Banking Laws Case Digests

MAXWELL NICKY NOTES Tahanlangit, Maxi Dominick D.
1
COMMERCIAL LAW CASE DIGESTS Xavier University-Ateneo de Cagayan
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SECURITIES REGULATION CODE capital flow or the "movement of money from one currency to another.”
International capital flow is caused by a number of factors, among which are
1. Cancio v. Performance Foreign Exchange Corporation, G.R. No. "a country's interest rates, inflation situation, Gross Domestic Product
182307, 6 June 2018 growth, employment, trade balance, and other barometers of economic
health."
Facts:
Currencies are traded in pairs by speculating the value of one currency
Performance Forex is a corporation operating as a financial broker/agent against another. One currency, usually the US dollar, is considered the "base
between market participants in foreign exchange transactions. currency" while the other currency is a "quote or counter currency." If a
trader speculates that the base currency will be stronger than the counter
Foreign currency exchange trading or forex trading is the speculative trade currency, the trader will sell the base currency to buy more counter
of foreign currency for the sole purpose of gaining profit from the change in currency. If the trader speculates that the base currency will be weaker than
prices. The forex market is a "global, decentralized," and essentially "an the counter currency, then the trader will sell the counter currency to buy
over-the-counter (OTC) market where the different currency trading more of the base currency. For example, if a trader speculates that the US
locations around the globe electronically form a unified, interconnected dollar will rise in value as against the Philippine peso, the trader will sell
market entity.” dollars to acquire more pesos. If the trader speculates that the dollar will
weaken against the peso, the trader will sell pesos to acquire more dollars.
Unlike a stock exchange market where the opening and closing of trades
rely on only one (1) or two (2) time zones, a forex market may have In a standard forex trade, a trader would "open a position" by buying or
overlapping time zones. Foreign currency, due to its decentralized nature, selling a certain amount of a particular currency based on its value against
may be traded in different financial markets. For instance, trading currency the US dollar. The trader would then hold on to this particular currency until
using US dollars would not depend on the business or banking hours only of its value appreciates or depreciates. Once the value changes, the trader then
financial institutions in the United States. "closes position" by selling this currency at a higher price or buying it at a
lower price; hence, earning a profit. If the trader sells when the value
Traders are drawn to the forex market since the price of currency constantly depreciates or buys when the value appreciates, the trader suffers a loss.
fluctuates. The value of a foreign currency is determined by international Losses, however, are only realized when the traders close their positions.
MAXWELL NICKY NOTES Tahanlangit, Maxi Dominick D. 2
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The participants in a forex market are banks, hedge funds, investment firms, movements, thus, require large amounts of capital for them to have
and individual retail traders. Unlike banks, hedge funds, and investment significant impact on the profits to be earned.
firms that have significant amounts of capital to engage in trade, individual
retail traders often make use of brokers, who "serve as an agent of the For example, the current Philippine peso equivalent of one (1) Japanese yen
customer in the broader [foreign currency exchange] market, by seeking the is P0.4830. A pip would be a change from P0.4830 to 0.4831. A P0.0001
best price in the market for a retail order and dealing on behalf of the retail price movement in the purchase of one (1) Japanese yen may not exactly
customer." Individual retail traders also rely on "leverage trading," where have a significant effect but when multiplied by a hundred, it will actually
traders can open margin accounts with a financial broker or agent to make mean a P48.31 increase for every trader betting on the rise of the yen and a
use of that broker or agent's credit line to engage in trade. P48.31 decrease for those expecting a rise in peso prices. Leverage trading
can substantially magnify profits. Considering, however, that leverage
A margin account is an account where the broker-dealer lends money to the trading is essentially trade using borrowed money, leverage trading can
trader to purchase currency, using the same purchased currency as magnify losses just as much. Forex trade is, thus, considered a lucrative
collateral. Returns will be proportional to the amount deposited. Leverage is but risky endeavor since every trade multiplies profit and loss by a
determined by the amount that the trader is required to deposit. If a trader much higher rate than what was originally invested.
has to deposit US$1,000.00 into a margin account to trade US$100,000.00
in currency, the margin account has a leverage of 100 to 1. This system Sometime in 2000, Cancio and Pampolina accepted Hipol's invitation to
allows the trader to control more money in the market than what was open a joint account with Performance Forex. Cancio and Pampolina
originally deposited. deposited the required margin account deposit of US$10,000.00 for trading.
The parties executed an application for the opening of a joint account, with
Individual retail traders make use of leverage trading and margin accounts a trust/trading facilities agreement between Performance Forex, and Cancio
since price movements are usually miniscule. A "pip" is "the smallest unit and Pampolina. They likewise entered into an agreement for appointment of
of price movement in the exchange rate of a currency pair." The goal of an agent between Hipol, and Cancio and Pampolina. They agreed that
every trader in foreign currency exchange is to earn pips. To underscore Cancio and Pampolina would make use of Performance Forex's credit line
how miniscule expected profits are, pips commonly refer to the price to trade in the forex market while Hipol would act as their commission
movement of the fourth decimal place of major currencies. Miniscule price agent and would deal on their behalf in the forex market.
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The trust/trading facilities agreement between Performance Forex, and regarded strictly as a private matter between you and him. You further
Cancio and Pampolina provided: acknowledge that for our own protection and commercial purpose you are
aware of the terms of the trading agreement between the commission agent
6. Orders and ourselves where the commission agent is to trade for you.
You hereby irrevocably authorize us to act upon any instructions, whether in All parties agreed that the trading would only be executed by Cancio and
writing, by cable, telex, facsimile or telephone given or purported to be Pampolina, or, upon instructions to their agent, Hipol. The trading orders to
given by you or your agent or representative which appear whether on their Hipol would be coursed through phone calls from Cancio and Pampolina.
respective faces (in the case of writing, cable, telex or facsimile) or
otherwise to be bonafide. We shall not be responsible and you shall From March 9, 2000 to April 4, 2000, Cancio and Pampolina earned
indemnify us for any losses incurred as a result of acting upon such US$7,223.98. They stopped trading for more or less two (2) weeks, after
instructions should there in fact be any error commission ambiguities or which, however, Cancio again instructed Hipol to execute trading currency
other irregularities therein or therewith. orders. When she called to close her position, Hipol told her that he would
talk to her personally.
Commission Agent
Cancio later found out that Hipol never executed her orders. Hipol
You acknowledge and agree that the commission agent (one Mr/Ms Ronald confessed to her that he made unauthorized transactions using their joint
(sic) M. Hipol) who introduced you to us in connection with this Facility is account from April 5, 2000 to April 12, 2000. The unauthorized transactions
your agent and we are in no way responsible for his actions or any resulted in the loss of all their money, leaving a negative balance of
warranties or representations he may have made (whether expressly on our US$35.72 in their Statement of Account. Cancio later informed Pampolina
behalf or not) and that pursuant to his having introduced you to us, we will about the problem.
(if you accept this Facility) pay him a commission based on your trading
with us (details of which will be applied to you on request). Should you Pampolina met with two (2) Performance Forex officers, Dave Almarinez
choose to also vest in him trading authority on your behalf please do so only and Al Reyes, to complain about Hipol's unauthorized trading on their
after considering the matter carefully, for we shall not be responsible nor account and to confront them about his past unauthorized trades with
liable for any abuse of the authority you may confer on him. This will be Performance Forex's other client, Justine Dela Rosa.
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The officers apologized for Hipol's actions and promised to settle their company premises while independent brokers, like Hipol, seek clients and
account. However, they stayed quiet about Hipol's past unauthorized introduce them to the company.
trading.
Ocampo likewise testified that clients must first sign a Purchase Order Form
Performance Forex offered US$5,000.00 to settle the matter but Cancio and before Performance Forex could authorize an order transaction. Every
Pampolina rejected this offer. Their demand letters to Hipol were also transaction must have its own Purchase Order Form. Erazo confirmed that
unheeded. Thus, they filed a Complaint for damages against Performance dealings were still done manually at the time of the questioned transactions,
Forex and Hipol before the Regional Trial Court of Mandaluyong City. and that clients or agents must submit an actual signed Purchase Order
Form.
Hipol was declared in default. Since the parties were unable to come to a
settlement, trial commenced. Ocampo confirmed that they paid a "goodwill offer," i.e. the return of the
broker's commission, to their client Justine Dela Rosa for Hipol's alleged
During trial, Performance Forex's General Manager for Sales and Marketing unauthorized transactions. He also testified that Hipol's accreditation had to
Jonathan Reyes Ocampo (Ocampo) testified that clients could trade through be cancelled after Pampolina complained against him to protect the
two (2) types of brokers. The first type is the independent broker, or one reputation of the company.
who is already experienced in trading and merely attends Performance
Forex's orientation trainings to know its policies and regulations. The On July 15, 2006, the Regional Trial Court rendered its Decision finding
second type is an in-house broker or business relations officer, who is new Performance Forex and Hipol solidarity liable to Cancio and Pampolina for
to the business and has to be supervised by the sales and marketing damages.
managers. He stated that Hipol was an Investment Portfolio Manager, or an
independent broker who not only provided information from financial Issue:
experts but also executed orders on behalf of the clients.
Whether or not respondent Performance Forex Exchange Corporation
Performance Forex Senior Manager Gabriel Erazo (Erazo) added that in- should be held solidarity liable with petitioners Belina Cancio and
house brokers usually cater to walk-in clients and are stationed in the Jeremy Pampolina's broker, Hipol, for damages due to the latter's
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unauthorized transactions in the foreign currency exchange trading forms that he held, without complaint. Petitioner Pampolina even testified
market. that they were constantly aware of the status of their account when they
were trading.
Ruling: Petitioners would have been aware that respondent could execute
instructions relayed by Hipol even without the required purchase order
A principal who gives broad and unbridled authorization to his or her form. Otherwise, they would have stopped executing orders upon their tenth
agent cannot later hold third persons who relied on that authorization transaction. Even if this Court were to apply petitioners' argument that a
liable for damages that may arise from the agent's fraudulent acts. "buy" and a "sell" is counted as one (1) transaction each, that would still
mean that there were 23 transactions made when petitioners were actively
Petitioners opened a joint account with respondent, through their broker, trading. There would still be 13 orders that petitioners relayed to Hipol over
Hipol, to engage in foreign currency exchange trading. Respondent had a and above the 10 pre-signed purchase order forms that he held.
leverage system of trading, wherein clients may use its credit line to
facilitate transactions. This means that clients may actually trade more than Moreover, petitioners assail the alleged unauthorized transactions executed
what was actually in their accounts, signifying a higher degree of risk. The after April 4, 2000, when they allegedly stopped relaying instructions to
contract between petitioners and respondent provided that respondent was Hipol. These alleged unauthorized transactions, they argue, breached
irrevocably authorized to follow bonafide instructions from petitioners or respondent's contractual obligation to execute only bonafide instructions
their broker. from petitioners. From the table above, these transactions would refer to the
thirteenth, fourteenth, and fifteenth transactions.
