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PHILIPPINESTOCKEXCHANGE,INC.

,
petitioner
,
vs.
THE HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
PUERTOAZULLAND,INC.

FACTS: Puerto Azul Land, Inc. (PALI) is a corporation engaged in the real estatebusiness. PALI
was grantedpermissionbytheSecuritiesandExchangeCommission(SEC)tosellits shares tothe
publicinorderforPALItodevelopitsproperties.
PALI then asked the Philippine Stock Exchange (PSE) to list PALIs stocks/shares to
facilitate exchange. The PSE Board of Governors denied PALIs application on the ground that
there were multiple claims on the assets of PALI. Apparently, the Marcoses, Rebecco Panlilio
(trustee of the Marcoses), and some other corporations were claiming assets if not ownership
overPALI.
PALI then wrote a letter to the SEC asking the latter to review PSEs decision. The SEC
reversed PSEs decisions and ordered the latter to cause the listing of PALI shares in the
Exchange.
ISSUE:
WhetherornotitiswithinthepoweroftheSECtoreverseactionsdonebythePSE.
HELD:
Yes. The SEC has both jurisdiction and authority tolookintothedecisionofPSEpursuant
to theRevised Securities Act and for thepurpose ofensuringfairadministrationoftheexchange.
PSE,asacorporationitselfandasastockexchange issubjecttoSECsjurisdiction,regulation,and
control. Inordertoinsure fairdealingof securities and a fairadministration ofexchangesinthe
PSE, the SEC has the authority to look into the rulings issuedby the PSE.The SECis the entity
with the primary say as to whether or not securities, including shares of stock ofa corporation,
maybetradedornotinthestockexchange.
This is in line with the SECs mission to ensure proper compliance with the laws, such as the
Revised Securities Act and toregulatethe sale and disposition of securities in thecountry.
9
As
theappellatecourtexplains:
Paramount policy also supports the authority of the public respondent to review petitioners
denialof thelisting. Being a stock exchange, thepetitionerperformsafunctionthatisvitaltothe
nationaleconomy, as the business isaffected with publicinterest.Asamatteroffact,ithasoften
been said that the economy moves on the basis of therise and fall of stocks being traded. Byits
economic power, the petitioner certainly candictatewhich and how many users areallowed to
sell securities thru the facilities of a stock exchange,ifallowedto interpretitsownrulesliberally
as it may please. Petitioner can either allow or deny the entry to the market of securities. To
repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence,
consideringpublicinterest,thenitshouldbesubjecttogovernmentregulation.
The role of the SEC in our national economycannot be minimized. Thelegislature, through the
Revised Securities Act,Presidential DecreeNo. 902A, and otherpertinentlaws,hasentrustedto
it the serious responsibility of enforcing all laws affecting corporations and other forms of
associationsnototherwisevestedinsomeothergovernmentoffice.
This is not to say, however, that the PSEs management prerogatives are under the absolute
control of the SEC. The PSE is, after all, a corporation authorized by its corporate franchise to
engage in its proposed and duly approved business.One ofthe PSEsmain concerns, as such, is
still the generationof profitfor itsstockholders.Moreover,thePSEhasalltherightspertainingto

corporations, including the right to sue and be sued, to hold property inits own name, to enter
(or not to enter) into contractswiththird persons, and to perform all other legalacts withinits
allocatedexpressorimpliedpowers.

hequestionastowhat policyis,orshouldberelieduponinapprovingtheregistrationandsaleof
securities in the SEC is not for the Court to determine, but is left to thesound discretionof the
Securities and Exchange Commission. In mandating the SEC to administertheRevised Securities
Act, and inperformingits otherfunctionsunder pertinentlaws,theRevisedSecuritiesAct, under
Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may
consider appropriate in the public interest for the enforcement of the said laws. The second
paragraph of Section 4 of the said law, on the other hand, provides that no security, unless
exempt by law, shall be issued, endorsed,sold,transferred or inany othermanner conveyed to
the public, unless registered in accordance with the rules and regulations that shall be
promulgated in the public interest and for the protection of investors by the Commission.
PresidentialDecreeNo.902A,ontheotherhand,providesthatthe SEC,asregulatoryagency,has
supervision and control overall corporationsandoverthe securities marketas a whole, and as
such, is given ample authority in determining appropriate policies. Pursuant to thisregulatory
authority, the SEC has manifested that it has adopted the policy of full material disclosure
where all companies, listed or applying for listing, are required to divulge truthfully and
accurately, all material information about themselves and the securities they sell, for the
protection ofthe investing public, and under painof administrative, criminalandcivilsanctions.
In connection with this, afact isdeemed materialifittendstoinduceor otherwiseeffectthesale
or purchase of its securities.
While theemploymentof this policy is recognized and sanctioned
by the laws, nonetheless, the Revised Securities Act sets substantial and procedural standards
which a proposed issuer of securities must satisfy.
Pertinently, Section 9 of the Revised
SecuritiesActsetsforththepossible
GroundsfortheRejection
oftheregistrationofasecurity:
The Commission may reject a registration statement and refuse to issuea permit tosell the
securitiesincludedinsuchregistrationstatementifitfindsthat
(1)
The registration statement is on its face incomplete or inaccurate in any material respect or
includes any untrue statement of a material fact or omits to state a material fact required to be
statedthereinornecessarytomakethestatementsthereinnotmisleading
;or
(2)Theissuerorregistrant
(i)isnotsolventornotinsoundfinancialcondition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated
pursuantthereto,oranyorderoftheCommission;
(iii) has failed to comply with any of the applicable requirements and conditions that the
Commission may, in the public interest and for the protection of investors, impose before the
securitycanberegistered;
(iv)hasbeenengagedorisengagedorisabouttoengageinfraudulenttransaction;
(v)isinanywaydishonestorisnotofgoodrepute;or
(vi) doesnotconductitsbusinessinaccordancewithlaworisengagedinabusinessthatisillegal
orcontrarytogovernmentrulesandregulations.

