SEC v.

PRICE RICHARDSON

Respondent Price Richardson Corporation (Price Richardson) is a Philippine corporation duly incorporated
under Philippine laws on December 7, 2000.8 Its primary purpose is "[t]o provide administrative services
which includes but is not limited to furnishing all necessary and incidental clerica], bookkeeping, mailing and
billing services." On October 17, 2001, its former employee, Michelle S. Avelino, (Avelino) executed a sworn
affidavit at the National Bureau of Investigation's Interpol Division,10 alleging that Price Richardson was
"engaged in boiler room operations, wherein the company sells non[-] existent stocks to investors using high
pressure sales tactics. Whenever this activity was discovered, the company would close and emerge under a
new company name. New Millennium Market Research, Inc. eventually became Price Richardson. The modus
operandi involve using telemarketers to call prospective investors to persuade them to subscribe to the
company’s financial newsletter and eventually sell them non-existent stocks. The Securities and Exchange
Commission filed cases against the respondents for violation of Article 315(1)(b)24 of the Revised Penal Code
and Sections 26.325 and 28 of the Securities Regulation Code. The Securities and Exchange Commission
alleged that Price Richardson was neither licensed nor registered "to engage in the business of buying and
selling securities within the Philippines or act as salesman, or an associated person of any broker or
dealer."29 As shown by the seized documents and equipment, Price Richardson engaged in seeking clients
for the buying and selling of securities, thereby violating Sections 26.3 and 28 of the Securities Regulation
Code. The Securities and Exchange Commission claimed that Velarde-Albert and Resnick should be liable for
acting as brokers or salesmen despite not being registered.31 Meanwhile, the incorporators and directors'
liability was based on being responsible "for the corporate management with the obligation to ensure that
[Price Richardson] operate[d] within the bounds of law.

State Prosecutor Aristotle M. Reyes (State Prosecutor Reyes) issued a Resolution,37 dismissing the Securities
and Exchange Commission's complaint "for lack of probable cause." He found that: [C]omplainant SEC failed
to adduce evidence showing respondent Price's alleged unauthorized trading. While it is true that based on the
certification issued by the SEC, respondent-corporation has no license to buy or sell securities, it does not,
however, follow, that said corporation had indeed engaged in such business. It is imperative for complainant
to prove the respondent-corporation's affirmative act of buying and selling securities to constitute the offense
charged. It cannot be established on the expedient reason that a corporation is not license[d] or authorize[d]
to trade securities. He who alleges a positive statement has the burden of proving the same. In the meantime,
individuals claiming to have agreed to pIurchase securities from Price Richardson and have been defrauded
surfaced and executed sworn statements against it. The SEC filed motion for reconsideration to the state
prosecutor then petition for review before the DOJ secretary but was denied. The SEC then filed a petition for
certiorari before the CA but was also dismissed.

A. What is a boiler room?

ANS: A boiler room is a company which sells non-existent stocks to investors by using high pressure sales tactics.
They had no intention of paying the duped investors and when their operation ha[s] been discovered this company
would close and would spring up under a new name. Boiler Room operation is an illegal activity considering that the
company has no license from the Securities and Exchange Commission to deal on securities or stocks.

B. Was there probable cause to indict the respondent for violating the Securities Regulation Code?

ANS: Yes. Petitioner provided sufficient bases to form a belief that a crime was possibly committed by respondent
Price Richardson. The complaint alleged that respondents committed violations of the following:

Section 26. Fraudulent Transactions. - It shall be unlawful for any person, directly or indirectly, in connection
with the purchase or sale of any securities to:

26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a
fraud or deceit upon any person.

Section 28. Registration of Brokers, Dealers, Salesmen and Associated Persons. - 28.1. No person shall
engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a
salesman, or an associated person of any broker or dealer unless registered as such with the Commission.

Based on the Certification110 dated October 11, 2001 issued by the Market Regulation Department of the Securities
and Exchange Commission, respondent Price Richardson "has never been issued any secondary license to act as
broker/dealer in securities, investment house and dealer in government securities."111 Petitioner also certified that
respondent Price Richardson "is not, under any circumstances, authorized or licensed to engage and/or solicit
investments from clients." However, the documents seized from respondent Price Richardson's office show possible
sales of securities.

Petitioner further supports its charges by submitting the complaint-affidavits and letters of individuals who transacted
with Price Richardson. The SEC has submitted the complaint of Mr. Don Sextus Nilantha, a citizen of Sri Lanka who
clearly named Price Richardson as selling him 1000 shares of Hugo Intl. Telecom, Inc. sometime in April 2001. At such
time, and until today, Price Richardson was not authorized to act as traders or brokers o[f] securities in the Philippines.
Furthermore, there are other complainants against Price Richardson who deserve to have their complaints aired and
tried before the proper court. However, respondents Velarde-Albert and Resnick cannot be indicted for violations of the
Securities Regulation Code and the Revised Penal Code. Petitioner failed to allege the specific acts of respondents
Velarde-Albert and Resnick that could be interpreted as participation in the alleged violations. A corporation's
personality is separate and distinct from its officers, directors, and shareholders. To be held criminally liable for the acts
of a corporation, there must be a showing that its officers, directors, and shareholders actively participated in or had the
power to prevent the wrongful act.

The SEC Chairman issued an Order finding that IRC violated the Rules on Disclosure of Material Facts, in connection
with the Old Securities Act of 1936, when it failed to make timely disclosure of its negotiations with GHB.
SEC vs. INTERPORT RESOURCES CORPORATION (IRC) (2008)

On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda Holdings
Berhad (GHB). Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda
Energy Holdings, Inc. (GEHI),2 which would own and operate a 102 megawatt (MW) gas turbine power-
generating barge. The agreement also stipulates that GEHI would assume a five-year power purchase contract
with National Power Corporation. At that time, GEHI's power-generating barge was 97% complete and would
go on-line by mid-September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of
IRC amounting to 40.88 billion shares which had a total par value of P488.44 million. On the side, IRC would
acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of
real estate property in Makati. Under the Agreement, GHB, a member of the Westmont Group of Companies in
Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of PRCI. IRC
alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through
facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile machine of the
SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9
August 1994. The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares utilizing
this material insider information. On 16 August 1994, the SEC Chairman issued a directive requiring IRC to
submit to the SEC a copy of its aforesaid Memorandum of Agreement with GHB. The SEC Chairman further
directed all principal officers of IRC to appear at a hearing before the Brokers and Exchanges Department
(BED) of the SEC to explain IRC's failure to immediately disclose the information as required by the Rules on
Disclosure of Material Facts.

The respondents filed a petition before the Court of Appeals. The Court of Appeals promulgated a Decision19
on 20 August 1998. It determined that there were no implementing rules and regulations regarding disclosure,
insider trading, or any of the provisions of the Revised Securities Acts which the respondents allegedly
violated. The Court of Appeals likewise noted that it found no statutory authority for the SEC to initiate and file
any suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act. Thus, it ruled that no civil,
criminal or administrative proceedings may possibly be held against the respondents without violating their
rights to due process and equal protection. It further resolved that absent any implementing rules, the SEC
cannot be allowed to quash the assailed Omnibus Orders for the sole purpose of re-filing the same case
against the respondents.

A. Whether or not Section 30 and 36 of the SRC are complete in itself and eneforceable even without
implementing rules and regulations?

ANS: Yes. The mere absence of implementing rules cannot effectively invalidate provisions of law, where a reasonable
construction that will support the law may be given. Moreover, where the statute contains sufficient standards and an
unmistakable intent, as in the case of Sections 30 and 36 of the Revised Securities Act, there should be no impediment
to its implementation.

B. Who is an insider? What is inside trading? Explain Section 30 of the SRC.

ANS: Section 30 of the Revised Securities Act reads:

Sec. 30. Insider's duty to disclose when trading. - (a) It shall be unlawful for an insider to sell or buy a security
of the issuer, if he knows a fact of special significance with respect to the issuer or the security that is not
generally available, unless (1) the insider proves that the fact is generally available or (2) if the other party to
the transaction (or his agent) is identified, (a) the insider proves that the other party knows it, or (b) that other
party in fact knows it from the insider or otherwise.

(b) "Insider" means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or under
common control with, the issuer, (3) a person whose relationship or former relationship to the issuer gives or
gave him access to a fact of special significance about the issuer or the security that is not generally available,
or (4) a person who learns such a fact from any of the foregoing insiders as defined in this subsection, with
knowledge that the person from whom he learns the fact is such an insider.

(c) A fact is "of special significance" if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable person
would consider it especially important under the circumstances in determining his course of action in the light
of such factors as the degree of its specificity, the extent of its difference from information generally available
previously, and its nature and reliability.
 (d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he
knows of a fact of special significance by virtue of his being an insider.

The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the
gravamen of illegal conduct. The intent of the law is the protection of investors against fraud, committed when an
insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material
information to the other party or abstain from trading the shares of his corporation. This duty to disclose or abstain is
based on two factors: first, the existence of a relationship giving access, directly or indirectly, to information intended to
be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent
unfairness involved when a party takes advantage of such information knowing it is unavailable to those with whom he
is dealing

In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on corporate "insiders,"
particularly officers, directors, or controlling stockholders, but that definition has since been expanded.35 The term
"insiders" now includes persons whose relationship or former relationship to the issuer gives or gave them access to a
fact of special significance about the issuer or the security that is not generally available, and one who learns such a
fact from an insider knowing that the person from whom he learns the fact is such an insider. Insiders have the duty to
disclose material facts which are known to them by virtue of their position but which are not known to persons with
whom they deal and which, if known, would affect their investment judgment. In some cases, however, there may be
valid corporate reasons for the nondisclosure of material information. Where such reasons exist, an issuer's decision
not to make any public disclosures is not ordinarily considered as a violation of insider trading. At the same time, the
undisclosed information should not be improperly used for non-corporate purposes, particularly to disadvantage other
persons with whom an insider might transact, and therefore the insider must abstain from entering into transactions
involving such securities.

C. Explain "material fact," "reasonable person," "nature and reliability" and "generally available."

ANS: Under the law, what is required to be disclosed is a fact of "special significance" which may be (a) a material fact
which would be likely, on being made generally available, to affect the market price of a security to a significant extent,
or (b) one which a reasonable person would consider especially important in determining his course of action with
regard to the shares of stock.

(a) Material Fact - The concept of a "material fact" is not a new one. As early as 1973, the Rules Requiring Disclosure
of Material Facts by Corporations Whose Securities Are Listed In Any Stock Exchange or Registered/Licensed Under
the Securities Act, issued by the SEC on 29 January 1973, explained that "[a] fact is material if it induces or tends to
induce or otherwise affect the sale or purchase of its securities." Thus, Section 30 of the Revised Securities Act
provides that if a fact affects the sale or purchase of securities, as well as its price, then the insider would be required
to disclose such information to the other party to the transaction involving the securities. This is the first definition given
to a "fact of special significance."

