Cases in Securities Regulation Code Nine Hundred Thirty-Seven Thousand Two Hundred Sixty-Two
and 80/100 Pesos (P1,937,262.80) for failing to comply with the
1. Philippine Veterans Bank vs. Justina Callangan, et.
al., G.R. No. 191995, August 3, 2011
Doctrine:
The Bank’s obligation to provide its stockholders with copies of its
annual report is actually for the benefit of the veterans-
stockholders, as it gives these stockholders access to information
on the Bank’s financial status and operations, resulting in greater
transparency on the part of the Bank. While compliance with this
requirement will undoubtedly cost the Bank money, the benefit
provided to the shareholders clearly outweighs the expense. For
many stockholders, these annual reports are the only means of
keeping in touch with the state of health of their investments; to
them, these are invaluable and continuing links with the Bank that
immeasurably contribute to the transparency in public companies
that the law envisions.
Facts: On March 17, 2004, respondent Justina F. Callangan, the
Director of the Corporation Finance Department of the Securities
and Exchange Commission (SEC), sent 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 with
Rule 3(1)(m) of the Amended Implementing Rules and
Regulations of the SRC. The Bank is thus required to comply with
the reportorial requirements set forth in Section 17.1 of the SRC.
 
The Bank responded by explaining that it should not be
considered a “public company” because it is a private company
whose shares of stock are available only to a limited class or
sector, i.e., to World War II veterans, and not to the general
public.
 
In a letter dated April 20, 2004, Director Callangan rejected the
Bank’s explanation and assessed it a total penalty of One Million
SRC reportorial requirements from 2001 to 2003. The Bank
moved for the reconsideration of the assessment, but Director
Callangan denied the motion in SEC-CFD Order No. 085, Series
of 2005 dated July 26, 2005. When the SEC En Banc also
dismissed the Bank’s appeal for lack of merit in its Order dated
August 31, 2006, prompting the Bank to file a petition for review
with the Court of Appeals (CA).
 
On March 6, 2008, the CA dismissed the petition and affirmed the
assailed SEC ruling, with the modification that the assessment of
the penalty be recomputed from May 31, 2004.
 
The CA also denied the Bank’s motion for reconsideration,
opening the way for the Bank’s petition for review on certiorari
filed with this Court.
 
On June 16, 2010, the Court denied the Bank’s petition for failure
to show any reversible error in the assailed CA decision and
resolution.
Issue: Are the reportorial requirements of SEC applicable to
banks?
 
Held: 
 