Thus, by petitioners' own count, there were 15 transactions, not 29
transactions. According to the Balance Ledger, commission was deducted Respondents, however, presented signed purchase order forms for the
from petitioners' account 15 times. Thus, commission was deducted for contested transactions occurring after April 4, 2000, namely, the purchase
every successful transaction, not for every time a "buy" or "sell" was made. order forms dated April 4, 2000, April 5, 2000, and April 9, 2000. If there
was any breach committed by respondent, it occurred when petitioners
Interestingly, the eleventh and twelfth transactions occurred when actively traded and they would have been aware of this breach, not when
petitioners were still actively trading. This means that they executed more they stopped trading.
instructions to Hipol than what was covered by the signed purchase order
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Respondent likewise did not have the duty to disclose to petitioners any Petitioners conferred trading authority to Hipol. Respondent was not
previous infractions committed by their agent. obligated to question whether Hipol exceeded that authority whenever he
Hipol, petitioners' agent, was not employed with respondent. He was made purchase orders. Respondent was likewise not privy on how
categorized as an independent broker for commission. In Behn, Meyer, and petitioners instructed Hipol to carry out their orders. It did not assign Hipol
Co. v. Nolting: to be petitioners' agent. Hipol was the one who approached petitioners and
offered to be their agent. Petitioners were highly educated and were
A broker is generally defined as one who is engaged, for others, on a "already knowledgeable in playing in this foreign exchange trading."
commission, negotiating contracts relative to property with the custody of They would have been aware of the extent of authority they granted to
which he has no concern; the negotiator between other parties. never acting Hipol when they handed to him 10 pre-signed blank purchase order
in his own name, but in the name of those who employed him; he is strictly forms. Under Article 1900 of the Civil Code:
a middleman and for some purposes the agent of both parties.
Article 1900. So far as third persons are concerned, an act is deemed to
When Hipol became petitioners' agent, he had committed only one (1) have been performed within the scope of the agent's authority, if such
known prior infraction against a client of respondent. Respondent might act is within the terms of the power of attorney, as written, even if the
have been construed this as an isolated incident that did not warrant agent has in fact exceeded the limits of his authority according to an
heightened scrutiny. Hipol's infraction committed against petitioners was his understanding between the principal and the agent.
second known infraction. Respondent cancelled his accreditation when
petitioners informed them of his unauthorized transactions. Before a claimant can be entitled to damages, "the claimant should
satisfactorily show the existence of the factual basis of damages and its
It would be different if Hipol committed a series of infractions and causal connection to defendant's acts." The acts of petitioners' agent, Hipol,
respondent continued to accredit him. In that instance, respondent would were the direct cause of their injury. There is no reason to hold respondent
have been complicit to Hipol's wrongdoings. Respondent, not being Hipol's liable for actual and moral damages. Since the basis for moral damages has
employer, had no power of discipline over him. It could only cancel his not been established, there would likewise be no basis to recover exemplary
accreditation, which it did after a second incident was reported. This was the damages and attorney's fees from respondent. If there was any fault, the
extent by which respondent was obligated to act on Hipol's infractions. fault remains with petitioners' agent and him alone.
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settlements wherein he is not obliged to pay the purchase price. Rather, it

2. Abacus Securities Corporation v. Ampil, G.R. No. 160016, 27 Feb waits for the customer to sell. And if there is a loss, petitioner only requires
2006 the payment of the deficiency (i.e., the difference between the higher buying
price and the lower selling price). In addition, it charges a commission for
Facts: brokering the sale. However, if the customer sells and there is a profit,
petitioner deducts the purchase price and delivers only the surplus – after
In April 1997, respondent opened a cash or regular account with petitioner charging its commission.
for buying and selling securities as evidenced by the Account Application
Form. The parties’ business relationship was governed by the terms and RTC- Makati City held that petitioner and respondent were in pari delicto
conditions stated therein. and therefore without recourse against each other. CA upheld the lower
court’s finding that the parties were in pari delicto. It castigated petitioner
Since April 10, 1997, respondent actively traded his account, and as a result for allowing respondent to keep on trading despite the latter’s failure to pay
of such trading activities, he accumulated an outstanding obligation in favor his outstanding obligations. It explained that “the reason behind petitioner’s
of petitioner in the sum of P6,617,036.22 as of April 30, 1997. Respondent act is because whether respondent’s trading transaction would result in a
failed to pay petitioner his liabilities. Petitioner sold respondent’s securities surplus or deficit, he would still be liable to pay petitioner its commission.
to set off against his unsettled obligations. Hence, this Petition.
After the sale of respondent’s securities and application of the proceeds Issue:
thereof against his account, respondent’s remaining unsettled obligation to
petitioner was P3,364,313.56. Whether or not the margin requirement under the Securities
Regulation Code was violated.
Petitioner demanded that respondent settle his obligation plus the agreed
penalty charges accruing thereon equivalent to the average 90-day Treasury Ruling:
Bill rate plus 2% per annum. Despite said demand and the lapse of said
requested extension, respondent failed and/or refused to pay his Yes. The main purpose of the statute on margin requirements is to
accountabilities to petitioner. Respondent claims that he was induced to regulate the volume of credit flow, by way of speculative transactions,
trade in a stock security with petitioner because the latter allowed offset into the securities market and redirect resources into more productive
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uses. It is also to give a government credit agency an effective method of normally allow. Investors pay only a portion of the purchase price of
reducing the aggregate amount of the nation’s credit resources which the securities; their broker advances for them the balance of the
can be directed by speculation into the stock market and out of other purchase price and keeps the securities as collateral for the advance or
more desirable uses of commerce and industry. loan. Brokers take these securities/stocks to their bank and borrow the
“balance” on it, since they have to pay in full for the traded stock.
It is for the stabilization of the economy. Restrictions on margin percentages Hence, increasing margins i.e., decreasing the amounts which brokers
are imposed “in order to achieve the objectives of the government with due may lend for the speculative purchase and carrying of stocks is the most
regard for the promotion of the economy and prevention of the use of direct and effective method of discouraging an abnormal attraction of
excessive credit.” Otherwise stated, the margin requirements set out in the funds into the stock market and achieving a more balanced use of such
RSA are primarily intended to achieve a macroeconomic purpose — the resources.
protection of the overall economy from excessive speculation in securities.
Their recognized secondary purpose is to protect small investors. The nature of the stock brokerage business enables brokers, not the clients,
to verify, at any time, the status of the client’s account. Brokers are in the
The law places the burden of compliance with margin requirements superior position to prevent the unlawful extension of credit. Because of this
primarily upon the brokers and dealers. Sections 23 and 25 and Rule awareness, the law imposes upon them the primary obligation to enforce the
25-1, otherwise known as the “mandatory close-out rule,” clearly vest margin requirements.
upon petitioner the obligation, not just the right, to cancel or otherwise
liquidate a customer’s order, if payment is not received within three Nonetheless, these margin requirements are applicable only to
days from the date of purchase. For transactions subsequent to an unpaid transactions entered into by the present parties subsequent to the initial
order, the broker should require its customer to deposit funds into the trades of April 10 and 11, 1997. Thus, we hold that petitioner can still
account sufficient to cover each purchase transaction prior to its execution. collect from respondent to the extent of the difference between the
These duties are imposed upon the broker to ensure faithful compliance with latter’s outstanding obligation as of April 11, 1997 less the proceeds
the margin requirements of the law, which forbids a broker from extending from the mandatory sell out of the shares pursuant to the RSA Rules.
undue credit to a customer. Petitioner’s right to collect is justified under the general law on obligations
and contracts.
It will be noted that trading on credit (or “margin trading”) allows
investors to buy more securities than their cash position would
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The right to collect cannot be denied to petitioner as the initial In the present case, petitioner failed to enforce the terms and conditions of
transactions were entered pursuant to the instructions of respondent. its Agreement with respondent, specifically paragraph 8 thereof, purportedly
The obligation of respondent for stock transactions made and entered acting on the plea of respondent to give him time to raise funds therefor. By
into on April 10 and 11, 1997 remains outstanding. These transactions failing to ensure respondent’s payment of his first purchase transaction
were valid and the obligations incurred by respondent concerning his within the period prescribed by law, thereby allowing him to make
stock purchases on these dates subsist. At that time, there was no subsequent purchases, petitioner effectively converted respondent’s cash
violation of the RSA yet. Petitioner’s fault arose only when it failed to: account into a credit account. However, extension or maintenance of credits
1) liquidate the transactions on the fourth day following the stock on non-margin transactions, are specifically prohibited under Section 23(b).
purchases, or on April 14 and 15, 1997; and 2) complete its liquidation Thus, petitioner was remiss in its duty and cannot be said to have come to
no later than ten days thereafter, applying the proceeds thereof as court with “clean hands” insofar as it intended to collect on transactions
payment for respondent’s outstanding obligation. subsequent to the initial trades of April 10 and 11, 1997.
Since the buyer was not able to pay for the transactions that took place on On the other hand, respondent is equally guilty in entering into the
April 10 and 11, the broker was duty-bound to advance the payment to the transactions in violation of the RSA and RSA Rules. Respondent is an
settlement banks without prejudice to the right of the broker to collect later experienced and knowledgeable trader who is well versed in the securities
from the client. market and who made his own investment decisions. In fact, in the Account
Opening Form, he indicated that he had excellent knowledge of stock
In securities trading, the brokers are essentially the counterparties to the investments; had experience in stocks trading, considering that he had
stock transactions at the Exchange. Since the principals of the broker are similar accounts with other firms. He knowingly speculated on the market,
generally undisclosed, the broker is personally liable for the contracts thus by taking advantage of the “no-cash-out” arrangement extended to him by
made. Hence, petitioner had to advance the payments for respondent’s petitioner.
trades. Brokers have a right to be reimbursed for sums advanced by them
with the express or implied authorization of the principal, in this case, Both parties acted in violation of the law and did not come to court with
respondent. Not to require respondent to pay for his April 10 and 11 trades clean hands with regard to transactions subsequent to the initial trades
would put a premium on his circumvention of the laws and would enable made on April 10 and 11, 1997.
him to enrich himself unjustly at the expense of petitioner.
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Since the initial trades (April 10 and 11) are valid and subsisting On 21 August 2000, petitioners Betty Go Gabionza (Gabionza) and Isabelita
obligations, respondent is liable for them. Justice and good conscience Tan (Tan) filed their respective Complaints-affidavit charging private
require all persons to satisfy their debts. Ours are courts of both law respondents Luke Roxas (Roxas) and Evelyn Nolasco (Nolasco) with
and equity; they compel fair dealing; they do not abet clever attempts several criminal acts. Roxas was the president of ASB Holdings, Inc.
to escape just obligations. (ASBHI) while Nolasco was the senior vice president and treasurer of the
same corporation.
Pursuant to RSA Rule 25-1, petitioner should have liquidated the
transaction (sold the stocks) on the fourth day following the transaction According to petitioners, ASBHI was incorporated in 1996 with its declared
(T+4) and completed its liquidation not later than ten days following primary purpose to invest in any and all real and personal properties of
the last day for the customer to pay (effectively T+14). Respondent’s every kind or otherwise acquire the stocks, bonds, and other securities or
outstanding obligation is therefore to be determined by using the evidence of indebtedness of any other corporation, and to hold or own, use,
closing prices of the stocks purchased at T+14 as basis. sell, deal in, dispose of, and turn to account any such stocks. ASBHI was
organized with an authorized capital stock of P500,000.00, a fact
We consider the foregoing formula to be just and fair under the reflected in the corporations articles of incorporation, copies of which
circumstances. When petitioner tolerated the subsequent purchases of were appended as annexes to the complaint.
respondent without performing its obligation to liquidate the first failed
transaction, and without requiring respondent to deposit cash before Both petitioners had previously placed monetary investment with the Bank
embarking on trading stocks any further, petitioner, as the broker, of Southeast Asia (BSA). They alleged that between 1996 and 1997, they
violated the law at its own peril. were convinced by the officers of ASBHI to lend or deposit money with the
corporation. They and other investors were urged to lend, invest or
deposit money with ASBHI, and in return they would receive checks
from ASBHI for the amount so lent, invested or deposited. At first, they
3. Gabionza v. Court of Appeals, G.R. No. 161057, 12 September 2008 were issued receipts reflecting the name ASB Realty Development
which they were told was the same entity as BSA or was connected
Facts: therewith, but beginning in March 1998, the receipts were issued in the
name of ASBHI. They claimed that they were told that ASBHI was
exactly the same institution that they had previously dealt with.
