cognizance of and
interrupted.
initiating any action against herein respondents.
The SEC was bound to comply with the Indubitably, the prescription period is interrupted
aforementioned writ of preliminary injunction and by commencing the proceedings for the
writ of injunction issued by the Court of Appeals prosecution of the accused. In criminal cases, this
enjoining it from continuing with the investigation is accomplished by initiating the preliminary
of respondents for 12 years. Any deviation by the investigation. The prosecution of offenses
SEC from the injunctive writs would be sufficient punishable under the Revised Securities Act and
ground for contempt. Moreover, any step the SEC the Securities Regulations Code is initiated by the
takes in defiance of such orders will be considered filing of a complaint with the SEC or by an
void for having been taken against an order issued investigation conducted by the SEC motu proprio.
by a court of competent jurisdiction. Only after a finding of probable cause is made by
the SEC can the DOJ instigate a preliminary
An investigation of the case by any other
investigation. Thus, the investigation that was
administrative or judicial body would likewise be
commenced by the SEC in 1995, soon after it
impossible pending the injunctive writs issued by
discovered the questionable acts of the
the Court of Appeals. Given the ruling of this Court
respondents, effectively interrupted the prescription
in Baviera v. Paglinawan, the DOJ itself could not
period. Given the nature and purpose of the
have taken cognizance of the case and conducted
investigation conducted by the SEC, which is
its preliminary investigation without a prior
equivalent to the preliminary investigation
determination of probable cause by the SEC. Thus,
conducted by the DOJ in criminal cases, such
even presuming that the DOJ was not enjoined by
investigation would surely interrupt the prescription bearish and the worth of petitioner’s investment
period. went down further to only US$3,000.00.

IN VIEW OF THE FOREGOING, the instant Petition

On October 26, 2001, petitioner learned from
is GRANTED. This Court hereby REVERSES the Marivel Gonzales, head of the SCB Legal and
assailed Decision of the Court of Appeals Compliance Department, that the latter had been
promulgated on 20 August 1998 in CA-G.R. SP No. prohibited by the BSP to sell GPTMF securities.
37036 and LIFTS the permanent injunction issued Petitioner then filed with the BSP a letter-complaint
pursuant thereto. This Court further DECLARES that demanding compensation for his lost investment.
the investigation of the respondents for violations But SCB denied his demand on the ground that his
of Sections 8, 30 and 36 of the Revised Securities investment is "regular." 
Act may be undertaken by the proper authorities in
accordance with the Securities Regulations Code. On July 15, 2003, petitioner filed with the
No costs. Department of Justice (DOJ), represented herein by
its prosecutors, public respondents, a complaint
Babiera vs. Paglinawan, GR No. 168380, charging the above-named officers and members of
February 8, 2007 the SCB Board of Directors and other SCB officials,
private respondents, with
Facts: syndicated estafa, docketed as I.S. No. 2003-1059. 

Manuel Baviera, petitioner in these cases, was the On December 4, 2003, the SEC issued a Cease and
former head of the HR Service Delivery and Desist Order against SCB restraining it from further
Industrial Relations of Standard Chartered Bank- offering, soliciting, or otherwise selling its securities
Philippines (SCB), one of herein respondents. SCB to the public until these have been registered with
is a foreign banking corporation duly licensed to the SEC. 
engage in banking, trust, and other fiduciary
business in the Philippines. Pursuant to Resolution Subsequently, the SEC and SCB reached an
No. 1142 dated December 3, 1992 of the Monetary amicable settlement.
Board of the Bangko Sentral ng Pilipinas (BSP), the
conduct of SCB’s business in this jurisdiction is On February 7, 2004, petitioner filed with the DOJ
subject to conditions. a complaint for violation of Section 8.1 of the
Securities Regulation Code against private
Apparently, SCB did not comply with the conditions. respondents.
Instead, as early as 1996, it acted as a stock
broker, soliciting from local residents foreign On February 23, 2004, the DOJ rendered its Joint
securities called "GLOBAL THIRD PARTY MUTUAL Resolution dismissing petitioner’s complaint for
FUNDS" (GTPMF), denominated in US dollars. syndicated estafa; private respondents’ complaint
These securities were not registered with the for blackmail and extortion; private respondents’
Securities and Exchange Commission (SEC). complaint for blackmail and perjury; and
petitioner’s complaint for perjury against private
Petitioner entered into an Investment Trust respondents Morris and Gonzales.
Agreement with SCB wherein he purchased
US$8,000.00 worth of securities upon the bank’s Meanwhile, in a Resolution dated April 4, 2004, the
promise of 40% return on his investment and a DOJ dismissed petitioner’s complaint for violation of
guarantee that his money is safe. After six (6) Securities Regulation Code, holding that it should
months, however, petitioner learned that the value have been filed with the SEC. 
of his investment went down to US$7,000.00. He
tried to withdraw his investment but was Petitioner’s motions to dismiss his complaints were
persuaded by Antonette de los Reyes of SCB to denied by the DOJ. Thus, he filed with the Court of
hold on to it for another six (6) months in view of Appeals a petition for certiorari, docketed as CA-
G.R. SP No. 85078. He alleged that the DOJ acted
the possibility that the market would pick up. The
with grave abuse of discretion amounting to lack or
trend in the securities market, however, was
excess of jurisdiction in dismissing his complaint investigation and prosecution as provided in
for  syndicated estafa.  Section 53.1 earlier quoted.

He also filed with the Court of Appeals a separate (For Syndicated Estafa); NO. Section 5, Rule
petition for certiorari assailing the DOJ Resolution 110 of the 2000 Rules of Criminal Procedure, as
dismissing the complaint for violation of the amended, provides that all criminal actions,
Securities Regulation Code. Petitioner claimed that commenced by either a complaint or an
the DOJ acted with grave abuse of discretion information, shall be prosecuted under the direction
tantamount to lack or excess of jurisdiction in and control of a public prosecutor. This mandate is
holding that the complaint should have been filed founded on the theory that a crime is a breach of
with the SEC. the security and peace of the people at large, an
outrage against the very sovereignty of the State.
Issue: It follows that a representative of the State shall
direct and control the prosecution of the offense. A
Whether or not the Court of Appeals erred in public prosecutor is in a peculiar and very definite
concluding that the DOJ did not commit grave sense a servant of the law, the twofold aim of
abuse of discretion in dismissing petitioner’s which is that guilt shall not escape or innocence
complaint for; violation of Securities suffers.
Regulation Code (relevant issue) and for
syndicated estafa. Concomitant with his authority and power to
control the prosecution of criminal offenses, the
Ruling: public prosecutor is vested with the discretionary
power to determine whether a prima facie case
(For violation of Securities Regulation Code) exists or not. A preliminary investigation is
NO. The Court of Appeals held that under the essentially an inquiry to determine whether (a) a
above provision, a criminal complaint for violation crime has been committed; and (b) whether there
of any law or rule administered by the SEC must is probable cause that the accused is guilty thereof.
first be filed with the latter. If the Commission finds Thus, the decision whether or not to dismiss the
that there is probable cause, then it should refer criminal complaint against the accused depends on
the case to the DOJ. Since petitioner failed to the sound discretion of the prosecutor.
comply with the foregoing procedural requirement,
the DOJ did not gravely abuse its discretion in The rule in this jurisdiction is that courts will not
dismissing his complaint in I.S. No. 2004-229.  interfere with the conduct of preliminary
investigations or reinvestigations or in the
A criminal charge for violation of the Securities determination of what constitutes sufficient
Regulation Code is a specialized dispute. Hence, it probable cause for the filing of the corresponding
must first be referred to an administrative agency information against an offender. Courts are not
of special competence, i.e., the SEC. Under the empowered to substitute their own judgment for
doctrine of primary jurisdiction, courts will not that of the executive branch. The prosecutor’s
determine a controversy involving a question within findings on the existence of probable cause are not
the jurisdiction of the administrative tribunal, where subject to review by the courts, unless these are
the question demands the exercise of sound patently shown to have been made with grave
administrative discretion requiring the specialized abuse of discretion.
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 Cemco Holding Inc. vs. National Life
the SEC. Hence, all complaints for any violation of Insurance Company, G.R. No. 171815,
the Code and its implementing rules and August 7, 2007
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
FACTS:
Union Cement Corporation (UCC) is a publicly listed extend to an indirect acquisition arising from the ,
company with two principal stockholders: Union purchase of the shares of a holding company of the
Cement Holdings Corp. (UCHC), a non-listed listed firm.
company with 60.61% shares, and Cemco
Holdings, Inc. (Cemco) with 17.03%. Majority of
UCHC’s stocks were owned by Bacnotan SEC’s Ruling: in favor of respondent National Life
Consolidated Industries, Inc. (BCI) with 21.31%; and directed petitioner Cemco to make a tender
Atlas Cement Corp. (ACC) with 29.69%; and Cemco offer for UCC shares to respondent National Life
with 9%. and other holders of UCC shares in accordance with
Section 9(E), Rule 19 of SRC.