(3) The enterprise or the business oftheissuerisnotshowntobesoundortobebased onsound


businessprinciples;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is
disqualifiedtobesuchofficer,directororprincipalstockholder;or
(5)
The issueror registrant has notshown to thesatisfaction of the Commission that the saleofits
security would notworkto the prejudiceofthepublic interest orasafrauduponthepurchasersor
investors
.(EmphasisOurs)
A reading of the foregoing grounds reveals the intention of the lawmakers to make the
registration and issuance of securities dependent, to a certain extent, on the merits of the
securities themselves, and of the issuer, to be determined by the Securities and Exchange
Commission. This measure was meant to protect the interests of the investing public against
fraudulent and worthless securities, andtheSEC ismandatedbylawtosafeguardtheseinterests,
following the policies and rules therefore provided.The absolute reliance onthe full disclosure
method in the registration of securities is,therefore, untenable. As it is, theCourtfinds that the
private respondentPALI,on at least two points(nos. 1and5)has failedtosupportthepropriety
of the issue of its shares with unfailingclarity,therebylendingsupporttotheconclusionthatthe
PSEactedcorrectlyinrefusingthelisting ofPALIinitsstockexchange.Thisdoesnotdiscountthe
effectivity of whatever methodthe SEC, in the exerciseof its vested authority, choosesinsetting
the standard for public offerings of corporations wishing to do so. However, the SEC must
recognize and implement the mandate of the law, particularly the Revised Securities Act, the
provisionsofwhichcannotbeamendedorsupplantedbymereadministrativeissuance.

HOWEVER, in the case at bar, the Supreme Court emphasized that the SEC may only reverse
decisions issued bythe PSE if such are taintedwith badfaith. In this case,therewasnoshowing
that PSE acted with bad faith when it denied the application of PALI. Based on the multiple
adverse claimsagainstthe assets of PALI, PSE deemed that granting PALIs application will only
be contrary to the bestinterestof thegeneralpublic. ItwasreasonableforthePSEtoexerciseits
judgment in the manner it deems appropriate for its business identity, as long as no rightsare
trampledupon,andpublicwelfareissafeguarded.

G.R.No.195542,March19,2014
SECURITIESANDEXCHANGECOMMISSION
,
Petitioner
,
v
.
OUDINESANTOS
,
Respondent.
DECISION
PEREZ,
J.
:

FACTS:

Sometime in 2007, yet another investment scam was exposed with the disappearance of its
primary perpetrator, Michael H.K.Liew (Liew), a selfstyled financial
guru and Chairman of the

Board of Directors of Performance Investment Products Corporation (PIPCBVI), a foreign


corporationregisteredintheBritishVirginIslands.

To do business in the Philippines, PIPCBVI incorporated herein as Philippine International


PlanningCenterCorporation(PIPCCorporation).

Because the headofPIPCCorporationhadgonemissingandwithitthemonies and investmentof


a significant number of investors, the SEC was flooded with complaints from thirtyone (31)
individuals against PIPC Corporation, its directors, officers, employees, agents and brokers for
alleged violation of certain provisions of the Securities Regulation Code, including Section 28
thereof. Santos was charged in the complaints in hercapacityas investmentconsultant ofPIPC
Corporation,whosupposedlyinducedprivatecomplainantsLuisaMercedesP.Lorenzo(Lorenzo)
andRickyAlbinoP.Sy(Sy),toinvesttheirmoniesinPIPCCorporation.

Firstly, complainant SEC filed the instant case for alleged violation by respondents [therein,
includinghereinrespondent,Santos,]ofSection8oftheSRC.

Sec. 8. Requirement of Registration of Securities. 8.1.Securitiesshall not be soldor offered for


sale or distribution within the Philippines, without a registration statement dulyfiled with and
approved by the Commission. Prior to such sale,information onthe securities, in suchformand
with such substance as the Commission may prescribe, shall be made available to each
prospectivepurchaser.

Based on the above provision of the law, complainant SEC is now accusing all respondents
[therein, including Santos,] for violating the same when they allegedly sold and/or offered for
saleunregisteredsecurities.

However, Section 8.5 thereof provides that


TheCommission may audit the financial statements,
assets and otherinformation
of a firm applying forregistration of its securities wheneverit deems
the same necessary to insurefull disclosure or to protect theinterestoftheinvestorsandthepublic
ingeneral.

The abovequoted provisionis loud and clear and needs nofurther interpretation. It isthe
firm
through its authorized officersthat is required to register its securities with theSECandnotthe
individual persons allegedly selling and/or offering for sale said unregistered securities. Todo
otherwise would openthe floodgatesto numerous complaints against innocent individuals who
havenohandinthecontrol,decisionmakingandoperationsofsaidinvestmentcompany.

Clearly, it is only thePIPC Corp. and respondents Michael H. LiewandCristinaGonzalezTuason


beingthePresidentandtheGeneralManager respectively,ofPIPCCorp.whoviolatedSection8of
theSRC.