Yes. The Securities and Exchange Commission (SEC) required
the Bank to comply with the reportorial requirements under
Section 17.1 of SRC since it qualifies as a “public company”
under Section 17.2 of the SRC. The Bank argued that it is a
private company and not a public company because its shares
are available only to a limited class or sector. The Supreme Court
held that “public company,” as contemplated by the SRC, is not
limited to a company whose shares of stocks are publicly listed;
even companies like the Bank, whose shares are offered only to
a specific group of people, are considered a public company,
provided they meet the requirement as required under the SRC.
2. Abacus Securities Corp. vs. Ruben U. Ampil, G.R. No.
160016, February 27, 2006
Minorka Sushmita  Pataunia
Doctrine: RSA Rule 25-1 prescribes in detail the regulations
governing cash accounts.This purpose is to regulate the volume
of credit flow, by way of speculative transactions, into the
securities market and redirect resources into more productive
uses. Specifically, the main objective of the law on margins is
explained in this wise: “The main purpose of these margin
provisions is not to increase the safety of security loans for
lenders. Banks andbrokers normally require sufficient collateral to
make themselves safe without the help of law. Nor is the main
purpose even protection of the small speculator by making it
impossible for him to spread himself too thinly—although such a
result will be achieved as a byproduct of the main purpose. The
main purpose is to give a [g]overnment credit agency an effective
method of reducing the aggregate amount of the nation’s credit
resources which can be directed by speculation into the stock
market and out of other more desirable uses of commerce and
industry.
In a margin account, the securities company extends credit. A
margin account is covered by a margin agreement which
stipulates the terms and conditions for maintaining such an
account. Under the present law, the amount of credit that may be
initially extended is limited to 50 percent of the current market
price of the security.
Trading on credit (or “margin trading”) allows investors to buy
more securities than their cash position would normally allow.
Investors pay only a portion of the purchase price of the
securities; their broker advances for them the balance of the
purchase price and keeps the securities as collateral for the
advance or loan. Brokers take these securities/stocks to their
bank and borrow the “balance” on it, since they have to pay in full
for the traded stock. Hence, increasing margins i.e., decreasing
the amounts which brokers may lend for the speculative purchase
and carrying of stocks is the most direct and effective method
ofdiscouraging an abnormal attraction of funds into the stock
market and achieving a more balanced use of such resources.
Facts Abacus Secu rities Corporation is engaged in business as a
broker and dealer of securities of listed companies at the
Philippine Stock Exchange Center.Sometime in April 1997,
Ampilopened a cash or regularaccount with Abacus for the
purpose of buying and selling securities as evidenced by the
Account Application Form. The parties’ business relationship was
governed by the terms andconditions. Since April 10, 1997, Ampil
actively traded his account,and as a result of such trading
activities, he accumulated an outstanding obligation in favor of
Abacus in the principal sumof P6,617,036.22 as of April 30,
1997.Despite the lapse of the period within which to pay his
accountas well as sufficient time given by Abacus for Ampilto
comply with his proposal to settle his account, the latter failed to
do so. Such that Abacus thereafter sold Ampil’ssecurities to set
off against his unsettled obligations.After the sale of respondent’s
securities and application ofthe proceeds thereof against his
account, respondent’s remaining unsettled obligation to petitioner
was P3,364,313.56.
         In a letter dated August26, 1997,
respondentacknowledged receipt of petitioner’s demand letter
and admitted his unpaid obligation and at the same time
requested for 60 days to raise funds to pay the same, which was
granted by petitioner. Despite said demand and the lapse of said
requested extension, respondent failed and/or refused to pay his
accountabilities to petitioner.
         Respondent claims that he was induced totrade in a stock
security with petitioner because the latter allowed offset
settlements wherein he is not obliged to pay the purchase price.
Rather, it waits for the customer to sell. And if there is a loss,
petitioner only requires the payment of the deficiency. However, if
the customer sells and there is a profit, petitioner deducts the
purchase price and delivers only thesurplus – after charging its
commission.Respondent further claims that all his trades
withpetitioner were not paid in full in cash at anytime after
purchase or within the T+4 [4 days subsequent to trading] and
none ofthese trades was cancelled by petitioner. Neither did
petitioner apply with either the Philippine Stock Exchange or the
SEC for an extension of time for the payment or settlement of his
cash purchases.This was not brought to his attention by his
broker and so with the requirement of collaterals in margin
account. Thus, his trade under an offset transaction with
petitioner is unlimited subject only to the discretion of the broker.
ot require him to put up a deposit before it executed its
subsequent orders.
         The Regional TrialCourt held that petitioner violated
Sections 23 and 25 of the Revised Securities Act (RSA) and Rule
25-1 of the Rules Implementing the Act (RSA Rules) when it
failed to: 1) require the respondent to pay for his stock purchases
within three (T+3) or four days (T+4) from trading; and 2) request
from the appropriate authority an extensionof time for the
payment of respondent’s cash purchases.The trial court also
found respondent to be equally atfault, by incurring excessive
credits and waiting to see how his investments turned out before
deciding to invoke the RSA. Thus, the RTC concluded that
petitioner and respondent were in pari delicto.
         The CA upheld the lower court’s finding that the parties
were in pari delicto. It castigated petitioner for allowing
respondentto keep on trading despite the latter’s failure to pay his
outstanding obligations. 
Issue/s: Were the lower courts incorrect in holding that the
petitioner may not collect from the respondent?  and 25 and Rule 25-1, otherwise known as the “mandatory close-
Held: YES.
         Petitioner can still collect from respondent to the extent of
the difference between the latter’s outstanding obligation as of
April 11, 1997 less the proceeds from the mandatory sell out of
the shares pursuant to the RSA Rules. Petitioner’s right to collect
is justified under the general law on obligations and contracts.The
right to collect cannot be denied to petitioner as the initial
transactions were entered pursuant to the instructions of
respondent. The obligation of respondent for stock transactions
made and entered into on April 10 and 11, 1997 remains
outstanding. These transactions were valid and the obligations
incurred by respondent concerning his stock purchases on these
dates subsist. At that time, there was no violation of the RSA
yet.Petitioner’s fault arose only when it failed to: 1)liquidate the
transactions on the fourth day following the stock purchases, or
on April 14 and 15, 1997; and 2)complete its liquidation no later
than ten days thereafter, applying the proceeds thereof as
payment for respondent’s outstanding obligation. Since the buyer
was not able to payfor the transactions that took place on April 10
and 11, that is at T+4, the broker was duty-bound to advance the
payment to the settlement banks without prejudice to the right of
the broker to collect later from the client.
         The provisions governing the above transactions are
Sections 23 and 25 of the RSA and Rule 25-1 of the RSARules.
Section 23(b)—the alleged violation of petitioner which provides
the basis for respondent’s defense—makes it unlawful for a
broker to extend or maintain credit on any securities other than in
conformity with the rules and regulations issued by Securities and
Exchange Commission (SEC). Section 25 lays down the rules to
prevent indirect violations of Section 23 by brokers or dealers.
RSA Rule 25-1 prescribes in detail the regulations governing
cash accounts.
         The law places the burden of compliance with margin
requirements primarily upon the brokers and dealers.Sections 23
out rule,”clearly vest upon petitioner the obligation, not just the
right, to cancel or otherwise liquidate a customer’s order, if
payment is not received within three days from the date of
purchase. The word “shall” as opposed to the word “may,” is
imperative and operates to impose a duty, which may be legally
enforced. For transactions subsequent to an unpaid order, the
broker should require its customer to deposit funds into the
account sufficient to cover each purchase transaction prior to its
execution.
         It will be noted that trading on credit (or “margin trading”)
allows investors to buy more securities than their cash position
would normally allow.Investors pay only aportion of the purchase
price of the securities; their broker advances for them the balance
of the purchase price and keeps the securities as collateral for the
advance or loan.Brokers take these securities/stocks to their bank
and borrow the “balance” on it, since they have to pay in full for
the traded stock. Hence, increasing margins decreasing the
amounts which brokers may lend for the speculative purchase
and carrying of stocks is the most direct and effective method of
discouraging an abnormal attraction of funds into the stock
market and achieving a more balanced use of such resources.
         Pursuant to RSA Rule 25-1, petitioner should have
liquidated the transaction (sold the stocks) on the fourth day
following the transaction (T+4) and completed its liquidation not
later than ten days following the last day for the customer to pay
(effectively T+14). Respondent’s outstanding obligation is
therefore to be determined by using the closing prices of the
stocks purchased at T+14 as basis.
3. PSE vs. Court of Appeals, 281 SCRA 232 (1997)
4. SEC vs. Interport Resources Corp.  G.R. No. 135808,
October 6, 2008
5. SEC vs. CA, 246 SCRA 738 (1995)
DOCTRINE:
SEC has original and exclusive jurisdiction on all or any of those
who are adversely affected by the transfer of the pilfered
certificates of stock. SEC has also the power to ensure the
compliance of BP Blg. 178, The Revised Securities Act which is
designed to protect public investors from fraudulent schemes by
regulating the sale and disposition of securities, creating, for this
purpose.
FACTS:
The petition before this Court relates to the exercise by the SEC
of its powers in a case involving a stockbroker (Cualoping
Securities Corporation) and a stock transfer agent (Fidelity Stock
Transfer, Inc).
Sometime in the first half of 1988, certificates of stock of PHILEX
representing 1,400,000 shares were stolen from FIDELITY.
These ended in the hands of Agustin Lopez, a messenger of New
World Security Inc., an entirely different stock brokerage firm.
Agustin Lopez brought the said stolen stock certificates to
CUALOPING for trading and sale with the stock exchange.
CUALOPING paid Agustin Lopez of P400,000.00 for the value of
the stocks. Then the certificates were delivered to FIDELITY for
cancellation and issuance of new certificates in the name of new
buyers.
However, FIDELITY refused to issue new stock certificates
because the signatures of the owners of the certificates were
allegedly forged. Based on the investigation with the assistance
of NBI, two of FIDELITY’S employees were involved and signed
the certificates. FIDELITY then sought an opinion from SEC for
the transfer of the pilfered certificates of stock. But the
Commission en banc issued resolution finding both CUALOPING
and FIDELITY equally negligent in the performance of their duties
and order them to jointly replace the subject shares and for
FIDELITY to cause the transfer and to pay a fine of P50,000,00
each for having violated Section 29 (a) of the Revised Securities
Act.
ISSUE:
Whether SEC has adjudicative jurisdiction over the subject matter
and has the regulatory power on imposition of fine to
CUALOPING and FIDELITY.
HELD:
Yes. SEC has original and exclusive jurisdiction on all or any of
those who are adversely affected by the transfer of the pilfered
certificates of stock. SEC also ensures the compliance of BP Blg.
178, The Revised Securities Act which is designed to protect
public investors from fraudulent schemes by regulating the sale
and disposition of securities, creating, for this purpose. In effect, it
has the regulatory power on imposition of fine as well.
In this case, based on the factual circumstances, there is no
question that both FIDELITY and CUALOPING have been guilty
of negligence in the conduct of their affairs involving the
questioned certificates of stock. They failed to observe due
diligence which constitute violation of Revised Securities Act that
can warrant an imposition of a fine under Section 29(3), in
relation to Section 46 of the Act.
6. Cemco Holdings, Inc. vs. Nat'l Life Ins. Co., 529 SCRA
355 (2007)
DOCTRINE:
SEC has the authority not only to investigate complaints of
violations of the tender offer rule, but to adjudicate certain rights
and obligations of the contending parties and grant appropriate
reliefs in the exercise of its regulatory functions under the
Securities Regulation Code (SRC).
Section 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 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 the SEC that the law has
made the SEC primarily a regulatory body with the incidental
power to conduct administrative hearings and make decisions. A
regulatory body like the SEC may conduct hearings in the
exercise of its regulatory powers, and if the case involves
violations or conflicts in connection with the performance of its
regulatory functions, it will have the duty and authority to resolve
the dispute for the best interests of the public.
The power conferred upon the SEC to promulgate rules and
regulations is a legislative recognition of the complexity and the
constantly-fluctuating nature of the market and the impossibility of
foreseeing all the possible contingencies that cannot be
addressed in advance.
SEC is a highly specialized body created for the purpose of
administering, overseeing, and managing the corporate industry,
share investment and securities market in the Philippines. By the
very nature of its functions, it dedicated to the study and
administration of the corporate and securities laws and has
necessarily developed an expertise on the subject. Based on said
functions, the Honorable Commission is necessarily tasked to
issue rulings with respect to matters involving corporate matters
and share acquisitions.
 FACTS:
Union Cement Corporation (UCC), a publicly-listed company, has
two principal stockholders – UCHC, a non-listed company and
petitioner Cemco. Majority of UCHC’s stocks were owned by BCI
with 21.31% and ACC with 29.69%. Cemco, on the other hand,
owned 9% of UCHC stocks. BCI and ACC sold its shares to
CEMCO. CEMCO now owned a total of 53% of UCC.
When BCI informed the Philippine Stock Exchange (PSE) that it
and its subsidiary ACC had passed resolutions to sell to Cemco
BCI’s stocks in UCHC, PSE requested for legal opinion with SEC
whether the Tender Offer Rule under Rule 19 of the Implementing
Rules of the Securities Regulation Code is not applicable to the
purchase by CEMCO of the majority of shares of UCC. SEC
replied that such sale was not covered by the tender offer rule,
through a Resolution dated 27 July 2004 without conducting
public hearing and identifying definite and concrete controversy
affecting the legal relations of parties.
On the other hand, respondent National Life Insurance Company
of the Philippines, Inc., a minority stockholder of UCC, feeling
aggrieved by the transaction, sent a letter to Cemco demanding
the latter to comply with the rule on mandatory tender offer.
Cemco, however, refused. It subsequently filed a complaint with
the SEC asking to reverse its 27 July 2004 Resolution and to
declare the purchase agreement of Cemco void and praying that
the mandatory tender offer rule be applied to its UCC shares.
SEC then requested UCC, UCHC, BCI and ACC to file their
respected comment on the complaint then issued a decision
which ruled in favor of the respondent by reversing and setting
aside its 27 July 2004 Resolution and directed petitioner Cemco
to make a tender offer for UCC shares to respondent and other
holders of UCC shares similar to the class held by UCHC in
accordance with Section 9(E), Rule 19 of the Securities
Regulation Code.
Cemco subsequently filed a petition with the Court of Appeals
challenging the SEC’s jurisdiction to take cognizance of
respondent’s complaint and its authority to require Cemco to
make a tender offer for UCC shares. Cemco contends that while
the SEC can take cognizance of respondent’s complaint on the
alleged violation by petitioner Cemco of the mandatory tender
offer requirement under Section 19 of Republic Act No. 8799, the
same statute does not vest the SEC with jurisdiction to adjudicate
and determine the rights and obligations of the parties since,
under the same statute, the SEC’s authority is purely
administrative. Having been vested with purely administrative
authority, the SEC can only impose administrative sanctions such
as the imposition of administrative fines, the suspension or
revocation of registrations with the SEC, and the like. Petitioner
stresses that there is nothing in the statute which authorizes the
SEC to issue orders granting affirmative reliefs. Since the SEC’s
order commanding it to make a tender offer is an affirmative relief
fixing the respective rights and obligations of parties, such order
is void. It also contends that in the absence of any specific grant
of jurisdiction by Congress, the SEC cannot, by mere
administrative regulation, confer on itself that jurisdiction.
ISSUES:
1.      Whether or not the SEC has jurisdiction over respondent’s
complaint and to require Cemco to make a tender offer for
respondent’s UCC shares.
2.      Whether or not the rule on mandatory tender offer rule
applies only to direct acquisition of shares in the public company.
HELD:
1. Yes. SEC has the competence to render the particular decision
it made in this case. A definite inference may be drawn from the
provisions of the SRC that the SEC has the authority not only to
investigate complaints of violations of the tender offer rule, but to
adjudicate certain rights and obligations of the contending parties
and grant appropriate reliefs in the exercise of its regulatory
functions under the SRC. Section 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 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 the SEC that the law has made the SEC primarily a
regulatory body with the incidental power to conduct
administrative hearings and make decisions. A regulatory body
like the SEC may conduct hearings in the exercise of its
regulatory powers, and if the case involves violations or conflicts
in connection with the performance of its regulatory functions, it
will have the duty and authority to resolve the dispute for the best
interests of the public.
SEC has the authority to promulgate rules and regulations,
subject to the limitation that the same are consistent with the
declared policy of the Code. Among them is the protection of the
investors and the minimization, if not total elimination, of
fraudulent and manipulative devises.
Also, Section 72 of the Securities Regulation Code reads:
72.1. x x x To effect the provisions and purposes of this
Code, the Commission may issue, amend, and rescind
such rules and regulations and orders necessary or
appropriate, x x x.
72.2. The Commission shall promulgate rules and
regulations providing for reporting, disclosure and the
prevention of fraudulent, deceptive or manipulative
practices in connection with the purchase by an issuer, by
tender offer or otherwise, of and equity security of a class
issued by it that satisfies the requirements of Subsection
17.2. Such rules and regulations may require such issuer
to provide holders of equity securities of such dates with
such information relating to the reasons for such
purchase, the source of funds, the number of shares to be
purchased, the price to be paid for such securities, the
method of purchase and such additional information as
the Commission deems necessary or appropriate in the
public interest or for the protection of investors, or which
the Commission deems to be material to a determination
by holders whether such security should be sold.
The power conferred upon the SEC to promulgate rules and
regulations is a legislative recognition of the complexity and the
constantly-fluctuating nature of the market and the impossibility of
foreseeing all the possible contingencies that cannot be
addressed in advance.
SEC is a highly specialized body created for the purpose of
administering, overseeing, and managing the corporate industry,
share investment and securities market in the Philippines. By the
very nature of its functions, it dedicated to the study and
administration of the corporate and securities laws and has
necessarily developed an expertise on the subject. Based on said
functions, the Honorable Commission is necessarily tasked to
issue rulings with respect to matters involving corporate matters
and share acquisitions.
1.  No. Tender offer is a publicly announced intention by a
person acting alone or in concert with other persons to acquire
equity securities of a public company. Tender offer is in place to
protect minority shareholders against any scheme that dilutes the
share value of their investments. It gives the minority
shareholders the chance to exit the company under reasonable
terms, giving them the opportunity to sell their shares at the same
price as those of the majority shareholders.
Under existing SEC Rules, the 15% and 30% threshold
acquisition of shares under the foregoing provision was increased
to thirty-five percent (35%). It is further provided therein that
mandatory tender offer is still applicable even if the acquisition is
less than 35% when the purchase would result in ownership of
over 51% of the total outstanding equity securities of the public
company which in this case reaches 53%. Thus, the indirect
acquisition by petitioner of 36% of UCC shares through the
acquisition of the non-listed UCHC shares is covered by the
mandatory tender offer rule. Moreover, the implementing rules
and regulations of the Code are sufficient to inform and guide the
parties on how to proceed with the mandatory tender offer.
7. Power Homes Unlimited Corp. SEC, 546 SCRA 567
(2008)
Doctrine:  Catch-all term "investment contract" indicated a
congressional intent to cover a wide range of investment
transactions. It established a test to determine whether a
transaction falls within the scope of an "investment contract."
Known as the Howey Test, it requires a transaction, contract, or
scheme whereby a person (1) makes an investment of money, (2)
in a common enterprise, (3) with the expectation of profits, (4) to
be derived solely from the efforts of others.
Facts: Petitioner is a domestic corporation duly registered with
public respondent SEC. Its primary purpose is “To engage in the
transaction of promoting, acquiring, managing, leasing, obtaining
options on, development, and improvement of real estate
properties for subdivision and allied purposes, and in the
purchase, sale and/or exchange of said subdivision and
properties through network marketing.”
Respondent Noel Manero requested public respondent SEC to
investigate petitioner’s business. He claimed that he attended a
seminar conducted by petitioner where the latter claimed to sell
properties that were inexistent and without any broker’s license.
Petitioner submitted to public respondent SEC copies of its
marketing course module and letters of accreditation/authority or
confirmation from Crown Asia, Fil-Estate Network and Pioneer 29
Realty Corporation.
 Finding petitioner to be engaged in the sale or offer for sale or
distribution of investment contracts, which are considered
securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The
Securities Regulation Code),5 but failed to register them in
violation of Sec. 8.1 of the same Act,6 public respondent SEC
issued a CDO that reads:
WHEREFORE, pursuant to the authority vested in the
Commission, POWER HOMES UNLIMITED, CORP., its
officers, directors, agents, representatives and any and all
persons claiming and acting under their authority, are
hereby ordered to immediately CEASE AND DESIST from
further engaging in the sale, offer or distribution of the
securities upon the receipt of this order.
 