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ASBHI would issue two (2) postdated checks to its lenders, one Securities Act (which form the crux of the issues before this Court), the
representing the principal amount and the other covering the interest Task Force concluded that the subject transactions were loans which
thereon. The checks were drawn against DBS Bank and would mature in 30 gave rise only to civil liability; that petitioners were satisfied with the
to 45 days. On the maturity of the checks, the individual lenders would arrangement from 1996 to 2000; that petitioners never directly dealt with
renew the loans, either collecting only the interest earnings or rolling over Nolasco and Roxas; and that a check was not a security as contemplated by
the same with the principal amounts. the Revised Securities Act.
In the first quarter of 2000, DBS Bank started to refuse to pay for the checks Petitioners then filed a joint petition for review with the Secretary of Justice.
purportedly by virtue of stop payment orders from ASBHI. In May of 2000, On 15 October 2001, then Secretary Hernando Perez issued a resolution
ASBHI filed a petition for rehabilitation and receivership with the Securities which partially reversed the Task Force and instead directed the filing of
and Exchange Commission (SEC), and it was able to obtain an order five (5) Informations for estafa under Article 315(2)(a) of the Revised Penal
enjoining it from paying its outstanding liabilities. This series of events led Code on the complaints of Chan and petitioners Gabionza and Tan, and an
to the filing of the complaints by petitioners, together with Christine Chua, Information for violation of Section 4 in relation to Section 56 of the
Elizabeth Chan, Ando Sy and Antonio Villareal, against ASBHI. The Revised Securities Act. Motions for reconsideration to this Resolution were
complaints were for estafa under Article 315(2)(a) and (2)(d) of the denied by the Department of Justice in a Resolution dated 3 July 2002.
Revised Penal Code, estafa under Presidential Decree No. 1689,
violation of the Revised Securities Act and violation of the General Even as the Informations were filed before the Regional Trial Court of
Banking Act. Makati City, private respondents assailed the DOJ Resolution by way of a
certiorari petition with the Court of Appeals. In its assailed Decision
A special task force, the Task Force on Financial Fraud (Task Force), was dated 18 July 2003, the Court of Appeals reversed the DOJ and ordered the
created by the Department of Justice (DOJ) to investigate the several dismissal of the criminal cases. The dismissal was sustained by the appellate
complaints that were lodged in relation to ASBHI. The Task Force, court when it denied petitioners motion for reconsideration in a Resolution
dismissed the complaint on 19 October 2000, and the dismissal was dated 28 November 2003. Hence this petition filed by Gabionza and Tan.
concurred in by the assistant chief state prosecutor and approved by the
chief state prosecutor. Petitioners filed a motion for reconsideration but this Issue:
was denied in February 2001. With respect to the charges of estafa under
Article 315(2) of the Revised Penal Code and of violation of the Revised Whether there is probable cause for the criminal case to proceed.
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Ruling: charge of its operations, directed its agents to make the false representations
to the public, including the complainant-petitioners, in order to convince
The transactions in question appear to be mere renewals of the loans them to invest their moneys in ASB. It is difficult to make a different
the complainant-petitioners earlier granted to BSA. However, just after conclusion, judging from the fact that respondents Roxas and Nolasco
they agreed to renew the loans, the ASB agents who dealt with them authorized and accepted for ASB the fraud-induced loans. This makes
issued to them receipts indicating that the borrower was ASB Realty, them liable for estafa under Article 315 (paragraph 2 [a]) of the Revised
with the representation that it was the same entity as BSA or connected Penal Code. They cannot escape criminal liability on the ground that they
therewith. On the strength of this representation, along with other did not personally deal with the complainant-petitioners in regard to the
claims relating to the status of ASB and its supposed financial capacity transactions in question. Suffice it to state that to commit a crime,
to meet obligations, the complainant-petitioners acceded to lend the inducement is as sufficient and effective as direct participation.
funds to ASB Realty instead. As it turned out, however, ASB had in fact
no financial capacity to repay the loans as it had an authorized capital Notably, neither the Court of Appeals decision nor the dissent raises any
stock of only P500,000.00 and paid up capital of only P125,000.00. serious disputation as to the occurrence of the facts as narrated in the above
Clearly, the representations regarding its supposed financial capacity to passage. They take issue instead with the proposition that such facts should
meet its obligations to the complainant-petitioners were simply false. result in a prima facie case against either Roxas or Nolasco, especially given
Had they known that ASB had in fact no such financial capacity, they that neither of them engaged in any face-to-face dealings with petitioners.
would not have invested millions of pesos. Indeed, no person in his proper Leaving aside for the moment whether this assumed remoteness of private
frame of mind would venture to lend millions of pesos to a business entity respondents sufficiently insulates them from criminal liability, let us first
having such a meager capitalization. The fact that the complainant- discern whether the above-stated findings do establish a prima facie case
petitioners might have benefited from its earlier dealings with ASB, through that petitioners were indeed the victims of the crimes of estafa under Article
interest earnings on their previous loans, is of no moment, it appearing that 315(2)(a) of the Revised Penal Code and of violation of the Revised
they were not aware of the fraud at those times they renewed the loans. Securities Act.
The false representations made by the ASB agents who dealt with the Article 315(2)(a) of the Revised Penal Code states:
complainant-petitioners and who inveigled them into investing their funds
in ASB are properly imputable to respondents Roxas and Nolasco, because ART. 315. Swindling (estafa). Any person who shall defraud another by any
they, as ASBs president and senior vice president/treasurer, respectively, in of the means mentioned herein below shall be punished by:
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(2) By means of any of the following false pretenses or fraudulent acts treasurers affidavit executed by Nolasco, the audited financial
executed prior to or simultaneous with the commission of the fraud: statements of the corporation for 1998 and the general information
sheets for 1998 and 1999, all of which petitioners attached to their
(a) By using a fictitious name, or falsely pretending to possess power, respective affidavits.
influence, qualifications, property, credit, agency, business or imaginary
transactions, or by means of other similar deceits; The Court of Appeals conceded the fact of insufficient capitalization, yet
discounted its impact by noting that ASBHI was able to make good its loans
The elements of estafa by means of deceit as defined under Article or borrowings from 1998 until the first quarter of 2000. The short-lived
315(2)(a) of the Revised Penal Code are as follows: (1) that there must be a ability of ASBHI, to repay its loans does not negate the fraudulent
false pretense, fraudulent act or fraudulent means; (2) that such false misrepresentation or inducement it has undertaken to obtain the loans in the
pretense, fraudulent act or fraudulent means must be made or executed prior first place. The material question is not whether ASBHI inspired
to or simultaneously with the commission of the fraud; (3) that the offended exculpatory confidence in its investors by making good on its loans for a
party must have relied on the false pretense, fraudulent act or fraudulent while, but whether such investors would have extended the loans in the first
means, that is, he was induced to part with his money or property because of place had they known its true financial setup. The DOJ reasonably noted
the false pretense, fraudulent act or fraudulent means; and (4) that as a result that no person in his proper frame of mind would venture to lend millions of
thereof, the offended party suffered damage. pesos to a business entity having such a meager capitalization. In estafa
under Article 315(2)(a), it is essential that such false statement or false
Do the findings embodied in the DOJ Resolution align with the representation constitute the very cause or the only motive which induces
foregoingelements of estafa by means of deceit? the complainant to part with the thing.
First. The DOJ Resolution explicitly identified the false pretense, Private respondents argue before this Court that the true capitalization of
fraudulent act or fraudulent means perpetrated upon the petitioners. It ASBHI has always been a matter of public record, reflected as it is in
narrated that petitioners were made to believe that ASBHI had the several documents which could be obtained by the petitioners from the SEC.
financial capacity to repay the loans it enticed petitioners to extend, We are not convinced. The material misrepresentations have been made by
despite the fact that it had an authorized capital stock of the agents or employees of ASBHI to petitioners, to the effect that the
only P500,000.00 and paid up capital of only P125,000.00. The deficient corporation was structurally sound and financially able to undertake the
capitalization of ASBHI is evinced by its articles of incorporation, the series of loan transactions that it induced petitioners to enter into. Even if
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ASBHIs lack of financial and structural integrity is verifiable from the ASB Realty Corp., ASB Development Corp. and ASB Land, Inc., or
articles of incorporation or other publicly available SEC records, it otherwise held controlling interest therein; that ASB could legitimately
does not follow that the crime of estafa through deceit would be beyond solicit funds from the public for investment/borrowing purposes; that
commission when precisely there are bending representations that the ASB, by itself, or through the corporations aforestated, owned real and
company would be able to meet its obligations. Moreover, respondents personal properties which would support and justify its borrowing
argument assumes that there is legal obligation on the part of petitioners to program; that ASB was connected with and firmly backed by DBS
undertake an investigation of ASBHI before agreeing to provide the Bank in which Roxas held a substantial stake; and ASB would, upon
loans. There is no such obligation. It is unfair to expect a person maturity of the checks it issued to its lenders, pay the same and that it
to procure every available public record concerning an applicant for credit had the necessary resources to do so.
to satisfy himself of the latters financial standing. At least, that is not the
way an average person takes care of his concerns. Fourth. The DOJ Resolution established that petitioners sustained damage
as a result of the acts perpetrated against them. The damage is
Second. The DOJ Resolution also made it clear that the false representations considerable as to petitioners. Gabionza lost P12,160,583.32 whereas Tan
have been made to petitioners prior to or simultaneously with the lost 16,411,238.57. In addition, the DOJ Resolution noted that neither
commission of the fraud. The assurance given to them by ASBHI that it is a Roxas nor Nolasco disputed that ASBHI had borrowed funds from about
worthy credit partner occurred before they parted with their money. 700 individual investors amounting to close to P4B.
Relevantly, ASBHI is not the entity with whom petitioners initially
transacted with, and they averred that they had to be convinced with To the benefit of private respondents, the Court of Appeals ruled,
such representations that Roxas and the same group behind BSA were citing Sesbreno v. Court of Appeals, that the subject transactions are akin to
also involved with ASBHI. money market placements which partake the nature of a loan, the non-
payment of which does not give rise to criminal liability for estafa. The
Third. As earlier stated, there was an explicit and reasonable conclusion citation is woefully misplaced. Sesbreno affirmed that a money market
drawn by the DOJ that it was the representation of ASBHI to petitioners that transaction partakes the nature of a loan and therefore nonpayment thereof
it was creditworthy and financially capable to pay that induced petitioners to would not give rise to criminal liability for estafa through misappropriation
extend the loans. Petitioners, in their respective complaint-affidavits, or conversion. Estafa through misappropriation or conversion is
alleged that they were enticed to extend the loans upon the following punishable under Article 315(1)(b), while the case at bar involves
representations: that ASBHI was into the very same activities of Article 315 (2)(a), a mode of estafa by means of deceit.