BCI informed the Phil. Stock Exchange (PSE), thru

a disclosure letter, that it and its subsidiary ACC Cemco challenged the SEC’s jurisdiction to take
had passed resolutions to sell to Cemco BCI’s cognizance of the complaint and its authority to
stocks in UCHC equivalent to BCI’s 21.31% and require Cemco to make a tender offer for UCC
ACC’s 29.69% (total = 51%). shares.

As a consequence of the disclosure, the PSE CA’s Ruling: SEC decision is affirmed
inquired to the SEC as to whether the Tender Offer
Rule under Rule 19 of the Implementing Rules of
SRC is not applicable to the purchase by Cemco of Petitioner’s contention:
the majority shares of UCC. The SEC responded to
the query that the Tender Offer Rule is not Petitioner contends that while the SEC can take
applicable, which was also confirmed by the SEC En cognizance of the complaint on the alleged
Banc in a Resolution/Letter dated July 27, 2004. violation of the tender offer requirement, the same
statue does not vest the SEC with jurisdiction to
adjudicate the rights and obligations of the parties
Aggrieved by the transaction, respondent National since under the same statue. The authority of the
Life Insurance Company, which is the minority SEC is purely administrative. Hence, it can only
stockholder of UCC sent a letter to Cemco impose administrative sanctions such as fines,
demanding the latter to comply with the rule on suspension or revocation or registration with the
mandatory tender offer, which was however SEC. Petitioner contends that nothing in the statute
refused by Cemco. authorizes the Sec to issue orders granting
affirmative reliefs.

Petitioner’s contention:
Thus, a Share Purchase Agreement was executed
by ACC and BCI as sellers, and Cemco as buyer. Petitioner also counters that the legislator’s
reference to "any type of acquisition" during the
deliberations on the Securities Regulation Code
does not indicate that congress meant to include
Respondent National Life filed a complaint against
the "indirect" acquisition of shares of a public
Cemco, UCC, UCHC, BCI and ACC, with the SEC
corporation to be covered by the tender offer rule.
asking it to reverse its Resolution/Letter dated July
Petitioner also avers that it did not directly acquire
27, 2004, and to declare the purchase agreement
the shares in UCC and the incidental benefit of
void, and further prayed that the mandatory tender
having acquired the control of the said public
offer rule be applied to its UCC shares. In their
company must not be taken against it.
Comment, they uniformly argued that the tender
offer rule is applicable only to a direct acquisition of Issues:
the shares of the listed company and did not
 1. Whether or not SEC has jurisdiction over the express powers of the Commission or which is
the complaint and to require Cemco to incidental to, or reasonably necessary to carry out,
make a tender offer for UCC shares to the performance of the administrative duties
respondents entrusted to it. As a regulatory agency, it has
incidental power to conduct hearings and render
2. Whether or not the rule on mandatory
decisions fixing the rights and obligations of the
tender offer rule applies to indirect
parties
acquisition of shares in a listed company
A definite inference may be drawn from the
provisions of the SRC that the SEC has the
Ruling: authority not only to investigate complaints of
violations of the tender offer rule, but to adjudicate
1. YES, the SEC was acting pursuant to Rule
certain rights and obligations of the contending
19(13) of the Amended IRR of the SRC and
parties and grant appropriate reliefs in the exercise
Section 5.1(n) of the SRC, which provides to
of its regulatory functions under the SRC. Section
wit:
5.1 of the SRC allows a general grant of
adjudicative powers to the SEC which may be
implied from or are necessary or incidental to the
13. Violation
carrying out of its express powers to achieve the
objectives and purposes of the SRC. We must bear
in mind in interpreting the powers and functions of
If there shall be violation of this Rule by pursuing a the SEC that the law has made the SEC primarily a
purchase of equity shares of a public company at regulatory body with the incidental power to
threshold amounts without the required tender conduct administrative hearings and make
offer, the Commission, upon complaint, may nullify decisions. A regulatory body like the SEC may
the said acquisition and direct the holding of a conduct hearings in the exercise of its regulatory
tender offer. This shall be without prejudice to the powers, and if the case involves violations or
imposition of other sanctions under the Code. conflicts in connection with the performance of its
5.1. The commission shall act with transparency regulatory functions, it will have the duty and
and shall have the powers and functions provided authority to resolve the dispute for the best
by this code, Presidential Decree No. 902-A, the interests of the public.
Corporation Code, the Investment Houses law, the Moreover, Cemco is barred from questioning the
Financing Company Act and other existing laws. jurisdiction of SEC because it had participated in all
Pursuant thereto the Commission shall have, proceedings before the SEC and prayed for
among others, the following powers and functions: affirmative relief.

X x x 2. YES. The SEC and the Court of Appeals

accurately pointed out that the coverage of
the mandatory tender offer rule covers not
(n) Exercise such other powers as may be provided only direct acquisition but also indirect
by law as well as those which may be implied from, acquisition or “any type of acquisition”.
or which are necessary or incidental to the carrying
out of, the express powers granted the
Commission to achieve the objectives and purposes Under Section 19 of Republic Act No. 8799, it is
of these laws. stated:

The foregoing provision bestows upon the SEC the

general adjudicative power which is implied from
Tender Offers. 19.1. (a) Any person or group of indirect. What is decisive is the determination of
persons acting in concert who intends to acquire at the power of control. The legislative intent behind
least fifteen percent (15%) of any class of any the tender offer rule makes clear that the type of
equity security of a listed corporation or of any activity intended to be regulated is the acquisition
class of any equity security of a corporation with of control of the listed company through the
assets of at least Fifty million pesos purchase of shares. Control may [be] effected
(P50,000,000.00) and having two hundred (200) or through a direct and indirect acquisition of stock,
more stockholders with at least one hundred (100) and when this takes place, irrespective of the
shares each or who intends to acquire at least means, a tender offer must occur. The bottomline
thirty percent (30%) of such equity over a period of the law is to give the shareholder of the listed
of twelve (12) months shall make a tender offer to company the opportunity to decide whether or not
stockholders ….. to sell in connection with a transfer of control.

AFFIRMED.

Under the existing SEC Rules, the 15% and 30% Notes:
threshold acquisition of shares under the foregoing
Tender offer is a publicly announced intention by
provision was increased to 35%, and further
a person acting alone or in concert with other
provided that the mandatory tender offer rule is
persons to acquire equity securities of a public
still applicable even if the acquisition is less than
company. It is an offer by the acquiring person to
35% when the purchase would result in ownership
stockholders of a public company for them to
of over 51% of the total outstanding equity shares
tender their shares therein on the terms specified
of the public company.
in the offer. It is in place to protect minority
The rule in this jurisdiction is that the construction shareholders against any scheme that dilutes the
given to a statute by an administrative agency share value of their investments. It gives the
charged with the interpretation and application of minority shareholders the chance to exit the
that statute is entitled to great weight by the company under reasonable terms, giving them the
courts, unless such construction is clearly shown to opportunity to sell their shares at the same price as
be in sharp contrast with the governing law or those of the majority shareholders.
statute.
A public company is defined as a corporation
The SEC and the Court of Appeals accurately which is listed on an exchange, or a corporation
pointed out that the coverage of the mandatory with assets exceeding P50,000,000.00 and with
tender offer rule covers not only direct acquisition 200 or more stockholders, at least 200 of them
but also indirect acquisition or "any type of holding not less than 100 shares of such company.
acquisition." This is clear from the discussions of
Philippine Veterans Bank vs. Callangan, 655
the Bicameral Conference Committee on the
SCRA 150, G.R. No. 191995, August 3, 2011
Securities Act of 2000, on 17 July 2000.
Doctrine:
The legislative intent of Section 19 of the Code is to
regulate activities relating to acquisition of control A “Public Company” need not be open to the
of the listed company and for the purpose of General Public under the Amended Implementing
protecting the minority stockholders of a listed Rules and Regulations of the Securities Regulation
corporation. Whatever may be the method by Code (IRR), a company with:
which control of a public company is obtained,
either through the direct purchase of its stocks or
through an indirect means, mandatory tender offer ● Any class of company listed on an
applies.  exchange; or
● A company with assets of at least PhP
We are constrained, however, to construe
50,000,0000, and
ownership acquisition to mean both direct and
 ● Having two hundred or more shareholders CA dismissed the petition and affirmed the assailed
with 100 shares of a class of the company’s SEC ruling.
equity securities is a “public company”, and
subject to the reportorial requirements of a
public company.
Issue:

Whether or not the Bank is considered as a public

The Supreme Court considered the Philippine
company.
Veterans Bank as a public company because it
meets the requisites of a public company under the
IRR and notwithstanding that its shares are limited
Ruling: Yes.
only to a limited class or sector, i.e., World War II
veterans and their widows, orphans, and
compulsory heirs, and not the general public.
SEC, Subsections 17.1 and 17.2 of the SRC, which
Facts: provide:
Respondent Justina F. Callangan, the Director of
the Corporation Finance Department of the
Securities and Exchange Commission (SEC), sent Section 17. Periodic and Other Reports of Issuers. –
the Bank a letter, informing it that it qualifies as a
"public company" under Section 17.2 of the
Securities Regulation Code (SRC) in relation 17.1. Every issuer satisfying the requirements in
with Rule 3(1)(m) of the Amended Subsection 17.2 hereof shall file with the
Implementing Rules and Regulations of the Commission:
SRC. The Bank is thus required to comply with the
reportorial requirements set forth in Section 17.1 of
the SRC. a) Within one hundred thirty-five (135) days, after
the end of the issuer’s fiscal year, or such other
time as the Commission may prescribe, an annual
The Bank responded by explaining that it should report which shall include, among others, a balance
not be considered a "public company" because it is sheet, profit and loss statement and statement of
a private company whose shares of stock are cash flows, for such last fiscal year, certified by an
available only to a limited class or sector, i.e., to independent certified public accountant, and a
World War II veterans, and not to the general management discussion and analysis of results of
public. operations; and

Director Callangan rejected the Bank’s explanation b) Such other periodical reports for interim fiscal
and assessed it a total penalty of One Million Nine periods and current reports on significant
Hundred Thirty-Seven Thousand Two Hundred developments of the issuer as the Commission may
Sixty-Two and 80/100 Pesos (P1,937,262.80) for prescribe as necessary to keep current information
failing to comply with the SRC reportorial on the operation of the business and financial
requirements from 2001 to 2003. condition of the issuer.