(b.1) Reasonable Person - The second definition given to a fact of special significance involves the judgment of a
"reasonable person." Contrary to the allegations of the respondents, a "reasonable person" is not a problematic legal
concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the standard on which most of
our legal doctrines stand. The doctrine on negligence uses the discretion of the "reasonable man" as the standard.38 A
purchaser in good faith must also take into account facts which put a "reasonable man" on his guard.39 In addition, it is
the belief of the reasonable and prudent man that an offense was committed that sets the criteria for probable cause
for a warrant of arrest.40 This Court, in such cases, differentiated the reasonable and prudent man from "a person with
training in the law such as a prosecutor or a judge," and identified him as "the average man on the street," who weighs
facts and circumstances without resorting to the calibrations of our technical rules of evidence of which his knowledge
is nil. Rather, he relies on the calculus of common sense of which all reasonable men have in abundance.41 In the
same vein, the U.S. Supreme Court similarly determined its standards by the actual significance in the deliberations of
a "reasonable investor," when it ruled in TSC Industries, Inc. v. Northway, Inc.,42 that the determination of materiality
"requires delicate assessments of the inferences a ‘reasonable shareholder' would draw from a given set of facts and
the significance of those inferences to him."

(b.2) Nature and Reliability - The factors affecting the second definition of a "fact of special significance," which is of
such importance that it is expected to affect the judgment of a reasonable man, were substantially lifted from a test of
materiality pronounced in the case In the Matter of Investors Management Co., Inc.43:

Among the factors to be considered in determining whether information is material under this test are the degree of its
specificity, the extent to which it differs from information previously publicly disseminated, and its reliability in light of its
nature and source and the circumstances under which it was received.
It can be deduced from the foregoing that the "nature and reliability" of a significant fact in determining the course of
action a reasonable person takes regarding securities must be clearly viewed in connection with the particular
circumstances of a case. To enumerate all circumstances that would render the "nature and reliability" of a fact to be of
special significance is close to impossible. Nevertheless, the proper adjudicative body would undoubtedly be able to
determine if facts of a certain "nature and reliability" can influence a reasonable person's decision to retain, sell or buy
securities, and thereafter explain and justify its factual findings in its decision.

(c) Materiality Concept - A discussion of the "materiality concept" would be relevant to both a material fact which
would affect the market price of a security to a significant extent and/or a fact which a reasonable person would
consider in determining his or her cause of action with regard to the shares of stock. Significantly, what is referred to in
our laws as a fact of special significance is referred to in the U.S. as the "materiality concept" and the latter is similarly
not provided with a precise definition. In Basic v. Levinson,44 the U.S. Supreme Court cautioned against confining
materiality to a rigid formula,

Moreover, materiality "will depend at any given time upon a balancing of both the indicated probability that the event
will occur and the anticipated magnitude of the event in light of the totality of the company activity."

d) Generally Available - Section 30 of the Revised Securities Act allows the insider the defense that in a transaction of
securities, where the insider is in possession of facts of special significance, such information is "generally available" to
the public. Whether information found in a newspaper, a specialized magazine, or any cyberspace media be sufficient
for the term "generally available" is a matter which may be adjudged given the particular circumstances of the case.

D. What is beneficial ownership under Section 36 of the SRC?

ANS: Section 36(a) of the Revised Securities Act is a straightforward provision that imposes upon (1) a beneficial owner of more than
ten percent of any class of any equity security or (2) a director or any officer of the issuer of such security, the obligation to submit a
statement indicating his or her ownership of the issuer's securities and such changes in his or her ownership thereof. The said
provision reads:

Sec. 36. Directors, officers and principal stockholders. - (a) Every person who is directly or indirectly the beneficial owner of
more than ten per centum of any [class] of any equity security which is registered pursuant to this Act, or who is [a] director
or an officer of the issuer of such security, shall file, at the time of the registration of such security on a securities exchange
or by the effective date of a registration statement or within ten days after he becomes such a beneficial owner, director or
officer, a statement with the Commission and, if such security is registered on a securities exchange, also with the
exchange, of the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten days after
the close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file with
the Commission, and if such security is registered on a securities exchange, shall also file with the exchange, a statement
indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during
such calendar month. (Emphasis provided.)

Section 36(a) refers to the "beneficial owner." Beneficial owner has been defined in the following manner:

[F]irst, to indicate the interest of a beneficiary in trust property (also called "equitable ownership"); and second, to refer to the power of
a corporate shareholder to buy or sell the shares, though the shareholder is not registered in the corporation's books as the owner.
Usually, beneficial ownership is distinguished from naked ownership, which is the enjoyment of all the benefits and privileges of
ownership, as against possession of the bare title to property.47

Even assuming that the term "beneficial ownership" was vague, it would not affect respondents' case, where the respondents are
directors and/or officers of the corporation, who are specifically required to comply with the reportorial requirements under Section
36(a) of the Revised Securities Act. The validity of a statute may be contested only by one who will sustain a direct injury as a result of
its enforcement.

E. How should the criminal charge for violation of the Securities Regulation Code be filed?

ANS: A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred to an
administrative agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction, courts will not determine a
controversy involving a question within the jurisdiction of the administrative tribunal, where the question demands the exercise of
sound administrative discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine
technical and intricate matters of fact. The Securities Regulation Code is a special law. Its enforcement is particularly vested in the
SEC. Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the SEC.
Where the complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary investigation and
prosecution as provided in Section 53.1 earlier quoted.

It is only after this Court corrects the erroneous ruling of the Court of Appeals in its Decision dated 20 August 1998 that either the SEC
or DOJ may properly conduct any kind of investigation against the respondents for violations of Sections 8, 30 and 36 of the Revised
Securities Act. Until then, the prescription period is deemed interrupted.
BAVIERA vs PAGLINAWAN (2007)

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 dated December 3, 1992 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). These were then remitted outwardly to SCB-Hong Kong and SCB-Singapore. SCB’s
counsel, Romulo Mabanta Buenaventura Sayoc and Delos Angeles Law Office, advised the bank to proceed
with the selling of the foreign securities although unregistered with the SEC, under the guise of a
"custodianship agreement;" and should it be questioned, it shall invoke Section 723 of the General Banking
Act (Republic Act No.337).4 In sum, SCB was able to sell GTPMF securities worth around ₱6 billion to some
645 investors. However, SCB’s operations did not remain unchallenged. On July 18, 1997, the Investment
Capital Association of the Philippines (ICAP) filed with the SEC a complaint alleging that SCB violated the
Revised Securities Act,5 particularly the provision prohibiting the selling of securities without prior
registration with the SEC; and that its actions are potentially damaging to the local mutual fund industry.

In its answer, SCB denied offering and selling securities, contending that it has been performing a "purely
informational function" without solicitations for any of its investment outlets abroad; that it has a trust license
and the services it renders under the "Custodianship Agreement" for offshore investments are authorized by
Section 726 of the General Banking Act; that its clients were the ones who took the initiative to invest in
securities; and it has been acting merely as an agent or "passive order taker" for them. On September 2, 1997,
the SEC issued a Cease and Desist Order against SCB, holding that its services violated Sections 4(a)7 and
198 of the Revised Securities Act. Meantime, the SEC indorsed ICAP’s complaint and its supporting
documents to the BSP. However, notwithstanding its commitment and the BSP directive, 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 by Antonette de los Reyes of SCB to hold on to it for another six (6) months in view of the
possibility that the market would pick up. 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. On October 26, 2001, petitioner
learned from Marivel Gonzales, head of the SCB Legal and Compliance Department, that the latter had 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."

On July 15, 2003, petitioner filed with the Department of Justice (DOJ), represented herein by its prosecutors,
public respondents, a complaint charging the above-named officers and members of the SCB Board of
Directors and other SCB officials, private respondents, with syndicated estafa, docketed as I.S. No. 2003-1059.
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 settlement. On January 20, 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. The DOJ rendered its Joint
Resolution10 dismissing petitioner’s complaint for syndicated estafa. On appeal, the CA dismissed petitioner’s
petition. The Court of Appeals held that under SECTION 53 of the SRC, 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 in I.S. No.
2004-229.

Was the DOJ correct in dismissing the complaint for syndicated estafa in accordance to Section 53 of the SRC
or the failure of the petitioner to initially file a case to the SEC? Discuss Section 53 of the SRC.

ANS: Yes. SEC. 53. Investigations, Injunctions and Prosecution of Offenses.–

53. 1. The Commission may, in its discretion, make such investigation as it deems necessary to determine
whether any person has violated or is about to violate any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association, clearing agency, other self-
regulatory organization, and may require or permit any person to file with it a statement in writing, under oath
or otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to
be investigated. The Commission may publish information concerning any such violations and to investigate
any fact, condition, practice or matter which it may deem necessary or proper to aid in the enforcement of the
provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing information to
serve as a basis for recommending further legislation concerning the matters to which this Code relates:
Provided, however, That any person requested or subpoenaed to produce documents or testify in any
investigation shall simultaneously be notified in writing of the purpose of such investigation: Provided, further,
That all criminal complaints for violations of this Code and the implementing rules and regulations
enforced or administered by the Commission shall be referred to the Department of Justice for
preliminary investigation and prosecution before the proper court: Provided, furthermore, That in
instances where the law allows independent civil or criminal proceedings of violations arising from the act, the
Commission shall take appropriate action to implement the same: Provided, finally; That the investigation,
prosecution, and trial of such cases shall be given priority.

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 preliminary investigation and prosecution as
provided in Section 53.1 earlier quoted. The Court, thus, agrees with the Court of Appeals that petitioner committed a
fatal procedural lapse when he filed his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion
can be ascribed to the DOJ in dismissing petitioner’s complaint.
CEMCO HOLDINGS INC vs NATIONAL LIFE INSURANCE (2007)

Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders – UCHC, a non-
listed company, with shares amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of UCHC’s
stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC
stocks. In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and
its subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in UCHC equivalent to 21.31% and
ACC’s stocks in UCHC equivalent to 29.69%. In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004,
it was stated that as a result of petitioner Cemco’s acquisition of BCI and ACC’s shares in UCHC, petitioner’s
total beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of
the shares of UCC. As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004,
inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the Securities
Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC. In a letter
dated 16 July 2004, Director Justina Callangan of the SEC’s Corporate Finance Department responded to the
query of the PSE that while it was the stance of the department that the tender offer rule was not applicable,
the matter must still have to be confirmed by the SEC en banc.