In accordance with the provisions of Section 64.3 of
Republic Act No. 8799, otherwise known as the Securities
Regulation Code, the parties subject of this Cease and
Desist Order may file a request for the lifting thereof within
five (5) days from receipt.
Aggrieved, petitioner went to the Court of Appeals
imputing grave abuse of discretion amounting to lack or
excess of jurisdiction on public respondent SEC for
issuing the order. 
Court of Appeals issued its Consolidated Decision. The
disposition pertinent to petitioner reads:
 
WHEREFORE, x x x x the petition for certiorari and
prohibition filed by the other petitioner Powerhomes
Unlimited Corporation is hereby DENIED for lack of merit
and the questioned Cease and Desist Order issued by
public respondent against it is accordingly AFFIRMED IN
TOTO.
Issue/s: Does petitioner’s business constitutes an investment
contract which should be registered with public respondent SEC
before its sale or offer for sale or distribution to the public?
Held: YES!
 Section 8.1 of R.A. No. 8799, viz:
Section 8. Requirement of Registration of Securities. – 8.1.
Securities shall not be sold or offered for sale or distribution within
the Philippines, without a registration statement duly filed with
and approved by the Commission. Prior to such sale, information
on the securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each
prospective purchaser.
regardless of the fact that buyers, in addition to investing money
needed to purchase the contract, were obliged to contribute their
own efforts in finding prospects and bringing them to sales
meetings. The appellate court held:
 It is apparent from the record that what is sold is not of the usual
"business motivation" type of courses. Rather, the purchaser is
really buying the possibility of deriving money from the sale
of the plans by Dare to individuals whom the purchaser has
brought to Dare. The promotional aspects of the plan, such as
seminars, films, and records, are aimed at interesting others in
the Plans. Their value for any other purpose is, to put it mildly,
minimal.
 Once an individual has purchased a Plan, he turns his
efforts toward bringing others into the organization, for
which he will receive a part of what they pay. His task is to
bring prospective purchasers to "Adventure Meetings."

 The business scheme of petitioner in the case at bar is

 An investment contract is defined in the Amended Implementing
essentially similar. An investor enrolls in petitioner’s program by
Rules and Regulations of R.A. No. 8799 as a "contract,
paying US$234. This entitles him to recruit two (2) investors who
transaction or scheme (collectively ‘contract’) whereby a person
pay US$234 each and out of which amount he receives US$92. A
invests his money in a common enterprise and is led to expect
minimum recruitment of four (4) investors by these two (2)
profits primarily from the efforts of others.
recruits, who then recruit at least two (2) each, entitles the
principal investor to US$184 and the pyramid goes on.
 We affirm the ruling of the public respondent SEC and the Court
of Appeals that the petitioner was engaged in the sale or
 We reject petitioner’s claim that the payment of US$234 is for the
distribution of an investment contract. Interestingly, the facts of
seminars on leverage marketing and not for any product. Clearly,
SEC v. Turner25 are similar to the case at bar. In Turner, the SEC
the trainings or seminars are merely designed to enhance
brought a suit to enjoin the violation of federal securities laws by a
petitioner’s business of teaching its investors the know-how of its
company offering to sell to the public contracts characterized as
multi-level marketing business. An investor enrolls under the
self-improvement courses. On appeal from a grant of preliminary
scheme of petitioner to be entitled to recruit other investors and to
injunction, the US Court of Appeals of the 9th Circuit held that self-
receive commissions from the investments of those directly
improvement contracts which primarily offered the buyer the
recruited by him. Under the scheme, the accumulated amount
opportunity of earning commissions on the sale of contracts to
received by the investor comes primarily from the efforts of his
others were "investment contracts" and thus were "securities"
recruits.
within the meaning of the federal securities laws. This is

8. Union Bank of the Philippines vs. SEC, G.R. No.
138949, June 6, 2001
Facts: petitioner, through its General Counsel and Corporate
Secretary, sought the opinion of Chairman Perfecto Yasay, Jr. of
respondent Commission as to the applicability and coverage of
the Full Material Disclosure Rule on banks, contending that said
rules, in effect, amend Section 5 (a) (3) of the Revised Securities
Act which exempts securities issued or guaranteed by banking
institutions from the registration requirement provided by Section
4 of the same Act.
"In reply thereto, Chairman Yasay, informed petitioner that while
the requirements of registration do not apply to securities of
banks which are exempt under Section 5 (a) (3) of the Revised
Securities Act, however, banks with a class of securities listed for
trading on the Philippine Stock Exchange, Inc. are covered by
certain Revised Securities Act Rules governing the filing of
various reports with respondent Commission, i.e., (1) Rule 11 (a)-
1 requiring the filing of Annual, Quarterly, Current, Predecessor
and Successor Reports; (2) Rule 34-(a)-1 requiring submission of
Proxy Statements; and (3) Rule 34-(c)-1 requiring submission of
Information Statements, among others.”
 "Respondent Commission, through its Money Market Operations
Department Director, wrote petitioner, reiterating its previous
position that petitioner is not exempt from the filing of certain
reports. The letter further stated that the Revised Securities Act
Rule 11 (a) requires the submission of reports necessary for full,
fair and accurate disclosure to the investing public, and not the
registration of its shares.
Commission wrote petitioner, enjoining the latter to show cause
why it should not be penalized for its failure to submit a
Proxy/Information Statement in connection with its annual
meeting in violation of respondent Commission's Full Material
Disclosure Rule.'
Respondent issued the assailed Order, the dispositive portion of
which provides: "In view of the foregoing, the appeal filed by the
Union Bank of the Philippines is hereby denied. The penalty
imposed in the amount of P91,000.00 as of July 21, 1997, for
failure to file SEC Form 11-A excludes the fine accruing after the
cut-off date until the final submission of the report. Further, the
amount of P50,000.00 shall be collected for the violation of RSA
Rule 34(a)- or Rule34(c)(1)."
The CA Ruling
In its well-written 10-page Decision, the Court of Appeals cited
expertise of Respondent SEC on matters within the ambit the
latter's mandate, as follows:
"To begin with, it is already well-settled that the construction given
to a statute by an administrative agency charged with the
interpretation and application of the statute is entitled to great
respect and should be accorded great weight by the courts,
unless such construction is clearly shown to be in sharp conflict
with the governing statute or the Constitution and other laws. The
rationale for this rule relates not only to the emergence of the
multi-farious needs of a modern or modernizing society and the
establishment of diverse administrative agencies for the
addressing and satisfying those needs; it also relates to
accumulation of experience and growth of specialized capabilities
by the administrative agency charged with implementing a
particular statute.
Issue/s:
A. Whether or not petitioner is required to comply with the
respondent SEC's full disclosure rules. YES
B. Whether or not the SEC's full disclosure rules [are] contrary to
and effectively [amend] section 5 (a) (3) of the Revised Securities
Act. NO
C. Whether or not Respondent Court of Appeals gravely erred in
holding that petitioner violated three (3) Rules namely: Rule 11
(A)-1, Rule 34 (A)-1 and Rule 34 (C)-1 of the full disclosure rule.
NO
Held:
Because its securities are exempt from the registration
requirements under Section 5(a) (3) of the Revised Securities
Act, petitioner argues that it is not covered by RSA Implementing
Rule 11 (a)-1, which requires the filing of annual, quarterly,
current predecessor and successor reports; Rule 34(a)-1, which
mandates the filing of proxy statements and forms of proxy; and
Rule 34(c)-1, which obligates the submission of information
statements.
We do not agree. Section 5(a) (3) of the said Act reads:
"Sec. 5. Exempt Securities. (a) Except expressly provided, the
requirement of registration under subsection (a) of Section four of
this Act shall not apply to any of the following classes of
securities:
xxx xxx xxx(3) Any security issued or guaranteed by any banking
institution authorized to do business in the Philippines, the
business of which is substantially confined to banking, or a
financial institution licensed to engage in quasi-banking, and is
supervised by the Central Bank."
This provision exempts from registration the securities issued by
banking or financial institutions mentioned in the law. Nowhere
does it state or even imply that petitioner, as a listed corporation,
is exempt from complying with the reports required by the
assailed RSA Implementing Rules. Worth repeating is the CA's
disquisition on the matter, which we quote:
"However, the exemption from the registration requirement
enjoyed petition does nor necessarily connote that [it is]
exempted from the other reportorial requirements. Having
confined the exemption enjoyed by the petitioner merely to the
initial requirement of registration of securities for public offering,
and not, [to] the subsequent filing of various periodic reports,
respondent Commission, as the regulatory agency, is able to
exercise its power of supervision and control over corporations
and over the securities market as a whole. Otherwise, the
objectives of the 'Full Material Disclosure' policy would be
defeated since petitioner corporation and its dealings would be
totally beyond the reach of respondent Commission and the
investing public."
It must be emphasized that petitioner is a commercial banking
corporation10 listed in a stock exchange. Thus, it must adhere not
only to banking and other allied special laws, but also to the rules
promulgated by Respondent SEC, the government entity tasked
not only with the enforcement of the Revised Securities Act, but
also the supervision of all corporations, partnerships or
associations which are grantees of government-issued primary
franchises and/or licenses or permits to operate in the
Philippines.
RSA Rules 11 (a)-1, 34 (a)-1 and 34 (c)-1 require the submission
of certain reports to ensure full, fair accurate disclosure of
information for the protection of the investing public. These Rules
were issued by the respondent pursuant to the authority
conferred upon it by Section 3 of the RSA.
The said Rules do not amend Section 5(a)(3) of the Revised
Securities Act, because they do not revoke or amend the
exemption from registration of the securities enumerated
thereunder. They are reasonable regulations imposed upon
petitioner as a banking corporation trading its securities in the
stock market.
That petitioner is under the supervision of the Bangko Sentral ng
Pilipinas (BSP) and the Philippine Stock Exchange (PSE) does
not exempt it from complying with the continuing disclosure
requirements embodied in the assailed Rules. Petitioner, as a
bank, is primarily subject to the control of the BSP; and as a
corporation trading its securities in the stock market, it is under
the supervision of the SEC. It must be pointed out that even the
PSE is under the control and supervision of respondent. There is
no over-supervision here. Each regulating authority operates
within the sphere of its powers. That stringent requirements are
imposed is understandable, considering the paramount
importance given to the interests of the investing public.
Otherwise stated, the mere fact that in regard to its banking
functions, petitioner is already subject to the supervision of the
BSP does not exempt the former reasonable disclosure
regulations issued by the SEC. These regulations are meant to
assure full, fair and accurate disclosure of information for the
protection of investors in the stock market. Imposing such
regulations is a function within the jurisdiction of the SEC. Since
petitioner opted to trade its shares in the exchange, then it must
abide by the reasonable rules imposed by the SEC.
9. Nestle Phils. Vs. Court of Appeals, 203 SCRA504
(1991)
Doctrine: An issuance of previously authorized but still unissued
capital stock may be held to be an exempt transaction by the
SEC under Section 6(b) so long as the SEC finds that the
requirements of registration under the Revised Securities Act are
“not necessary in the public interest and for the protection of the
investors” by reason, inter alia, of the small amount of stock that
is proposed to be issued or because the potential buyers are very
limited in number and are in a position to protect themselves.
Facts: On February 21, 1983, the Authorized Capital Stock (ACS)
of petitioner Nestle was increased from P300 million divided into
3 million shares with a par value of P100 per share, to P600
million divided into 6 million shares with a par value of P100 per
share. Nestle underwent the necessary procedures involving
Board and stockholders’ approvals and the necessary filings to
secure the approval of the increase of ACS. It was approved by
respondent SEC.
 