Director Callangan denied the motion of the bank. 17.2. The reportorial requirements of Subsection
17.1 shall apply to the following:
SEC En Banc also dismissed the Bank’s appeal for
lack of merit.
c) An issuer with assets of at least Fifty million that the legislature intended the SRC to apply only
pesos (P50,000,000.00) or such other amount as to publicly traded companies, the Court should
the Commission shall prescribe, and having two exempt the Bank from complying with the
hundred (200) or more holders each holding at reportorial requirements.
least one hundred (100) shares of a class of its
equity securities: Provided, however, That the
obligation of such issuer to file reports shall be In making such an argument, the Bank ignores the
terminated ninety (90) days after notification to the fact that the first and fundamental duty of the
Commission by the issuer that the number of its Court is to apply the law. Construction and
holders holding at least one hundred (100) shares interpretation come only after a demonstration that
is reduced to less than one hundred (100). the application of the law is impossible or
inadequate unless interpretation is resorted to. In
this case, we see the law to be very clear and free
Rule 3(1)(m) of the Amended Implementing Rules from any doubt or ambiguity; thus, no room exists
and Regulations of the SRC, which defines a "public for construction or interpretation.
company" as any corporation with a class of equity
securities listed on an Exchange or with assets in
excess of Fifty Million Pesos (P50,000,000.00) and SEC v. Prosperity Com. Inc., G.R. No. 164197,
having two hundred (200) or more holders, at least January 25, 2012)
two hundred (200) of which are holding at least
one hundred (100) shares of a class of its equity This case involves the application of the Howey
securities. Test in order to determine if a particular
_________________________________________ transaction is an investment contract.
_________________________________

From the above provisions, it is clear that a FACTS:

"public company," as contemplated by the SRC,
is not limited to a company whose shares of Prosperity.Com, Inc. (PCI) sold computer software
stock are publicly listed; even companies like and hosted websites without providing internet
the Bank, whose shares are offered only to a
service. To make a profit, PCI devised a scheme in
specific group of people, are considered a public
company, provided they meet the requirements which, for the price of US$234 (subsequently
enumerated above. increased to US$294), a buyer could acquire from it
an internet website of a 15-MB capacity. At the

Here, the Bank does not dispute that it has assets same time, by referring to PCI his own down-line
exceeding P50,000,000.00 and has 395,998 buyers, a first-time buyer could earn commissions,
shareholders. It is thus considered a public
company that must comply with the reportorial interest in real estate in the Philippines and in the
requirements set forth in Section 17.1 of the SRC. US, and insurance coverage worth P50,000. To
benefit from this scheme, a PCI buyer must enlist

The Bank also argues that even assuming it is and sponsor at least two other buyers as his own
considered a "public company" pursuant to Section down-lines. These second tier of buyers could in
17 of the SRC, the Court should interpret the
turn build up their own down-lines. For each pair of
pertinent SRC provisions in such a way that no
financial prejudice is done to the thousands of down-lines, the buyer-sponsor received a US$92.00
veterans who are stockholders of the Bank. Given
commission. But referrals in a day by the buyer- moved to withdraw its petition before the CA to
sponsor should not exceed 16 since the avoid possible forum shopping violation.
commissions due from excess referrals inure to
PCI, not to the buyer-sponsor.
CA:

During the pendency of PCI's action before the

Apparently, PCI patterned its scheme from that of
SEC, however, the CA issued a TRO in favor of PCI.
Golconda Ventures, Inc. (GVI), which company
stopped operations after the SEC issued a cease
and desist order against it. As it later turned out, In response, the SEC filed with the CA a motion to
the same persons who ran the affairs of GVI dismiss the petition on ground of forum shopping.
directed PCI's actual operations. In 2001, those The CA initially dismissed the petition of PCI on the
persons aggrieved by GVI filed a complaint with the ground of forum shopping. But on PCI's motion,
SEC against PCI, alleging that the latter had taken the CA reversed itself and reinstated the petition.
over GVI's operations.

Thereafter, the CA ruled in favor of PCI and set

SEC: aside the SEC-issued CDO. It held that following

The SEC, through its Compliance and Enforcement the Howey test, PCI's scheme did not constitute an

unit, issued a cease and desist order (CDO) against investment contract that needs registration

PCI. It held that PCI's scheme constitutes an pursuant to the Securities Regulation Code.

investment contract and, following R.A. 8799 or the

Securities Regulation Code, it should have first
ARGUMENT OF PETITIONER SEC:
registered such contract or securities with the SEC.
PCI's scheme constitutes an investment contract
and, following R.A. 8799 or the Securities
Instead of asking the SEC to lift its cease and desist Regulation Code, it should have first registered
order in accordance with The Securities and such contract or securities with the SEC.
Regulation Code, PCI filed with the CA a petition for
certiorari against the SEC with an application for
TRO and preliminary injunction. However, the did ARGUMENT OF RESPONDENT PCI:
not act promptly on this application for TRO. Thus,
PCI's scheme does not constitute an investment
PCI returned to the SEC and filed with it a request
contract. The US$234 it gets from its clients is
to lift the cease and desist order before the lapse of
merely a consideration for the sale of the websites
the five-day period. On the following day, PCI
that it provides, and not an investment of money.
ISSUE: Whether or not PCI's scheme constitutes PCI's clients do not make investments.
an investment contract that requires registration
PCI’s clients buy a product of some value to them:
under the Securities Regulation Code or R.A. 8799.
an Internet website of a 15-MB capacity. The
(NO)
buyers of the website do not invest money in PCI
that it could use for running some business that
would generate profits for the investors. The price
RULING:
of US$234.00 is what the buyer pays for the use of
PCI's scheme does not constitute an investment the website, a tangible asset that PCI creates,
contract. using its computer facilities and technical skills.

PCI's scheme or contract with its buyers does not

have all the elements enumerated under the
The last requisite in the Howey test is lacking in the
Howey Test.
marketing scheme that PCI has adopted.

The commissions, interest in real estate, and

An investment contract is a contract, transaction, insurance coverage worth P50,000.00 can hardly
or scheme where a person invests his money in a be regarded as profits from investment of money
common enterprise and is led to expect profits under the Howey test. These are merely
primarily from the efforts of others. The Securities incentives to down-line sellers to bring in other
Regulation Code treats investment contracts as customers.
"securities" that have to be registered with the SEC
before they can be distributed and sold.
Actually, PCI appears to be engaged in network
marketing, a scheme adopted by companies for
As held by the US Supreme Court in SEC v. W.J. getting people to buy their products outside the
Howey Co., for an investment contract to exist, usual retail system where products are bought from
the following elements, referred to as the Howey the store's shelf. Under this scheme, adopted by
Test must concur: most health product distributors, the buyer can

(1) a contract, transaction, or scheme; become a down-line seller. The latter earns

(2) an investment of money; commissions from purchases made by new buyers

(3) investment is made in a common whom he refers to the person who sold the product

enterprise; to him. The network goes down the line where the

(4) expectation of profits; and orders to buy come. Evidently, it is PCI that expects

(5) profits arising primarily from the efforts of profit from the network marketing of its products.

others.
OTHER DISCUSSIONS MADE BY SC: child, Krizia Katrina. In the settlement of his estate,
petitioner was appointed administratrix of her late
o US JURISPRUDENCE ON THE NATURE husband’s intestate estate.
OF INVESTMENT CONTRACTS Petitioner filed a motion for leave to sell or
The US Supreme Court’s rulings, while not mortgage estate property in order to generate
funds for the payment of deficiency estate taxes.
binding in the Philippines, enjoy some Included in the inventory of property were the
degree of persuasiveness insofar as they following:
are logical and consistent with the country's 1) 142,285 shares of stock in ABT
best interests. Enterprises valued at
P14,228,500.00;
o EXAMPLE OF INVESTMENT CONTRACT 2) 5,000 shares of stock in
A good example is the long-term Intercontinental Paper Industries
valued at P500,000.00;
commercial papers that large companies,
like San Miguel Corporation (SMC), offer to 3) 15,873 shares of stock in
Philippine Crystal Manufacturing,
the public for raising funds that it needs for Inc. valued at P1,587,300.00;
expansion. When an investor buys these
4) 800 shares of stock in Polymart
papers or securities, he invests his money, Paper Industries, Inc. valued at
together with others, in SMC with an P80,000.00;

expectation of profits arising from the 5) 1,800 shares of stock in A.T. Car
Care Center, Inc. valued at
efforts of those who manage and operate
P188,000.00;
that company. SMC has to register these
6) 360 shares of stock in Union
commercial papers with the SEC before Emporium, Inc. valued at
offering them to investors. P36,000.00;

7) 380 shares of stock in Lexty, Inc.