ISSUE: whether or not respondent Santos acted as agent of PIPC Corp. or had enticed Luisa
MercedesP.LorenzoorRickyAlbinoP.SytobuyPIPCCorp.orPIPCBVIsinvestmentproducts.

RULING:


We sustain theDOJpanelsfindingswhichwerenotoverruledbytheSecretaryoftheDOJandthe
appellate court, that PIPC Corporation and/or PIPCBVI was: (1) an issuerof securities without
thenecessary registration or license fromtheSEC,and(2)engagedinthebusinessof buying and
selling securities. In connection therewith, we look toSection3 oftheSecuritiesRegulationCode
forpertinentdefinitionsofterms.

To determine whether the DOJSecretarysResolutionwastaintedwithgraveabuseofdiscretion,


we pass upon the elements for violation of Section 28 of the Securities Regulation Code: (a)
engaging in the businessofbuyingorsellingsecuritiesinthePhilippinesasabrokerordealer;or
(b) acting as a salesman; or (c) acting as an associated person of any broker or dealer, unless
registeredassuchwiththeSEC.

Tying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation and/or
PIPCBVI, a corporation which sold or offeredfor sale unregistered securitiesinthePhilippines.
To escape probable culpability, Santos claims that she was a mere clerical employee of PIPC
Corporation and/or PIPCBVI andwasneveranagentorsalesmanwhoactuallysolicitedthesale
oforsoldunregisteredsecuritiesissuedbyPIPCCorporationand/orPIPCBVI.

Solicitation is theactof seeking or asking forbusiness or information; it is not acommitmentto


anagreement.20

Santos, by the very nature of her function as what she now unaffectedly calls an information
provider, brought about the sale of securities made by PIPC Corporation and/or PIPCBVI to
certain individuals,specificallyprivatecomplainantsSyandLorenzobyprovidinginformationon
the investment products of PIPC Corporation and/or PIPCBVI with the end in view of PIPC
Corporationclosingasale.

While Santos was not a signatory to the contracts on Sys or Lorenzos investments, Santos
procured the sale of these unregistered securities to the two (2) complainants by providing
information on the investment products being offered for sale by PIPC Corporation and/or
PIPCBVIandconvincingthemtoinvesttherein.

No matterSantosstrenuous objections, it is apparentthatsheconnectedtheprobableinvestors,


Sy and Lorenzo, to PIPC Corporation and/orPIPCBVI,actingas an ostensible agentof thelatter
on the viability of PIPC Corporation as an investment company. At each point of Sys and
Lorenzos investment, Santos participation thereon, even if not shown strictly on paper, was
primafacie
established.

In all of the documents presented by Santos, she never alleged or pointed outthat she did not
receive extra consideration for her simply providing informationtoSyandLorenzo about PIPC
Corporation and/or PIPCBVI. Santos only claims that the monies invested bySyandLorenzo
did not pass through her hands. In short, Santos did not present in evidence her salaries as a
supposed mere clerical employee or information provider of PIPCBVI. Such presentation
would have foreclosed all questions on her status withinPIPC Corporation and/orPIPCBVI at
thelowest rung of theladder who only provided informationandwhodidnotuseherdiscretion
inanycapacity.

We cannot overemphasize that the very information provided by Santos locked the deal on
unregisteredsecuritieswithSyandLorenzo.

What is palpable from the foregoing is thatSyandLorenzo did notgo directly to Liew oranyof
PIPC Corporations and/or PIPCBVIs principal officers before making their investment or
renewing their prior investment. However, undeniably, Santos actively recruited and referred
possible investors to PIPC Corporation and/or PIPCBVI and acted as the gobetweenon behalf
ofPIPCCorporationand/orPIPCBVI.

The DOJsandCourt ofAppealsreasoningthatSantos didnotsigntheinvestmentcontractsofSy


andLorenzoisspecious.ThecontractsmerelydocumenttheactperformedbySantos.

Individual complainants and theSEC havecategorically alleged that Liew and PIPC Corporation
and/or PIPCBVI is not a legitimate investment company but a company which perpetrated a
scam on 31 individuals wherethepresident,aforeignnational,Liew,ranawaywiththeirmoney.
Liews absconding with the moniesof31individualsandthatPIPCCorporationand/orPIPCBVI
werenotlicensedbytheSECtosellsecuritiesareuncontrovertedfacts.

The transaction initiated by Santos with Sy and Lorenzo,respectively, is an investment contract


or participation in a profit sharingagreementthatfallswithinthedefinitionofthelaw.When the
investor isrelatively uninformed andturnsoverhismoneytoothers,essentiallydependingupon
their representations and their honesty and skill in managing it, the transaction generally is
considered to be an investment contract. The touchstoneis the presence of an investment in a
common venture premised on a reasonable expectation of profits to be derived from the
entrepreneurialormanagerialeffortsofothers.24

At bottom, the exculpationof Santos cannotbepreliminarily establishedsimplybyassertingthat


she did not sign the investment contracts, as the facts alleged in this case constitute fraud
perpetratedonthepublic. Specially sobecausetheabsenceofSantossignatureinthecontractis,
likewise,indicativeofaschemetocircumventandevadeliabilityshouldthepyramidfallapart.

Lastly,we clarify that weare only dealinghereinwiththepreliminaryinvestigationaspectofthis


case. We do notadjudgerespondents guilt or the lack thereof.Santos defense ofbeing a mere
employee or simply an information provider is best raised and threshedout during trialof the
case.