Nestle issued 344,500 shares out of its previously authorized but
unissued capital stock exclusively to its principal stockholders
San Miguel Corporation and to Nestle S.A. San Miguel
Corporation subscribed to and completely paid up 168,800
shares, while Nestle S.A. subscribed to and paid up the balance
of 175,700 shares of stock.
In 1985, petitioner Nestle filed a letter to SEC seeking exemption
of its proposed issuance of additional shares to its existing
principal shareholders, from the registration requirement of
Section 4 of the Revised Securities Act and from payment of the
fee referred to in Section 6(c) of the same Act to wit:  
“Sec. 6. Exempt transactions. — a) The requirement of
registration under subsection (a) of Section four of this Act shall
not apply to the sale of any security in any of the following
transactions:    xxx xxx xxx
(4) The distribution by a corporation, actively engaged in the
business authorized by its articles of incorporation, of securities
to its stockholders or other security holders as a stock dividend or
other distribution out of surplus; or the issuance of securities to
the security holder or other creditors of a corporation in the
process of a bona fide reorganization of such corporation made
in good faith and not for the purpose of avoiding the provisions of
this Act, either in exchange for the securities of such security
holders or claims of such creditors or partly for cash and partly in
exchange for the securities or claims of such security holders or
creditors; or the issuance of additional capital stock of a
corporation sold or distributed by it among its own stockholders
exclusively, where no commission or other remuneration is paid
or given directly or indirectly in connection with the sale or
distribution of such increased capital stock.”
 
Nestle argued that Section 6(a) (4) of the Revised Securities Act
embraces “not only an increase in the authorized capital stock but
also the issuance of additional shares to existing stockholders of
the unissued portion of the unissued capital stock.” SEC denied
petitioner’s requests and ruled that the proposed issuance of
shares did not fall under Section 6 (a) (4) of the Revised
Securities Act, since Section 6 (a) (4) is applicable only where
there is an increase in the authorized capital stock of a
corporation.
Issue/s: Whether or not petitioner Nestle’s application for
exemptions should be granted.
Held: No. Under Sec 38 of the Corporation Code, a corporation
engaged in increasing its authorized capital stock, with the
required vote of its Board of Directors and of its stockholders,
must file a sworn statement of the treasurer of the corporation
showing that at least 25% of “such increased capital stock” has
been subscribed and that at least 25% of the amount subscribed
has been paid either in actual cash or in property transferred to
the corporation. The corporation must issue at least 25% of the
newly or contemporaneously authorized capital stock in the
course of complying with the requirements of the Corporation
Code for increasing its authorized capital stock.
 
After approval by the SEC of the increase of its authorized capital
stock, and from time to time thereafter, the corporation, by a vote
of its Board of Directors, and without need of either stockholder or
SEC approval, may issue and sell shares of its already
authorized but still unissued capital stock to existing shareholders
or to members of the general public.  only Board of Directors approval. Neither notice to nor approval
 
In the case at bar, since the 344,500 shares of Nestle capital
stock are proposed to be issued from already authorized but still
unissued capital stock and since the present authorized capital
stock of 6,000,000 shares with a par value of P100.00 per share
is not proposed to be further increased, the SEC and the CA
correctly rejected Nestle’s petition.
 
When capital stock is issued in the course of and in compliance
with the requirements of increasing its authorized capital stock
under Section 38 of the Corporation Code, the SEC examines the
financial condition of the corporation, and hence there is no real
need for exercise of SEC authority under the Revised Securities
Act. Thus, one of the requirements under the current regulations
of the SEC in respect of filing a certificate of increase of
authorized capital stock, is submission of “a financial statement
duly certified by an independent CPA as of the latest date
possible or as of the date of the meeting when stockholders
approved the increase/decrease in capital stock or thereabouts.
When all or part of the newly authorized capital stock is proposed
to be issued as stock dividends, the SEC requirements are even
more exacting; they require, in addition to the regular audited
financial statements, the submission by the corporation of a
“detailed or Long Form Report of the certifying Auditor.” 
 
Moreover, since approval of an increase in authorized capital
stock by the stockholders holding 2/3 of the outstanding capital
stock is required by Section 38 of the Corporation Code, at a
stockholders meeting held for that purpose, the directors and
officers of the corporation may be expected to inform the
shareholders of the financial condition and prospects of the
corporation and of the proposed utilization of the fresh capital
sought to be raised.
 
On the other hand, issuance of previously authorized but
theretofore unissued capital stock by the corporation requires
by the shareholders or the SEC is required for such issuance.
There would be no opportunity for the SEC to see to it that
shareholders (especially the small stockholders) have a
reasonable opportunity to inform themselves about the very fact
of such issuance and about the condition of the corporation and
the potential value of the shares of stock being offered.  strengthen the securities mechanism.
An issuance of previously authorized but still unissued capital
stock may be held to be an exempt transaction by the SEC under
Section 6(b) so long as the SEC finds that the requirements of
registration under the Revised Securities Act are “not necessary
in the public interest and for the protection of the investors” by
reason, inter alia, of the small amount of stock that is proposed to
be issued or because the potential buyers are very limited in
number and are in a position to protect themselves.
 
Petitioner Nestle’s second claim for exemption is from payment of
the fee provided for in Section 6 (c) of the Revised Securities Act.
Petitioner claims that to require it now to pay one-tenth of one
percent (1%) of the issued value of the 344,500 shares of stock
proposed to be issued, is to require it to pay a second time for the
same service on the part of the SEC.
 
We think it clear that the fee collected on February 21, 1983 by
the SEC was assessed in connection with the examination and
approval of the certificate of increase of authorized capital stock
then submitted by petitioner. The fee, on the other hand, provided
for in Section 6 (c) which petitioner will be required to pay if it
does file an application for exemption under Section 6 (b), is quite
different; this is a fee specifically authorized by the Revised
Securities Act, (not the Corporation Code) in connection with the
grant of an exemption from normal registration requirements
imposed by that Act. We do not find such fee either unreasonable
or exorbitant.
10. Nicolas vs. Court of Appeals, 288 SCRA 307 (1998)
Doctrine: Section 19 of the Revised Securities Act provides that
no broker shall sell any securities unless he is registered with the
SEC.  The purpose of the statute requiring the registration of
brokers selling securities and the filing of data regarding
securities which they propose to sell, is to protect the public and
An unlicensed person may not recover compensation for services
as a broker where a statute or ordinance requiring a license is
applicable and such statute or ordinance is of a regulatory nature,
was enacted in the exercise of the police power for the purpose
of protecting the public, requires a license as evidence of
qualification and fitness, and expressly precludes an unlicensed
person from recovering compensation by suit, or at least
manifests an intent to prohibit and render unlawful the transaction
of business by an unlicensed person.
 
Facts: On February 19, 1987, petitioner Roy Nicolas and private
respondent Blesito Buan entered into a Portfolio Management
Agreement, wherein the former was to manage the stock
transactions of the latter for a period of three months with an
automatic renewal clause.  However, upon the initiative of the
private respondent the agreement was terminated on August 19,
1987, and thereafter he requested for an accounting of all
transactions made by the petitioner.
 
Three weeks after the termination of the agreement, petitioner
demanded from the private respondent the amount of P68,263.67
representing his alleged management fees covering the periods
of June 30, July 31 and August 19, 1987 as provided for in the
Portfolio Management Agreement.  But the demands went
unheeded, much to the chagrin of the petitioner.
 
Rebuffed, petitioner filed a complaint for collection of sum of
money against the private respondent before the trial court.  In his
answer, the private respondent contended that the petitioner
mismanaged his transactions resulting in losses, thus, he was not
entitled to any management fees.
Issue/s: Whether or not the broker may sell securities in the
absence of registration or license from the SEC.
Held: No. Petitioner has not proven the amounts indicated
adequately.  His testimony explaining the bases for the
management fees demanded by him are nothing more than a
self-serving exercise which lacks probative value.  There was no
credible documentary evidence (e.g. receipts of the transactions,
order ticket, certificate of deposit; whether the stock certificates
were deposited in a bank or professional custodian, and others)
to support his claim that profits were indeed realized.  At best, his
assertions are founded on mere inferences and generalities. 
There must be more convincing proof which in this case is
wanting.
 
To our mind, petitioner’s complaint is similar to an action for
damages, wherein the general rule is that for the same to be
recoverable it must not only be capable of proof but must actually
be proved with a reasonable degree of certainty, and courts, in
making the awards, must posit specific facts which could afford
sufficient basis for measuring compensatory or actual damages.
Since the petitioner could not present any credible evidence to
substantiate his claims, the Court of Appeals was correct in
ordering the dismissal of his complaint.
 
The futility of petitioner’s action became more pronounced by the
fact that he traded securities for the account of others without the
necessary license from the Securities and Exchange Commission
(SEC).  Clearly, such omission was in violation of Section 19 of
the Revised Securities Act which provides that no broker shall sell
any securities unless he is registered with the SEC.  The purpose
of the statute requiring the registration of brokers selling
securities and the filing of data regarding securities which they
propose to sell, is to protect the public and strengthen the
securities mechanism.
 