On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of the
Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the
rule on mandatory tender offer. Cemco, however, refused. On 5 August 2004, a Share Purchase Agreement
was executed by ACC and BCI, as sellers, and Cemco, as buyer. On 12 August 2004, the transaction was
consummated and closed. On 19 August 2004, respondent National Life Insurance Company of the
Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare
the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC
shares. Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were then required by the
SEC to file their respective comment on the complaint. In their comments, they were uniform in arguing that
the tender offer rule applied only to a direct acquisition of the shares of the listed company and did not extend
to an indirect acquisition arising from the purchase of the shares of a holding company of the listed firm. In a
Decision dated 14 February 2005, the SEC 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. Petitioner 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, and arguing that the tender offer rule does not apply, or that the SEC’s re-interpretation
of the rule could not be made to retroactively apply to Cemco’s purchase of UCHC shares.The Court of
Appeals rendered a decision affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to render the
questioned decision and, in any event, Cemco was barred by estoppel from questioning the SEC’s jurisdiction.
It, likewise, held that the tender offer requirement under the Securities Regulation Code and its Implementing
Rules applies to Cemco’s purchase of UCHC stocks.

A. Does the SEC have adjudicative power to rule on the case and whether it can nullify the acquisition of
shares which purportedly violate provisions of SRC? Can the party question the SEC’s jurisdiction on this
case?

ANS: Yes. Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, to wit:

13. Violation

If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at
threshold amounts without the required tender offer, the Commission, upon complaint, may nullify the said
acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other
sanctions under the Code.

The foregoing rule emanates from the SEC’s power and authority to regulate, investigate or supervise the activities of
persons to ensure compliance with the Securities Regulation Code, more specifically the provision on mandatory
tender offer under Section 19 thereof.
Another provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code, is Section 5.1(n), viz:

[T]he Commission shall have, among others, the following powers and functions:

(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative power which is implied from the express
powers of the Commission or which is incidental to, or reasonably necessary to carry out, the performance of the
administrative duties entrusted to it. As a regulatory agency, it has the incidental power to conduct hearings and render
decisions fixing the rights and obligations of the parties. In fact, to deprive the SEC of this power would render the
agency inutile, because it would become powerless to regulate and implement the law. Thus, 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.

While the lack of jurisdiction of a court may be raised at any stage of an action, nevertheless, the party raising such
question may be estopped if he has actively taken part in the very proceedings which he questions and he only objects
to the court’s jurisdiction because the judgment or the order subsequently rendered is adverse to him.

B. Explain the Tender Offer Rule.

ANS: Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to
acquire equity securities of a public company. A public company is defined as a corporation which is listed on an
exchange, or a corporation with assets exceeding ₱50,000,000.00 and with 200 or more stockholders, at least 200 of
them holding not less than 100 shares of such company. Stated differently, a tender offer is an offer by the acquiring
person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer.
Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their
investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them
the opportunity to sell their shares at the same price as those of the majority shareholders.

Under Section 19 of Republic Act No. 8799, it is stated:

Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least
fifteen percent (15%) of any class of any equity security of a listed corporation or of any class of any equity
security of a corporation with assets of at least Fifty million pesos (₱50,000,000.00) and having two hundred
(200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least
thirty percent (30%) of such equity over a period of twelve (12) months shall make a tender offer to
stockholders by filing with the Commission a declaration to that effect; and furnish the issuer, a statement
containing such of the information required in Section 17 of this Code as the Commission may prescribe. Such
person or group of persons shall publish all requests or invitations for tender, or materials making a tender
offer or requesting or inviting letters of such a security. Copies of any additional material soliciting or
requesting such tender offers subsequent to the initial solicitation or request shall contain such information as
the Commission may prescribe, and shall be filed with the Commission and sent to the issuer not later than
the time copies of such materials are first published or sent or given to security holders.

Under existing SEC Rules,16 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.

C. Is the rule on mandatory tender offer applicable to the indirect acquisition of shares in a listed company, in
this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-listed company, through its purchase of
the shares in UCHC, a non-listed company?

ANS: Yes. The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares
through the acquisition of the non-listed UCHC shares is covered by the mandatory tender offer rule. This interpretation
given by the SEC and the Court of Appeals must be sustained. The SEC and the Court of Appeals accurately pointed
out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or
"any type of acquisition." This is clear from the discussions of the Bicameral Conference Committee on the Securities
Act of 2000 between Senator Osemna, Senator Rocco and Rep. Teodoro.
The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed
company and for the purpose of protecting the minority stockholders of a listed corporation. Whatever may be the
method by which control of a public company is obtained, either through the direct purchase of its stocks or through an
indirect means, mandatory tender offer applies.

The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the
acquisition of control of the listed company through the purchase of shares. Control may [be] effected through a direct
and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. The
bottomline of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in
connection with a transfer of control.
PHILIPPINES VETERANS BANK vs CALLANGAN (2011)

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 Nine Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos (₱1,937,262.80) for
failing to comply with the 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, 2005.4 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.

The Bank argues that it is not a "public company" subject to the reportorial requirements under Section 17.1 of
the SRC because its shares can be owned only by a specific group of people, namely, World War II veterans
and their widows, orphans and compulsory heirs, and is not open to the investing public in general. The Bank
also asks the Court to take into consideration the financial impact to the cause of "veteranism"; compliance
with the reportorial requirements under the SRC, if the Bank would be considered a "public company," would
compel the Bank to spend approximately ₱40 million just to reproduce and mail the "Information Statement" to
its 400,000 shareholders nationwide.

Should the Philippines Veterans Bank be deemed as public company that needs to cpmply with the reportorial
requirements as set forth in the SRC? Is public company only limited to publicly listed companies in Stock
Exchange?

ANS: Yes and No. Section 17. Periodic and Other Reports of Issuers. –

17.1. Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the Commission:

a) Within one hundred thirty-five (135) days, after the end of the issuer’s fiscal year, or such other time as the
Commission may prescribe, an annual report which shall include, among others, a balance sheet, profit and
loss statement and statement of cash flows, for such last fiscal year, certified by an independent certified
public accountant, and a management discussion and analysis of results of operations; and

b) Such other periodical reports for interim fiscal periods and current reports on significant developments of
the issuer as the Commission may prescribe as necessary to keep current information on the operation of the
business and financial condition of the issuer.

17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:

c) An issuer with assets of at least Fifty million pesos (₱50,000,000.00) or such other amount as the
Commission shall prescribe, and having two hundred (200) or more holders each holding at least one hundred
(100) shares of a class of its equity securities: Provided, however, That the obligation of such issuer to file
reports shall be terminated ninety (90) days after notification to the Commission by the issuer that the number
of its holders holding at least one hundred (100) shares is reduced to less than one hundred (100).
(emphases supplied)

We also cite Rule 3(1)(m) of the Amended Implementing Rules and Regulations of the SRC, which defines a "public
company" as "any corporation with a class of equity securities listed on an Exchange or with assets in excess of Fifty
Million Pesos (₱50,000,000.00) and having two hundred (200) or more holders, at least two hundred (200) of which are
holding at least one hundred (100) shares of a class of its equity securities."
From these provisions, it is clear that a "public company," as contemplated by the SRC, is not limited to a company
whose shares of stock 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 requirements enumerated above.

The records establish, and the Bank does not dispute, that the Bank has assets exceeding ₱50,000,000.00 and has
395,998 shareholders.10 It is thus considered a public company that must comply with the reportorial requirements set
forth in Section 17.1 of the SRC.

SEC vs PROSPERITY.COM, INC

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet service. To
make a profit, PCI devised a scheme in which, for the price of US$234.00 (subsequently increased to US$294),
a buyer could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by
referring to PCI his own down-line buyers, a first-time buyer could earn commissions, interest in real estate in
the Philippines and in the United States, and insurance coverage worth ₱50,000.00. To benefit from this
scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own down-lines. These second
tier of buyers could in turn build up their own down-lines. For each pair of down-lines, the buyer-sponsor
received a US$92.00 commission. But referrals in a day by the buyer-sponsor should not exceed 16 since the
commissions due from excess referrals inure to PCI, not to the buyer-sponsor. Apparently, PCI patterned its
scheme from that of Golconda Ventures, Inc. (GVI), which company stopped operations after the Securities
and Exchange Commission (SEC) issued a cease and desist order (CDO) against it. As it later on turned out,
the same persons who ran the affairs of GVI directed PCI’s actual operations.

In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had
taken over GVI’s operations. After hearing,1 the SEC, through its Compliance and Enforcement unit, issued a
CDO against PCI. The SEC ruled that PCI’s scheme constitutes an Investment contract and, following the
Securities Regulations Code,2 it should have first registered such contract or securities with the SEC. Instead
of asking the SEC to lift its CDO in accordance with Section 64.3 of Republic Act (R.A.) 8799, PCI filed with the
Court of Appeals (CA) a petition for certiorari against the SEC with an application for a temporary restraining
order (TRO) and preliminary injunction in CA-G.R. SP 62890. Because the CA did not act promptly on this
application for TRO, on January 31, 2001 PCI returned to the SEC and filed with it before the lapse of the five-
day period a request to lift the CDO. On the following day, February 1, 2001, PCI moved to withdraw its petition
before the CA to avoid possible forum shopping violation. The CA ruled that, following the Howey test, PCI’s
scheme did not constitute an investment contract that needs registration pursuant to R.A. 8799, hence, this
petition.

What is an investment contract? Discuss the Howey Test.

ANS: An investment contract is a contract, transaction, or scheme where a person invests his money in a common
enterprise and is led to expect profits primarily from the efforts of others.

The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that, for an
investment contract to exist, the following elements, referred to as the Howey test must concur:

(1) a contract, transaction, or scheme;

(2) an investment of money;

(3) investment is made in a common enterprise;

(4) expectation of profits; and

(5) profits arising primarily from the efforts of others.

Give an example of an investment contract.

ANS: An example that comes to mind would be the long-term commercial papers that large companies, like San
Miguel Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor buys these
papers or securities, he invests his money, together with others, in SMC with an expectation of profits arising from the
efforts of those who manage and operate that company. SMC has to register these commercial papers with the SEC
before offering them to investors.
Whether or not PCI’s scheme constitutes an investment contract that requires registration under R.A. 8799?

ANS: No, it is not an investment contract. PCI engages in network marketing.

PCI’s clients do not make investments. They buy a product of some value to them: an Internet website of a 15-MB
capacity. The client can use this website to enable people to have internet access to what he has to offer to them, say,
some skin cream. The buyers of the website do not invest money in PCI that it could use for running some business
that would generate profits for the investors. The price of US$234.00 is what the buyer pays for the use of the website,
a tangible asset that PCI creates, using its computer facilities and technical skills.

Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for getting people to buy
their products outside the usual retail system where products are bought from the store’s shelf. Under this scheme,
adopted by most health product distributors, the buyer can become a down-line seller. The latter earns commissions
from purchases made by new buyers whom he refers to the person who sold the product to him. The network goes
down the line where the orders to buy come.

The commissions, interest in real estate, and insurance coverage worth ₱50,000.00 are incentives to down-line sellers
to bring in other customers. These can hardly be regarded as profits from investment of money under the Howey test.