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Indeed, Sesbreno explains: In money market placement, the investor is a that private respondents are liable for violating such prohibition
lender who loans his money to a borrower through a middleman or dealer. against the sale of unregistered securities:
Petitioner here loaned his money to a borrower through Philfinance. When
the latter failed to deliver back petitioner's placement with the Respondents Roxas and Nolasco do not dispute that in 1998, ASB
corresponding interest earned at the maturity date, the liability incurred by borrowed funds about 700 individual investors amounting to close to P4
Philfinance was a civil one. That rationale is wholly irrelevant to the billion, on recurring, short-term basis, usually 30 or 45 days, promising
complaint at bar, which centers not on the inability of ASBHI to repay high interest yields, issuing therefore mere postdate checks. Under the
petitioners but on the fraud and misrepresentation committed by ASBHI to circumstances, the checks assumed the character of evidences of
induce petitioners to part with their money. indebtedness, which are among the securities mentioned under the
Revised Securities Act. The term securities embodies a flexible rather than
To be clear, it is possible to hold the borrower in a money market placement static principle, one that is capable of adaptation to meet the countless and
liable for estafa if the creditor was induced to extend a loan upon the false or variable schemes devised by those who seek to use the money of others on
fraudulent misrepresentations of the borrower. Such estafa is one by means the promise of profits (69 Am Jur 2d, p. 604). Thus, it has been held that
of deceit. The borrower would not be generally liable for estafa through checks of a debtor received and held by the lender also are evidences of
misappropriation if he or she fails to repay the loan, since the liability in indebtedness and therefore securities under the Act, where the debtor
such instance is ordinarily civil in nature. agreed to pay interest on a monthly basis so long as the principal checks
remained uncashed, it being said that such principal extent as would
We can thus conclude that the DOJ Resolution clearly supports a prima have promissory notes payable on demand (Id., p. 606, citing Untied
facie finding that the crime of estafa under Article 315 (2)(a) has been States v. Attaway (DC La) 211 F Supp 682). In the instant case, the checks
committed against petitioners. Does it also establish a prima were issued by ASB in lieu of the securities enumerated under the Revised
facie finding that there has been a violation of the then-Revised Securities Act in a clever attempt, or so they thought, to take the case out of
Securities Act, specifically Section 4 in relation to Section 56 thereof? the purview of the law, which requires prior license to sell or deal in
securities and registration thereof. The scheme was to designed to
Section 4 of Batas Pambansa Blg. 176, or the Revised Securities Act, circumvent the law. Checks constitute mere substitutes for cash if so
generally requires the registration of securities and prohibits the sale or issued in payment of obligations in the ordinary course of business
distribution of unregistered securities. The DOJ extensively concluded transactions. But when they are issued in exchange for a big number of
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individual non-personalized loans solicited from the public, numbering obligations, and another for a corporation to execute an elaborate scheme
about 700 in this case, the checks cease to be such. In such a where it would comport itself to the public as a pseudo-investment house
circumstance, the checks assume the character of evidences of and issue postdated checks instead of stocks or traditional securities to
indebtedness. This is especially so where the individual loans were not evidence the investments of its patrons. The Revised Securities Act was
evidenced by appropriate debt instruments, such as promissory notes, loan geared towards maintaining the stability of the national investment market
agreements, etc., as in this case. Purportedly, the postdated checks against activities such as those apparently engaged in by ASBHI. As the
themselves serve as the evidences of the indebtedness. A different rule DOJ Resolution noted, ASBHI adopted this scheme in an attempt to
would open the floodgates for a similar scheme, whereby companies circumvent the Revised Securities Act, which requires a prior license to sell
without prior license or authority from the SEC. This cannot be or deal in securities. After all, if ASBHIs activities were actually regulated
countenanced. The subsequent repeal of the Revised Securities Act does not by the SEC, it is hardly likely that the design it chose to employ would have
spare respondents Roxas and Nolasco from prosecution thereunder, since been permitted at all.
the repealing law, Republic Act No. 8799 known as the Securities
Regulation Code, continues to punish the same offense (see Section 8 in But was ASBHI able to successfully evade the requirements under the
relation to Section 73, R.A. No. 8799).[30] Revised Securities Act? As found by the DOJ, there is ultimately
a prima facie case that can at the very least sustain prosecution of
The Court of Appeals however ruled that the postdated checks issued by private respondents under that law. The DOJ Resolution is persuasive in
ASBHI did not constitute a security under the Revised Securities Act. To citing American authorities which countenance a flexible definition of
support this conclusion, it cited the general definition of a check as a bill of securities. Moreover, it bears pointing out that the definition of securities set
exchange drawn on a bank and payable on demand, and took cognizance of forth in Section 2 of the Revised Securities Act includes commercial papers
the fact that the issuance of checks for the purpose of securing a loan to evidencing indebtedness of any person, financial or non-financial entity,
finance the activities of the corporation is well within the ambit of a valid irrespective of maturity, issued, endorsed, sold, transferred or in any manner
corporate act to note that a corporation does not need prior registration with conveyed to another. A check is a commercial paper evidencing
the SEC in order to be able to issue a check, which is a corporate indebtedness of any person, financial or non-financial entity. Since the
prerogative. checks in this case were generally rolled over to augment the creditors
existing investment with ASBHI, they most definitely take on the attributes
This analysis is highly myopic and ignorant of the bigger picture. It is one of traditional stocks.
thing for a corporation to issue checks to satisfy isolated individual
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We should be clear that the question of whether the subject checks fall Code does punish the same offense alleged of petitioners, particularly
within the classification of securities under the Revised Securities Act may Section 8 in relation to Section 73 thereof. The complained acts occurred
still be the subject of debate, but at the very least, the DOJ Resolution has during the effectivity of the Revised Securities Act. Certainly, the enactment
established a prima facie case for prosecuting private respondents for such of the new Code in lieu of the Revised Securities Act could not have
offense. The thorough determination of such issue is best left to a full-blown extinguished all criminal acts committed under the old law.
trial of the merits, where private respondents are free to dispute the theories
set forth in the DOJ Resolution. It is clear error on the part of the Court of In 1909-1910, the Philippine and United States Supreme Courts affirmed
Appeals to dismiss such finding so perfunctorily and on such flimsy the principle that when the repealing act reenacts substantially the former
grounds that do not consider the grave consequences. After all, as the DOJ law, and does not increase the punishment of the accused, the
Resolution correctly pointed out: [T]he postdated checks themselves serve right still exists to punish the accused for an offense of which they
as the evidences of the indebtedness. A different rule would open the were convicted and sentenced before the passage of the later act. This
floodgates for a similar scheme, whereby companies without prior doctrine was reaffirmed as recently as 2001, where the Court, through
license or authority from the SEC. This cannot be countenanced. Justice Quisumbing, held in Benedicto v. Court of Appeals that an
exception to the rule that the absolute repeal of a penal law deprives the
This conclusion quells the stance of the Court of Appeals that the court of authority to punish a person charged with violating the old law
unfortunate events befalling petitioners were ultimately benign, not prior to its repeal is where the repealing act reenacts the former statute and
malevolent, a consequence of the economic crisis that beset punishes the act previously penalized under the old law. It is worth noting
the Philippinesduring that era. That conclusion would be agreeable only if it that both the Revised Securities Act and the Securities Regulation Code of
were undisputed that the activities of ASBHI are legal in the first place, but 2000 provide for exactly the same penalty: a fine of not less than five
the DOJ puts forth a legitimate theory that the entire modus operandi of thousand (P5,000.00) pesos nor more than five hundred thousand
ASBHI is illegal under the Revised Securities Act and if that were so, the (P500,000.00) pesos or imprisonment of not less than seven (7) years nor
impact of the Asian economic crisis would not obviate the criminal liability more than twenty one (21) years, or both, in the discretion of the court.
of private respondents.
It is ineluctable that the DOJ Resolution established a prima facie case for
Private respondents cannot make capital of the fact that when the DOJ violation of Article 315 (2)(a) of the Revised Penal Code and Sections 4 in
Resolution was issued, the Revised Securities Act had already been repealed relation to 56 of the Revised Securities Act. We now turn to the critical
by the Securities Regulation Code of 2000. As noted by the DOJ, the new
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question of whether the same charges can be pinned against Roxas and parties are required to be impleaded in order to allow for complete
Nolasco likewise. relief once the case is adjudicated, the determination of criminal
liability is individual to each of the defendants. Even if the criminal
The DOJ Resolution did not consider it exculpatory that Roxas and Nolasco court fails to acquire jurisdiction over one or some participants to a
had not themselves dealt directly with petitioners, observing that crime, it still is able to try those accused over whom it acquired
to commit a crime, inducement is as sufficient and effective as direct jurisdiction. The criminal court will still be able to ascertain the
participation. This conclusion finds textual support in Article 17[40] of the individual liability of those accused whom it could try, and hand down
Revised Penal Code. The Court of Appeals was unable to point to any penalties based on the degree of their participation in the crime.
definitive evidence that Roxas or Nolasco did not instruct or induce the The absence of one or some of the accused may bear impact on the
agents of ASBHI to make the false or misleading representations to the available evidence for the prosecution or defense, but it does not
investors, including petitioners. Instead, it sought to acquit Roxas and deprive the trial court to accordingly try the case based on the evidence
Nolasco of any liability on the ground that the traders or employees of that is actually available.
ASBHI who directly made the dubious representations to petitioners were
never identified or impleaded as respondents. At bar, if it is established after trial that Roxas and Nolasco instructed all the
employees, agents and traders of ASBHI to represent the corporation as
It appears that the Court of Appeals was, without saying so, applying the financially able to engage in the challenged transactions and repay its
rule in civil cases that all indispensable parties must be impleaded in a civil investors, despite their knowledge that ASBHI was not established to be in a
action. There is no equivalent rule in criminal procedure, and certainly the position to do so, and that representatives of ASBHI accordingly made such
Court of Appeals decision failed to cite any statute, procedural rule or representations to petitioners, then private respondents could be held liable
jurisprudence to support its position that the failure to implead the traders for estafa. The failure to implead or try the employees, agents or traders
who directly dealt with petitioners is indeed fatal to the complaint. will not negate such potential criminal liability of Roxas and Nolasco. It
is possible that the non-participation of such traders or agents in the trial
Assuming that the traders could be tagged as principals by direct will affect the ability of both petitioners and private respondents to adduce
participation in tandem with Roxas and Nolasco the principals by evidence during the trial, but it cannot quell the existence of the crime even
inducement does it make sense to compel that they be jointly charged in the before trial is had. At the very least, the non-identification or non-
same complaint to the extent that the exclusion of one leads to the dismissal
of the complaint? It does not. Unlike in civil cases, where indispensable
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impleading of such traders or agents cannot negatively impact the finding of to invest their moneys in ASB. It is difficult to make a different
probable cause. conclusion, judging from the fact that respondents Roxas and Nolasco
authorized and accepted for ASB the fraud-induced loans.