American jurisprudence emphasizes the principle that:
 
“x x x, an unlicensed person may not recover
compensation for services as a broker where a statute or
ordinance requiring a license is applicable and such
statute or ordinance is of a regulatory nature, was
enacted in the exercise of the police power for the
purpose of protecting the public, requires a license as
evidence of qualification and fitness, and expressly
precludes an unlicensed person from recovering
compensation by suit, or at least manifests an intent to
prohibit and render unlawful the transaction of business
by an unlicensed person.”
 
We see no reason not to apply the same rule in our jurisdiction. 
Stock market trading, a technical and highly specialized institution
in the Philippines, must be entrusted to individuals with proven
integrity, competence and knowledge, who have due regard to
the requirements of the law.
11. Carolina Industries Inc. vs. CMS Stock Brokerage,
Inc., et. al., G.R. No. L-46908, May 17, 1980
Doctrine: Laws patterned after or adopted from those of the
United States, decisions of United States courts construing
similar laws are entitled to great weight. Generally speaking,
when a statute has been adopted from another State and such
statute has previously been construed by the courts of such State
or country, this statute is deemed to have been adopted with the
construction so given it. It has been uniformly held that if a broker
extends credit to a customer in violation of the Securities Act or
the regulations promulgated pursuant thereto, all to induce a
customer to purchase securities, then the broker has violated the
law and the customer may recover from him any loss proximately
resulting therefrom  
FACTS
Defendant CMS Stock Brokerage, Inc. was a licensed securities
broker and dealer engaged, in the business of buying and selling
stocks and securities for and in behalf of investors, such as the
plaintiff. Defendant Carlos Moran Sison is the president and at
the same time the major and controlling stockholder of defendant
corporation.
During the period from June 17, 1969 to July 10, 1969, plaintiff
Carolina Industries, Inc. deposited with defendant CMS Stock
Brokerage, Inc. various cash amounts totalling P586,796.00, as
partial payments to the debit balance, and securities valued at
P48,000.00, consisting of 400 shares of Benguet Consolidated.
As of September 12, 1969, the account of plaintiff Carolina
Industries, Inc. with defendant CMS Stock Brokerage, Inc. had a
debit balance of P804,179.69 against a security deposit with a
market value of a little over a million pesos. Its debit balance as of
September 12, 1969, was over 70% of its security deposit, or
more than 20% over the 50% ceiling set by Section 18(a) (1) of
the Securities Act.
On September 15, 1969, defendant corporation purchased for
plaintiff's account 4,260  Marinduque Mining & Industrial
Corporation shares worth P749,985.00, and on September 16,
1969, defendant corporation purchased also for plaintiff's account
9,975 more Marinduque shares worth P1,909,536.00.
Plaintiff alleged that, defendants, without its (Plaintiff's) authority,
purchased for its account 14,235 shares of the capital stock of the
Marinduque Mining & Industrial Corporation, thereby increasing
its liability.
Plaintiff claims that to minimize its loses, it was compelled to
instruct the banks concerned to withhold payment on the PNB
Cashier's check.
BY its complaint, plaintiff seeks to order defendants, inter alia, to
pay it, jointly and severally.
It would seem that the defendant brokerage firm extended to
plaintiff excessive credit because it is provided under section 18
of the Securities Act that "for the purpose of preventing the
excessive use of credit for the purchase or carrying of securities",
one of the standards set is that the credit extended should not
exceed "fifty per centum of the current market price of the
security" (Section 18, par. (a), (1), Securities Act).
In other words, applying the said standard on the maximum limit
of allowable credit fixed by law to the case at bar, considering that
the value of plaintiff's security position with the defendant
brokerage firm was P1,168,478.00 as of September 12, 1969, the
maximum credit that could legally be extended to plaintiff should
only be fifty per cent of P1,168,478.00 or P584,239.00 at most,
instead of the P804,179.69 actually extended by the defendant
brokerage firm to plaintiff.
The Court of First Instance took into account the stock market
boom of the period and the heavy volume of trading resulting
therefrom, which prompted the Securities and Exchange
Commission to suspend trading at the Manila and Makati Stock
Exchanges. It found that, in view of the circumstances obtaining,
respondent brokerage firm, applying Sections 28(a) (2) and 40 of
the Securities Act, had not wilfully violated the Securities Act. It
dismissed plaintiff's complaint;
On appeal to the Court of Appeals, the judgment of the trial court
was affirmed 
Issue
 May a broker make valid and binding stock purchases for
customers under margin accounts* in excess and in violation of
the credit ceiling under Section 18 of the Securities Act ?
Ruling: No
Private respondents offered the excuse that non-compliance with
requirement was due to the stock market boom and the rush of
trading which resulted in the near impossibility of complying
therewith. It is argued that as a matter of fact, Rule B-7 was
suspended, or, at least, not enforced by the Securities and
Exchange Commission during the period of the boom.
No proof is presented by private respondent showing the official
suspension by the Securities and Exchange Commission of the
aforesaid Rule.  imposition of the corresponding penalty. The instant case is an
Pursuant to the clear and explicit provision of Section 38(b) of the
Securities Act, "(E)very contract made in violation of any provision
of this Act or of any rule or regulation thereunder ..., shall be void:
(1) As regards the rights of any person who, in violation of any
such provision. rule or regulation shall have made or engaged in
the performance of any contract ... ." Section 38(b) (1) of the
Securities Act is copied from Section 29 of the United States
Securities Exchange Act. 
We have previously stated that in case of laws patterned after or
adopted from those of the United States, decisions of United
States courts construing similar laws are entitled to great weight.
Generally speaking, when a statute has been adopted from
another State and such statute has previously been construed by
the courts of such State or country, this statute is deemed to have
been adopted with the construction so given it. 15 It has been
uniformly held that if a broker extends credit to a customer in
violation of the Securities Act or the regulations promulgated
pursuant thereto, all to induce a customer to purchase securities,
then the broker has violated the law and the customer may
recover from him any loss proximately resulting therefrom. 16 The
customer's right of action is not affected by his participation in the
transaction "since the legislation regarded him as incapable of
protecting himself." 17 It has been held that such protection was
intended to apply only to innocent investors as distinguished from
those who lose their innocence and wait to see how their
investments turn out before deciding to invoke the act. 18 The
acts of protecting of investors extends to corporations as well as
to individuals. 19 We hold that such principles are applicable to
the case at bar.
The instant controversy is neither an administrative case for willful
violation before the Securities and Exchange Commission, in
which case Section 28(a) (2) of the Securities Act would properly
apply, nor a criminal prosecution for such willful violation, in which
case Section 40 of the same Act would be applied for the
ordinary civil case seeking to nullity certain acts, alleged to be
contrary to law, arising from violation of the margin agreement
between petitioner and private respondent brokerage firm, and
relating to acts committed by the latter in the course of their
business relationship. Its purpose pose is to recover substantial
business losses incurred by petitioner resulting from the assailed
acts of respondent broker. Compliance to said requirement
cannot be waived. 
In sum, We hold that under the attendant circumstance the over-
extension of credit by CMS Stock Brokerage, Inc. to Carolina
Industries, Inc. beyond the 50% allowed by law rendered null,
insofar as the rights of CMS Stock Brokerage, Inc. are concerned,
the purported purchase for petitioner's account on September 15
and 16, 1969 
 (* for clarification, Buying on margin is borrowing money from a
broker to purchase stock. You can think of it as a loan from your
brokerage. Margin trading allows you to buy more stock than
you'd be able to normally. To trade on margin, you need a margin
account)
12. Baviera v. Paglinawan G.R. No. 168380, 8 February
2007, 515 SCRA 515 
Doctrine: The Securities Regulation Code is a special law. Its
enforcement is particularly vested in the SEC. Hence, all
complaints for any violation of the Code and its implementing
rules and regulations should be filed with the SEC. Where the
complaint is criminal in nature, the SEC shall indorse the
complaint to the DOJ for preliminary investigation and
prosecution as provided in Section 53.1 earlier quoted.
Facts:
Manuel Baviera, petitioner in these cases, was the former head of
the HR Service Delivery and Industrial Relations of Standard
Chartered Bank-Philippines (SCB), one of herein respondents.
SCB is a foreign banking corporation duly licensed to engage in
banking, trust, and other fiduciary business in the Philippines.
Pursuant to Resolution No. 1142 of the Monetary Board of the
Bangko Sentral ng Pilipinas (BSP), the conduct of SCB’s
business in this jurisdiction is subject to the following conditions:
1. At the end of a one-year period from the date the SCB starts its
trust functions, at least 25% of its trust accounts must be for the
account of non-residents of the Philippines and that actual foreign
exchange had been remitted into the Philippines to fund such
accounts or that the establishment of such accounts had reduced
the indebtedness of residents (individuals or corporations or
government agencies) of the Philippines to non-residents. At the
end of the second year, the above ratio shall be 50%, which ratio
must be observed continuously thereafter;
2. The trust operations of SCB shall be subject to all existing
laws, rules and regulations applicable to trust services,
particularly the creation of a Trust Committee; and
3. The bank shall inform the appropriate supervising and
examining department of the BSP at the start of its operations.
Apparently, SCB did not comply with the above conditions.
Instead, as early as 1996, it acted as a stock broker, soliciting
from local residents foreign securities called "GLOBAL THIRD
PARTY MUTUAL FUNDS" (GTPMF), denominated in US dollars.
These securities were not registered with the Securities and
Exchange Commission (SEC).
SCB’s counsel  advised the bank to proceed with the selling of
the foreign securities although unregistered with the SEC, under
the guise of a "custodianship agreement;"  settlement.
in 1998, the BSP directed SCB not to include investments in
global mutual funds issued abroad in its trust investments
portfolio without prior registration with the SEC.
However,  SCB continued to offer and sell GTPMF securities in
this country. This prompted petitioner to enter into an Investment
Trust Agreement with SCB wherein he purchased US$8,000.00
worth of securities upon the bank’s promise of 40% return on his
investment and a guarantee that his money is safe. After six (6)
months, however, petitioner learned that the value of his
investment went down to US$7,000.00. He tried to withdraw his
investment but was persuaded to hold on to it for another six (6)
months in view of the possibility that the market would pick up.
Meanwhile, on November 27, 2000, the BSP found that SCB
failed to comply with its directive. Consequently, it was fined in
the amount of ₱30,000.00.
The trend in the securities market, however, was bearish and the
worth of petitioner’s investment went down further to only
US$3,000.00.
In 2001, petitioner learned  that the latter SCB been prohibited by
the BSP to sell GPTMF securities. Petitioner then filed with the
BSP a letter-complaint demanding compensation for his lost
investment. But SCB denied his demand on the ground that his
investment is "regular."
In 2003, petitioner filed with the Department of Justice (DOJ) a
complaint charging the officers and members of th
e SCB Board of Directors with syndicated estafa
In 2003, the SEC issued a Cease and Desist Order against SCB
restraining it from further offering, soliciting, or otherwise selling
its securities to the public until these have been registered with
the SEC.
Subsequently, the SEC and SCB reached an amicable
In 2004, the SEC lifted its Cease and Desist Order and approved
the ₱7 million settlement offered by SCB. Thereupon, SCB made
a commitment not to offer or sell securities without prior
compliance with the requirements of the SEC.