The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme that PCI has
adopted. Evidently, it is PCI that expects profit from the network marketing of its products. PCI is correct in saying that
the US$234 it gets from its clients is merely a consideration for the sale of the websites that it provides.
INTESTATE ESTATE OF AEXANDER TY vs COURT OF APPEALS

Petitioner Sylvia S. Ty was married to Alexander T. Ty, son of private respondent Alejandro B. Ty, on January 11,
1981. Alexander died of leukemia on May 19, 1988 and was survived by his wife, petitioner Sylvia, and only child,
Krizia Katrina. In the settlement of his estate, petitioner was appointed administratrix of her late husband’s intestate
estate. On November 4, 1992, petitioner filed a motion for leave to sell or mortgage estate property in order to generate
funds for the payment of deficiency estate taxes in the sum of P4,714,560.00. Included in the inventory of property
were stocks in various corporations.

Private respondent Alejandro Ty then filed two complaints for the recovery of the above-mentioned property, which was
docketed as Civil Case Q-91-10833 in Branch 105 Regional Trial Court of Quezon City (now herein G.R. No. 112872),
praying for the declaration of nullity of the deed of absolute sale of the shares of stock executed by private respondent
in favor of the deceased Alexander, and Civil Case Q-92-14352 in Branch 90 Regional Trial Court of Quezon City (now
G.R. No. 114672), praying for the recovery of the pieces of property that were placed in the name of deceased
Alexander by private respondent, the same property being sought to be sold out, mortgaged, or disposed of by
petitioner. Private respondent claimed in both cases that even if said property were placed in the name of deceased
Alexander, they were acquired through private respondent’s money, without any cause or consideration from deceased
Alexander. Motions to dismiss were filed by petitioner. Both motions alleged lack of jurisdiction of the trial court,
claiming that the cases involved intra-corporate dispute cognizable by the Securities and Exchange Commission
(SEC). Petitioner argues that the present case involves a suit between two stockholders of the same corporation which
thus places it beyond the jurisdictional periphery of regular trial courts and more within the exclusive competence of the
SEC by reason of Section 5(b) of Presidential Decree 902-A, since repealed.

Whether or not there was an intra-corporate dispute, thus, SEC should have jurisdiction over the case?

ANS: It does not necessarily follow that when both parties of a dispute are stockholders of a corporation, the dispute is
automatically considered intra-corporate in nature and jurisdiction consequently falls with the SEC. Presidential Decree
902-A did not confer upon the SEC absolute jurisdiction and control over all matters affecting corporations, regardless
of the nature of the transaction which gave rise to such disputes (Jose Peneyra, et. al. vs. Intermediate Appellate
Court, et. al., 181 SCRA 245 [1990] citing DMRC Enterprises vs. Este del Sol Mountain Reserve, Inc., 132 SCRA 293
[1984]). The better policy in determining which body has jurisdiction over this case would be to consider, not merely the
status of the parties involved, but likewise the nature of the question that is the subject of the controversy (Viray vs.
Court of Appeals, 191 SCRA 309 [1990]). When the nature of the controversy involves matters that are purely civil in
character, it is beyond the ambit of the limited jurisdiction of the SEC (Saura vs. Saura, Jr., 313 SCRA 465 [1999]).

In the cases at bar, the relationship of private respondent when he sold his shares of stock to his son was one of
vendor and vendee, nothing else. The question raised in the complaints is whether or not there was indeed a sale in
the absence of cause or consideration. The proper forum for such a dispute is a regular trial court. The Court agrees
with the ruling of the Court of Appeals that no special corporate skill is necessary in resolving the issue of the validity of
the transfer of shares from one stockholder to another of the same corporation. Both actions, although involving
different property, sought to declare the nullity of the transfers of said property to the decedent on the ground that they
were not supported by any cause or consideration, and thus, are considered void ab initio for being absolutely
simulated or fictitious. The determination whether a contract is simulated or not is an issue that could be resolved by
applying pertinent provisions of the Civil Code, particularly those relative to obligations and contracts. Disputes
concerning the application of the Civil Code are properly cognizable by courts of general jurisdiction. No special skill is
necessary that would require the technical expertise of the SEC.

It should also be noted that under the newly enacted Securities Regulation Code (Republic Act No. 8799), this issue is
now moot and academic because whether or not the issue is intra-corporate, it is the regional trial court and not longer
the SEC that takes cognizance of the controversy. Under Section 5.2 of Republic Act No. 8799, original and exclusive
jurisdiction to hear and decide cases involving intra-corporate controversies have been transferred to courts of general
jurisdiction or the appropriate regional trial court.
YUJUICO vs QUIAMBAO (2007)

trategic Alliance Development Corporation (STRADEC) is a domestic corporation engaged in the business of providing
financial and investment advisory services and investing in projects through consortium or joint venture information.2
From its inception, STRADEC’s principal place of business was located at the 24th Floor, One Magnificent Mile-Citra
Building, San Miguel Avenue, Ortigas Center, Pasig City. On July 27, 1998, the Securities and Exchange Commission
(SEC) approved the amendment of STRADEC’s Articles of Incorporation authorizing the change of its principal office
from Pasig City to Bayambang, Pangasinan.3

On March 1, 2004, STRADEC held its annual stockholders’ meeting in its Pasig City office as indicated in the
notices sent to the stockholders.4 At the said meeting, the following were elected members of the Board of
Directors: Alderito Z. Yujuico, Bonifacio C. Sumbilla, Dolney S. Sumbilla (petitioners herein), Cesar T.
Quiambao, Jose M. Magno III and Ma. Christina Ferreros (respondents herein). Petitioners Alderito Yujuico was
elected Chairman and President, while Bonifacio Sumbilla was elected Treasurer. All of them then discharged
the duties of their office. After five (5) months, or on August 16, 2004, respondents filed with the Regional Trial
Court (RTC), San Carlos City, Pangasinan a Complaint against STRADEC (represented by herein petitioners as
members of its Board of Directors), docketed as Civil Case No. SCC-2874 and raffled off to Branch 56. The
complaint prays that: (1) the March 1, 2004 election be nullified on the ground of improper venue, pursuant to
Section 51 of the Corporation Code; (2) all ensuing transactions conducted by the elected directors be likewise
nullified; and (3) a special stockholders’ meeting be held anew.

Subsequently, respondents filed an Amended Complaint dated September 2, 2004 further praying for the
issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction to enjoin petitioners from
discharging their functions as directors and officers of STRADEC. On September 22, 2004, they filed a
Supplemental Complaint praying that the court (1) direct Export Industry Bank, Cezar T. Quiambao and
Bonifacio G. Sumbilla to surrender to them the original and reconstituted Stock and Transfer Book and other
corporate documents of STRADEC; and (2) nullify the reconstituted Stock and Transfer Book and all
transactions of the corporation. Both pleadings were admitted by the trial court. As the controversy involves
an intra-corporate dispute, the trial court, on October 4, 2004, issued an Order transferring Civil Case No. SCC-
2874 to RTC, Branch 48, Urdaneta City, being a designated Special Commercial Court. Judge Meliton Emuslan
still issued an Order10 granting respondents’ application for preliminary injunction ordering (1) the holding of
a special stockholders’ meeting of STRADEC on December 10, 2004 "in the principal office of the corporation
in Bayambang, Pangasinan;" and (2) the turn-over by petitioner Bonifacio Sumbilla to the court of the
duplicate key of the safety deposit box in Export Industry Bank, Shaw Boulevard, Pasig City where the original
Stock and Transfer Book of STRADEC was deposited. Petitioners filed a Petition for Certiorari with Prayer for
the Issuance of a TRO and/or Preliminary Injunction,11 assailing Judge Emuslan’s November 25, 2004 Order.
The petition was docketed as CA-G.R. SP No. 87785. In the proceedings before the appellate court, petitioners
raised the following issues: A. Only the SEC, not the RTC, has jurisdiction to order the holding of a special
stockholders’ meeting involving an intra-corporate controversy; B. Judge Meliton Emuslan had no authority to
issue the assailed Order dated November 25, 2004 as Judge Aurelio Ralar, Jr. was already the presiding judge
of RTC, Branch 48, Urdaneta City;12 and C. Assuming Judge Emuslan had authority to issue the assailed
Order, he nonetheless acted with grave abuse of discretion amounting to lack or excess of jurisdiction.

A. Does the RTC have the power to call a special stockholders’ meeting involving an intra-corporate
controversy?

ANS: Yes. Upon the enactment of R.A. No. 8799, otherwise known as "The Securities Regulation Code" which took
effect on August 8, 2000,17 the jurisdiction of the SEC over intra-corporate controversies and other cases enumerated
in Section 5 of P.D. No. 902-A has been transferred to the courts of general jurisdiction, or the appropriate RTC. n
Morato v. Court of Appeals,19 we held that pursuant to R.A. No. 8799 and the Interim Rules of Procedure Governing
Intra-Corporate Controversies, "among the powers and functions of the SEC which were transferred to the RTC include
the following: (a) jurisdiction and supervision over all corporations, partnerships or associations which are the grantees
of primary franchises and/or a license or permit issued by the Government; (b) the approval, rejection, suspension,
revocation or requirement for registration statements, and registration and licensing applications; (c) the regulation,
investigation, or supervision of the activities of persons to ensure compliance; (d) the supervision, monitoring,
suspension or take over the activities of exchanges, clearing agencies, and other SROs; (e) the imposition of sanctions
for the violation of laws and the rules, regulations and orders issued pursuant thereto; (f) the issuance of cease-and-
desist orders to prevent fraud or injury to the investing public; (g) the compulsion of the officers of any registered
corporation or association to call meetings of stockholders or members thereof under its supervision; and (h) the
exercise of such other powers as may be provided by law as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives
and purposes of these laws."

Clearly, the RTC has the power to hear and decide the intra-corporate controversy of the parties herein. Concomitant
to said power is the authority to issue orders necessary or incidental to the carrying out of the powers expressly
granted to it. Thus, the RTC may, in appropriate cases, order the holding of a special meeting of stockholders or
members of a corporation involving an intra-corporate dispute under its supervision.

B. Did Judge Emuslan act with grave abuse of discretion for issuing the assiled order as it effectively disposed
of the merits of the main case?

ANS: Yes. The duty of the court taking cognizance of an application for a writ of preliminary injunction is to determine
whether the requisites necessary for the grant of such writ are present. The requisites for the issuance of a writ of
preliminary injunction are: (1) the applicant for such writ must show that he has a clear and unmistakable right that
must be protected; and (2) there exists an urgent and paramount necessity for the writ to prevent serious damage.26

In this case, Judge Emuslan’s November 25, 2004 Order, quoted earlier, is hazy and too unsubstantial to justify the
issuance of a writ of preliminary injunction. The Order does not contain specific findings of fact and conclusion of law
showing that the requirements for the grant of the injunctive writ are present. It merely mentions the names of
witnesses presented by respondents during the hearing on the application for the issuance of the writ, but there is no
specific and substantial narration of the witnesses’ testimonies to establish the existence of a clear and unmistakable
right on their part that must be protected, as well as the serious damage or irreparable loss that they would suffer if the
writ is not granted. It does not also disclose the specific evidence formally offered by the applicants. Obviously, the
basis of the judge’s conclusion is too uncertain. Thus, in issuing the questioned November 25, 2004 Order granting a
writ of preliminary injunction, he committed grave abuse of discretion.