The assailed ruling unfortunately creates a wide loophole, especially in this
age of call centers, that would create a nearly fool-proof scheme whereby Indeed, the facts as thus established cannot lead to a definite, exculpatory
well-organized criminally-minded enterprises can evade prosecution for conclusion that Roxas and Nolasco did not instruct, much less forbid, their
criminal fraud. Behind the veil of the anonymous call center agent, such agents from making the misrepresentations to petitioners. They could of
enterprises could induce the investing public to invest in fictional or course pose that defense, but such claim can only be established following a
incapacitated corporations with fraudulent impossible promises of definite trial on the merits considering that nothing in the record proves without
returns on investment. The rule, as set forth by the Court of Appeals ruling, doubt such law-abiding prudence on their part.
will allow the masterminds and profiteers from the scheme to take the
money and run without fear of the law simply because the defrauded There is also the fact that ABSHI, their corporation, actually received the
investor would be hard-pressed to identify the anonymous call center agents alleged amounts of money from petitioners. It is especially curious that
who, reading aloud the script prepared for them in mellifluous tones, according to the ASBHI balance sheets dated 31 December 1999, which
directly enticed the investor to part with his or her money. petitioners attached to their affidavit-complaints, over five billion pesos
were booked as advances to stockholder when, according to the general
Is there sufficient basis then to establish probable cause against Roxas and information sheet for 1999, Roxas owned 124,996 of the 125,000
Nolasco? Taking into account the relative remoteness of private respondents subscribed shares of ASBHI. Considering that ASBHI had an
to petitioners, the DOJ still concluded that there was. To repeat: authorized capital stock of only P500,000 and a subscribed capital
of P125,000, it can be reasonably deduced that such large amounts
The false representations made by the ASB agents who dealt with the booked as advances to stockholder could have only come from the loans
complainant-petitioners and who inveigled them into investing their extended by over 700 investors to ASBHI.
funds in ASB are properly imputable to respondents Roxas and
Nolasco, because they, as ASBs president and senior vice It is true that there are exceptions that may warrant departure from the
president/treasurer, respectively, respectively, in charge of its general rule of non-interference with the determination of probable cause by
operations, directed its agents to make the false representations to the the DOJ, yet such exceptions do not lie in this case, and the justifications
public, including the complainant-petitioners, in order to convince them actually cited in the Court of Appeals decision are exceptionally weak and
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ultimately erroneous. Worse, it too hastily condoned the apparent evasion of in turn build up their own down-lines. For each pair of down-lines, the
liability by persons who seemingly profited at the expense of investors who buyer-sponsor received a US$92.00 commission. But referrals in a day by
lost millions of pesos. The Courts conclusion is that the DOJS decision to the buyer-sponsor should not exceed 16 since the commissions due from
prosecute private respondents is founded on sufficient probable cause, and excess referrals inure to PCI, not to the buyer-sponsor.
the ultimate determination of guilt or acquittal is best made through a full
trial on the merits. Indeed, many of the points raised by private respondents Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc.
before this Court, related as they are to the factual context surrounding the (GVI), which company stopped operations after the Securities and
subject transactions, deserve the full assessment and verification only a trial Exchange Commission (SEC) issued a cease and desist order (CDO) against
on the merits can accord. it. As it later on turned out, the same persons who ran the affairs of GVI
directed PCIs actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC

4. SEC v. Prosperity.Com.Inc., G.R. No. 164197, 25 January 2012 against PCI, alleging that the latter had taken over GVIs operations. After
hearing, the SEC, through its Compliance and Enforcement unit, issued a
Facts: CDO against PCI. The SEC ruled that PCIs scheme constitutes an
Investment contract and, following the Securities Regulations Code, it
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites should have first registered such contract or securities with the SEC.
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 Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of
buyer could acquire from it an internet website of a 15-Mega Byte (MB) Republic Act (R.A.) 8799, PCI filed with the Court of Appeals (CA) a
capacity. At the same time, by referring to PCI his own down-line buyers, a petition for certiorari against the SEC with an application for a temporary
first-time buyer could earn commissions, interest in real estate in the restraining order (TRO) and preliminary injunction in CA-G.R. SP 62890.
Philippines and in the United States, and insurance coverage Because the CA did not act promptly on this application for TRO, on
worth P50,000.00. 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,
To benefit from this scheme, a PCI buyer must enlist and sponsor at least February 1, 2001, PCI moved to withdraw its petition before the CA to
two other buyers as his own down-lines. These second tier of buyers could avoid possible forum shopping violation.
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During the pendency of PCIs action before the SEC, however, the CA Apart from the definition, which the Implementing Rules and Regulations
issued a TRO, enjoining the enforcement of the CDO. In response, the SEC provide, Philippine jurisprudence has so far not done more to add to the
filed with the CA a motion to dismiss the petition on ground of forum same. Of course, the United States Supreme Court, grappling with the
shopping. In a Resolution, the CA initially dismissed the petition, finding problem, has on several occasions discussed the nature of investment
PCI guilty of forum shopping. But on PCIs motion, the CA reversed itself contracts. That courts rulings, while not binding in the Philippines, enjoy
and reinstated the petition. some degree of persuasiveness insofar as they are logical and consistent
with the countrys best interests.
In a joint resolution, CA-G.R. SP 62890 was consolidated with CA-G.R. SP
64487 that raised the same issues. On July 31, 2003 the CA rendered a The United States Supreme Court held in Securities and Exchange
decision, granting PCIs petition and setting aside the SEC-issued CDO. The Commission v. W.J. Howey Co. that, for an investment contract to exist, the
CA ruled that, following the Howey test, PCIs scheme did not constitute an following elements, referred to as the Howey test must concur: (1) a
investment contract that needs registration pursuant to R.A. 8799, hence, contract, transaction, or scheme; (2) an investment of money; (3)
this petition. investment is made in a common enterprise; (4) expectation of profits;
and (5) profits arising primarily from the efforts of others. Thus, to
Issue: sustain the SEC position in this case, PCIs scheme or contract with its
buyers must have all these elements.
Whether or not PCIs scheme constitutes an investment contract that
requires registration under R.A. 8799. An example that comes to mind would be the long-term commercial papers
that large companies, like San Miguel Corporation (SMC), offer to the
Ruling: 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
The Securities Regulation Code treats investment contracts as securities SMC with an expectation of profits arising from the efforts of those
that have to be registered with the SEC before they can be distributed who manage and operate that company. SMC has to register these
and sold. An investment contract is a contract, transaction, or scheme commercial papers with the SEC before offering them to investors.
where a person invests his money in a common enterprise and is led to
expect profits primarily from the efforts of others. Here, PCIs clients do not make such investments. They buy a product
of some value to them: an Internet website of a 15-MB capacity. The
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client can use this website to enable people to have internet access to 5. SEC v. Santos, G.R. No. 195542, March 19, 2014
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 Facts:
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 Sometime in 2007, yet another investment scam was exposed with the
asset that PCI creates, using its computer facilities and technical skills. disappearance of its primary perpetrator Liew, a self–styled financial guru
and Chairman of the Board of Directors of Performance Investment
Actually, PCI appears to be engaged in network marketing, a scheme Products Corporation (PIPC–BVI), a foreign corporation registered in the
adopted by companies for getting people to buy their products outside the British Virgin Islands.To do business in the Philippines, PIPC–BVI
usual retail system where products are bought from the stores shelf. Under incorporated herein as Philippine International Planning Center Corporation
this scheme, adopted by most health product distributors, the buyer can (PIPC Corporation).
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 Because the head of PIPC Corporation had gone missing and with it the
him. The network goes down the line where the orders to buy come. monies and investment of a significant number of investors, the SEC
was flooded with complaints from 31 individuals against PIPC
The commissions, interest in real estate, and insurance coverage Corporation, its directors, officers, employees, agents and brokers for
worth P50,000.00 are incentives to down-line sellers to bring in other alleged violation of certain provisions of the SRC, including Section 28
customers.These can hardly be regarded as profits from investment of thereof. Santos was charged in the complaints in her capacity as
money under the Howey test. investment consultant of PIPC Corporation, who supposedly induced
private complainants Lorenzo and Sy, to invest their monies in PIPC
The CA is right in ruling that the last requisite in the Howey test is lacking Corporation.
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 On her defense, Santos alleged that she was merely an employee of
saying that the US$234 it gets from its clients is merely a consideration for PIPC thus should not be personally liable.
the sale of the websites that it provides.
Issue:
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Whether or not Santos violated Sec. 28 of SRC which punishes While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s
unregistered broker or dealer who engage in business of buying or investments, Santos procured the sale of these unregistered securities to the
selling securities. 2 complainants by providing information on the investment products being
offered for sale by PIPC Corporation and/or PIPC–BVI and convincing
Ruling: them to invest therein.
Yes. The Court held that Santos acted as an agent or salesman of PIPC Thus, Santos violated Sec. 28 of SRC. Its elements are as follows:
Corporation making her liable under Sec. 28 of SRC.
1. Engaging in the business of buying or selling securities in the
There is no question that Santos was in the employ of PIPC Corporation Philippines as a broker or dealer;
and/or PIPC–BVI, a corporation which sold or offered for sale unregistered
securities in the Philippines. To escape probable culpability, Santos claims 2. Acting as a salesman; or
that she was a mere clerical employee of PIPC Corporation and/or PIPC–
BVI and was never an agent or salesman who actually solicited the sale of 3. Acting as an associated person of any broker or dealer, unless
or sold unregistered securities issued by PIPC Corporation and/or PIPC– registered as such with the SEC.
BVI.
Solicitation is the act of seeking or asking for business or information; it

is not a commitment to an agreement. 6. SEC v. Interport Resources Corporation, G.R. No. 135808, 6 October
2008
Santos, by the very nature of her function as what she now unaffectedly
calls an information provider, brought about the sale of securities made by Facts:
PIPC Corporation and/or PIPC–BVI to certain individuals, specifically
private complainants Sy and Lorenzo by providing information on the On 6 August 1994, the Board of Directors of IRC approved a Memorandum
investment products of PIPC Corporation and/or PIPC–BVI with the end in of Agreement with Ganda Holdings Berhad (GHB). Under the
view of PIPC Corporation closing a sale. Memorandum of Agreement, IRC acquired 100% or the entire capital stock
of Ganda Energy Holdings, Inc. (GEHI), which would own and operate a
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102 megawatt (MW) gas turbine power-generating barge. The agreement Exchanges Department (BED) of the SEC to explain IRCs failure to
also stipulates that GEHI would assume a five-year power purchase contract immediately disclose the information as required by the Rules on Disclosure
with National Power Corporation. At that time, GEHIs power-generating of Material Facts.
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 In compliance with the SEC Chairmans directive, the IRC sent a letter
stock of IRC amounting to 40.88 billion shares which had a total par dated 16 August 1994 to the SEC, attaching thereto copies of the
value of P488.44 million. Memorandum of Agreement. Its directors, Manuel Recto,
Rene Villarica and PelagioRicalde, also appeared before the SEC on 22
On the side, IRC would acquire 67% of the entire capital stock of Philippine August 1994 to explain IRCs alleged failure to immediately disclose
Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate material information as required under the Rules on Disclosure of Material
property in Makati. Under the Agreement, GHB, a member of the Westmont Facts.
Group of Companies in Malaysia, shall extend or arrange a loan required to
pay for the proposed acquisition by IRC of PRCI. On 19 September 1994, the SEC Chairman issued an Order finding that IRC
violated the Rules on Disclosure of Material Facts, in connection with the
IRC alleged that on 8 August 1994, a press release announcing the approval Old Securities Act of 1936, when it failed to make timely disclosure of its
of the agreement was sent through facsimile transmission to the Philippine negotiations with GHB. In addition, the SEC pronounced that some of the
Stock Exchange and the SEC, but that the facsimile machine of the SEC officers and directors of IRC entered into transactions involving IRC shares
could not receive it. Upon the advice of the SEC, the IRC sent the press in violation of Section 30, in relation to Section 36, of the Revised
release on the morning of 9 August 1994. Securities Act.
The SEC averred that it received reports that IRC failed to make Respondents filed an Omnibus Motion, dated 21 September 1994, which
timely public disclosures of its negotiations with GHB and that some of was superseded by an Amended Omnibus Motion, filed on 18 October
its directors, respondents herein, heavily traded IRC shares utilizing 1994, alleging that the SEC had no authority to investigate the subject
this material insider information. On 16 August 1994, the SEC Chairman matter, since under Section 8 of Presidential Decree No. 902-A, as amended
issued a directive requiring IRC to submit to the SEC a copy of its aforesaid by Presidential Decree No. 1758, jurisdiction was conferred upon the
Memorandum of Agreement with GHB. The SEC Chairman further directed Prosecution and Enforcement Department (PED) of the SEC. Respondents
all principal officers of IRC to appear at a hearing before the Brokers and also claimed that the SEC violated their right to due process when it
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ordered that the respondents appear before the SEC and show cause 2. To recall the show cause orders dated September 19, 1994 requiring the
why no administrative, civil or criminal sanctions should be imposed on respondents to appear and show cause why no administrative, civil or
them, and, thus, shifted the burden of proof to the respondents. Lastly, criminal sanctions should be imposed on them.
they sought to have their cases tried jointly given the identical factual
situations surrounding the alleged violation committed by the respondents. 3. To deny the Motion for Continuance for lack of merit.