In 2004, petitioner filed with the DOJ a complaint for violation of
Section 8.19 of the Securities Regulation Code against private
respondents.
Later in the DOJ rendered its Joint Resolution10 dismissing
petitioner’s complaint for syndicated estafa  preliminary investigation and prosecution as provided in Section
DOJ also dismissed petitioner’s complaint fo violation of
Securities Regulation Code, holding that it should have been filed
with the SEC.
Hence, petition filed a petition the CA for both cases. In 2005, the
Court of Appeals promulgated its Decision dismissing the
petition.1avvphi1.net It sustained the ruling of the DOJ that the
case should have been filed initially with the SEC.
Issue: whether the Court of Appeals erred in concluding that the
DOJ did not commit grave abuse of discretion in dismissing
petitioner’s complaint  for violation of Securities Regulation Code
and his complaint  for syndicated estafa.
Ruling:
For violation of the Securities Regulation Code
The Court of Appeals held that under Section 53 paragraph 1 of
SCR a criminal complaint for violation of any law or rule
administered by the SEC must first be filed with the latter. If the
Commission finds that there is probable cause, then it should
refer the case to the DOJ. Since petitioner failed to comply with
the foregoing procedural requirement, the DOJ did not gravely
abuse its discretion in dismissing his complaint.
A criminal charge for violation of the Securities Regulation Code
is a specialized dispute. Hence, it must first be referred to an
administrative agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction, courts will not
determine a controversy involving a question within the
jurisdiction of the administrative tribunal, where the question
demands the exercise of sound administrative discretion requiring
the specialized knowledge and expertise of said administrative
tribunal to determine technical and intricate matters of fact.12 The
Securities Regulation Code is a special law. Its enforcement is
particularly vested in the SEC. Hence, all complaints for any
violation of the Code and its implementing rules and regulations
should be filed with the SEC. Where the complaint is criminal in
nature, the SEC shall indorse the complaint to the DOJ for
53.1 earlier quoted.
 For Syndicated Estafa
The Court of Appeals held that petitioner’s evidence is insufficient
to establish probable cause for syndicated estafa. There is no
showing from the record that private respondents herein did
induce petitioner by false representations to invest in the GTPMF
securities. Nor did they act as a syndicate to misappropriate his
money for their own benefit. Rather, they invested it in
accordance with his written instructions. That he lost his
investment is not their fault since it was highly speculative.
Records show that public respondents examined petitioner’s
evidence with care, well aware of their duty to prevent material
damage to his constitutional right to liberty and fair play. 
Hence, we hold that the Court of Appeals was correct in
dismissing the petition for review against private respondents and
in concluding that the DOJ did not act with grave abuse of
discretion tantamount to lack or excess of jurisdiction.
13. Abacus Securities Corp. vs. Ampil 483 SCRA 315
Doctrine: The main purpose of the statute on margin
requirements is to regulate the volume of credit flow, by way of
speculative transactions, into the securities market and redirect
resources into more productive uses. It is also to give a
government credit agency an effective method of reducing the
aggregate amount of the nation’s credit resources which can be
directed by speculation into the stock market and out of other
more desirable uses of commerce and industry.
It is for the stabilization of the economy. Restrictions on margin
percentages are imposed “in order to achieve the objectives of
the government with due regard for the promotion of the economy
and prevention of the use of excessive credit.”
Facts: In April 1997, respondent opened a cash or regular
account with petitioner for buying and selling securities as
evidenced by the Account Application Form. The parties’
business relationship was governed by the terms and conditions
stated therein.
Since April 10, 1997, respondent actively traded his account, and
as a result of such trading activities, he accumulated an
outstanding obligation in favor of petitioner in the sum of
P6,617,036.22 as of April 30, 1997. Respondent failed to pay
petitioner his liabilities. Petitioner sold respondent’s securities to
set off against his unsettled obligations.
 
After the sale of respondent’s securities and application of the
proceeds thereof against his account, respondent’s remaining
unsettled obligation to petitioner was P3,364,313.56.
 Petitioner demanded that respondent settle his obligation plus
the agreed penalty charges accruing thereon equivalent to the
average 90-day Treasury Bill rate plus 2% per annum. Despite
said demand and the lapse of said requested extension,
respondent failed and/or refused to pay his accountabilities to the
petitioner. Respondent claims that he was induced to trade in a
stock security with petitioner because the latter allowed offset
settlements wherein he is not obliged to pay the purchase price.
Rather, it waits for the customer to sell. And if there is a loss, the
petitioner only requires the payment of the deficiency (i.e., the
difference between the higher buying price and the lower selling
price). In addition, it charges a commission for brokering the sale.
However, if the customer sells and there is a profit, the petitioner
deducts the purchase price and delivers only the surplus – after
charging its commission.
 RTC- Makati City held that petitioner and respondent were in pari
delicto and therefore without recourse against each other. CA
upheld the lower court’s finding that the parties were in pari
delicto. It castigated the petitioner for allowing respondent to keep
on trading despite the latter’s failure to pay his outstanding
obligations. It explained that “the reason behind the petitioner's
act is because whether the respondent's trading transaction
would result in a surplus or deficit, he would still be liable to pay
the petitioner its commission. Hence, this Petition.
Issue/s: What is margin requirement
Held: The main purpose of the statute on margin requirements is
to regulate the volume of credit flow, by way of speculative
transactions, into the securities market and redirect resources
into more productive uses. It is also to give a government credit
agency an effective method of reducing the aggregate amount of
the nation’s credit resources which can be directed by speculation
into the stock market and out of other more desirable uses of
commerce and industry.
It is for the stabilization of the economy. Restrictions on margin
percentages are imposed “in order to achieve the objectives of
the government with due regard for the promotion of the economy
and prevention of the use of excessive credit.” Otherwise stated,
the margin requirements set out in the RSA are primarily intended
to achieve a macroeconomic purpose — the protection of the
overall economy from excessive speculation in securities. Their
recognized secondary purpose is to protect small investors.
The law places the burden of compliance with margin
requirements primarily upon the brokers and dealers. Sections 23
and 25 and Rule 25-1, otherwise known as the “mandatory close-
out rule,” clearly vest upon petitioner the obligation, not just the
right, to cancel or otherwise liquidate a customer’s order, if
payment is not received within three days from the date of
purchase. For transactions subsequent to an unpaid order, the
broker should require its customer to deposit funds into the
account sufficient to cover each purchase transaction prior to its
execution. These duties are imposed upon the broker to ensure
faithful compliance with the margin requirements of the law, which
forbids a broker from extending undue credit to a customer.
 
It will be noted that trading on credit (or “margin trading”) allows
investors to buy more securities than their cash position would
normally allow. Investors pay only a portion of the purchase price
of the securities; their broker advances for them the balance of
the purchase price and keeps the securities as collateral for the
advance or loan. Brokers take these securities/stocks to their
bank and borrow the “balance” on it, since they have to pay in full
for the traded stock. Hence, increasing margins i.e., decreasing
the amounts which brokers may lend for the speculative purchase
and carrying of stocks is the most direct and effective method of
discouraging an abnormal attraction of funds into the stock
market and achieving a more balanced use of such resources.
 The nature of the stock brokerage business enables brokers, not
the clients, to verify, at any time, the status of the client’s account.
Brokers are in the superior position to prevent the unlawful
extension of credit. Because of this awareness, the law imposes
upon them the primary obligation to enforce the margin
requirements.
 Nonetheless, these margin requirements are applicable only to
transactions entered into by the present parties subsequent to the
initial trades of April 10 and 11, 1997. Thus, we hold that
petitioner can still collect from respondent to the extent of the
difference between the latter’s outstanding obligation as of
April 11, 1997 less the proceeds from the mandatory sell out of
the shares pursuant to the RSA Rules. Petitioner’s right to collect
is justified under the general law on obligations and contracts.
 The right to collect cannot be denied to petitioner as the initial
transactions were entered pursuant to the instructions of
respondent. The obligation of respondent for stock transactions
made and entered into on April 10 and 11, 1997 remains
outstanding. These transactions were valid and the obligations
incurred by respondent concerning his stock purchases on these
dates subsist. At that time, there was no violation of the RSA yet.
Petitioner’s fault arose only when it failed to: 1) liquidate the
transactions on the fourth day following the stock purchases, or
on April 14 and 15, 1997; and 2) complete its liquidation no later
than ten days thereafter, applying the proceeds thereof as
payment for respondent’s outstanding obligation.
Since the buyer was not able to pay for the transactions that took
place on April 10 and 11, the broker was duty-bound to advance
the payment to the settlement banks without prejudice to the right
of the broker to collect later from the client.
 In securities trading, the brokers are essentially the
counterparties to the stock transactions at the Exchange. Since
the principals of the broker are generally undisclosed, the broker
is personally liable for the contracts thus made. Hence, petitioner
had to advance the payments for respondent’s trades. Brokers
have a right to be reimbursed for sums advanced by them with
the express or implied authorization of the principal, in this case,
respondent. Not to require respondent to pay for his April 10 and
11 trades would put a premium on his circumvention of the laws
and would enable him to enrich himself unjustly at the expense of
petitioner.
 In the present case, petitioner failed to enforce the terms and
conditions of its Agreement with respondent, specifically
paragraph 8 thereof, purportedly acting on the plea of respondent
to give him time to raise funds therefor. By failing to ensure
respondent’s payment of his first purchase transaction within the
period prescribed by law, thereby allowing him to make
subsequent purchases, petitioner effectively converted
respondent’s cash account into a credit account. However,
extension or maintenance of credits on non-margin transactions,
are specifically prohibited under Section 23(b). Thus, petitioner
was remiss in its duty and cannot be said to have come to court
with “clean hands” insofar as it intended to collect on transactions
subsequent to the initial trades of April 10 and 11, 1997.
 On the other hand, respondent is equally guilty in entering into
the transactions in violation of the RSA and RSA Rules.
Respondent is an experienced and knowledgeable trader who is
well versed in the securities market and who made his own
investment decisions. In fact, in the Account Opening Form, he
indicated that he had excellent knowledge of stock investments;
had experience in stocks trading, considering that he had similar
accounts with other firms. He knowingly speculated on the
market, by taking advantage of the “no-cash-out” arrangement
extended to him by petitioner.
 Both parties acted in violation of the law and did not come to
court with clean hands with regard to transactions subsequent to
the initial trades made on April 10 and 11, 1997.
Since the initial trades (April 10 and 11) are valid and subsisting
obligations, respondent is liable for them. Justice and good
conscience require all persons to satisfy their debts. Ours are
courts of both law and equity; they compel fair dealing; they do
not abet clever attempts to escape just obligations.
 Pursuant to RSA Rule 25-1, petitioner should have liquidated the
transaction (sold the stocks) on the fourth day following the
transaction (T+4) and completed its liquidation not later than ten
days following the last day for the customer to pay (effectively
T+14). Respondent’s outstanding obligation is therefore to be
determined by using the closing prices of the stocks purchased at
T+14 as basis.
 We consider the foregoing formula to be just and fair under the
circumstances. When petitioner tolerated the subsequent
purchases of respondent without performing its obligation to
liquidate the first failed transaction, and without requiring
respondent to deposit cash before embarking on trading stocks
any further, petitioner, as the broker, violated the law at its own
peril.
 WHEREFORE, the assailed Decision and Resolution of the
Court of Appeals are hereby MODIFIED.
14. Lopez, Locsin, Ledesma & Co. vs. Court of Appeals,
168 SCRA 276 (1998)
Doctrine: An exchange is a voluntary association or corporation
organized for the purpose of furnishing to its members a
convenient and suitable place to transact their business of
promoting uniformity in the customs and usages of merchants, of
inculcating principles of justice and equity in trade, of facilitating
the speedy adjustment of business disputes, of acquiring and
disseminating valuable commercial and economic information
and generally of securing to its members the benefits of
cooperation in the furtherance of their legitimate pursuits.
Like any other association, an exchange has the power to
adopt its own constitution, by-laws, rules and regulations so
far as they are not contrary to law or public policy and which
will secure to the members exclusive rights and privileges
which the courts have fully recognized. Anyone who
becomes a member of the exchange voluntarily submits
himself to the operation of these rules and is expected to be
bound by and to respect them.
Facts: On August 14 and 26,1969 CMS Stock Brokerage, Inc.
(CMS for short) sold to Lopez, Locsin, Ledesma and Co., Inc.,
(LLL for short) on the floor of the Makati Stock Exchange, among
others, 2,650 Benguet Consolidated shares for the total price of
P297,650.00 on a ten (10) to twenty (20) days delayed delivery
basis. The sale is evidenced by Exchange Contracts.
 