Furthermore, Judge Emuslan’s November 25, 2004 Order goes against the concept and objective of a writ of
preliminary injunction. A writ of preliminary injunction is a provisional remedy, an adjunct to a main suit. It is also a
preservative remedy, issued to preserve the status quo of the things subject of the action or the relations between the
parties during the pendency of the suit. The status quo is the last actual peaceable uncontested status that preceded
the controversy32 which, in the instant case, is the holding of the annual stockholders’ meeting on March 1, 2004 and
the ensuing election of the directors and officers of STRADEC. But instead of preserving the status quo, Judge
Emuslan’s Order messed it up when, in compliance therewith, a special stockholders’ meeting was held anew and a
new set of directors and officers of STRADEC was elected. That effectively resolved respondents’ principal action
without even a full-blown trial on the merits since the Order impliedly ruled that the March 1, 2004 annual stockholders’
meeting and election are void. Verily, the issuance of the questioned Order violates the established principle that courts
should avoid granting a writ of preliminary injunction that would in effect dispose of the main case without trial.

C. What is an election protest? Whether or not the filing of an election protest has already prescribed in the
case?

ANS: An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or
non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of
candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the
stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-
laws so provide.

The action for filing an election protest has already prescribed. An election contest must be "filed within 15 days from
the date of the election."36 It was only on August 16, 2004 that respondents instituted an action questioning the validity
of the March 1, 2004 stockholders’ election, clearly beyond the 15-day prescriptive period.
GSIS vs CA; SEC vs ROSETE (2009)

The annual stockholders’ meeting (annual meeting) of the Manila Electric Company (Meralco) was scheduled
on 27 May 2008.1 In connection with the annual meeting, proxies2 were required to be submitted on or before
17 May 2008, and the proxy validation was slated for five days later, or 22 May. In view of the resignation of
Camilo Quiason,4 the position of corporate secretary of Meralco became vacant.5 On 15 May 2008, the board
of directors of Meralco designated Jose Vitug6 to act as corporate secretary for the annual meeting.7 However,
when the proxy validation began on 22 May, the proceedings were presided over by respondent Anthony
Rosete (Rosete), assistant corporate secretary and in-house chief legal counsel of Meralco.8 Private
respondents nonetheless argue that Rosete was the acting corporate secretary of Meralco.9 Petitioner
Government Service Insurance System (GSIS), a major shareholder in Meralco, was distressed over the proxy
validation proceedings, and the resulting certification of proxies in favor of the Meralco management.

On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City, docketed as R-PSY-
08-05777-C4 seeking the declaration of certain proxies as invalid.11 Three days later, on 26 May, GSIS filed a
Notice with the RTC manifesting the dismissal of the complaint.12 On the same day, GSIS filed an Urgent
Petition13 with the Securities and Exchange Commission (SEC) seeking to restrain Rosete from "recognizing,
counting and tabulating, directly or indirectly, notionally or actually or in whatever way, form, manner or
means, or otherwise honoring the shares covered by" the proxies in favor of respondents Manuel Lopez,14
Felipe Alfonso,15 Jesus Francisco,16 Oscar Lopez, Christian Monsod,17 Elpidio Ibañez,18 Francisco Giles-
Puno19 "or any officer representing MERALCO Management," and to annul and declare invalid said proxies.20
GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to restrain the use of said proxies during
the annual meeting scheduled for the following day.21 A CDO22 to that effect signed by SEC Commissioner
Jesus Martinez was issued on 26 May 2008, the same day the complaint was filed. During the annual meeting
held on the following day, Rosete announced that the meeting would push through, expressing the opinion
that the CDO is null and void. The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being
considered, out of equitable considerations, as an election contest in the RTC, because the prescriptive period
of 15 days from the May 27, 2008 Meralco election to file an election contest in the RTC had already run its
course, pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure Governing Intra-Corporate Controversies
under R.A. No. 8799, due to deliberate act of GSIS in filing a complaint in the SEC instead of the RTC.

Noting Section 53 and Section 20 of the SRC, the GSIS argued that since proxy solicitations following Section
20.1 have to be made in accordance with rules and regulations issued by the SEC, it is the SEC under Section
53.1 that has the jurisdiction to investigate alleged violations of the rules on proxy solicitations. The GSIS
petition invoked AIRR-AIRR-SRC Rule 20, otherwise known as "The Proxy Rule," which enumerates the
requirements as to form of proxy and delivery of information to security holders. According to GSIS, the
information statement Meralco had filed with the SEC in connection with the annual meeting did not contain
any proxy form as required under AIRR-SRC Rule 20. On the other hand, private respondents argue before us
that under Section 5.2 of the SRC, the SEC’s jurisdiction over all cases enumerated in Section 5 of Presidential
Decree No. 902-A was transferred to the courts of general jurisdiction or the appropriate regional trial court.

A. Distinguish the scope of the SEC and trial court with respect to proxy solicitation?

ANS: Under Section 5(c) of Presidential Decree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial
courts with respect to election-related controversies is specifically confined to "controversies in the election or
appointment of directors, trustees, officers or managers of corporations, partnerships, or associations." Evidently, the
jurisdiction of the regular courts over so-called election contests or controversies under Section 5(c) does not extend to
every potential subject that may be voted on by shareholders, but only to the election of directors or trustees, in which
stockholders are authorized to participate under Section 24 of the Corporation Code

This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy
solicitation, and the statutory jurisdiction of regular courts over election contests or controversies. The power of the
SEC to investigate violations of its rules on proxy solicitation is unquestioned when proxies are obtained to vote on
matters unrelated to the cases enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies
are solicited in relation to the election of corporate directors, the resulting controversy, even if it ostensibly raised the
violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original
and exclusive jurisdiction of the trial courts by virtue of Section 5.2 of the SRC in relation to Section 5(c) of Presidential
Decree No. 902-A.

B. What is an election contest? Are the issues regarding proxy solicitation and validation in the case at bar
cognizable by the SEC or the trial court?

ANS: The term "election contest" as encompassing all plausible incidents arising from the election of corporate
directors, including:

(1) any controversy or dispute involving title or claim to any elective office in a stock or nonstock corporation,

(2) the validation of proxies,

(3) the manner and validity of elections and

(4) the qualifications of candidates, including the proclamation of winners.

If all matters anteceding the holding of such election which affect its manner and conduct, such as the proxy solicitation
process, are deemed within the original and exclusive jurisdiction of the SEC, then the prospect of overlapping and
competing jurisdictions between that body and the regular courts becomes frighteningly real. From the language of
Section 5(c) of Presidential Decree No. 902-A, it is indubitable that controversies as to the qualification of voting
shares, or the validity of votes cast in favor of a candidate for election to the board of directors are properly cognizable
and adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases. Questions
relating to the proper solicitation of proxies used in such election are indisputably related to such issues,

In the case, the solicitation or validation of proxies is related to the scheduled election of the board of directors of
Meralco during the annual meeting. GSIS very well knew that the controversy falls within the contemplation of an
election controversy properly within the jurisdiction of the regular courts. Otherwise, it would have never filed its original
petition with the RTC of Pasay.

C. What is proxy solicitation? Whether the SEC has jurisdiction on issues involving proxy solicitation in the
case at bar?

ANS: The terms solicit and solicitation include:

A. any request for a proxy whether or not accompanied by or included in a form of proxy

B. any request to execute or not to execute, or to revoke, a proxy; or

C. the furnishing of a form of proxy or other communication to security holders under circumstance reasonably
calculated to result in the procurement, withholding or revocation of a proxy.

It is plain that proxy solicitation is a procedure that antecedes proxy validation. The former involves the securing and
submission of proxies, while the latter concerns the validation of such secured and submitted proxies. GSIS raises the
sensible point that there was no election yet at the time it filed its petition with the SEC, hence no proper election
contest or controversy yet over which the regular courts may have jurisdiction. And the point ties its cause of action to
alleged irregularities in the proxy solicitation procedure, a process that precedes either the validation of proxies or the
annual meeting itself.

Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations issued by the SEC,
such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the discretion "to make such investigations as it
deems necessary to determine whether any person has violated" any rule issued by it, such as AIRR-SRC Rule 4. The
investigatory power of the SEC established by Section 53.1 is central to its regulatory authority, most crucial to the
public interest especially as it may pertain to corporations with publicly traded shares. For that reason, we are not keen
on pursuing private respondents’ insistence that the GSIS complaint be viewed as rooted in an intra-corporate
controversy solely within the jurisdiction of the trial courts to decide. It is possible that an intra-corporate controversy
may animate a disgruntled shareholder to complain to the SEC a corporation’s violations of SEC rules and regulations,
but that motive alone should not be sufficient to deprive the SEC of its investigatory and regulatory powers, especially
so since such powers are exercisable on a motu proprio basis.

D. What are the statutory bases of SEC and regular court’s authority to resolve cases involving proxy
solicitation?

ANS: Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or investigatory power of the
SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on jurisdiction, expressly granting as it does
"original and exclusive jurisdiction" first to the SEC, and now to the regular courts. The fact that the jurisdiction of the
regular courts under Section 5(c) is confined to the voting on election of officers, and not on all matters which may be
voted upon by stockholders, elucidates that the power of the SEC to regulate proxies remains extant and could very
well be exercised when stockholders vote on matters other than the election of directors.

The SRC’s power regarding proxy solicitation are based on Section 53.1 and Section 20.1, which we cite:

SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person has violated or
is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission
shall determine, as to all facts and circumstances concerning the matter to be investigated. The Commission
may publish information concerning any such violations, and to investigate any fact, condition, practice or
matter which it may deem necessary or proper to aid in the enforcement of the provisions of this Code, in the
prescribing of rules and regulations thereunder, or in securing information to serve as a basis for
recommending further legislation concerning the matters to which this Code relates: xxx (emphasis supplied)

SEC. 20. Proxy Solicitations. – 20.1. Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the Commission;

On the other hand, On the other hand, private respondents argue before us that under Section 5.2 of the SRC, the
SEC’s jurisdiction over all cases enumerated in Section 5 of Presidential Decree No. 902-A was transferred to the
courts of general jurisdiction or the appropriate regional trial court. The two particular classes of cases in the
enumeration under Section 5 of Presidential Decree No. 902-A which private respondents especially refer to are as
follows:

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among
stockholders, members, or associates; or association of which they are stockholders, members, or associates,
respectively;

3) Controversies in the election or appointment of directors, trustees, officers or managers of corporations,

partnerships, or associations;

In addition, private respondents cite the Interim Rules on Intra-Corporate Controversies (Interim Rules) promulgated by
this Court in 2001, most pertinently, Section 2 of Rule 6 (on Election Contests), which defines "election contests" as
follows:

SEC. 2. Definition. – An election contest refers to any controversy or dispute involving title or claim to any
elective office in a stock or nonstock corporation, the validation of proxies, the manner and validity of elections
and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or
other officer directly elected by the stockholders in a close corporation or by members of a nonstock
corporation where the articles of incorporation or bylaws so provide. (emphasis supplied)

There is an interesting point, which neither party raises, and it concerns Section 6(g) of Presidential Decree No. 902-A,
which states:

SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

(g) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent s
stockholders or members;

E. What are the three instances where the SEC can exercise its power to issue Cease and Desist Order?
ANS: There are three distinct bases for the issuance by the SEC of the CDO. The first, allocated by Section 5(i), is predicated on a
necessity "to prevent fraud or injury to the investing public". No other requisite or detail is tied to this CDO authorized under Section
5(i).