Respondents also filed a Motion for Continuance of Proceedings on 24 Respondents filed an Omnibus Motion for Partial Reconsideration,
October 1994, wherein they moved for discontinuance of the investigations questioning the creation of the special investigating panel to hear the case
and the proceedings before the SEC until the undue publicity had abated and and the denial of the Motion for Continuance. The SEC denied
the investigating officials had become reasonably free from prejudice and reconsideration in its Omnibus Order dated 30 March 1995.
public pressure.
The respondents filed a petition before the Court of Appeals docketed as
No formal hearings were conducted in connection with the aforementioned C.A.-G.R. SP No. 37036, questioning the Omnibus Orders dated 25 January
motions, but on 25 January 1995, the SEC issued an Omnibus Order which 1995 and 30 March 1995. During the proceedings before the Court of
thus disposed of the same in this wise: Appeals, respondents filed a Supplemental Motion dated 16 May 1995,
wherein they prayed for the issuance of a writ of preliminary injunction
WHEREFORE, premised on the foregoing considerations, the Commission enjoining the SEC and its agents from investigating and proceeding with the
resolves and hereby rules: hearing of the case against respondents herein. On 5 May 1995, the Court of
Appeals granted their motion and issued a writ of preliminary injunction,
1. To create a special investigating panel to hear and decide the instant case which effectively enjoined the SEC from filing any criminal, civil or
in accordance with the Rules of Practice and Procedure Before the administrative case against the respondents herein.
Prosecution and Enforcement Department (PED), Securities and Exchange
Commission, to be composed of Attys. James K. Abugan, Medardo Devera On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC
(Prosecution and Enforcement Department), and Jose Aquino (Brokers and Omnibus Orders so that the case may be investigated by the PED in
Exchanges Department), which is hereby directed to expeditiously resolve accordance with the SEC Rules and Presidential Decree No. 902-A, and not
the case by conducting continuous hearings, if possible. by the special body whose creation the SEC had earlier ordered.
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Issue: In the absence of any constitutional or statutory infirmity, which may

concern Sections 30 and 36 of the Revised Securities Act, this Court
1) WHETHER THE COURT OF APPEALS ERRED WHEN IT DENIED upholds these provisions as legal and binding. It is well settled that
PETITIONERS MOTION FOR LEAVE TO QUASH THE ASSAILED every law has in its favor the presumption of validity. Unless and until a
SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30, specific provision of the law is declared invalid and unconstitutional,
1995. the same is valid and binding for all intents and purposes. The mere
absence of implementing rules cannot effectively invalidate provisions
2) THE COURT OF APPEALS ERRED WHEN IT RULED THAT of law, where a reasonable construction that will support the law may
THERE IS NO STATUTORY AUTHORITY WHATSOEVER FOR be given. In People v. Rosenthal, this Court ruled that:
PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE THEY
CIVIL, CRIMINAL OR ADMINISTRATIVE AGAINST RESPONDENT In this connection we cannot pretermit reference to the rule that legislation
CORPORATION AND ITS DIRECTORS WITH RESPECT TO SECTION should not be held invalid on the ground of uncertainty if susceptible of any
30 (INSIDERS DUTY TO DISCOLSED [sic] WHEN TRADING) AND 36 reasonable construction that will support and give it effect. An Act will not
(DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) be declared inoperative and ineffectual on the ground that it furnishes no
OF THE REVISED SECURITIES ACT adequate means to secure the purpose for which it is passed, if men of
common sense and reason can devise and provide the means, and all the
Ruling: instrumentalities necessary for its execution are within the reach of
those intrusted therewith. (25 R.C.L., pp. 810, 811)
I. Sections 8, 30 and 36 of the Revised Securities Act do not require the In Garcia v. Executive Secretary, the Court underlined the importance of
enactment of implementing rules to make them binding and effective. the presumption of validity of laws and the careful consideration with which
the judiciary strikes down as invalid acts of the legislature:
The Court of Appeals ruled that absent any implementing rules for Sections
8, 30 and 36 of the Revised Securities Act, no civil, criminal or The policy of the courts is to avoid ruling on constitutional questions and to
administrative actions can possibly be had against the respondents without presume that the acts of the political departments are valid in the absence of
violating their right to due process and equal protection, citing as its basis a clear and unmistakable showing to the contrary. To doubt is to sustain.
the case Yick Wo v. Hopkins. This is untenable. This presumption is based on the doctrine of separation of powers which
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enjoins upon each department a becoming respect for the acts of the other The reliance placed by the Court of Appeals in Yick Wo v. Hopkins shows
departments. The theory is that as the joint act of Congress and the President a glaring error. In the cited case, this Court found unconstitutional an
of the Philippines, a law has been carefully studied and determined to be in ordinance which gave the board of supervisors authority to refuse
accordance with the fundamental law before it was finally enacted. permission to carry on laundries located in buildings that were not made of
brick and stone, because it violated the equal protection clause and was
The necessity for vesting administrative authorities with power to make highly discriminatory and hostile to Chinese residents and not because the
rules and regulations is based on the impracticability of lawmakers standards provided therein were vague or ambiguous.
providing general regulations for various and varying details of
management. To rule that the absence of implementing rules can render This Court does not discern any vagueness or ambiguity in Sections 30 and
ineffective an act of Congress, such as the Revised Securities Act, would 36 of the Revised Securities Act, such that the acts proscribed and/or
empower the administrative bodies to defeat the legislative will by delaying required would not be understood by a person of ordinary intelligence.
the implementing rules. To assert that a law is less than a law, because it
is made to depend on a future event or act, is to rob the Legislature of Section 30 of the Revised Securities Act reads:
the power to act wisely for the public welfare whenever a law is passed
relating to a state of affairs not yet developed, or to things future and Sec. 30. Insiders duty to disclose when trading. (a) It shall be unlawful
impossible to fully know. It is well established that administrative for an insider to sell or buy a security of the issuer, if he knows a fact of
authorities have the power to promulgate rules and regulations to implement special significance with respect to the issuer or the security that is not
a given statute and to effectuate its policies, provided such rules and generally available, unless (1) the insider proves that the fact is
regulations conform to the terms and standards prescribed by the statute as generally available or (2) if the other party to the transaction (or his
well as purport to carry into effect its general policies. Nevertheless, it is agent) is identified, (a) the insider proves that the other party knows it,
undisputable that the rules and regulations cannot assert for themselves a or (b) that other party in fact knows it from the insider or otherwise.
more extensive prerogative or deviate from the mandate of the
statute. Moreover, where the statute contains sufficient standards and an (b) Insider means (1) the issuer, (2) a director or officer of, or a person
unmistakable intent, as in the case of Sections 30 and 36 of the Revised controlling, controlled by, or under common control with, the issuer, (3)
Securities Act, there should be no impediment to its implementation. 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
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a fact from any of the foregoing insiders as defined in this subsection, unfairness involved when a party takes advantage of such information
with knowledge that the person from whom he learns the fact is such an knowing it is unavailable to those with whom he is dealing.
insider.
In the United States (U.S.), the obligation to disclose or abstain has been
(c) A fact is of special significance if (a) in addition to being material it traditionally imposed on corporate insiders, particularly officers, directors,
would be likely, on being made generally available, to affect the market or controlling stockholders, but that definition has since been expanded.
price of a security to a significant extent, or (b) a reasonable person The term insiders now includes persons whose relationship or former
would consider it especially important under the circumstances in relationship to the issuer gives or gave them access to a fact of special
determining his course of action in the light of such factors as the significance about the issuer or the security that is not generally
degree of its specificity, the extent of its difference from information available, and one who learns such a fact from an insider knowing that
generally available previously, and its nature and reliability. 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
(d) This section shall apply to an insider as defined in subsection (b) (3) their position but which are not known to persons with whom they deal and
hereof only to the extent that he knows of a fact of special significance by which, if known, would affect their investment judgment. In some cases,
virtue of his being an insider. however, there may be valid corporate reasons for the nondisclosure of
material information. Where such reasons exist, an issuers decision not to
The provision explains in simple terms that the insider's misuse of make any public disclosures is not ordinarily considered as a violation of
nonpublic and undisclosed information is the gravamen of illegal conduct. insider trading. At the same time, the undisclosed information should not be
The intent of the law is the protection of investors against fraud, improperly used for non-corporate purposes, particularly to disadvantage
committed when an insider, using secret information, takes advantage other persons with whom an insider might transact, and therefore the insider
of an uninformed investor. Insiders are obligated to disclose material must abstain from entering into transactions involving such securities.
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: Respondents further aver that under Section 30 of the Revised Securities
first, the existence of a relationship giving access, directly or indirectly, Act, the SEC still needed to define the following terms: material fact,
to information intended to be available only for a corporate purpose reasonable person, nature and reliability and generally available. In
and not for the personal benefit of anyone; and second, the inherent determining whether or not these terms are vague, these terms must be
evaluated in the context of Section 30 of the Revised Securties Act. To fully
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understand how the terms were used in the aforementioned provision, a allegations of the respondents, a reasonable person is not a problematic legal
discussion of what the law recognizes as a fact of special significance is concept that needs to be clarified for the purpose of giving effect to a
required, since the duty to disclose such fact or to abstain from any statute; rather, it is the standard on which most of our legal doctrines
transaction is imposed on the insider only in connection with a fact of stand. The doctrine on negligence uses the discretion of the reasonable man
special significance. as the standard. A purchaser in good faith must also take into account facts
which put a reasonable man on his guard. In addition, it is the belief of the
Under the law, what is required to be disclosed is a fact of special reasonable and prudent man that an offense was committed that sets the
significance which may be (a) a material fact which would be likely, on criteria for probable cause for a warrant of arrest. This Court, in such cases,
being made generally available, to affect the market price of a security to a differentiated the reasonable and prudent man from a person with training in
significant extent, or (b) one which a reasonable person would consider the law such as a prosecutor or a judge, and identified him as the average
especially important in determining his course of action with regard to the man on the street, who weighs facts and circumstances without resorting to
shares of stock. 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
(a) Material Fact The concept of a material fact is not a new one. As early as reasonable men have in abundance. In the same vein, the U.S. Supreme
1973, the Rules Requiring Disclosure of Material Facts by Corporations Court similarly determined its standards by the actual significance in the
Whose Securities Are Listed In Any Stock Exchange or deliberations of a reasonable investor, when it ruled in TSC Industries, Inc.
Registered/Licensed Under the Securities Act, issued by the SEC on 29 v. Northway, Inc., that the determination of materiality requires delicate
January 1973, explained that [a] fact is material if it induces or tends to assessments of the inferences a reasonable shareholder would draw from a
induce or otherwise affect the sale or purchase of its securities. Thus, given set of facts and the significance of those inferences to him.