Of these 2,650 shares, 500 shares were purchased for and on
orders of Jose Ma. Lopez, 1,600 shares for and on orders of
Alfredo Ramos; 275 shares for and on orders of Rene Ledesma;
and 275 shares for and on orders of Cesar A. Lopez, Jr.
 
CMS, however, failed to deliver to LLL the 2,650 Benguet
Consolidated shares within the ten (10) to twenty (20) days
stipulated in the exchange contracts between them alleging non-
delivery as due to mere oversight owing to the huge volume of
transactions.
the auditors discovered that the 2,650 Benguet Consolidated
shares which CMS sold to LLL still remained undelivered and
unpaid by LLL.
So CMS made known the LLL that it would effect delivery of said
shares of stocks the following day. LLL in its letter dated January
7, 1970, however, refused to accept delivery at that late time
since its clients for whom the purchases were made had “elected
to cancel” the orders.
On January 8, 1970, CMS replied that, pursuant to the Rules and
Regulations of the Makati Stock Exchange, LLL had no right to
cancel its orders, nevertheless, made a disposal in favor of LLL
the next day.
 
On January 9,1970, LLL refused to acknowledge receipt of and
sign the covering disposal letter. What CMS did was to deposit
the letter with the Office of the Stock Exchange’s Executive
Secretary with the notation: “Refused Acceptance pending
decision of the Exchange.”
CMS Stock Brokerage, Inc., filed a complaint docketed as Civil
Case No. 14518 in the Court of First Instance of Rizal against
Lopez, Locsin, Ledesma & Co., Inc., to compel the latter to
accept the shares of stock in question.
 
Trial court ruled in favor of the plaintiff. Consequently, Lopez,
Locsin, Ledesma & Co., Inc., and third-party defendants Jose Ma.
Lopez and Cesar Lopez, Jr., and Alfredo Ramos appealed to the
Court of Appeals. CA affirmed, with the exception of the award of
damages and attorney’s fees in favor of plaintiff-appellee which is
hereby set aside.
Issue/s: WON petitioner may be compelled by respondent to
accept the delivery
Held: It is the petitioner’s main contention that the law on
contracts is controlling in this case: Hence,
CMS’ failure to deliver the 2,650 Benguet Consolidated shares of
stocks within the stipulated time of ten (10) to twenty (20) days
warrants the rescission of the exchange contracts in question.
nature and purposes of an exchange—
An exchange is a voluntary association or corporation organized
for the purpose of furnishing to its members a convenient and
suitable place to transact their business of promoting uniformity in
the customs and usages of merchants, of inculcating principles of
justice and equity in trade, of facilitating the speedy adjustment of
business disputes, of acquiring and disseminating valuable
commercial and economic information and generally of securing
to its members the benefits of cooperation in the furtherance of
their legitimate pursuits.
Like any other association, an exchange has the power to
adopt its own constitution, by-laws, rules and regulations so
far as they are not contrary to law or public policy and which
will secure to the members exclusive rights and privileges
which the courts have fully recognized. Anyone who
becomes a member of the exchange voluntarily submits
himself to the operation of these rules and is expected to be
bound by and to respect them
The rule at issue in the instant case is Section I, Article V of the
Rules and Regulations. It reads:
In the event of a Selling Member failing to make delivery within a
reasonable period of time of shares sold under delayed delivery
contract, it shall be the Buying Member duty to advise the Selling
Member in writing giving him 1 full business day from the time of
receipt of said letter of demand to make delivery.
The Buying Member shall obtain a written receipt from the Selling
Member on the duplicate copy of the letter of demand. This
receipt must state the time of delivery of the letter of demand to
the Selling Member.
 
Fifteen days shall be considered a reasonable period of time
within which to effect delivery unless otherwise stated in the sales
contract.
In the event a Selling Member is unable to make delivery within
said period, the Buying Member shall deliver a copy of his letter
of demand to the Chairman of the Floor Trading & Arbitration
Committee who may purchase the shares for the Selling
Member’s Account.
The rule is clear that the exchange contracts in question fall
under the last clause. The parties have merely specified the
period within which delivery must be made which is ten (10)
to twenty (20) days. Such qualification does not in any way
change the nature of the exchange contracts. The buying
member’s duty under the rules remains.
More than any person, it is the buyer who should be aware
whether or not what he purchased has been delivered to him.
Because of this awareness, the Exchange imposes upon him the
primary obligation of giving notice.
 
It would, therefore, be safe to say that unless the buying member
timely notifies the seller that he is canceling his orders, then the
orders placed by the buying member still stand. LLL must,
therefore, accept the delivery of the shares of stocks. If the
shares had doubled or trebled in value, it could demand delivery
of what it purchased. The rule is clear. It was the duty of LLL
to make a demand in the event CMS failed to deliver within
the stipulated time.   stocks certificates and for issuance of new certificates in the
PETITION DISMISSED
19. SEC vs. CA, G.R. Nos. 106425 & 106431-32, July 21,
1995, 246 SCRA 738
FACTS:
Cualoping Securities Corporation (CUALOPING for brevity) is a
stockbroker, Fidelity Stock Transfer, Inc. (FIDELITY for brevity),
on the other hand, is the stock transfer agent of Philex Mining
Corporation (PHILEX for brevity).
On or about the first half of 1988, certificates of stock of PHILEX
representing one million four hundred [thousand] (1,400,000)
shares were stolen from the premises of FIDELITY. These stock
certificates consisting of stock dividends of certain PHILEX
shareholders had been returned to FIDELITY for lack of
forwarding addresses of the shareholders concerned.
Later, the stolen stock certificates ended in the hands of a certain
Agustin Lopez, a messenger of New World Security Inc., an
entirely different stock brokerage firm. In the first half of 1989,
Agustin Lopez brought the stolen stock certificates to
CUALOPING for trading and sale with the stock exchange. When
the said stocks were brought to CUALOPING, all of the said stock
certificates bore the "apparent" indorsement (signature) in blank
of the owners (the stockholders to whom the stocks were issued
by PHILEX) thereof. At the side of these indorsements
(signatures), the words "Signature Verified" apparently of
FIDELITY were stamped on each and every certificate. Further,
on the words "Signature Verified" showed the usual initials of the
officers of FIDELITY.
Upon receipt of the said certificates from Agustin Lopez,
CUALOPING stamped each and every certificate with the words
"Indorsement Guaranteed," and thereafter traded the same with
the stock exchange.
After the stock exchange awarded and confirmed the sale of the
stocks represented by said certificates to different buyers, the
same were delivered to FIDELITY for the cancellation of the
name of the new buyers. Agustin Lopez on the other hand was
paid by CUALOPING with several checks for Four Hundred
Thousand (P400,000.00) Pesos for the value of the stocks.
After two (2) months from receipt of said stock certificates,
FIDELITY rejected the issuance of new certificates in favor of the
buyers for reasons that the signatures of the owners of the
certificates were allegedly forged and thus the cancellation and
new issuance thereof cannot be effected.
On 11 August 1988, FIDELITY sought an opinion on the matter
from SEC
Brokers and Exchange Department ("BED") of the SEC: Fidelity
Stock Transfers, Inc., is hereby ordered to replace all the subject
shares and to cause the transfer thereof in the names of the
buyers within ten days from actual receipt hereof. Cualoping
Securities, INC., for having violated Section 29 a(3) of the
Revised Securities Act is hereby ordered to pay a fine of
P50,000.00 within five (5) days from actual receipt hereof.
SEC en banc: both Cualoping Securities Corporation and Fidelity
Stock Transfers, Inc. are equally negligent in the performance of
their duties
CA set aside the decision of SEC.
Thus, this instant petition for review on certiorari.
ISSUE: WON the CA erred in setting aside the judgment of the
SEC
WON the decision of the SEC to impose a fine on
FIDELITY and CUALOPING is proper
HELD:
1. NO. The Court sees nothing erroneous in the decision of the
Court of Appeals to set aside the SEC's adjudication "without
prejudice" to the right of persons injured to file the necessary
proceedings for appropriate relief.
The first aspect of the SEC decision appealed to the Court of
Appeals, i.e., that portion which orders the two stock transfer
agencies to "jointly replace the subject shares and for FIDELITY
to cause the transfer thereof in the names of the buyers" clearly
calls for an exercise of SEC's adjudicative jurisdiction.  controversy and can cause an exercise by the SEC of its original
Relative to its adjudicative authority, the SEC has original and
exclusive jurisdiction to hear and decide controversies and cases
involving: Intra-corporate and partnership relations between or
among the corporation, officers and stockholders and partners,
including their elections or appointments; State and corporate
affairs in relation to the legal existence of corporations,
partnerships and associations or to their franchises; and Investors
and corporate affairs, particularly in respect of devices and
schemes, such as fraudulent practices, employed by directors,
officers, business associates, and/or other stockholders, partners,
or members of registered firms; as well as Petitions for
suspension of payments filed by corporations, partnerships or
associations possessing sufficient property to cover all their debts
but which foresee the impossibility of meeting them when they
respectively fall due, or possessing insufficient assets to cover
their liabilities and said entities are upon petition or motu proprio,
placed under the management of a Rehabilitation Receiver or
Management Committee.
This case, it might be recalled, has started only on the basis of a
request by FIDELITY for an opinion from the SEC. The
stockholders who have been deprived of their certificates of stock
or the persons to whom the forged certificates have ultimately
been transferred by the supposed indorsee thereof are yet to
initiate, if minded, an appropriate adversarial action. Neither have
they been made parties to the proceedings now at bench. A
justiciable controversy such as can occasion an exercise of
SEC's exclusive jurisdiction would require an assertion of a right
by a proper party against another who, in turn, contests it.5 It is
one instituted by and against parties having interest in the subject
matter appropriate for judicial determination predicated on a given
state of facts. That controversy must be raised by the party
entitled to maintain the action. 
In the case at bench, the proper parties that can bring the
and exclusive jurisdiction would be all or any of those who are
adversely affected by the transfer of the pilfered certificates of
stock. 
2. NO. The other issue, i.e., the question on the legal propriety of
the imposition by the SEC of a P50,000 fine on each of FIDELITY
and CUALOPING, is an entirely different matter. This time, it is
the regulatory power of the SEC which is involved. When, on
appeal to the Court of Appeals, the latter set aside the fines
imposed by the SEC, the latter, in its instant petition, can no
longer be deemed just a nominal party but a real party in interest
sufficient to pursue an appeal to this Court.
Under its regulatory responsibilities, the SEC may pass upon
applications for, or may suspend or revoke (after due notice and
hearing), certificates of registration of corporations, partnerships
and associations (excluding cooperatives, homeowners'
associations, and labor unions); compel legal and regulatory
compliances; conduct inspections; and impose fines or other
penalties for violations of the Revised Securities Act, as well as
implementing rules and directives of the SEC, such as may be
warranted.