WHEREFORE
, the petition is
GRANTED
. TheDecisionof theCourtof Appeals inCAG.R.No.SP
No. 112781 and the Resolutions of the Department of Justice dated 1 October 2009 and 23
November 2009 are
ANNULLED and
SET ASIDE
. The Resolution of the Department of Justice
dated 18 April 2008 and 2 September 2008 are
REINSTATED. The Department of Justice is
directed to include respondentOudine SantosintheInformationforviolationof Section28ofthe
SecuritiesandRegulationCode.

CEMCO HOLDINGS, INC. vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES,
INC.
GRNo.171815,August7,2007

ChicoNazario,J.

FACTS:
Union Cement Corporation (UCC), a publiclylisted company, has two principal
stockholders UCHC, a nonlisted company, with shares amounting to 60.51%, and petitioner
Cemco with 17.03%. Majority ofUCHCs stockswere owned byBCI with 21.31% and ACC with
29.69%. Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure letter, BCI
informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed
resolutions to sell to Cemco BCIsstocksin UCHC equivalent to21.31% andACCs stocksinUCHC
equivalentto29.69%.

As a consequence of this disclosure,thePSEinquiredastowhethertheTenderOfferRule


under Rule 19 of the Implementing Rules of the Securities Regulation Code is not applicable to
the purchase by petitioner of the majority ofsharesof UCC. The SEC en banc had resolved that
the Cemco transaction was not covered by the tender offer rule. Feeling aggrieved by the
transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority
stockholder of UCC, sent a letter toCemco demanding the latter to comply with the rule on
mandatorytenderoffer.Cemco,however,refused.

Respondent National Life Insurance Company of the Philippines, Inc. filed a complaint
with the SEC asking it to reverse its 27 July 2004 Resolution and to declare the purchase
agreement of Cemco void and praying that the mandatorytender offerrulebeappliedtoitsUCC
shares.

The SEC ruled infavor of the respondent by reversing and setting aside its 27July 2004
Resolution and directed petitioner Cemco to make a tender offerfor UCC shares to respondent
and other holders of UCC shares similar to the class held by UCHC in accordance with Section
9(E),Rule19oftheSecuritiesRegulationCode.

On petitiontothe Court of Appeals, theCA renderedadecisionaffirmingtherulingofthe


SEC. It ruled that the SEC has jurisdiction to render the questioned decisionand, in anyevent,
Cemcowas barred by estoppel fromquestioning the SECs jurisdiction. It, likewise, held thatthe
tender offer requirement under the Securities Regulation Code and its Implementing Rules
applies to Cemcos purchase of UCHC stocks. Cemcos motion for reconsideration was likewise
denied.

ISSUES:
Whether or not the SEC has jurisdiction over respondents complaint and to
requireCemcotomakeatenderofferforrespondentsUCCshares.

Whether or not the rule on mandatory tender offer applies to the indirect
acquisition of shares in a listedcompany, in this case,the indirect acquisition by
Cemcoof36%of
UCC, a publiclylisted company, through its purchase of the shares in UCHC, a
nonlistedcompany.

HELD:

YES. In taking cognizance of respondents complaint against petitioner and eventually


rendering a judgment which ordered the latter to make a tender offer, the SEC wasacting
pursuant to Rule 19(13) of the Amended Implementing Rules and Regulations of the
SecuritiesRegulationCode,towit:

13.Violation

If there shallbeviolationofthisRulebypursuingapurchaseofequityshares
of a public company at threshold amounts without the required tender offer, the
Commission, upon complaint,may nullifythesaid acquisitionanddirectthe holding
of a tender offer. Thisshallbewithoutprejudiceto the impositionofothersanctions
undertheCode.

The foregoing rule emanates from the SECs power and authority to regulate,
investigate or supervise the activities of persons to ensure compliance with the
Securities Regulation Code, more specifically the provision on mandatory tender
offer under Section 19 thereof. Moreover, petitioner is barredfromquestioning the
jurisdiction of the SEC. It must bepointedoutthatpetitionerhadparticipatedinall
theproceedingsbeforetheSECandhadprayedforaffirmativerelief.

YES. Tender offer is a publicly announced intention by a person actingalone orin


concert with other persons to acquire equity securities of a public company.[12]
A
public company is defined as a corporation which is listed on an exchange, or a
corporation with assets exceeding
P
50,000,000.00 and with 200 or more
stockholders, at least 200 of them holding not less than 100 shares of such
company.[13]
Stateddifferently, a tender offer is an offer by the acquiring personto
stockholders of a public company for them to tender their shares therein on the
terms specified in the offer.[14]
Tender offer is in place to protect minority
shareholdersagainst any schemethatdilutesthesharevalueoftheirinvestments. It
gives the minority shareholders the chance to exit the company under reasonable
terms, givingthem the opportunity to sell their shares at the same priceas thoseof
themajorityshareholders.

The SEC and the Court of Appeals ruled that the indirectacquisitionbypetitionerof36%of
UCC shares through the acquisition of the nonlisted UCHC shares is covered by the
mandatorytenderofferrule.