The second basis, found in Section 53.3, involves a determination by the SEC that "any person has engaged or is about to engage in
any act or practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency or other self-regulatory organization." The provision additionally requires
a finding that "there is a reasonable likelihood of continuing [or engaging in] further or future violations by such person." The maximum
duration of the CDO issued under Section 53.3 is ten (10) days.

The third basis for the issuance of a CDO is Section 64. This CDO is founded on a determination of an act or practice, which unless
restrained, "will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public". Section 64.1 plainly provides three segregate instances upon which the SEC may issue the CDO under this provision: (1) after
proper investigation or verification, (2) motu proprio, or (3) upon verified complaint by any aggrieved party. While no lifetime is
expressly specified for the CDO under Section 64, the respondent to the CDO may file a formal request for the lifting thereof,
which the SEC must hear within fifteen (15) days from filing and decide within ten (10) days from the hearing.

SEC vs PERFORMANCE FOREIGN EXCHANGE CORPORATION (2006)

Performance Foreign Exchange Corporation, herein respondent, is a domestic corporation with the following
purposes:

Primary Purpose

To operate as a broker/agent between market participants in transactions involving, but not limited to,
foreign exchange, deposits, interest rate instruments, fixed income securities, bonds/bills,
repurchased agreements of fixed income securities, certificate of deposits, bankers acceptances, bills
of exchange, over-the-counter option of the aforementioned instruments, Lesser Developed Country’s
(L.D.C.) debt, energy and stock indexes and all related, similar or derivative products, other than
acting as a broker for the trading of securities pursuant to the Revised Securities Act of the
Philippines.

Secondary Purpose

To engage in money changer or exchanging foreign currencies into domestic currency, Philippine
currency or other foreign currencies into another currencies.

After two years of operation, respondent received a letter dated November 28, 2000 from the SEC, herein
petitioner, requiring it to appear before the Compliance and Enforcement Department (CED) on December 14,
2000 for a clarificatory conference regarding its business operations. Respondent’s officers complied and
explained before the CED the nature of their business. On January 16, 2001, Emilio B. Aquino, Director of CED,
issued a Cease and Desist Order,3 in CED Case No. 99-2297, stating that his department conducted an inquiry
on respondent’s business operations for possible violation of Republic Act (R.A.) No. 8799 (otherwise known
as The Securities Regulation Code); that the outcome of the inquiry shows that respondent is engaged in the
trading of foreign currency futures contracts in behalf of its clients without the necessary license; that such
transaction can be deemed as a direct violation of Section 11 of R.A. No. 87994 and the related provisions of
its Implementing Rules and Regulations; and that it is imperative to enjoin respondent from further operating
as such to protect the interest of the public.

Respondent filed with petitioner SEC a motion6 praying for the lifting of the Cease and Desist Order, alleging
that: (a) it has not violated any law or regulation in the conduct of its business; (b) it has been operating in
accordance with the purposes for which it was organized, which purposes were duly approved by petitioner;
(c) it has not engaged in currency futures contracts trading; and (d) its business involves "spot currency
trading which is not a form of currency futures transaction. On February 8, 2001, then SEC Chairman Lilia R.
Bautista, in her desire to know with certainty the nature of respondent’s business, sent a letter7 to the Bangko
Sentral ng Pilipinas (BSP), requesting a definitive statement that respondent’s business transactions are a
form of financial derivatives and, therefore, can only be undertaken by banks or non-bank financial
intermediaries performing quasi-banking functions. Meanwhile, on August 13, 2001, Amado M. Tetangco, Jr.,
then Officer-in-Charge, Office of the Governor, BSP, in answer to SEC Chairman Lilia Bautista’s letter-request
of February 8, 2001, stated that respondent’s business activity "does not fall under the category of futures
trading"and"can not be classified as financial derivatives transactions,. According to the BSP, the foreign
currency leverage trading, subject of your query, is essentially similar in mechanics to currency future trading,
particularly with respect to the margin requirements, standard contract size, and daily market-to-market of
open position. However, it does not fall under the category of futures trading because it is not exchange-
traded. Further, we can not classify it as being financial derivatives transactions as we consider the
transaction as plain currency margin trading, which by its mechanics, involve the set-up of margin and non-
delivery of the currencies involved.

What are the requisites before the SEC can exercise its power to issue cease and desist order? Are the
requisites complied in the case at bar?

ANS: Section 64 of R.A. No. 8799, provides:

Sec. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu
proprio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the
necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on
investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

Under the above provision, there are two essential requirements that must be complied with by the SEC before it may
issue a cease and desist order: First, it must conduct proper investigation or verification; and Second, there must be a
finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause
grave or irreparable injury or prejudice to the investing public.

Here, the first requirement is not present. Petitioner did not conduct proper investigation or verification before it issued
the challenged orders. The clarificatory conference undertaken by petitioner regarding respondent’s business
operations cannot be considered a proper investigation or verification process to justify the issuance of the Cease and
Desist Order. It was merely an initial stage of such process, considering that after it issued the said order following the
clarificatory conference, petitioner still sought verification from the BSP on the nature of respondent’s business activity.

Petitioner’s act of referring the matter to the BSP is an essential part of the investigation and verification process. In
fact, such referral indicates that petitioner concedes to the BSP’s expertise in determining the nature of respondent’s
business. It bears stressing, however, that such investigation and verification, to be proper, must be conducted by
petitioner before, not after, issuing the Cease and Desist Order in question. This, petitioner utterly failed to do. The
issuance of such order even before it could finish its investigation and verification on respondent’s business activity
obviously contravenes Section 64 of R.A. No. 8799 earlier quoted. Obviously, without BSP’s determination of the
nature of respondent’s business, there was no factual and legal basis to justify the issuance of such order.

Which brings us to the second requirement. Before a cease and desist order may be issued by the SEC, there must be
a showing that the act or practice sought to be restrained will operate as a fraud on investors or is likely to cause grave,
irreparable injury or prejudice to the investing public. Such requirement implies that the act to be restrained has been
determined after conducting the proper investigation/verification. In this case, the nature of the act to be restrained can
only be determined after the BSP shall have submitted its findings to petitioner. However, there is nothing in the
questioned Orders that shows how the public is greatly prejudiced or damaged by respondent’s business operation.
SEC vs SUBIC BAY GOLF AND COUNTRY CLUB (2015)

Subic Bay Golf Course, also known as Binictican Valley Golf Course, was operated by Subic Bay Metropolitan
Authority (SBMA) under the Bases Conversion Development Authority (BCDA).5 Universal International Group
of Taiwan (UIG), a Taiwanese corporation, was chosen to implement the plan to privatize the golf
course.6cralawrednad On May 25, 1995, SBMA and UIG entered into a Lease and Development Agreement.
Under the agreement, SBMA agreed to lease the golf course to UIG for 50 years, renewable for another 25
years.7 UIG agreed to "develop, manage and maintain the golf course and other related facilities within the
complex[.]"8 Later, Universal International Group Development Corporation (UIGDC) succeeded to the
interests of UIG on the golf course development. On April 1, 1996, UIGDC executed a Deed of Assignment in
favor of Subic Bay Golf and Country Club, Inc. (SBGCCI). Under the Deed of Assignment, UIGDC assigned all
its rights and interests in the golf course's development, operations, and marketing to SBGCCI. On April 25,
1996, SBGCCI and UIGDC entered into a Development Agreement.11 UIGDC agreed to "finance, construct and
develop the [golf course], for and in consideration of the payment by [SBGCCI] of its 1,530 (SBGCCI) shares of
stock." Upon SBGCCI's application, the Securities and Exchange Commission issued an Order for the
Registration of 3,000 no par value shares of SBGCCI on July 8, 1996. SBGCCI was issued a Certificate of
Permit to Offer Securities for Sale to the Public of its 1,530 no par value proprietary shares on August 9, 1996.
The shares were sold at P425,000.00 per share. SBGCCI would use the proceeds of the sale of securities to
pay UIGDC for the development of the golf course. In the letter14 dated November 4, 2002 addressed to Atty.
Justina Callangan, Director of Securities and Exchange Commission's Corporation Finance Department,
complainants Regina Filart (Filart) and Margarita Villareal (Villareal) informed the Securities and Exchange
Commission that they had been asking UIGDC for the refund of their payment for their SBGCCI shares. UIGDC
did not act on their requests.15 They alleged that they purchased the shares in 1996 based on the promise of
SBGCCI and UIGDC to deliver and construct the said golf course, swimming pool and tennis court, golf villas
and residential condominium, club facilitie, restaurants, and driving range.

Villareal and Filart also claimed that despite SBGCCI's and UIGDC's failure to deliver the promised amenities,
they started to charge them monthly dues. They also never received any billing statement from them until they
were sent a demand notice to pay the alleged back dues of P39,000.00 within five (5) days. They were
threatened that their shares amounting to P740,000.00 and paid off in December 1996 would be auctioned off if
their alleged back dues would not be paid.18 Villareal and Filart prayed for relief from the "terrible situation
[they found themselves] in."19 They also prayed that their letter be accepted "as a formal complaint against
Universal International Group Development Corporation for breach of promise/contract with its investors who
put in hard-earned money believing that they would deliver what their brochures promised to deliver." In their
Comment,21 SBGCCI and UIGDC averred that they had already substantially complied with their commitment
to provide the members a world-class golf and country club.22 The construction of the golf course
substantially met international standards.23 Other proposed project developments such as the construction of
villas and residential condominium-hotels were not included in the rights purchased with member shares.24
They also denied that they failed to send monthly billing statements to Filart and Villareal. SBGCCI and UIGDC
also stressed that SBMA, under its Contract of Lease, was the one duty-bound to complete the golf course and
amenities. It would be in breach of contract if it failed to complete the golf course and the amenities. Insofar as
SBGCCI's commitments were concerned, it was able to fully comply with its obligations.