There is, to our mind, no question that both FIDELITY and
CUALOPING have been guilty of negligence in the conduct of
their affairs involving the questioned certificates of stock. To
constitute, however, a violation of the Revised Securities Act that
can warrant an imposition of a fine under Section 29(3), in
relation to Section 46 of the Act, fraud or deceit, not mere
negligence, on the part of the offender must be established.
Given the factual circumstances found by the appellate court,
neither FIDELITY nor CUALOPING, albeit indeed remiss in the
observance of due diligence, can be held liable under the above
provisions of the Revised Securities Act. We do not imply,
however, that the negligence committed by private respondents
would not at all be actionable; upon the other hand, as we have
earlier intimated, such an action belongs not to the SEC but to
those whose rights have been injured.
As to the, violation by FIDELITY of SEC-BED Memorandum
Circular No. 9, series of 1987, FIDELITY argued that it has been
fined by the SEC not by virtue of Memorandum Circular No. 9 but
for a violation of Section 29(a)(3) of the Revised Securities Act,
and that the memorandum circular is only now being raised for
the first time in the instant petition. This Court has ruled that when
issues are not specifically raised but they bear relevance and
close relation to those properly raised, a court has the authority to
include all such issues in passing upon and resolving the
controversy. In this case at bench, particularly, it is not a new
issue that is being raised but a memorandum-circular having the
force and effect of law that has been cited to support a position
that relates to the very subject matter of the controversy. On this
point, accordingly, we must rule in favor of petitioner SEC.
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED except the portion thereof which sets aside the
imposition by the Securities and Exchange Commission of a fine
on FIDELITY which is hereby REINSTATED.
20. SEC vs. Oudine Santos,  G.R. No. 195542, March 19,
2014 
FACTS: Sometime in 2007, yet another investment scam was
exposed with the disappearance of its primary perpetrator,
Michael H.K. Liew (Liew), a self–styled financial guru and
Chairman of the Board of Directors of Performance Investment
Products Corporation (PIPC–BVI), a foreign corporation
registered in the British Virgin Islands.
To do business in the Philippines, PIPC–BVI incorporated herein
as Philippine International Planning Center Corporation (PIPC
Corporation).
Because the head of PIPC Corporation had gone missing and
with it the monies and investment of a significant number of
investors, the SEC was flooded with complaints from thirty–one
(31) individuals against PIPC Corporation, its directors, officers,
employees, agents and brokers for alleged violation of certain
provisions of the Securities Regulation Code, including Section
28 thereof.  Santos was charged in the complaints in her capacity
as investment consultant of PIPC Corporation, who supposedly
induced private complainants Luisa Mercedes P. Lorenzo
(Lorenzo) and Ricky Albino P. Sy (Sy), to invest their monies in
PIPC Corporation.
The common recital in the 31 complaints is
that:chanRoblesvirtualLawlibrary
x x x [D]ue to the inducements and solicitations of the PIPC
corporation’s directors, officers and employees/agents/brokers,
the former were enticed to invest their hard–earned money, the
minimum amount of which must be US$40,000.00, with PIPC–
BVI, with a promise of higher income potential of an interest of 12
to 18 percentum (%) per annum at relatively low–risk investment
program. 
Soon thereafter, the SEC, through its Compliance and
Endorsement Division, filed a complaint–affidavit for violation of
Sections 8, 26 and 28 of the Securities Regulation Code before
the Department of Justice which was docketed as I.S. No. 2007–
1054.  Among the respondents in the complaint–affidavit were the
principal officers of PIPC: Liew, Chairman and President; Cristina
Gonzalez–Tuason, Director and General Manager; Ma. Cristina
Bautista–Jurado, Director; and herein respondent Santos.
On the whole, Lorenzo and Sy charge Santos in her capacity as
investment consultant of PIPC Corporation who actively engaged
in the solicitation and recruitment of investors.  Private
complainants maintain that Santos, apart from being PIPC
Corporation’s employee, acted as PIPC Corporation’s agent and
made representations regarding its investment products and that
of the supposed global corporation PIPC–BVI.  Facilitating
Lorenzo’s and Sy’s investment with PIPC Corporation, Santos
represented to the two that investing with PIPC Corporation, an
affiliate of PIPC–BVI, would be safe and full–proof.
Santos’ defense consisted in: (1) denying participation in the
conspiracy and fraud perpetrated against the investor–
complainants of PIPC Corporation, specifically Sy and Lorenzo;
(2) claiming that she was initially and merely an employee of, and
subsequently an independent information provider for, PIPC
Corporation; (3) PIPC Corporation being a separate entity from
PIPC–BVI of which Santos has never been a part of in any
capacity; (4) her not having received any money from Sy and
Lorenzo, the two having, in actuality, directly invested their money
in PIPC–BVI; (5) Santos having dealt only with Sy and the latter,
in fact, deposited money directly into PIPC–BVI’s account; and
(6) on the whole, PIPC–BVI as the other party in the investment
contracts signed by Sy and Lorenzo, thus the only corporation
liable to Sy and Lorenzo and the other complainants.
On 18 April 2008, the DOJ, issued a Resolution indicting: (a) Liew
and Gonzalez–Tuason for violation of Sections 8 and 26 of the
Securities Regulation Code; and (b) herein respondent Santos,
along with Cristina Gonzalez–Tuason and 12 others for violation
of Section 28 of the Securities Regulation Code. 
 
Respondent Santos filed a petition for review before the Office of
the Secretary of the DOJ claiming that she was a mere clerical
employee/information provider who never solicited nor recruited
investors, in particular complainants Sy and Lorenzo, for PIPC
Corporation or PIPC–BVI.  Santos also claimed dearth of
evidence indicating she was a salesman/agent or an associated
person of a broker or dealer, as defined under the Securities
Regulation Code.
The Office of the Secretary of the DOJ excluded respondent
Santos from prosecution for violation of Section 28 of the
Securities Regulation Code. 
Hence, this appeal by certiorari raising the sole error of Santos’
exclusion from the Information for violation of Section 28 of the
Securities Regulation Code.
ISSUE: WON Santos violated Sec 28 of the SRC
HELD: YES. 
We sustain the DOJ panel’s findings that PIPC Corporation
and/or PIPC–BVI was: (1) an issuer of securities without the
necessary registration or license from the SEC, and (2) engaged
in the business of buying and selling securities. 
To determine whether the DOJ Secretary’s Resolution was
tainted with grave abuse of discretion, we pass upon the
elements for violation of Section 28 of the Securities Regulation
Code: (a) engaging in the business of buying or selling securities
in the Philippines as a broker or dealer; or (b) acting as a
salesman; or (c) acting as an associated person of any broker or
dealer, unless registered as such with the SEC.
Solicitation is the act of seeking or asking for business or
information; it is not a commitment to an agreement. 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 PIPC–BVI to certain individuals,
specifically private complainants Sy and Lorenzo by providing
information on the investment products of PIPC Corporation
and/or PIPC–BVI with the end in view of PIPC Corporation
closing a sale.
While Santos was not a signatory to the contracts on Sy’s or
Lorenzo’s 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 PIPC–BVI and convincing them to
invest therein.
No matter Santos’ strenuous objections, it is apparent that she
connected the probable investors, Sy and Lorenzo, to PIPC
Corporation and/or PIPC–BVI, acting as an ostensible agent of
the latter on the viability of PIPC Corporation as an investment
company. At each point of Sy’s and Lorenzo’s investment,
Santos’ participation thereon, even if not shown strictly on paper,
was prima facie established.
acted as the go–between on behalf of PIPC Corporation and/or
PIPC–BVI.
Lastly, we clarify that we are only dealing herein with the
preliminary investigation aspect of this case.  We do not adjudge
respondents’ guilt or the lack thereof. Santos’ defense of being a
mere employee or simply an information provider is best raised
and threshed out during trial of the case.
WHEREFORE, the petition is GRANTED.  The Decision of the
Court of Appeals in CA–G.R. No. SP No. 112781 and the
Resolutions of the Department of Justice dated 1 October 2009
and 23 November 2009 are ANNULLED and SET ASIDE.  The
Resolution of the Department of Justice dated 18 April 2008 and
2 September 2008 are REINSTATED.  The Department of Justice
is directed to include respondent Oudine Santos in the
Information for violation of Section 28 of the Securities and
Regulation Code.

In all of the documents presented by Santos, she never alleged or

pointed out that she did not receive extra consideration for her
simply providing information to Sy and Lorenzo about PIPC
Corporation and/or PIPC–BVI.  Santos only claims that the
monies invested by Sy and Lorenzo did not pass through her
hands. In short, Santos did not present in evidence her salaries
as a supposed “mere clerical employee or information provider” of
PIPC–BVI.  

We cannot overemphasize that the very information provided by

Santos locked the deal on unregistered securities with Sy and
Lorenzo. Undeniably, Santos actively recruited and referred
possible investors to PIPC Corporation and/or PIPC–BVI and