The legislative intent ofSection19oftheCodeistoregulateactivities relatingtoacquisition


of control of the listedcompany and for thepurposeofprotectingtheminoritystockholders
of a listedcorporation. Whatever may be themethodbywhichcontrolofapubliccompany
is obtained, either through the direct purchase of its stocks or through anindirect means,
mandatorytenderofferapplies.AsappropriatelyheldbytheCourtofAppeals:
Whatisdecisiveisthedeterminationofthepowerofcontrol.Thelegislative
intent behind the tender offer rule makes clear that the type of activity
intended to be regulated is the acquisition of control of the listed company
through the purchase ofshares. Control may [be] effected througha direct
and indirect acquisition of stock, and when this takes place, irrespectiveof

the means, atenderoffermustoccur. Thebottomlineofthelawistogivethe


shareholder of the listedcompany the opportunity todecidewhether or not
tosellinconnectionwithatransferofcontrol.xxx

PhilippineAssociationofStockTransferandRegistryAgenciesvs.CA

FACTS:
Petitioner Philippine Association ofStockTransferandRegistryAgencies,Inc.isanassociationof
stock transfer agents principally engaged in the registration of stock transfers in the
stockandtransferbookofcorporations.
On May 10, 1996, petitionersBoardof Directors unanimously approvedaresolutionallowingits
members to increasethetransferprocessingfeetheychargetheirclientsfrom P45per certificate
to P75 per certificate, effective July 1, 1996; and eventually to P100 per certificate, effective
October 1, 1996. The resolution also authorized the imposition of a processing fee for the
cancellation of stock certificates at P20 per certificate effective July 1, 1996. According to
petitioner, therates had to beincreasedsinceithadbeenoverfiveyearssincetheoldrateswere
fixedandanincreaseofitsfeeswasneededtosustainthefinancialviabilityoftheassociationand
upgradefacilitiesandservices.
After a dialogue with petitioner, public respondent Securities and Exchange Commission (SEC)
allowed petitioner to impose the P75 per certificate transfer fee and P20 per certificate
cancellation fee effective July 1, 1996. But,approvaloftheadditionalincreaseofthetransfer fees
to P100 per certificate effective October 1, 1996, was withhelduntil after a public hearing. The
SECissuedaletterauthorizationtothiseffectonJune20,1996.
Thereafter, on June 24, 1996, the Philippine Association of Securities Brokers and Dealers, Inc.
registered its objection to the measure advanced bypetitionerandrequestedtheSECtodefer its
implementation. On June 27, 1996, the SEC advised petitioner to hold in abeyance the
implementation of theincreases until the matter was clearedwithallthepartiesconcerned.The
SEC stated that it was reconsidering its earlierapprovalin light of the opposition and required
petitioner to file comment. Petitioner nonetheless proceeded with the implementation of the
increasedfees.
The SEC wrote petitioner on July 1, 1996, reiterating the directive of June 27, 1996. On July 2,
1996, following a complaint from the Philippine Stock Exchange, theSEC again sent petitioner a
second letter strongly urgingpetitionertodesistfromimplementingthenewratesintheinterest
ofallparticipantsinthesecuritymarket.
Petitioner replied on July 3, 1996 that it had nointention of defyingthe orders butstatedthatit
could no longer hold in abeyance the implementation of the new fees because itsmembers had
already put in place the procedures necessary for their implementation.Petitioner alsoargued
thatthe impositionof theprocessing fee wasa management prerogative, which wasbeyondthe
SECsauthoritytoregulateabsentanexpressruleorregulation.

On July8, 1996, the SEC issued OrderNo.104,series of1996,enjoiningpetitionerfromimposing


thenewfees
During the hearing, petitioner admitted that it had started imposing the fees.Itfurtheradmitted
that aside from the questioned fees, it had likewise started imposing fees ranging fromP50 to
P500 for report of shareholdings or list of certificates; certification of shareholdings or other
stockholder informationrequested byexternalauditorsandvalidationofstatusofcertificates,all
without prior approval of the Commission. Thus, for violating its orders, the SEC ordered
petitionertopayabasicfineofP5,000andadailyfineofP500forcontinuingviolations.
Aggrieved, petitioner went to the Court of Appeals on certiorari contending that the SEC acted
with grave abuse of discretion or lackor excess of jurisdiction in issuing the above orders. The
appellate court issued atemporary restraining order on July 26,1996, and a writofpreliminary
injunctiononAugust26,1996.
CA ruled thatthe power to regulate petitioners fees was included in the general power given to
the SEC underSection40 ofThe RevisedSecuritiesActto regulate, supervise, examine, suspend
orotherwisediscontinue,theoperationofsecuritiesrelatedorganizationslikepetitioner.
Whilethiscase waspending,TheRevisedSecuritiesActbyauthorityofwhichtheassailedorders
were issued was repealed by Republic Act No. 8799 or The Securities Regulation Code,
which
became effective on August 8, 2000. Nonetheless, we find it pertinent to rule on the parties
submissions considering that the effects of the July11, 1996Order had not been obliterated by
the repeal of The Revised Securities Act and there is still present a need to rule on whether
petitionerwasliableforthefeesimposeduponit.
ISSUE:
whether the SEC actedwithgrave abuse ofdiscretion or lack or excess of jurisdiction in
issuingthecontrovertedOrdersofJuly8and11,1996.
RULING:
We find the instant petition bereft ofmerit. The Court notesthat before itsrepeal, Section 47 of
The Revised Securities Act clearly gave the SEC the power to enjoin the acts or practices of
securitiesrelated organizations even without first conducting a hearing if, upon proper
investigation orverification, the SEC is of the opinion thatthereexiststhepossibilitythattheact
or practice may cause grave or irreparable injury to the investing public, if left unrestrained.
Section47clearlyprovided,
SEC. 47.
Cease and desist order
.The Commission, after proper investigation or verification,
motu
proprio
, or upon verified complaint by any aggrieved party, may issue a cease and desist order
without the necessity of a prior hearing if in its judgment the act or practice, unless restrained
may causegraveorirreparableinjuryorprejudicetotheinvestingpublicormayamountto
fraudor violation of thedisclosure requirements of this Act and the rules and regulationsof the
Commission.(Emphasissupplied.)
xxxx
Said section enforces the power of general supervision of the SEC under Section 40of the then
RevisedSecuritiesAct.