The SEC then suspend the operation of Subic Bay Golf and Country Club due to its failure to comply with its
undertakings in its Registration Statement and Prospectus, tantamount to misrepresentation, and in violation
of the provisions of the Securities Regulation Code, and its implementing rules and regulation, the Certificate
of Registration and Permit to Sell Securities to the Public issued to respondent Subic Bay Golf and Country
Club, Inc. It also ordered ordered the return of the purchase price of shares. SBGCCI and UIGDC filed a
Petition for Review45 of the Securities and Exchange Commission's February 10, 2004 Decision before the
Court of Appeals.46 They argued that the letter-complaint filed by Villareal and Filart involved an intra-
corporate dispute that was under the jurisdiction of the Regional Trial Court and not the Securities and
Exchange Commission.47 They also argued that the Securities Regulation Code does not grant the Securities
and Exchange Commission the power to order the refund of payment for shares of stock. The Court of
Appeals found that the case involved an intra-corporate controversy. The Securities and Exchange
Commission acted in excess of its jurisdiction when it ordered UIGDC and SBGCCI to refund Villareal and
Filart the amount they paid for SBGCCI shares of stock. he Securities and Exchange Commission argues that
Villareal and Filart's letter-complaint of November 4, 2002 did not only raise matters involving intra-corporate
relations. Their letter-complaint also stated serious violations of the Securities Regulation Code, which may
require the Securities and Exchange Commission's intervention. The Commission did not adjudicate private
rights or awarded damages.53 It only determined whether SBGCCI and UIGDC committed
misrepresentations,54 in violation of the Securities Regulation Code and its implementing rules.

A. Discuss the relationship and nature controversy test to determine the existence of intra-corporate dispute.

ANS: For a dispute to be "intra-corporate," it must satisfy the relationship and nature of controversy tests. The
relationship test requires that the dispute be between a corporation/partnership/association and the public; a
corporation/partnership/association and the state regarding the entity's franchise, permit, or license to operate; a
corporation/partnership/association and its stockholders, partners, members, or officers; and among stockholders,
partners, or associates of the entity. The nature of the controversy test requires that the action involves the
enforcement of corporate rights and obligations.

B. Is there an intra-corporate dispute in the case at bar? Assuming that the case involves intra-corporate
dispute, does it relieve of SEC of jurisdiction to handle administrative case involving violation of the SRC?

ANS: Yes. It involves a dispute between the corporation, SBGCCI, and its shareholders, Villareal and Filart.

This case also involves corporate rights and obligations. The nature of the action — whether it involves corporate rights
and obligations — is determined by the allegations and reliefs in the complaint.73cralawrednad

Villareal and Filart's right to a refund of the value of their shares was based on SBGCCI and UIGDC's alleged failure to
abide by their representations in their prospectus. Specifically, Villareal and Filart alleged in their letter-complaint that
the world-class golf course that was promised to them when they purchased shares did not materialize. This is an intra-
corporate matter that is under the designated Regional Trial Court's jurisdiction. It involves the determination of a
shareholder's rights under the Corporation Code or other intra-corporate rules when the corporation or association fails
to fulfill its obligations.

However, even though the Complaint filed before the Securities and Exchange Commission contains allegations that
are intra-corporate in nature, it does not necessarily oust the Securities and Exchange Commission of its regulatory
and administrative jurisdiction to determine and act if there were administrative violations committed.

The Securities and Exchange Commission is organized in line with the policy of encouraging and protecting
investments.74 It also administers the Securities Regulation Code,75 which was enacted to "promote the development
of the capital market, protect investors, ensure full and fair disclosure about securities, [and] minimize if not totally
eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free
market."76 Pursuant to these policies, the Securities and Exchange Commission is given regulatory powers77 and
"absolute jurisdiction, supervision and control over all corporations, partnerships' or associations. . . ."

Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed misrepresentations
in the sale of their shares, nothing prevented the Securities and Exchange Commission from taking cognizance of it to
determine if SBGCCI and UIGDC committed administrative violations and were liable under the Securities Regulation
Code. The Securities and Exchange Commission may investigate activities of corporations under its jurisdiction to
ensure compliance with the law.

C. Does the SEC have the power to order the refund of the purchase price of Villareal's and Filart's shares in
the golf club?

ANS: None. The Securities and Exchange Commission's regulatory power does not include the authority to order the
refund of the purchase price of Villareal's and Filart's shares in the golf club. The issue of refund is intra-corporate or
civil in nature. Similar to issues such as the existence or inexistence of appraisal rights, pre-emptive rights, and the
right to inspect books and corporate records, the issue of refund is an intra-corporate dispute that requires the court to
determine and adjudicate the parties' rights based on law or contract. Injuries, rights, and obligations involved in intra-
corporate disputes are specific to the parties involved. They do not affect the Securities and Exchange Commission or
the public directly.

The Securities and Exchange Commission's power when violations of the Securities Regulation Code are found is
limited to issuing regulatory orders such as suspending or revoking registration statements, providing for the terms and
conditions for registration, and imposing fines and penalties.

D. Discuss the SEC`s power in relation to securities.

ANS: In relation to securities, the Securities and Exchange Commission's regulatory power pertains to the approval
and rejection, and suspension or revocation, of applications for registration of securities79 for, among others, violations
of the law, fraud, and misrepresentations. Thus:cralawlawlibrary

SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. The Commission may reject a
registration statement and refuse registration of the security thereunder, or revoke the effectivity of a
registration statement and the registration of the security thereunder after due notice and hearing by issuing
an order to such effect, setting forth its findings in respect thereto, if it finds that:

The issuer:

Has been judicially declared insolvent;

Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in connection with the offering for which a registration statement
has been filed;

Has been engaged or is about to engage in fraudulent transactions;

Has made any false or misleading representation of material facts in any prospectus concerning the issuer or
its securities;

Has failed to comply with any requirement that the Commission may impose as a condition for registration of
the security for which the registration statement has been filed; or

The registration statement is on its face incomplete or inaccurate in any material respect or includes any
untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; or

The issuer, any officer, director or controlling person of the issuer, or person performing similar functions, or
any underwriter has been convicted, by a competent judicial or administrative body, upon plea of guilty, or
otherwise, of an offense involving moral turpitude and/or fraud or is enjoined or restrained by the Commission
or other competent judicial or administrative body for violations of securities, commodities, and other related
laws.

13.4. If the Commission deems it necessary, it may issue an order suspending the offer and sale of the
securities pending any investigation. The order shall state the grounds for taking such action, but such order
of suspension although binding upon the persons notified thereof, shall be deemed confidential, and shall not
be published. Upon the issuance of the suspension order, no further offer or sale of such security shall be
made until the same is lifted or set aside by the Commission. Otherwise, such sale shall be void.

SEC. 15. Suspension of Registration. - 15.1. If, at any time, the information contained in the registration
statement filed is or has become misleading, incorrect, inadequate or incomplete in any material respect, or
the sale or offering for sale of the security registered thereunder may work or tend to work a fraud, the
Commission may require from the issuer such further information as may In its judgment be necessary to
enable the Commission to ascertain whether the registration of such security should be revoked on any
ground specified in this Code. The Commission may also suspend the right to sell and offer for sale such
security pending further investigation, by entering an order specifying the grounds for such action, and by
notifying the issuer, underwriter, dealer or broker known as participating in such offering.80
To ensure compliance with the law and the rules, the Securities and Exchange Commission is also given the power to
impose fines and penalties. It may also investigate motu proprio whether corporations comply with the Corporation
Code, Securities Regulation Code, and rules implemented by the Securities and Exchange Commission.chanrobleslaw

SEC. 5. Powers and Functions of the Commission. - 5.1. The Commission shall act with transparency and
shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation
Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and functions:ChanRoblesvirtualLawlibrary

d. Regulate, investigate or supervise the activities of persons to ensure compliance;

f.Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto

i. Issue cease and desist orders to prevent fraud or injury to the investing public;

m. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law; and

n. Exercise such other powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.81

The Securities and Exchange Commission's approval of securities registrations signals to the public that the securities
are valid. It provides the public with basis for relying on the representations of corporations that issue securities or
financial instruments.
ROMAN vs SEC (2016)

On June 6, 2007, private respondents representing the minority stockholders of the Capitol Corporation, filed a
verified letter-complaint against the petitioners before the SEC that on April 23, 1996, a Special Board of
Directors Meeting was held and, thereafter, a resolution was passed by the Board of Directors of Capitol
(Board) authorizing Roman, as its Presiden to enter into series of ransaction involving the acquisition of land
located in Montalban Rizal, entering in behalf of the corporation [Capitol] into a Joint Venture Agreement with
ALI [Ayala Land Inc.] for the purpose of developing the said area into a first class golf course. For the purpose
of acquiring the Properties, the President was also authorized to obtain loans from ALI to be secured by (a)
real estate mortgage on the properties; and (b) assignment of the proceeds to be paid in connection with the
Joint Venture. It was also further alleged that Roman also asked the Board to pass a resolution authorizing a
third-party, Pacific Asia Capital Corporation (Pacific Asia), to receive from Ayala Land, Inc. (ALI) the proceeds
of the loan, or any portion thereof, and ALI to cause the release of the proceeds of the aforesaid loan, or any
portion thereof, to Pacific Asia, and that any release by ALI and receipt by Pacific Asia be deemed a valid
release and receipt of such amount;7 that the issued resolutions were erroneously made; that in evident bad
faith, Roman, as President of Capitol, never informed the Board that, at the time he made the proposals and
before the resolutions were issued, ALI had already made substantial initial cash advance in favor of Capitol
but directly payable to Pacific Asia; that ALI had no legal basis to make cash advances as Roman had no
authority yet to enter into any agreement with ALI; that part of the representations made by Roman was that
ALI would not commence the conversion of the area occupied by the first nine (9) holes of the existing golf
course of Capitol in Old Balara, Quezon City, until such time that one (1) 18 hole golf course of the promised
two (2) championship golf courses in Macabud, Montalban, Rizal, would have been finished and playable; and
that after more than ten (10) long years, no golf course existed or was even under construction in Macabud,
Montalban, Rizal, and yet the Old Balara property had already been converted and developed into a residential
subdivision called the Ayala Hillside Estate. To private respondents, all these were irregularities and
anomalies amounting to fraud and misrepresentation that prompted them to ask the SEC to investigate the
Board and to order the constitution of the MANCOM to temporarily oversee the affairs of Capitol. In their
Answer,12 the petitioners invoked the SEC's lack of jurisdiction claiming that the complaint of private
respondents involved an intra-corporate controversy. Accordingly, they argued that under the Securities
Regulation Code (SRC), jurisdiction over such intra-corporate controversies should be with the Regional Trial
Court (RTC) acting as special commercial court. The CA dismissed the petition stating that while the letter-
complaint filed by private respondents raised intra-corporate matters, the case did not necessarily involve a
controversy arising purely out of intra-corporate relations so as to deprive the SEC of its jurisdiction. The CA
pointed out that the said letter-complaint was seeking that the SEC investigate alleged irregularities committed
by the petitioners which, if found true, would constitute serious violations of the SRC and the pertinent rules
and regulations.16 Thus, the CA concluded that private respondents were merely seeking the administrative
intervention of the SEC on a matter within its competence.