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 (b.2) Nature and Reliability The factors affecting the second definition of
required to disclose such information to the other party to the transaction a fact of special significance, which is of such importance that it is expected
involving the securities. This is the first definition given to a fact of special to affect the judgment of a reasonable man, were substantially lifted from a
significance. test of materiality pronounced in the case In the Matter of Investors
Management Co., Inc.:
(b.1) Reasonable Person The second definition given to a fact of special
significance involves the judgment of a reasonable person. Contrary to the
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Among the factors to be considered in determining whether A bright-line rule indeed is easier to follow than a standard that requires the
information is material under this test are the degree of its specificity, exercise of judgment in the light of all the circumstances. But ease of
the extent to which it differs from information previously publicly application alone is not an excuse for ignoring the purposes of the Securities
disseminated, and its reliability in light of its nature and source and the Act and Congress policy decisions. Any approach that designates a single
circumstances under which it was received. fact or occurrence as always determinative of an inherently fact-specific
finding such as materiality, must necessarily
It can be deduced from the foregoing that the nature and reliability of a be overinclusive or underinclusive.
significant fact in determining the course of action a reasonable person takes
regarding securities must be clearly viewed in connection with the particular Moreover, materiality will depend at any given time upon a balancing of
circumstances of a case. To enumerate all circumstances that would render both the indicated probability that the event will occur and the anticipated
the nature and reliability of a fact to be of special significance is close to magnitude of the event in light of the totality of the company activity. In
impossible. Nevertheless, the proper adjudicative body would undoubtedly drafting the Securities Act of 1934, the U.S. Congress put emphasis on the
be able to determine if facts of a certain nature and reliability can influence limitations to the definition of materiality:
a reasonable persons decision to retain, sell or buy securities, and thereafter
explain and justify its factual findings in its decision. Although the Committee believes that ideally it would be desirable to have
absolute certainty in the application of the materiality concept, it is its view
(c) Materiality Concept A discussion of the materiality concept would be that such a goal is illusory and unrealistic. The materiality concept is
relevant to both a material fact which would affect the market price of judgmental in nature and it is not possible to translate this into a
a security to a significant extent and/or a fact which a reasonable numerical formula. The Committee's advice to the [SEC] is to avoid
person would consider in determining his or her cause of action with this quest for certainty and to continue consideration of materiality on
regard to the shares of stock. Significantly, what is referred to in our laws a case-by-case basis as disclosure problems are identified. House
as a fact of special significance is referred to in the U.S. as the materiality Committee on Interstate and Foreign Commerce, Report of the Advisory
concept and the latter is similarly not provided with a precise Committee on Corporate Disclosure to the Securities and Exchange
definition. In Basic v. Levinson, the U.S. Supreme Court cautioned against Commission, 95th Cong., 1st Sess., 327 (Comm.Print 1977). (Emphasis
confining materiality to a rigid formula, stating thus: provided.)
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(d) Generally Available Section 30 of the Revised Securities Act allows Sec. 36. Directors, officers and principal stockholders. (a) Every person
the insider the defense that in a transaction of securities, where the insider is who is directly or indirectly the beneficial owner of more than ten per
in possession of facts of special significance, such information is generally centum of any [class] of any equity security which is registered pursuant to
available to the public. Whether information found in a newspaper, a this Act, or who is [a] director or an officer of the issuer of such security,
specialized magazine, or any cyberspace media be sufficient for the shall file, at the time of the registration of such security on a securities
term generally available is a matter which may be adjudged given the exchange or by the effective date of a registration statement or within ten
particular circumstances of the case. The standards cannot remain at a days after he becomes such a beneficial owner, director or officer, a
standstill. A medium, which is widely used today was, at some previous statement with the Commission and, if such security is registered on a
point in time, inaccessible to most. Furthermore, it would be difficult to securities exchange, also with the exchange, of the amount of all equity
approximate how the rules may be applied to the instant case, where securities of such issuer of which he is the beneficial owner, and within ten
investigation has not even been started. Respondents failed to allege that the days after the close of each calendar month thereafter, if there has been a
negotiations of their agreement with GHB were made known to the public change in such ownership during such month, shall file with the
through any form of media for there to be a proper appreciation of the issue Commission, and if such security is registered on a securities exchange,
presented. 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
Section 36(a) of the Revised Securities Act occurred during such calendar month.
As regards Section 36(a) of the Revised Securities Act, respondents claim Section 36(a) refers to the beneficial owner. Beneficial owner has been
that the term beneficial ownership is vague and that it requires defined in the following manner:
implementing rules to give effect to the law. Section 36(a) of the Revised
Securities Act is a straightforward provision that imposes upon (1) a [F]irst, to indicate the interest of a beneficiary in trust property (also
beneficial owner of more than ten percent of any class of any equity called equitable ownership); and second, to refer to the power of a
security or (2) a director or any officer of the issuer of such security, the corporate shareholder to buy or sell the shares, though the shareholder
obligation to submit a statement indicating his or her ownership of the is not registered in the corporations books as the owner. Usually,
issuers securities and such changes in his or her ownership thereof. The beneficial ownership is distinguished from naked ownership, which is the
said provision reads: enjoyment of all the benefits and privileges of ownership, as against
possession of the bare title to property.
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Even assuming that the term beneficial ownership was vague, it would not words or phrases used in a statute do not set determinate standards,
affect respondents case, where the respondents are directors and/or officers declaring that:
of the corporation, who are specifically required to comply with the
reportorial requirements under Section 36(a) of the Revised Securities Petitioners contend that the words as far as practicable, declining and stable
Act.The validity of a statute may be contested only by one who will sustain should have been defined in R.A. No. 8180 as they do not set determinate
a direct injury as a result of its enforcement. and determinable standards. This stubborn submission deserves scant
consideration. The dictionary meanings of these words are well settled and
Sections 30 and 36 of the Revised Securities Act were enacted to promote cannot confuse men of reasonable intelligence. x x x. The fear of petitioners
full disclosure in the securities market and prevent unscrupulous that these words will result in the exercise of executive discretion that will
individuals, who by their positions obtain non-public information, from run riot is thus groundless. To be sure, the Court has sustained the validity
taking advantage of an uninformed public. No individual would invest in a of similar, if not more general standards in other cases.
market which can be manipulated by a limited number of corporate
insiders. Such reaction would stifle, if not stunt, the growth of the securities Among the words or phrases that this Court upheld as valid standards were
market. To avert the occurrence of such an event, Section 30 of the Revised simplicity and dignity, public interest, and interests of law and order.
Securities Act prevented the unfair use of non-public information in
securities transactions, while Section 36 allowed the SEC to monitor the The Revised Securities Act was approved on 23 February 1982. The fact
transactions entered into by corporate officers and directors as regards the that the Full Disclosure Rules were promulgated by the SEC only on 24 July
securities of their companies. 1996 does not render ineffective in the meantime Section 36 of the Revised
Securities Act. It is already unequivocal that the Revised Securities Act
In the case In the Matter of Investors Management Co., it was cautioned that requires full disclosure and the Full Disclosure Rules were issued to make
the broad language of the anti-fraud provisions, which include the the enforcement of the law more consistent, efficient and effective. It is
provisions on insider trading, should not be circumscribed by fine equally reasonable to state that the disclosure forms later provided by the
distinctions and rigid classifications. The ambit of anti-fraud provisions is SEC, do not, in any way imply that no compliance was required before the
necessarily broad so as to embrace the infinite variety of deceptive conduct. forms were provided. The effectivity of a statute which imposes reportorial
requirements cannot be suspended by the issuance of specified forms,
In Tatad v. Secretary of Department of Energy, this Court brushed aside a especially where compliance therewith may be made even without such
contention, similar to that made by the respondents in this case, that certain
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forms. The forms merely made more efficient the processing of On March 17, 2004, respondent Justina F. Callangan, the Director of the
requirements already identified by the statute. Corporation Finance Department of the Securities and Exchange
Commission (SEC), sent the Bank a letter, informing it that it qualifies as
For the same reason, the Court of Appeals made an evident mistake when it a “public company” under Section 17.2 of the Securities Regulation
ruled that no civil, criminal or administrative actions can possibly be had Code (SRC) in relation with Rule 3(1)(m) of the Amended
against the respondents in connection with Sections 8, 30 and 36 of the Implementing Rules and Regulations of the SRC. The Bank is thus
Revised Securities Act due to the absence of implementing rules. These required to comply with the reportorial requirements set forth in
provisions are sufficiently clear and complete by themselves. Their Section 17.1 of the SRC.
requirements are specifically set out, and the acts which are enjoined are
determinable. In particular, Section 8[55] of the Revised Securities Act is a The Bank responded by explaining that it should not be considered a
straightforward enumeration of the procedure for the registration of “public company” because it is a private company whose shares of
securities and the particular matters which need to be reported in the stock are available only to a limited class or sector, i.e., to World War II
registration statement thereof. The Decision, dated 20 August 1998, veterans, and not to the general public.
provides no valid reason to exempt the respondent IRC from such
requirements. The lack of implementing rules cannot suspend In a letter dated April 20, 2004, Director Callangan rejected the Bank’s
the effectivity of these provisions. Thus, this Court cannot find any explanation and assessed it a total penalty of One Million Nine Hundred
cogent reason to prevent the SEC from exercising its authority to Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos
investigate respondents for violation of Section 8 of the Revised (P1,937,262.80) for failing to comply with the SRC reportorial requirements
Securities Act. from 2001 to 2003. The Bank moved for the reconsideration of the
assessment, but Director Callangan denied the motion in SEC-CFD Order
No. 085, Series of 2005 dated July 26, 2005. When the SEC En Banc also
dismissed the Bank’s appeal for lack of merit in its Order dated August 31,
7. Philippine Veterans Bank v. Callangan, G.R. No. 191995, 3 August 2006, prompting the Bank to file a petition for review with the Court of
2011 Appeals (CA).
Facts:
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On March 6, 2008, the CA dismissed the petition and affirmed the assailed specific group of people, are considered a public company, provided
SEC ruling, with the modification that the assessment of the penalty be they meet the requirement as required under the SRC.
recomputed from May 31, 2004.
The Court of Appeals also denied the Bank’s motion for 8. Cemco Holdings Inc v. National Life Insurance Company of the
reconsideration, opening the way for the Bank’s petition for review Philippines, G.R. No. 171815, 7 August 2007
on certiorari filed with this Court.
Facts:
On June 16, 2010, the Court denied the Bank’s petition for failure to show
any reversible error in the assailed CA decision and resolution. Union Cement Corporation (UCC), a publicly-listed company, has two
principal stockholders – UCHC, a non-listed company, with shares
Issue: amounting to 60.51%, and petitioner Cemco with17.03%. Majority of
UCHC’s stocks were owned by BCI with 21.31% and ACC with 29.69%.
Whether or not the reportorial requirements of the SEC are applicable Cemco, on the other hand, owned 9% of UCHC stocks. In a disclosure
to Banks. letter, BCI informed the Philippine Stock Exchange (PSE) that it and its
subsidiary ACC had passed resolutions to sell to Cemco BCI’s stocks in
Rulings:
UCHC equivalent to 21.31% and ACC’s stocks in UCHC equivalent to
The Securities and Exchange Commission (SEC) required the Bank to 29.69%.
comply with the reportorial requirements under Section 17.1 of SRC
As a consequence of this disclosure, the PSE inquired as to whether the
since it qualifies as a “public company” under Section 17.2 of the SRC.