As a securitiesrelated organization underthejurisdictionandsupervisionoftheSECbyvirtueof


Section 40 of The Revised Securities Act and Section 3 of Presidential Decree No. 902A,
petitioner was under the obligation to comply with the July8, 1996 Order. Defianceoftheorder

wassubjecttoadministrativesanctionsprovidedinSection46
ofTheRevisedSecuritiesAct.
Petitioner failed to show that theSEC, which undoubtedly possessed thenecessary expertisein
matters relatingtotheregulationofthesecuritiesmarket,gravelyabuseditsdiscretionin finding
thatthere was apossibility thattheincreaseinfeesandimpositionofcancellation feeswillcause
grave or irreparableinjuryorprejudicetotheinvestingpublic.Indeed,petitionerdidnotadvance
any argument to counter the SECs finding. Thus, there appears to be no substantial reason to
nullify theJuly 8,1996 Order. Thisis true, especiallyconsideringthat, aspointedoutbytheOSG,
petitioners fee increases have farreaching effects on the capital market. Charging exorbitant
processing fees could discourage many small prospective investors and curtail the infusion of
moneyintothecapitalmarketandhamperitsgrowth.
Furthermore, there is no merit in petitioners contention that even if it had appeared at the
hearing of July 11, 1996 with counsel and presented its evidence, the SEC would not have
considered it because the Order of July 11, 1996wasinfactpreparedearlieronJuly 8,1996.Itis
clear fromthe order itself that the July 11,1996 Orderwas editedfrom the computerfile of the
July 8, 1996 Order, and that the error in thedatewasmerelyanoversightineditingthesoftcopy
beforeitwasprinted.
Similarly,there is nomerittopetitionersclaimthatitwasmisledintoattendingtheJuly11,1996
hearing without counsel. Whether the Director of the SEC Brokers and Exchanges Department
assured petitioners board thatthe July8, 1996 Order wasonly a standard order and nothing to
worry about, is a question offact which thisCourtcannotentertainconsideringthatthisCourtis
not a trier of facts.
Needless to stress, the assurance could not be interpreted as outright
prohibitiontobringinpetitionerscounsel.
Moreover, it devolved upon petitioner to protect its interests adequately considering the clear
implications of the Order of July 8, 1996. Petitioner had only itself to blame for its failure to
presentitsevidenceduringtheJuly11,1996hearing.
In
Philippine Stock Exchange, Inc. v. Court of Appeals, the Court held that the SEC is without
authority to substitute its judgment for that of the corporations boardof directors onbusiness
matters so long as theboardof directors acts in good faith. This Court notes, however, thatthis
caseinvolves, notwhetherpetitionersactionspertainedtomanagementprerogativesorwhether
petitioner actedin good faith. Rather, this caseinvolves thequestion ofwhethertheSEChadthe
power to enjoinpetitioners planned increase in feesaftertheSEChaddeterminedthatsaidactif
pursuedmaycause graveor irreparableinjuryorprejudice to theinvestingpublic.Petitionerwas
fined for violating the SECs ceaseanddesist order which the SEC had issued to protect the
interest of theinvestingpublic,andnotsimplyforexercisingitsjudgmentinthemanneritdeems
appropriateforitsbusiness.
The regulatory and supervisory powers of the Commission under Section 40ofthethenRevised
Securities Act, inour view, were broad enough to include the power to regulatepetitionersfees.
Indeed,Section 47 gave the Commission the power to enjoin
motu proprio any act orpracticeof

petitioner which could cause grave or irreparable injuryorprejudicetotheinvestingpublic. The


intentional omission in the law of any qualification as to whatactsorpracticesaresubjecttothe
control and supervision of the SEC under Section 47 confirms the broad extent of the SECs
regulatorypowersovertheoperationsofsecuritiesrelatedorganizationslikepetitioner.
The SECs authority to issue the ceaseanddesist order being indubitable under Section 47 in
relation to Section 40 ofthethenRevisedSecuritiesAct,andtherebeingnoshowingthattheSEC
committed grave abuse of discretion infindingbasis toissuesaidorder,werulethattheCourtof
Appealscommittednoreversibleerrorinaffirmingtheassailed orders.Foritsopenandadmitted
defiance of a lawful ceaseanddesist order, petitioner was held appropriately liable for the
paymentofthepenaltyimposedonitintheSECsJuly11,1996Order.

JOSEU.PUAandBENJAMINHANBENU.PUA,
Petitioners,
vs.
CITIBANK,N.A.,
Respondent.