Intestate Estate of Alexander T. Ty vs. CA,
valued at P38,000.00; and
356 SCRA 661, G.R. No. 112872, G.R. No.
114672, April 19, 2001 8) a parcel of land in Biak-na-Bato,
Matalahib, Sta. Mesa, with an area
The determination of whether a contract is
of 823 square meters and covered
simulated or not is an issue that could be resolved
by Transfer Certificate of Title
by applying pertinent provisions of the Civil Code,
Number 214087
particularly those relative to obligations and
contracts. Disputes concerning the application of Private respondent Alejandro Ty then filed two
the Civil Code are properly cognizable by courts of complaints, first for the recovery of the above-
general jurisdiction. No special skill is necessary mentioned property in the Regional Trial Court of
that would require the technical expertise of the Quezon City, praying for the declaration of nullity of
SEC. the deed of absolute sale of the shares of stock
executed by private respondent in favor of the
FACTS:
deceased Alexander, and second, praying for the
Petitioner Sylvia S. Ty was married to Alexander T. recovery of the pieces of property that were placed
Ty, son of private respondent Alejandro B. Ty. in the name of deceased Alexander by private
Alexander died of leukemia on May 19, 1988 and respondent, the same property being sought to be
was survived by his wife, petitioner Sylvia, and only sold out, mortgaged, or disposed of by petitioner.
Private respondent claimed in both cases that even corporations, regardless of the nature of the
if said property were placed in the name of transaction which gave rise to such disputes. The
deceased Alexander, they were acquired through better policy in determining which body has
private respondent’s money, without any cause or jurisdiction over this case would be to consider, not
consideration from deceased Alexander. merely the status of the parties involved, but
likewise the nature of the question that is the
Motions to dismiss were filed by petitioner. Both
subject of the controversy. When the nature of the
motions alleged lack of jurisdiction of the trial
controversy involves matters that are purely civil in
court, claiming that the cases involved intra-
character, it is beyond the ambit of the limited
corporate dispute cognizable by the Securities and
jurisdiction of the SEC. (citations omitted)
Exchange Commission (SEC).
In the cases at bar, the relationship of private
The motions to dismiss were denied. Petitioner
respondent when he sold his shares of stock to his
then filed petitions for certiorari in the Court of
son was one of vendor and vendee, nothing else.
Appeals, which were also dismissed for lack of
The question raised in the complaints is whether or
merit. Thus, the present petitions now before the
not there was indeed a sale in the absence of
Court.
cause or consideration. The proper forum for such
Petitioner’s Contention a dispute is a regular trial court. The Court agrees
with the ruling of the Court of Appeals that no
Petitioner raises the issue of jurisdiction of the trial special corporate skill is necessary in resolving the
court. She alleges that an intra-corporate dispute is issue of the validity of the transfer of shares from
involved. Hence, under Section 5(b) of Presidential one stockholder to another of the same
Decree 902-A, the SEC has jurisdiction over the corporation. Both actions, although involving
case. different property, sought to declare the nullity of
Petitioner argues that the present case involves a the transfers of said property to the decedent on
suit between two stockholders of the same the ground that they were not supported by any
corporation which thus places it beyond the cause or consideration, and thus, are considered
jurisdictional periphery of regular trial courts and void ab initio for being absolutely simulated or
more within the exclusive competence of the SEC fictitious. The determination whether a contract is
by reason of Section 5(b) of Presidential Decree simulated or not is an issue that could be resolved
902-A. by applying pertinent provisions of the Civil Code,
particularly those relative to obligations and
Respondent’s Contention contracts. Disputes concerning the application of
(Dismissal of the motion to dismiss was proper) the Civil Code are properly cognizable by courts of
general jurisdiction. No special skill is necessary
that would require the technical expertise of the
SEC.
ISSUE:
It should also be noted that under the newly
Whether or not the present case is an intra-
enacted Securities Regulation Code (Republic Act
corporate dispute
No. 8799), this issue is now moot and academic
because whether or not the issue is intra-corporate,
it is the regional trial court and no longer the SEC
Held:
that takes cognizance of the controversy. Under
NO. It does not necessarily follow that when both Section 5.2 of Republic Act No. 8799, original and
parties of a dispute are stockholders of a exclusive jurisdiction to hear and decide cases
corporation, the dispute is automatically considered involving intra-corporate controversies have been
intra-corporate in nature and jurisdiction transferred to courts of general jurisdiction or the
consequently falls with the SEC. Presidential Decree appropriate regional trial court.
902-A did not confer upon the SEC absolute
jurisdiction and control over all matters affecting
 Yujuico vs. Quiambao, 513 SCRA 243, G.R. Petitioners prayed for the dismissal of the
No. 168639, January 29, 2007 complaint on the following grounds, among others:
(a) the complaint does not state a cause of action;
FACTS: (b) the action is barred by prescription for it
was filed beyond the 15-day prescriptive period
Strategic Alliance Development Corporation
provided by Section 2, Rule 6 of the Interim Rules
(STRADEC) is a domestic corporation. From its
and Procedure Governing Intra-Corporate
inception, STRADEC’s principal place of business
Controversies under Republic Act (R.A.) No. 8799;
was located at San Miguel Avenue, Ortigas Center,
(c) respondents’ prayer that a special
Pasig City. On July 27, 1998, the Securities and
stockholders’ meeting be held in Bayambang,
Exchange Commission (SEC) approved the
Pangasinan "is premature pending the
amendment of STRADEC’s Articles of
establishment of a principal office of
Incorporation authorizing the change of its
STRADEC in said municipality;" and (d)
principal office from Pasig City to
respondents waived their right to object to the
Bayambang, Pangasinan.
venue as they attended and participated in the said
On March 1, 2004, STRADEC held its annual March 1, 2004 meeting and election without any
stockholders’ meeting in its Pasig City office. At protest. Petitioners likewise opposed the
the said meeting, the following were elected application for a writ of preliminary
members of the Board of Directors: Alderito Z. injunction as respondents have no right that was
Yujuico, Bonifacio C. Sumbilla, Dolney S. Sumbilla violated, hence, are not entitled to be protected by
(petitioners herein), Cesar T. Quiambao, Jose M. law. They further prayed for damages by way of
Magno III and Ma. Christina Ferreros (respondents counterclaim.
herein). Petitioners Alderito Yujuico was elected
RTC
Chairman and President, while Bonifacio Sumbilla
was elected Treasurer. All of them then discharged ● RTC issued an Order granting respondents’
the duties of their office. application for preliminary injunction
ordering (1) the holding of a special
After five (5) months, or on August 16, 2004,
respondents filed with the Regional Trial Court stockholders’ meeting of STRADEC on
(RTC), San Carlos City, Pangasinan a Complaint December 10, 2004 "in the principal office
against STRADEC (represented by herein of the corporation in Bayambang,
petitioners as members of its Board of Directors). Pangasinan;" and (2) the turn-over by
The complaint prays that: (1) the March 1, 2004 petitioner Bonifacio Sumbilla to the court of
election be nullified on the ground of improper the duplicate key of the safety deposit box
venue, pursuant to Section 51 of the Corporation in Export Industry Bank, Shaw Boulevard,
Code; (2) all ensuing transactions conducted by the Pasig City where the original Stock and
elected directors be likewise nullified; and (3) a Transfer Book of STRADEC was deposited.
special stockholders’ meeting be held anew.
Petitioners filed with the Court of Appeals a Petition
Respondents further prayed for the issuance of a for Certiorari with Prayer for the Issuance of a TRO
temporary restraining order (TRO) and/or writ of and/or Preliminary Injunction, assailing Judge
preliminary injunction to enjoin petitioners from Emuslan’s November 25, 2004 Order.
discharging their functions as directors and officers
of STRADEC. Meanwhile, on the same day (December 10), as
directed in the November 25, 2004 Order of
As the controversy involves an intra-corporate Judge Emuslan, a special stockholders’
dispute, the trial court issued an Order transferring meeting of STRADEC was held in Bayambang,
the Civil Case to RTC, Branch 48, Urdaneta City, Pangasinan wherein a new set of directors
being a designated Special Commercial Court. were elected for the term 2004-2005, namely:
Cezar T. Quiambao, Anthony K. Quiambao, and
Simplicio T. Quiambao, Jr. Immediately thereafter, No, RTC has the power to hear and decide the
the new directors elected the following officers: intra-corporate controversy of the parties herein.
Cezar T. Quiambao as Chairman and President; Eric
C. Pilapil as Corporate Secretary; Anthony K. I. (ITO LANG TALAGA YUNG RELEVANT
Quiambao as Corporate Treasurer; and Albert M. ISSUE)
Rasalan as Assistant Corporate Secretary.
An intra-corporate controversy is one which
COURT OF APPEALS "pertains to any of the following relationships: (1)
between the corporation, partnership or association
● Court of Appeals dismissed the Petition for and the public; (2) between the corporation,
Certiorari. It upheld the jurisdiction of the partnership or association and the State in so far as
RTC over the controversy and sustained the its franchise, permit or license to operate is
validity of Judge Emuslan’s Order of concerned; (3) between the corporation,
November 25, 2004. partnership or association and its stockholders,
partners, members or officers; and (4) among the
Hence, the instant Petition for Review on stockholders, partners or associates themselves.”
Certiorari. There is thus no dispute that respondents’
complaint in Civil (SEC) Case No. U-14 before the
ISSUE: RTC, Branch 48, Urdaneta City involves an intra-
corporate controversy, the contending parties being
WON Court of Appeals erred in ruling that the RTC stockholders and officers of a corporation.
has the power to call a special stockholders’
meeting involving an intra-corporate controversy. Upon the enactment of R.A. No. 8799, otherwise
(NO, RTC has power.) known as "The Securities Regulation Code" which
took effect on August 8, 2000, the jurisdiction of
PETITIONER'S CONTENTION the SEC over intra-corporate controversies and
Petitioners contend that the Court of Appeals erred other cases enumerated in Section 5 of P.D. No.
902-A has been transferred to the courts of general
in ruling that the RTC has the power to call a
special stockholders’ meeting involving an intra- jurisdiction, or the appropriate RTC. Clearly, the
RTC has the power to hear and decide the
corporate controversy. They maintain that it is only
the SEC that may do so to be held under its intra-corporate controversy of the parties
herein. Concomitant to said power is the authority
supervision.
to issue orders necessary or incidental to the
RESPONDENT’S CONTENTION carrying out of the powers expressly granted to it.
Thus, the RTC may, in appropriate cases, order the
The respondents counter that the appellate court holding of a special meeting of stockholders or
correctly ruled that the power to hear and decide members of a corporation involving an intra-
controversies involving intra-corporate disputes, as corporate dispute under its supervision.
well as to act on matters incidental and necessary
thereto, have been transferred from the SEC to the II. (IRRELEVANT. PERO JUST IN CASE)
RTCs designated as Special Commercial Courts. It
The Court of Appeals should have resolved the
would be the height of absurdity, they argue, to
require the filing of a separate case with the SEC issue of whether Judge Emuslan had the authority
to issue the assailed Order, a jurisdictional question
for the sole purpose of asking the said agency to
order the holding of a special stockholders’ meeting crucial to the resolution of the petition. It is
elementary that a jurisdictional controversy may be
where there is already a pending case involving the
same matter before the proper court. raised at any time.Indeed, as early as November
12, 2004, Judge Aurelio Ralar, Jr. assumed his
RULING: duties as presiding judge of RTC, Branch 48,
Urdaneta City. Evidently, Judge Emuslan’s
authority, as pairing judge of Branch 48, to act on
Civil (SEC) Case No. U-14 automatically ceased on principal action without even a full-blown trial on
that date. Therefore, he no longer had the the merits since the Order impliedly ruled that the
authority to issue the Order of November 25, 2004, March 1, 2004 annual stockholders’ meeting and
or thirteen (13) days after Judge Ralar, Jr. had election are void. Verily, the issuance of the
assumed office. questioned Order violates the established principle
that courts should avoid granting a writ of
There are instances where a judge may commit preliminary injunction that would in effect dispose
errors. He may issue an order without authority. of the main case without trial.
And if clothed with power, he may exercise it in
excess of his authority or with grave abuse of IV. (RELEVANT)
discretion amounting to lack or excess of
jurisdiction. Any of these acts may be struck down Under Section 3, Rule 6 of the Interim Rules of
as a nullity through a petition for certiorari, as what Procedure Governing Intra-Corporate Controversies
petitioners did before the Court of Appeals. It bears under R.A. No. 8799, an election contest must be
stressing that any act or order rendered by a "filed within 15 days from the date of the election."
judge without authority, such as the It was only on August 16, 2004 that respondents
questioned November 25, 2004 Order, is no instituted an action questioning the validity of the
order at all. It is void. As such, it cannot be March 1, 2004 stockholders’ election, clearly
the source of any right nor the creator of any beyond the 15-day prescriptive period. In sum,
obligation. All acts performed pursuant to it Judge Emuslan, in granting the writ of preliminary
and all claims emanating from it have no injunction, acted with grave abuse of discretion
legal force and effect. amounting to lack or excess of jurisdiction.