A. Does the SEC have authority to take cognizance of the letter-complaint?

ANS: Yes. Under the SRC, jurisdiction on matters stated under Section 5 of P.D. No. 902-A, which was originally
vested in the SEC, has already been transferred to the RTC acting as a special commercial court. Despite the said
transfer, however, the SEC still retains sufficient powers to justify its assumption of jurisdiction over matters concerning
its supervisory, administrative and regulatory functions. In SEC v. Subic Bay Golf and Country Club, Inc. (SBGCCI) and
Universal International Group Development Corporation (UIGDC),24 for instance, the Court affirmed the SEC's
assumption of jurisdiction over a complaint, which alleged that SBGCCI and UIGDC committed misrepresentations in
the sale of their shares. The Court held in the said case that nothing prevented the SEC from assuming jurisdiction to
determine if SBGCCI and UIGDC committed administrative violations and were liable under the SRC despite the
complaint having raised intra-corporate issues. It also ruled that the SEC may investigate activities of corporations to
ensure compliance with the law.

In ruling that way, the Court cited Sections 5 and 53 of the SRC as justifications, to wit:chanRoblesvirtualLawlibrary

SECTION 5. Powers and Functions of the Commission. — 5.1. The Commission shall act with transparency
and shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws. Pursuant
thereto the Commission shall have, among others, the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees
of primary franchises and/or a license or permit issued by the Government;

(d) Regulate, investigate or supervise the activities of persons to ensure compliance;

(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or
which are necessary or incidental to the carrying out of, the express powers granted the Commission to
achieve the objectives and purposes of these laws.

SECTION 53. Investigations, Injunctions and Prosecution of Offenses. — 53.1. The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person has violated or
is about to violate any provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency, other self-regulatory organization, and may
require or permit any person to file with it a statement in writing, under oath or otherwise, as the Commission
shall determine, as to all facts and circumstances concerning the matter to be investigated. xxxcralawred

Beyond doubt, therefore, is the authority of the SEC to hear cases regardless of whether an action involves issues
cognizable by the RTC, provided that the SEC could only act upon those which are merely administrative and
regulatory in character. In other words, the SEC was never dispossessed of the power to assume jurisdiction over
complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is confined only to
the extent of ensuring compliance with the law and the rules, as well as to impose fines and penalties for violation
thereof; and to investigate even motu proprio whether corporations comply with the Corporation Code, the SRC and
the implementing rules and regulations.

Thus, in this case, there is simply no doubt that the SEC acted properly in assuming jurisdiction over the letter-
complaint filed by private respondents. A perusal of their letter-complaint demonstrates that private respondents sought
the SEC's intervention in the interest of the minority stockholders by "conducting thorough investigation"25 on the
actions of the petitioners over "the apparent anomalies and fraud over the agreement with ALI," the growing labor
unrest at [Capitol], the unpaid individual creditors some of whom have already gone into courts to enforce collection,
the continuing financial mismanagement and gross negligence and incompetence shown by Mr. Pablo B. Roman, Jr.,
et al. in running the business affairs of [Capitol] xxx that resulted in losses, wastages and dissipation of funds of the
corporation.26 Their prayer for the SEC to exercise its investigatory powers in the end would adequately justify the
assumption of jurisdiction over the letter-complaint regardless if, indeed, intra-corporate allegations were raised.

As the SEC is not ousted of its regulatory and administrative jurisdiction to determine and act if administrative violations
were committed,27 no grave abuse of discretion can be attributed to it when it assumed jurisdiction over the letter-
complaint.

B. Does the SEC have the power to constitute a management committee?

ANS: Yes. under Section 5.1 (n) of the SRC, the SEC is permitted to exercise such other powers as may be provided
for by law as well as those which may be implied from, or which are necessary or incidental to the carrying out, of the
express powers granted the SEC to achieve the objectives and purposes of these laws.

With such broad authority, it is beyond question that the SEC, as a regulator, has broad discretion to act on matters
that relate to its express power of supervision over all corporations, partnerships or associations who are the grantees
of primary franchises and/or a license or permit issued by the Government. Such grant of express power of
supervision, necessarily includes the power to create a management committee following the doctrine of necessary
implication.
The reason is simple. The creation of a management committee is one that is premised on the immediate and speedy
protection of the interest not only of minority stockholders, but also of the general public from immediate danger of loss,
wastage or destruction of assets or the paralyzation of business of a concerned corporation or entity.28 No body is
more competent to provide such a temporary relief other than the regulatory body of these companies - the SEC.

Thus, such authority is expressly sanctioned under SEC-MC No. 11, Series of 2003. Suffice it to state that such circular
enjoys the presumption of validity unless this Court declares otherwise.

ABACUS CAPITAL AND INVESTMENT CORPORATION v. DR. ERNESTO G. TABUJARA (2018)

Abacus is an investment house engaged in activities related to dealing in securities and other commercial
papers.4 On July 6, 2000, Tabujara engaged Abacus as his lending agent for purposes of investing his money
in the principal amount of P3,000,000.00. Abacus, in turn, lent the P3,000,000.00 to Investors Financial Services
Corporation (IFSC, formerly CIPI Leasing and Finance Corporation) with a term of 32 days.5 To confirm the
money placement, Abacus issued to Tabujara a "Confirmation of Investment" slip. However, on July 24, 2000
or shortly after Tabujara placed his investment, IFSC filed with the Securities and Exchange Commission
(SEC) a Petition for Declaration of Suspension of Payments. This petition was granted by the SEC and
consequently, all actions for claims against IFSC were immediately suspended. Learning of this development,
Tabujara gave notice to Abacus and IFSC that he is opting to pre-terminate his money placement. Upon
maturity of the loan on August 7, 2000, Tabujara did not receive either the interest amount or the principal.

Meantime, IFSC's Petition for Declaration of Suspension of Payments was raffled to a regular court and was
subsequently treated as a petition for rehabilitation.9 Pursuant to IFSC's rehabilitation plan, Tabujara received
interest payments from Abacus for the period January 1, 2001 to December 31, 2001.10 The interest due,
however, ceased to be paid come January 2002, prompting Tabujara to file his complaint a quo against Abacus
and IFSC for collection of sum of money with damages.11 In its Complaint,12 Tabujara alleged, among others,
that his investment was co-mingled with the monies of other investors to support the credit line facility in the
amount of P700,000,000.00 which Abacus issued in favor of IFSC. The complaint as against IFSC was
dismissed on the ground of lack of jurisdiction while the same proceeded against Abacus. By way of defense,
Abacus insisted that Tabujara directly transacted with IFSC and that its involvement therein was limited only
to acting as collecting and paying agent for Tabujara. The RTC found that Abacus never guaranteed nor
secured the obligations of IFSC which is the actual and real borrower of Tabujara's money and against which
the latter has a cause of action.14 Nevertheless, since IFSC is under rehabilitation, the RTC held that the
latter's assets are held in trust for the equal benefit of the creditors and Tabujara should not be paid ahead of
the others.

The CA reasoned that the transaction in this case was a money market transaction dealing with short-term
credit instruments where lenders and borrowers do not deal directly with each other but through a middle
man. The CA found that Abacus did not only act as a middle man pursuant to is function as an investment
house, but as the "fund supplier" for the credit line facility it extended to IFSC. Further, the CA held that
Abacus is guilty of fraud in handling Tabujara's money placement, having loaned the same to IFSC despite the
latter's financial woes.

A. Define the following: investment house, underwriting and securities.

ANS: An investment house is defined under Presidential Decree No. 1292 as an entity engaged in underwriting of
securities of other corporations.

In turn, "underwriting" is defined as the act or process of guaranteeing the distribution and sale of securities of any kind
issued by another corporation;
Securities is therein defined in PD 1292 as written evidences of ownership, interest, or participation, in an enterprise, or
written evidences of indebtedness of a person or enterprise.

Republic Act No. 8799 or the Securities Regulation Code defines securities as shares, participation or interests in a
corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments,
whether written or electronic in character. It includes:

(a) Shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities;

(b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certifies of
deposit for a future subscription;

(c) Fractional undivided interests in oil, gas or other mineral rights;

(d) Derivatives like option and warrants;

(e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar
instruments

(f) Proprietary or non-proprietary membership certificates in corporations; and

(g) Other instruments as may m the future be determined by the Commission.

B. Can Tabujara recover from Abacus?

ANS: Abacus had an existing Loan Agreement with IFSC whereby it agreed to grant the latter a credit line facility in the
amount of P700,000,000.00. By testimonial evidence, it was established that the moneys used to fund the
P700,000,000.00 credit line facility were gathered from various sources.

That Tabujara's investment in the amount of P3,000,000.00 was used as part of the pool of funds made available to
IFSC is confirmed by the facts that it is Abacus, and not Tabujara, which was actually regarded as IFSC's creditor in
the rehabilitation plan and that Abacus even proposed to assign all its rights and privileges in accordance with the
rehabilitation plan to its "funders" in proportion to their participation. As such, in a letter23 dated November 6, 2000,
Abacus proposed passing on and assigning to Tabujara all the proceeds and rights which it has under the rehabilitation
plan in proportion to Tabujara's principal participation in the amount of P3,000,000.00. In other words, it was really
Abacus who was the creditor entitled to the proceeds of IFSC's rehabilitation plan - thus necessitating the assignment
by Abacus of said proceeds to the actual source of funds, Tabujara included.

Further, as aptly observed by the CA, the transaction herein involved is akin to money market placements. Thus, In this
case, Tabujara as the investor is the lender or the "funder" who loaned his P3,000,000.00 to IFSC through Abacus.
Thus, when the loaned amount was not paid together with the contracted interest, Tabajura may recover from Abacus
the amount so invested together with damages.

C. What is a money market placement? What is its nature?

ANS: As defined by Lawrence Smith, "the money market is a market dealing in standardized short-term credit
instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a
middle man or dealer in the open market." It involves "commercial papers" which are instruments "evidencing
indebtedness of any person or entity ... which are issued, endorsed, sold or transferred or in any manner conveyed to
another person or entity, with or without recourse." The fundamental function of the money market device in its
operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund suppliers."
The money market is an "impersonal market", free from personal considerations. "The market mechanism is intended
to provide quick mobility of money and securities."

The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a
commercial paper in the money market necessarily knows in advance that it would be expeditiously transacted and
transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the
borrower or issuer of commercial paper of the sale or transfer to the investor.25

Stating that a money market placement partakes of the nature of loan, Sesbreno v. CA26 elucidates:
In money market placement, the investor is a lender who loans his money to a borrower through a middleman or
dealer. Petitioner here loaned his money to a borrower through Philfinance. When the latter failed to deliver back
petitioner's placement with the corresponding interest earned at the maturity date, the liability incurred by Philfinance
was a civil one. As such, petitioner could have instituted against Philfinance before the ordinary courts a simple action
for recovery of the amount he had invested and he could have prayed therein for damages. x x x.27 (Citations omitted)