TheFacts
On December 2, 2002, petitioners filed before the RTC a Complaint
for declaration of nullity of
contract and sums of money with damages against respondent, docketed as Civil Case No.
191159. In their complaint, petitioners alleged that they had been depositors of Citibank
Binondo Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada Ang, Citibank
Binondos Branch Manager, invited Jose to a dinner party at the Manila Hotel where he was
introducedtoseveral officersandemployees ofCitibankHongkongBranch(CitibankHongkong).
A few months after, Chingyee Yau (Yau), VicePresident of Citibank Hongkong, came to the
Philippines to sell securities toJose.TheyaverredthatYaurequiredJosetoopenanaccountwith
Citibank Hongkong as it is one of the conditions for the sale of the aforementioned securities.
After opening such account, Yau offered and sold to petitioners numerous securities
issued by
various public limited companies established in Jersey, Channel I sands. The offer, sale, and
signing of the subscription agreements ofsaid securitieswereallmadeandperfectedatCitibank
Binondo in the presence of itsofficers and employees. Later on,petitioners discovered that the
securities sold to them were not registered with the Securities and Exchange Commission
(SEC)and thatthe termsandconditionscoveringthesubscriptionwerenotlikewisesubmittedto
the SEC for evaluation, approval, and registration. Asserting that respondents actions are in
violation of Republic Act No.8799, entitled the "Securities RegulationCode"(SRC), theyassailed
the validity of the subscription agreements and the terms and conditions thereof for being
contrarytolawand/orpublicpolicy.

For its part, respondentfiled a motion to dismiss alleging, inter alia, that petitioners complaint
should be dismissed outright for violation of the doctrine of primary jurisdiction.Itpointed out
that the merits of the case would largely depend on the issue of whether or not there was a
violation of the SRC, inparticular, whether ornot there wasa sale of unregistered securities. In
thisregard,respondent contendedthattheSRCconferredupontheSECjurisdictiontoinvestigate
compliance with its provisionsandthus, petitionerscomplaint should be firstfiledwiththeSEC
andnotdirectlybeforetheRTC.

Petitioners opposed respondents motion to dismiss, maintaining that the RTC has jurisdiction
overtheircomplaint.TheyassertedthatSection63ofthe SRCexpresslyprovidesthattheRTChas
exclusive jurisdiction to hear and decide all suits to recover damagespursuant to Sections 56to
61ofthesamelaw.

ISSUE: T
he essential issue in this case is whether or not petitioners action falls within the
primaryjurisdictionoftheSEC.

RULING:
ThePetitionismeritorious
At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to
supportits position thatall complaints involvingpurportedviolationsof the SRC should be first
referred to the SEC.A careful reading of theBaviera case wouldreveal that the same involves a
criminal prosecutionofapurportedviolatorofthe SRC,andnota civilsuitsuchasthecaseatbar.
ThepertinentportionsoftheBavierarulingthusread:
A criminalcharge forviolationoftheSecuritiesRegulationCodeisaspecializeddispute.Hence,it
must firstbe referredtoan administrative agency of special competence, i.e., theSEC.Underthe
doctrine of primary jurisdiction, courts will not determine a controversy involving a question
withinthejurisdictionoftheadministrativetribunal,wherethequestiondemandsthe exerciseof
sound administrative discretion requiring the specialized knowledge and expertise of said
administrative tribunal to determine technical and intricate matters of fact. The Securities
RegulationCodeisaspeciallaw.ItsenforcementisparticularlyvestedintheSEC.
Hence, all complaints for any violation of the Code and its implementing rulesand regulations
should be filed with the SEC.Wherethe complaintiscriminalinnature,theSECshallindorsethe
complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1
earlierquoted.
We thus agree with theCourtofAppealsthatpetitionercommittedafatalprocedurallapsewhen
he filed his criminal complaintdirectly with the DOJ. Verily,no grave abuse of discretioncan be
ascribedtotheDOJindismissingpetitionerscomplaint.32

(Emphasesandunderscoringsupplied)
Records show that petitioners complaint constitutes a civil suit for declaration of nullity of
contract and sums of money with damages, which stemmed from respondents alleged sale of
unregistered securities, in violationof the various provisions of theSRC and not acriminal case
suchasthatinvolvedinBaviera.
In this light, whenthe CourtruledinBavierathat"allcomplaintsforanyviolationofthe[SRC]xx
x should be filed with the SEC,"33
it should be construed as to apply only to criminal and not to
civilsuitssuchaspetitionerscomplaint.
Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law;34
it
cannot be inferred but must be explicitlystated therein. Thus, whenCongress confersexclusive
jurisdiction toajudicialorquasijudicialentityovercertainmattersbylaw,this,absentanyother
indicationtothecontrary,evincesitsintenttoexcludeotherbodiesfromexercisingthesame.
It is apparent that the SRC provisions governing criminal suits are separate and distinct from
those which pertain to civil suits. On the one hand, Section53 of the SRCgoverns criminal suits
involvingviolationsofthesaidlaw,viz.:
SEC.53.Investigations,InjunctionsandProsecutionofOffenses.
53.1. The Commission may, in its discretion, make such investigations as it deems necessary to
determinewhetherany person hasviolated oris about to violate anyprovisionofthisCode,any
rule, regulationororderthereunder,oranyruleofanExchange,registeredsecuritiesassociation,
clearing agency, other selfregulatory organization, and may require or permit anypersontofile
with it astatement inwriting, under oath or otherwise,astheCommissionshalldetermine,as to