III.(MIGHT BE ASKED) GSIS v. CA, G.R. No. 183905; SEC, et al., v.

Rosete, et al., G.R. No. 184275 both dated
Petitioners further contend that even if Judge April 16, 2009
Emuslan had the authority to issue the challenged
Order, still he issued it with grave abuse of FACTS:
discretion amounting to lack or excess of
jurisdiction. In this case, Judge Emuslan’s The annual stockholders’ meeting of the Manila
November 25, 2004 Order, quoted earlier, is hazy Electric Company (Meralco) was scheduled on 27
and too unsubstantial to justify the issuance of a May 2008. In connection with the annual meeting,
writ of preliminary injunction. The Order does not proxies were required to be submitted on or before
17 May 2008, and the proxy validation was slated
contain specific findings of fact and conclusion of
for five days later, or 22 May.
law showing that the requirements for the grant of
the injunctive writ are present.
In view of the resignation of Camilo Quiason, the
position of corporate secretary of Meralco became
To repeat, the purpose of the writ of preliminary
vacant. On 15 May 2008, the board of directors of
injunction is to preserve the status quo until the
Meralco designated Jose Vitug to act as corporate
court could hear the merits of the case. The status secretary for the annual meeting. However, when
quo is the last actual peaceable uncontested status the proxy validation began on 22 May, the
that preceded the controversY which, in the instant proceedings were presided over by respondent
case, is the holding of the annual stockholders’ Anthony Rosete (Rosete), assistant corporate
meeting on March 1, 2004 and the ensuing election secretary and in-house chief legal counsel of
of the directors and officers of STRADEC. But Meralco. Private respondents nonetheless argue
instead of preserving the status quo, Judge that Rosete was the acting corporate secretary of
Emuslan’s Order messed it up when, in Meralco. Petitioner Government Service Insurance
compliance therewith, a special stockholders’ System (GSIS), a major shareholder in Meralco,
meeting was held anew and a new set of was distressed over the proxy validation
directors and officers of STRADEC was proceedings, and the resulting certification of
proxies in favor of the Meralco management.
elected. That effectively resolved respondents’
GSIS filed a complaint with the Regional Trial Court Appeals, but under Section 5 of Rule 65 they are
(RTC) of Pasay City seeking the declaration of not entitled to be classified as real parties-in-
certain proxies as invalid. Three days later, GSIS interest. Under the provision, the judge, court,
filed a Notice with the RTC manifesting the quasi-judicial agency, tribunal, corporation, board,
dismissal of the complaint. On the same day, GSIS officer or person to whom grave abuse of discretion
filed an Urgent Petition with the Securities and is imputed are denominated only as public
Exchange Commission (SEC) seeking to restrain respondents. The provision further states that
Rosete from "recognizing, counting and tabulating, "public respondents shall not appear in or file an
directly or indirectly, notionally or actually or in answer or comment to the petition or any pleading
whatever way, form, manner or means, or therein.
otherwise honoring the shares covered by" the
proxies in favor of respondents Manuel ISSUES ON G.R. No. 183905:
Lopez, Felipe Alfonso, Jesus Francisco, Oscar
Lopez, Christian Monsod, Elpidio Ibañez, Francisco 1. Whether the SEC has jurisdiction over the
Giles-Puno "or any officer representing MERALCO petition filed by GSIS against private
Management," and to annul and declare invalid respondents. (NO)
said proxies. GSIS also prayed for the issuance of a
Cease and Desist Order (CDO) to restrain the use 2. Whether the CDO and SCO issued by the SEC
of said proxies during the annual meeting are valid. (NO)
scheduled for the following day. 
RULING ON G.R. No. 183905:
A CDO to that effect signed by SEC Commissioner
Jesus Martinez was issued on 26 May 2008, the 1st Issue: NO.
same day the complaint was filed. During the
annual meeting held on the following day, Rosete PETITIONER’ CONTENTION: GSIS primarily
announced that the meeting would push through, anchors its argument on two correlated provisions
expressing the opinion that the CDO is null and of the SRC. These are Section 53.1 and Section
void. 20.1, which we cite:

SEC issued a Show Cause Order (SCO) against SEC. 53. Investigations, Injunctions and
private respondents, ordering them to appear Prosecution of Offenses  . - 53.1. The Commission
before the Commission and explain why they may, in its discretion, make such investigations
should not be cited in contempt. as it deems necessary to determine whether
any person has violated or is about to violate
Respondents filed a petition for certiorari with any provision of this Code, any rule,
prohibition with the Court of Appeals, praying that regulation or order thereunder, or any rule of
the CDO and the SCO be annulled. an Exchange, registered securities
association, clearing agency, other self-
CA: regulatory organization, and may require or
permit any person to file with it a statement in
Court of Appeals dismissed the complaint filed by writing, under oath or otherwise, as the
GSIS in the SEC due to SEC’s lack of jurisdiction, Commission shall determine, as to all facts and
forum shopping by GSIS, and splitting of causes of circumstances concerning the matter to be
action by GSIS. Consequently, the SEC’s undated investigated. The Commission may publish
cease and desist order and the show cause order information concerning any such violations, and to
are hereby DECLARED VOID AB INITIO. investigate any fact, condition, practice or
matter which it may deem necessary or
RULING ON G.R. No. 184275: The Court had proper to aid in the enforcement of the
resolved to treat the petition in G.R. No. 184275 as provisions of this Code, in the prescribing of
a petition for review on certiorari, but withheld rules and regulations thereunder, or in
giving due course to it. The SEC and its two officers securing information to serve as a basis for
may have been designated as respondents in the recommending further legislation concerning
petition for certiorari filed with the Court of the matters to which this Code relates: xxx
SEC. 20. Proxy Solicitations. – 20.1. Proxies must established by the Corporation Code, but it is the
be issued and proxy solicitation must be made in SRC which specifically regulates the form and use
accordance with rules and regulations to be issued of proxies, more particularly the procedure of proxy
by the Commission; solicitation, primarily through Section 20. AIRR-SRC
Rule 20 defines the terms solicit and solicitation.
PRIVATE RESPONDENT’S CONTENTION:
Section 5.2 of the SRC, the SEC’s jurisdiction over It is plain that proxy solicitation is a procedure that
all cases enumerated in Section 5 of Presidential antecedes proxy validation. The former involves the
Decree No. 902-A was transferred to the courts of securing and submission of proxies, while the latter
general jurisdiction or the appropriate regional trial concerns the validation of such secured and
court. The two particular classes of cases in the submitted proxies.
enumeration under Section 5 of Presidential Decree
No. 902-A which private respondents especially There is an interesting point, which neither party
refer to are as follows: raises, and it concerns Section 6(g) of Presidential
Decree No. 902-A, which states:
(2) Controversies arising out of intra-corporate,
partnership, or association relations, between and SEC. 6. In order to effectively exercise such
among stockholders, members, or associates; or jurisdiction, the Commission shall possess the
association of which they are stockholders, following powers:
members, or associates, respectively;
(g) To pass upon the validity of the issuance and
3) Controversies in the election or appointment of use of proxies and voting trust agreements for
directors, trustees, officers or managers of absent stockholders or members;
corporations, partnerships, or associations;
As promulgated then, the provision would confer
The Interim Rules on Intra-Corporate Controversies on the SEC the power to adjudicate controversies
(Interim Rules) promulgated by this Court in 2001, relating not only to proxy solicitation, but also to
most pertinently, Section 2 of Rule 6 (on Election proxy validation. Should the proposition hold true
Contests), which defines "election contests" as up to the present, the position of GSIS would have
follows: merit, especially since Section 6 of Presidential
Decree No. 902-A was not expressly repealed or
SEC. 2. Definition. – An election contest refers to abrogated by the SRC.
any controversy or dispute involving title or claim to
any elective office in a stock or nonstock Yet a closer reading of the provision indicates that
corporation, the validation of proxies, the such power of the SEC then was incidental or
manner and validity of elections and the ancillary to the "exercise of such jurisdiction." Note
qualifications of candidates, including the that Section 6 is immediately preceded by Section
proclamation of winners, to the office of director, 5, which originally conferred on the SEC "original
trustee or other officer directly elected by the and exclusive jurisdiction to hear and decide cases"
stockholders in a close corporation or by members involving "controversies in the election or
of a nonstock corporation where the articles of appointments of directors, trustees, officers or
incorporation or bylaws so provide. managers of such corporations, partnerships or
associations." The cases referred to in Section 5
COURT’S RULING: The Court ruled in favor of the were transferred from the jurisdiction of the SEC to
respondents since the provisions of law they cite the regular courts with the passage of the SRC,
pertain directly and exclusively to the statutory specifically Section 5.2. Thus, the SEC’s power to
jurisdiction of trial courts acquired by virtue of the pass upon the validity of proxies in relation to
transfer of jurisdiction following the passage of the election controversies has effectively been
SRC. withdrawn, tied as it is to its abrogated
jurisdictional powers.
Regarding the distinction between "proxy
solicitation" and "proxy validation, the right of a Under Section 5(c) of Presidential Decree No.
stockholder to vote by proxy is generally 902-A, in relation to the SRC, the jurisdiction
of the regular trial courts with respect to unpardonable, as it is an act that contravenes due
election-related controversies is specifically process of law.
confined to "controversies in the election or
appointment of directors, trustees, officers or In administrative proceedings, that the body or
managers of corporations, partnerships, or tribunal "in all controversial questions, render its
associations." Evidently, the jurisdiction of decision in such a manner that the parties to the
the regular courts over so-called election proceeding can know the various issues involved,
contests or controversies under Section 5(c) and the reason for the decision rendered."  The
does not extend to every potential subject CDO extended by the SEC fails to provide the
that may be voted on by shareholders, but needed reasonable clarity of the rationale behind
only to the election of directors or trustees, its issuance.This lack of clarity is to the obvious
in which stockholders are authorized to prejudice of the respondent, and is in clear
participate under Section 24 of the defiance of the constitutional right to due process
Corporation Code. of law. Indeed, the veritable mélange that the
assailed CDO is, with its jumbled mixture of
This qualification allows for a useful premises and conclusions, the antithesis of due
distinction that gives due effect to the process.
statutory right of the SEC to regulate proxy
solicitation, and the statutory jurisdiction of The CDO is precisely silent as to its lifetime,
regular courts over election contests or thereby precluding much needed clarification. In
controversies. The power of the SEC to view of the statutory differences among the three
investigate violations of its rules on proxy CDOs under the SRC, it is essential that the SEC, in
solicitation is unquestioned when proxies are issuing such injunctive relief, identify the exact
obtained to vote on matters unrelated to the provision of the SRC on which the CDO is founded.
cases enumerated under Section 5 of
Presidential Decree No. 902-A. However, To make matters worse for the SEC, the fact that
when proxies are solicited in relation to the the CDO was signed, much less apparently
election of corporate directors, the resulting deliberated upon, by only by one commissioner
controversy, even if it ostensibly raised the likewise renders the order fatally infirm.
violation of the SEC rules on proxy
solicitation, should be properly seen as an The SEC is a collegial body composed of a
election controversy within the original and Chairperson and four (4) Commissioners. In order
exclusive jurisdiction of the trial courts by to constitute a quorum to conduct business, the
virtue of Section 5.2 of the SRC in relation to presence of at least three (3) Commissioners is
Section 5(c) of Presidential Decree No. 902- required. 
A.
SEC v. Performance Foreign Exchange Corp.
2nd Issue: NO. G.R. 154131, July 20, 2006

The lack of jurisdiction of the SEC over the FACTS:

subject matter of GSIS’s petition necessarily
invalidates the CDO and SDO issued by that Performance Foreign Exchange Corporation,
body. respondent herein, is a domestic corporation duly
registered with SEC and engaged as its primary
To recount the facts surrounding the issuance of purpose to operate as a broker/agent between
the CDO, GSIS filed its petition with the SEC on 26 market participants in transactions involving, but
May 2008. The CDO bore the signature of not limited to, foreign exchange, deposits, interest
Commissioner Jesus Martinez, identified therein as rate instruments, and similar or derivative products,
"Officer-in-Charge," and nobody else’s. other than acting as a broker for the trading of
securities pursuant to the Revised Securities Act of
The of the SEC in granting the CDO without stating the Philippines. The respondent secondary purpose
which kind of CDO it was issuing is more is to engage in money changer or exchanging
foreign currencies into domestic or another
currencies.
After two years of operation, respondent received a Meanwhile, on August 13, 2001, Amado M.
letter from SEC requiring it to appear before the Tetangco, Jr., OIC of Office of the Governor, BSP,
Compliance and Enforcement Department (CED) for in answer to SEC Chairman Lilia Bautista's letter-
a clarificatory conference regarding its business request of February 8, 2001, stated that
operations. The Director of CED issued a Cease and respondent’s business activity "does not fall
Desist Order for possible violation of R.A.No. under the category of futures trading" and
8799 (Securities Regulation Code) and that the "cannot be classified as financial derivatives
outcome of the inquiry shows that respondent is transactions, as to consider the transaction as
engaged in the trading of foreign currency futures plain currency margin trading, by its mechanics,
contracts in behalf of its clients without the involve the set-up of margin and non-delivery of
necessary license; that such transaction can be the currencies involved."
deemed as a direct violation of Section 11 of R.A.
No. 8799. The respondent filed a motion to SEC to CA:
lift the said order. Respondent filed with petitioner Ruled that SEC acted with grave abuse of discretion
SEC a motion praying for the lifting of the Cease when it issued its challenged Orders without a
and Desist Order, alleging that: (a) it has not positive factual finding that respondent violated the
violated any law or regulation in the conduct of its Securities Regulation Code. Hence, this petition.
business; (b) it has been operating in accordance
with the purposes for which it was organized, Petitioner: Through the Solicitor General,
which purposes were duly approved by petitioner; contends that CS erred in not applying the rule that
(c) it has not engaged in currency futures contracts factual findings of quasi-judicial bodies, like SEC,
trading; and (d) its business involves " spot which have acquired expertise because their
currency trading which is not a form of currency jurisdiction is confined to specific matters, are
futures transaction." generally accorded not only respect but finality if
such findings are supported by substantial
SEC Chairman Bautista, in her desire to know evidence.
with certainty the nature of respondent’s
business, sent a letter to the BSP, requesting a ISSUE:
definitive statement that respondent’s business Whether or not SEC acted with grave abuse of
transactions are a form of financial derivatives and, discretion in issuing the Cease and Desist Order
therefore, can only be undertaken by banks or non- and its subsequent Order making it permanent.
bank financial intermediaries performing quasi- (YES)
banking functions. However, SEC issued an Order
denying respondent’s motion for the lifting of CDO HELD:
without waiting for BSP’s determination of Section 64 of R.A. No. 8799, provides:
the matter in financial derivative transactions and
states that the contracts entered into, offered and Sec. 64. Cease and Desist Order. – 64.1. The
sold by respondent are in the nature of commodity Commission, after proper investigation or
futures contracts; and that such contracts may be verification, motu proprio, or upon verified
considered a form of financial derivatives complaint by any aggrieved party, may
instruments, trading of which is regulated by BSP. issue a cease and desist order without the
Thereafter, SEC issued an order making the CDO necessity of a prior hearing if in its judgment
permanent. the act or practice, unless restrained,
will operate as a fraud on investors or is
Respondent filed with the Court of Appeals a otherwise likely to cause grave or
Petition for Certiorari. It alleged that SEC grave irreparable injury or prejudice to the
abuse of discretion when it issued the Cease and investing public.
Desist Order and its subsequent Order making the
same permanent without waiting for the BSP’s Under the above provision, there are two essential
determination of the real nature of its business requirements that must be complied with by the
operations; and that petitioner’s Orders, issued SEC before it may issue a cease and desist order:
without any factual basis, violated its First, it must conduct proper investigation or
(respondent’s) fundamental right to due process. verification; and Second, there must be a finding
that the act or practice, unless restrained, will fraud on investors or is likely to cause grave,
operate as a fraud on investors or is otherwise irreparable injury or prejudice to the investing
likely to cause grave or irreparable injury or public. Such requirement implies that the act to be
prejudice to the investing public. restrained has been determined after
conducting the proper
Here, the first requirement is not present. investigation/verification. In this case, the
Petitioner did not conduct proper investigation or nature of the act to be restrained can only be
verification before it issued the challenged orders. determined after the BSP shall have submitted its
The clarificatory conference undertaken by findings to petitioner. However, there is nothing in
petitioner regarding respondent’s business the questioned Orders that shows how the public is
operations cannot be considered a proper greatly prejudiced or damaged by respondent’s
investigation or verification process to justify the business operation.
issuance of the Cease and Desist Order. It was
merely an initial stage of such process,
considering that after it issued the said order Securities and Exchange Commission vs.
following the clarificatory conference, petitioner still Subic Bay Golf and Country Club, G.R. No.
sought verification from the BSP on the nature 179047, 11 March 2015
of respondent’s business activity.
Intra-corporate controversies, previously under the
Petitioner’s act of referring the matter to the BSP is SEC’s jurisdiction, are now under the jurisdiction of
an essential part of the investigation and the RTC designated as commercial courts.
verification process. In fact, such referral However, the transfer of jurisdiction to the trial
indicates that petitioner concedes to the BSP’s courts does not oust the SEC of its jurisdiction to
expertise in determining the nature of respondent’s determine if administrative rules and regulations
business. It bears stressing, however, that such were violated.
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 FACTS:
order even before it could finish its On April 25 1996, Subic Bay Golf and Country Club,
investigation and verification on respondent’s
Inc (SBGCCI) and Universal International Group
business activity obviously contravenes Section 64
Development Corporation (UIGDC) entered into a
of R.A. No. 8799 earlier quoted.
Development Agreement. UIGDC agreed to
And worst, without waiting for BSP’s action, “finance, construct and develop the golf course, for
petitioner proceeded to issue its Order dated April an in consideration of the payment by SBGCCI of
23, 2001 making the Cease and Desist Order its 1,530 shares of stock.”
permanent. In the same Order, petitioner further
directed respondent "to show cause x x x why its
certificate of registration should not be revoked for Upon, SBGCCI’s application, SEC issued an order
alleged violation of the Securities Regulation Code for the registration of 3,000 no par value shares of
and/or Presidential Decree No. 902-A, specifically SBGCCI on July 8, 1996. SBGCCI was also issued a
on the ground of serious misrepresentation as
certificate of permit to offer securities for sale to
to what the corporation can do or is doing to
the Public of its 1, 530 no par value proprietary
the great prejudice or damage to the general
shares on August 9, 1996. The shares are sold at
public." Obviously, without BSP’s determination of
the nature of respondent’s business, there was no P425,000 per share and the same were used to pay
factual and legal basis to justify the issuance of UIGDC for the development of the golf course.
such order.

Which brings us to the second requirement. Complainants Filart and Villareal informed SEC that
Before a cease and desist order may be issued by they had been asking UIGDC for the refund of their
the SEC, there must be a showing that the act or payment for their SGGBCCI shares. UIGDC did not
practice sought to be restrained will operate as a
act on their requests. They alleged that they there was fraudulent representation in the
purchased shares (1996) in the promise of SBGCCI prospectus.
and UIGDC to deliver the ff:1) swimming pool and
tennis court; 2) 18-hole golf course; 3) 9-hole
executive course and etc. However, these promises The Court rules for SBGCCI and UIGDC.
were not delivered. And despite the undelivered
promises, they started to charged monthly dues
They were even threated that their shares would Under PD No. 902-A, SEC has jurisdiction over acts
be auctioned off if their back dues would remain amounting to fraud and misrepresentation by a
unpaid. corporation’s board of directors, business
association and officers, even intra-corporate
disputes. However, jurisdiction over intra-corporate
SBGCCI and UIGDC averred that they had already disputes and all other cases enumerated in Sec 5
substantially complied with their commitment. SEC had already been transferred to designated RTC
conducted an inspection and found that SBGCCI under RA no. 8799. For a dispute to be intra-
and UIGDC failed to substantially comply with their corporate, it must satisfy the relationship and
commitment to complete the project. They found nature of controversy tests.
out that Filart and Villareal invested because of
SBGCCI and UIGDC’s representation of a 27-hole  Relationship test – requires that the
dispute be between a:
world class golf course being developed. Hence,
o corporation/partnership/association
the Corporate Finance Dept of SEC ordered the
and the public;
return of purchase price of the shares.
o a
corporation/partnership/association
and the state regarding the entity’s
SBGCCI and UIGDC in a petition for review franchise, permit or license to
questioned the order and jurisdiction of the operate;
Corporation Finance Department’s order before the o a
SEC since the same involved an intra-corporate corporation/partnership/association
dispute. SEC ruled that the proceedings were and its stockholders, partners,
administrative in nature. It was only conducted to members or officers; and
determining if SEC’s rules and regulations were o among stockholders, partners or
violated. SEC has power to investigate possible associates of the entity
violations and impose appropriate administrative  Nature of the Controversy Test –
sanctions. CA, however, declared SEC’s decision as requires that the action involves the
null and void since it found the case as an intra- enforcement of corporate rights and
obligations.
corporate controversy not under SEC’s jurisdiction.

In Medical Plaza Makati Condominium Corporation

ISSUE: WON the RTC has jurisdiction over this vs. Cullen: “The controversy must not only be
case. YES rooted in the existence of an intra-corporate
relationship, but must as well pertain to the
enforcement of parties’ correlative rights and
RULING: obligations under the Corporation Code and the
internal and intra-corporate regulatory rules of the
corporation.”
Yes.

Before solving the issue, we have to determine This case is an intra-corporate dispute, over which
whether SEC has the authority to order the return the RTC has jurisdiction. It involves a dispute
of purchase price of securities upon finding that
between the corporation, SBGCCI and its intra-corporate and civil in nature, which is under
shareholders, Villareal and Filart. Their right to a the jurisdiction of the designated Regional Trial
refund of the value of their shares was based on Courts.
SBGCCI and UIGDC's alleged failure to abide by
Roman, Jr. vs. Securities and Exchange
their representations in their prospectus. It involves
Commission, 791 SCRA 638, G.R. No. 196329,
the determination of a shareholder's rights under
1 June 2016
the Corporation Code or other intra-corporate rules
when the corporation or association fails to fulfill its Facts:
obligations.
Private respondents Narciso T. Atienza, Eusebio A.
Abaquin, Clodualdo C. De Jesus, Sr., Cloualdo
Antonio R. De Jesus, Jr., Ireneo T. Aguirre, Jr.,
HOWEVER, even though it is intra-corporate in
Sunday O. Pineda, Porfirio M. Florez, and Zosimo
nature, it does not necessarily oust the Commission
Padro, Jr. filed a verified letter-complaint against
of its regulatory and administrative jurisdiction to
the petitioner before the SEC.
determine and act if there were administrative
violations committed. n relation to securities, the The private respondents asserted that on April 23,
Securities and Exchange Commission's regulatory 1996, the Board of Directors of Capitol passed a
power pertains to the approval and rejection, and resolution authorizing its President to enter into a
suspension or revocation, of applications for Joint Venture Agreement with Ayala Land, Inc. It
registration of securities for, among others, also authorized its president, Roman, to obtain a
violations of the law, fraud, and loan with Ayala Land which is secured by real
misrepresentations. (CF: Sec 13 and 15) estate mortgages. Roman, later on, asked the
board to pass a resolution authorizing Pacific Asia
Capital Corporation to receive the proceeds of the
To ensure compliance with the law and the rules, loan from Ayala Land on behalf of Capitol. The SEC
SEC is empowered to impose fines and penalties. It ruled that it has jurisdiction over the subject
may also investigate motu propio to see whether matter. It then constituted a MANCOM. Thereafter,
corporations are compliant. Any fraud or the Court of Appeals upheld the findings of the
misrepresentation in the issuance of securities SEC.
injures the public. However, the Securities and
Private Respondent’s Contention:
Exchange Commission's regulatory power does not
include the authority to order the refund of the  The resolutions were erroneously made
purchase price of Villareal's and Filart's shares in  That President Roman effected the
the golf club. The issue of refund is intra-corporate corporate acts prior to the issuance of the
or civil in nature. Similar to issues such as the resolutions.
existence or inexistence of appraisal rights, pre-  That Ayala Land has no legal basis in
emptive rights, and the right to inspect books and making cash advances because at the time
corporate records, the issue of refund is an intra- the advances were made Roman has no
corporate dispute that requires the court to authority to enter into the Agreement.
determine and adjudicate the parties' rights based  That the condition precedent before the
on law or contract. Injuries, rights, and obligations commencement of the conversion was not
involved in intra-corporate disputes are specific to complied with.
the parties involved. They do not affect the  That all these were irregularities and
Securities and Exchange Commission or the public anomalies amounting to fraud and
directly. misrepresentation that prompted them to
ask the SEC to investigate the Board and to
order the constitution of the MANCOM to
Hence, the issue of refund should be litigated in the temporarily oversee the affairs of Capitol.
appropriate Regional Trial Court. This issue is both
  That the SEC retained its administrative, those which are merely administrative and
regulatory, and oversight powers over regulatory in character. Thus, in this case, there is
corporations. simply no doubt that the SEC acted properly in
assuming jurisdiction over the letter-complaint filed
SEC’s position:
by private respondents. The letter-complaint filed
 It correctly took cognizance of the subject by the private respondents merely sought the SEC’s
letter-complaint and appointed the intervention to conduct a thorough investigation on
MANCOM to temporarily oversee Capitol. the alleged anomalous and fraudulent acts of the
 It asserted that Section 5 of the SRC petitioner with regard to the aforesaid agreement.
authorized the SEC to assume jurisdiction heir prayer for the SEC to exercise its investigatory
over the subject matter to determine powers in the end would adequately justify the
whether the petitioners violated the SRC assumption of jurisdiction over the letter-complaint
and its IRR. regardless if, indeed, intra-corporate allegations
were raised.
Petitioner’s Argument:
Abacus Capital and Investment Corp. v.
 Petitioner invoked that the SEC lacks
Tabujara, G.R. No. 197624, 23 July 2018
jurisdiction because the subject matter of
the complaint involves intra-corporate FACTS:
dispute.
 That such controversies fall within the Abacus is an investment house engaged in
jurisdiction of the Regional Trial Court. activities related to dealing in securities and other
commercial papers. On July 6, 2000, Tabujara
Issue: Whether or not SEC has jurisdiction over engaged Abacus as his lending agent for purposes
the subject matter of the case. of investing his money in the principal amount of
P3,000,000.00. Abacus, in turn, lent the
Held: P3,000,000.00 to Investors Financial Services
Corporation (IFSC, formerly CIPI Leasing and
YES. While it is true that jurisdiction on matters Finance Corporation) with a term of 32 days. To
provided for under Section 5 of P.D. No. 902-A confirm the money placement, Abacus issued to
were already transferred to the RTC, the SEC still Tabujara a "Confirmation of Investment" slip.
retains sufficient powers to justify its assumption of However, on July 24, 2000 or shortly after Tabujara
jurisdiction over matters concerning its supervisory, placed his investment, IFSC filed with the Securities
and Exchange Commission (SEC) a Petition for
administrative, and regulatory functions. This finds
Declaration of Suspension of Payments. This
its justification from Sections 5 and 53 of the SRC. petition was granted by the SEC and consequently,
Section 5(a) provides that the SEC has jurisdiction all actions for claims against IFSC were immediately
and supervision over all corporations, partnerships suspended. Learning of this development, Tabujara
or associations who are the grantees of primary gave notice to Abacus and IFSC that he is opting to
franchises and/or license or permit issued by the pre-terminate his money placement. Upon maturity
government, while paragraph b of the same section of the loan on August 7, 2000, Tabujara did not
receive either the interest amount or the principal.
provides that the Commission has the power to
regulate, investigate or supervise the activities of Meantime, IFSC's Petition for Declaration of
persons to ensure compliance. On the other hand, Suspension of Payments was raffled to a regular
Section 53 provides that the Commission may, in its court and was subsequently treated as a petition
discretion, make such investigations as it deems for rehabilitation. Pursuant to IFSC's rehabilitation
necessary to determine whether any person has plan, Tabujara received interest payments from
Abacus for the period January 1, 2001 to December
violated or is about to violate any provision of this
31, 2001. The interest due, however, ceased to be
Code. paid come January 2002, prompting Tabujara to
Based on the foregoing, it is beyond doubt that the file his complaint a quo against Abacus and IFSC
for collection of sum of money with damages. In its
SEC has the authority to hear cases regardless of
Complaint, Tabujara alleged, among others, that
whether an action involves issues cognizable by the his investment was co-mingled with the monies of
RTC, provided that the SEC can only act upon
other investors to support the credit line facility in the money market device overlooks the individuals
the amount of P700,000,000.00 which Abacus or entities concerned. The issuer of a commercial
issued in favor of IFSC. Abacus insisted that paper in the money market necessarily knows in
Tabujara directly transacted with IFSC and that its advance that it would be expeditiously transacted
involvement therein was limited only to acting as and transferred to any investor/lender without need
collecting and paying agent for Tabujara. The RTC of notice to said issuer. In practice, no notification
found that Abacus never guaranteed nor secured is given to the borrower or issuer of commercial
the obligations of IFSC which is the actual and real paper of the sale or transfer to the investor. In
borrower of Tabujara's money and against which money market placement, the investor is a lender
the latter has a cause of action. Nevertheless, since who loans his money to a borrower through a
IFSC is under rehabilitation, the RTC held that the middleman or dealer. In this case, Tabujara as the
latter's assets are held in trust for the equal benefit investor is the lender or the "funder" who loaned
of the creditors and Tabujara should not be paid his P3,000,000.00 to IFSC through Abacus. Thus,
ahead of the others. With the dismissal of its when the loaned amount was not paid together
complaint, Tabujara interposed his appeal before with the contracted interest, Tabajura may recover
the CA and argued that the RTC erred in finding from Abacus the amount so invested together with
that sole liability for re-payment of his money damages.
placement belongs to IFSC. In reversing the RTC's
decision, the CA reasoned that the transaction in
this case was a money market transaction dealing
with short-term credit instruments where lenders
and borrowers do not deal directly with each other
but through a middle man. The CA found that
Abacus did not only act as a middle man pursuant
to is function as an investment house, but as the
"fund supplier" for the credit line facility it extended
to IFSC. Further, the CA held that Abacus is guilty
of fraud in handling Tabujara's money placement,
having loaned the same to IFSC despite the latter's
financial woes.

ISSUE:
Whether or not Tabujara has no cause of action
against it as the actual and real borrower is IFSC

HELD:
That Tabujara's investment in the amount of
P3,000,000.00 was used as part of the pool of
funds made available to IFSC is confirmed by the
facts that it is Abacus, and not Tabujara, which was
actually regarded as IFSC's creditor in the
rehabilitation plan. It was really Abacus who was
the creditor entitled to the proceeds of IFSC's
rehabilitation plan. The transaction herein involved
is akin to money market placements. "the money
market is a market dealing in standardized short-
term credit instruments (involving large amounts)
where lenders and borrowers do not deal directly
with each other but through a middle man or
dealer in the open market." It involves "commercial
papers" which are instruments "evidencing
indebtedness of any person or entity which are
issued, endorsed, sold or transferred or in any
manner conveyed to another person or entity, with
or without recourse." The impersonal character of