all facts and circumstances concerning the matter to be investigated. The Commission may
publish information concerning any such violations, and to investigate any fact, condition,
practice or matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing
information to serve as a basis for recommending further legislation concerningthe matters to
which this Code relates: Provided, however, That any person requested or subpoenaed to
produce documents or testify in any investigation shallsimultaneously be notified in writing of
thepurposeof suchinvestigation:Provided,further,Thatall criminalcomplaintsforviolationsof
this Code, and the implementing rules and regulations enforced or administered by the
Commission shall be referred to the Department of Justice for preliminary investigation and
prosecutionbeforethepropercourt:
Provided, furthermore, That in instances where the law allows independent civil or criminal
proceedings ofviolationsarisingfromthesameact,theCommissionshalltakeappropriateaction
to implement the same: Provided, finally, That the investigation, prosecution, and trial of such
casesshallbegivenpriority.
On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil suits
involving violations of the same law. Among these, the applicable provisions to this case are
Sections57.1and63.1oftheSRCwhichprovide:
SEC.57.CivilLiabilitiesArisinginConnectionWithProspectus,CommunicationsandReports.
57.1.Anypersonwho:
(a)OfferstosellorsellsasecurityinviolationofChapterIII;
or
(b) Offers to sell orsells a security, whether or notexempted by theprovisions ofthisCode, by
the use of any means or instruments of transportation or communication, by means of a
prospectus or other written or oral communication, which includes an untrue statement of a
material fact or omits to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading (the purchaser not
knowing of such untruth oromission), and who shall failin the burden of proof that he did not
know, and in the exerciseof reasonable care could not haveknown,ofsuchuntruthor omission,
shall be liable to the person purchasing such security from him, who may sue to recover the
consideration paid for such security with interest thereon, less the amount of any income
received thereon, upon the tender of such security, or for damages if he no longer owns the
security.
xxxx
SEC. 63. Amount of Damages to be Awarded. 63.1. All suits to recover damages pursuant to
Sections 56, 57, 58, 59, 60 and 61 shall be brought before theRegionalTrial Court which shall
haveexclusive jurisdictiontohearanddecide suchsuits.TheCourtisherebyauthorizedtoaward
damagesinanamountnotexceedingtripletheamountofthetransactionplusactualdamages.
xxxx(Emphasesandunderscoringsupplied)
Basedon theforegoing, it is clear that cases falling underSection57of the SRC,whichpertainto
civil liabilities arising from violations of the requirements for offers to sell or the sale of
securities, as well as other civil suits under Sections 56, 58, 59, 60, and 61 of the SRC shall be
exclusively brought before the regional trial courts. It is a wellsettled rule in statutory
construction that the term "shall" is a word of command, and one which has always or which
must be givena compulsory meaning, and itis generally imperative or mandatory.35
Likewise,it
is equally revelatory that no SRC provision of similar import is found inits sections governing
criminal suits; quite the contrary, the SRCstates that criminalcasesarisingfromviolationsofits
provisionsshouldbefirstreferredtotheSEC.1wphi1

Therefore, basedon these considerations, itstands toreasonthatcivil suitsfallingundertheSRC


are under the exclusive original jurisdiction of the regional trial courts and hence, need notbe
first filed before the SEC, unlike criminal cases wherein the latter body exercises primary
jurisdiction.
All told, petitioners' filing of a civil suit against respondent forpurportedviolations of the SRC
wasproperlyfileddirectlybeforetheRTC.

MILAYAPSUMNDADvs.JOHNWILLIAMHARRIGAN
FACTS:
Boracay Beach Club HotelInc. (BBCHI), represented by Petitioner Sumndad, borroweda loanof
at least P 8,000.00 from Respondent Harrigan for the construction of a resort inBoracay. Upon
demand, BBCHIfailedtopay.OnMarch6,1995,Harriganfiledanamendedcomplaintimpleading
the management committee of BBCHI. The lower courts ruled in favor of Harrigan ordering
BBCHI to settle their loan. However, Sumndad insists that it is the SEC thathasjurisdiction by
virtue of PD No. 902A (Reorganization of the Securities and Exchange Commission with
Additional Powers) because the complaint alludes to fraud committed by BBCHI, and the
Harrigan is a stockholder of the respondent corporation. Harrigan, on the otherhand,maintains
thatjurisdictionislodgedwiththeregularcourts,itbeingasimplecollectioncase.
ISSUE:
Sinetchangmayjurisdictionoverthecase?IsittheSECortheregularcourts?
RULING:
Itwould be the REGULARCOURTS. Harriganseeks to collectfromBBCHIhisadvances
or loans in the amount of at least P8 million, which are demandable in character. The cause of
action of thesuitis, clearly,for the collection ofa sum ofmoney. However, petitioner interprets
said collection complaint as one involving mainly the issue of fraud committed by respondent
corporation, which makesthe controversyfallunder theambitof PD902A.Butaccordingtothe
SC, themainissueofthetotalityofthecomplaintfiledbyHarriganiswhetherornotheisentitled
to collecttheloanandnotwhetherornothewasdefraudedbyBBCHI.Themereuseofthephrase
"in fraud of creditors" does not,ipso facto, throw the case within SECs jurisdiction.The lawon
jurisdiction of the SEC, Section 5 of PD 902A, states that in addition to the regulatory and
adjudicative functions of the SEC over corporations,partnershipsandotherformsofassociations
registered with it as expressly granted under the existing lawsanddecrees,itshallhaveoriginal
and exclusive jurisdiction to hear and decide cases involvingdevisesorschemesemployedbyor
any acts of the Board of Directors, business associates, its officers and partners, amounting to
fraudandmisrepresentation whichmaybedetrimentaltothe interest ofthepublicand/ortothe
stockholders, partners, members of associations or organizations registered with the
Commission.