Tender Offer Rule under Rule 19 of the Implementing Rules of the
The Bank argued that it is a private company and not a public company
Securities Regulation Code is not applicable to the purchase by
because its shares are available only to a limited class or sector. The
petitioner of the majority of shares of UCC. The SEC en banc had
Supreme Court held that “public company,” as contemplated by the
resolved that the Cemco transaction was not covered by the tender offer
SRC, is not limited to a company whose shares of stocks are publicly
rule. Feeling aggrieved by the transaction, respondent National Life
listed; even companies like the Bank, whose shares are offered only to a
Insurance Company of the Philippines, Inc., a minority stockholder of UCC,
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sent a letter to Cemco demanding the latter to comply with the rule on (1) Whether or not the SEC has jurisdiction over respondent’s
mandatory tender offer. Cemco, however, refused. complaint and to require Cemco to make a tender offer for
respondent’s UCC shares.
Respondent National Life Insurance Company of the Philippines, Inc. filed
a complaint with the SEC asking it to reverse its 27 July 2004 Resolution (2) Whether or not the rule on mandatory tender offer applies to the
and to declare the purchase agreement of Cemco void and praying that the indirect acquisition of shares in a listed company, in this case, the
mandatory tender offer rule be applied to its UCC shares. indirect acquisition by Cemco of 36% of UCC, a publicly-listed
company, through its purchase of the shares in UCHC, a non-listed
The SEC ruled in favor of the respondent by reversing and setting aside its company.
27 July 2004Resolution and directed petitioner Cemco to make a tender
offer for UCC shares to respondent and other holders of UCC shares similar Ruling:
to the class held by UCHC in accordance with Section 9(E), Rule 19 of the
Securities Regulation Code. (1) Yes. In taking cognizance of respondent’s complaint against petitioner
and eventually rendering a judgment which ordered the latter to make a
On petition to the Court of Appeals, the CA rendered a decision affirming tender offer, the SEC was acting pursuant to Rule19(13) of the Amended
the ruling of the SEC. It ruled that the SEC has jurisdiction to render the Implementing Rules and Regulations of the Securities Regulation Code, to
questioned decision and, in any event, Cemco was barred by estoppel from wit:
questioning the SEC’s jurisdiction.
“ 13. Violation If there shall be violation of this Rule by pursuing a
It, likewise, held that the tender offer requirement under the Securities purchase of equity shares of a public company at threshold amounts
Regulation Code and its Implementing Rules applies to Cemco’s purchase without the required tender offer, the Commission, upon complaint,
of UCHC stocks. Cemco’s motion for reconsideration was likewise denied. may nullify the said acquisition and direct the holding of a tender
offer. This shall be without prejudice to the imposition of other
Issue: 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
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compliance with the Securities Regulation Code, more specifically the The legislative intent of Section 19 of the Code is to regulate activities
provision on mandatory tender offer under Section 19thereof. Moreover, relating to acquisition of control of the listed company and for the purpose
petitioner is barred from questioning the jurisdiction of the SEC. It must be of protecting the minority stockholders of a listed corporation. Whatever
pointed out that petitioner had participated in all the proceedings before the may be the method by which control of a public company isobtained,
SEC and had prayed for affirmative relief. either through the direct purchase of its stocks or through an indirect
means, mandatory tender offer applies. As appropriately held by the
2. Yes. Tender offer is a publicly announced intention by a person Court of Appeals:
acting alone or in concert with other persons to acquire equity
securities of a public company. The petitioner posits that what it acquired were stocks of UCHC and not
UCC. By happenstance, as a result of the transaction, it became an indirect
A public company is defined as a corporation which is listed on an owner of UCC. We are constrained, however, to construe ownership
exchange, or a corporation with assets exceeding P50,000,000.00 and acquisition to mean both direct and indirect. What is decisive is the
with 200 or more stockholders, at least 200 of them holding not less determination of the power of control. The legislative intent behind the
than 100 shares of such company. 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
Stated differently, a tender offer is an offer by the acquiring person to purchase of shares. Control may [be] effected through a direct and
stockholders of a public company for them to tender their shares therein on indirect acquisition of stock, and when this takes place, irrespective of
the terms specified in the offer: Tender offer is intended the means, a tender offer must occur. The bottom line of the law is to
to protect minority shareholders against any scheme that dilutes the give the shareholder of the listed company the opportunity to decide
share value of their investments. It gives the minority shareholders the whether or not to sell in connection with a transfer of control.
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. The SEC and the Court of Appeals ruled that
the indirect acquisition by petitioner of 36% of UCC shares through the 9. Citibank NA v. Tanco-Gabaldon, G.R. No. 198444, 4 September 2013
acquisition of the non-listed UCHC shares is covered by the mandatory
tender offer rule. Facts:
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On September 21, 2007, Ester H. Tanco-Gabaldon (Gabaldon), Arsenio existing registration/s or secondary license/s to act as a broker/dealer in
Tanco (Tanco) and the Heirs of Ku Tiong Lam (Lam) (respondents) filed securities, government securities eligible dealer, investment adviser of an
with the Securities and Exchange Commission's Enforcement and investment house/underwriter of securities and transfer agent be revoked;
Prosecution Department (SEC-EPD) a complaint for violation of the and (4) criminal complaints against the petitioners be filed and endorsed to
Revised Securities Act (RSA) and the Securities Regulation Code (SRC) the Department of Justice (DOJ) for investigation.
against petitioners Citibank N.A. (Citibank) and its officials, Citigroup
Private Bank (Citigroup) and its officials, and petitioner Carol Lim (Lim), Petitioners Citibank and Citigroup claimed that they did not receive a copy
who is Citigroup's Vice-President and Director. In their Complaint, the of the complaint and it was only after the Bangko Sentral ng Pilipinas (BSP)
respondents alleged that Gabaldon, Tanco and Lam were joint account wrote them on October 26, 2007 that they were furnished a copy. They
holders of petitioner Citigroup. Sometime in March 2000, the replied to the BSP disclaiming any participation by the Citibank or its
respondents met with petitioner Lim, who "induced" them into signing officers on the transactions and products complained of. Citibank and
a subscription agreement for the purchase of USD 2,000,000.00 worth Citigrou furnished a copy of its letter to the SEC-EPD and the respondents'
of Ceres II Finance Ltd. Income Notes. In September of the same year, counsel.
they met again with Lim for another investment proposal, this time for the
purchase of USD 500,000.00 worth of Aeries Finance II Ltd. Senior On August 1, 2008, the SEC-EPD asked from the petitioners certain
Subordinated Income Notes. In a January 2003 statement issued by the documents to be submitted during a scheduled conference, to which they
Citigroup, the respondents learned that their investments declined, until complied. The petitioners, however, reiterated its position that they are not
their account was totally wiped out. Upon verification with the SEC, they submitting to the jurisdiction of the SEC. The petitioners were also required
learned that the Ceres II Finance Ltd. Notes and the Aeries Finance II Ltd. to submit other documents.
Notes were not duly registered securities. They also learned that Ceres II
Finance Ltd., Aeries Finance II Ltd. and the petitioners, among others, are Thereafter, in an order dated December 8, 2008, the SEC-EPD terminated
not duly-registered security issuers, brokers, dealers or agents. its investigation on the ground that the respondents' action has already
prescribed. According to the SEC-EPD, "[t]he aforesaid complaint was filed
Hence, the respondents prayed in their complaint that: (1) the petitioners be before the [SEC-EPD] on 21 September 2007 while a similar complaint was
held administratively liable; (2) the petitioners be liable to pay an lodged before the [DOJ] on October 2005. Seven (7) years had lapsed
administrative fine pursuant to Section 54(ii), SRC; (3) the petitioners' before the filing of the action before the SEC while the complaint instituted
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before the DOJ was filed one month after the expiration of the allowable
period." It appears that on October 24, 2005, the respondents had already (1) Whether the criminal action for offenses punished under the SRC
filed with the Mandaluyong City Prosecutor's Office a complaint for filed by the respondents against the petitioners has already prescribed;
violation of the RSA and SRC but it was referred to the SEC pursuant and
to Baviera v. Prosecutor Paglinawan.
(2) Whether the filing of the action for the petitioners' administrative
In 2009, petitioners Citibank and Citigroup received a copy of the liability is barred by laches.
respondents' Notice of Appeal and Memorandum of Appeals but the
officials did not, as according to them, the latter were not connected with Ruling:
them. Citibank also alleged that they did not receive any order to file a
Reply Memorandum, in contravention of Section 11-5, Rule XI of the 2006 Resolution of the issue raised by the petitioners call for an examination of
SEC Rules of Procedure. It turned out, however, that an order was issued by the pertinent provisions of the SRC, particularly Section 62, which states:
the SEC, dated February 26, 2009, requiring the petitioners to file their
reply. SEC. 62. Limitation of Actions.
On November 6, 2009, petitioners Citibank and Citigroup received the 62.1. No action shall be maintained to enforce any liability created
SEC en banc Decision dated October 15, 2009 reinstating the complaint and under Section 56 or 57 of this Code unless brought within two (2) years
ordering the immediate investigation of the case. Petitioner Lim, who was after the discovery of the untrue statement or the omission, or, if the
then based in Hong Kong, learned of the rendition of the SEC decision on action is to enforce a liability created under Subsection 57.1(a), unless
November 20, 2009 through a teleconference with petitioner Citibank's brought within two (2) years after the violation upon which it is based.
counsel. Thus, petitioners Citibank and Citigroup filed a petition for review In no event shall any such action be brought to enforce a liability
with the Court of Appeals (CA), docketed as CA-G.R. SP No. 111501. created under Section 56 or Subsection 57.1(a) more than five (5) years
Petitioner Lim filed her own petition for review with the CA, docketed as after the security was bona fide offered to the public, or under
CA-G.R. SP No. 112309. These two petitions were then consolidated. Subsection 57.1(b) more than five (5) years after the sale.
Issue:
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62.2. No action shall be maintained to enforce any liability created 62.1, which provides for the prescriptive period for the enforcement of civil
under any other provision of this Code unless brought within two (2) liability in cases of violations of Sections 56, 57, 57.1(a) and 57.1(b).
years after the discovery of the facts constituting the cause of action and
within five (5) years after such cause of action accrued. Moreover, it should be noted that the civil liabilities provided in the SRC
are not limited to Sections 56 and 57. Section 58 provides for Civil Liability
Section 62 provides for two different prescriptive periods. For Fraud in Connection With Securities Transactions; Section 59 Civil
Liability For Manipulation of Security Prices; Section 60 Civil Liability
Section 62.1 specifically sets out the prescriptive period for the liabilities With Respect to Commodity Future Contracts and Pre-need Plans; and
created under Sections 56, 57, 57.1(a) and 57.1(b). Section 56 refers to Section 61 Civil Liability on Account of Insider Trading. Thus, bearing in
Civil Liabilities on Account of False Registration Statement while mind that Section 62.1 merely addressed the prescriptive period for the civil
Section 57 pertains to Civil Liabilities on Arising in Connection with liability provided in Sections 56, 57, 57.1(a) and 57.1(b), then it reasonably
Prospectus, Communications and Reports. Under these provisions, follows that the other sub-provision, Section 62.2, deals with the other civil
enforcement of the civil liability must be brought within two (2) years liabilities that were not covered by Section 62.1, namely Sections 59, 60 and
or five (5) years, as the case may be. 61. This conclusion is further supported by the fact that the subsequent
provision, Section 63, explicitly pertains to the amount of damages
On the other hand, Section 62.2 provides for the prescriptive period to recoverable under Sections 56, 57, 58, 59, 60 and 61, the trial court having
enforce any liability created under the SRC. It is the interpretation of the jurisdiction over such actions, the persons liable and the extent of their
phrase "any liability" that creates the uncertainty. Does it include both liability. Clearly, the intent is to encompass in Section 62 the prescriptive
civil and criminal liability? Or does it pertain solely to civil liability? periods only of the civil liability in cases of violations of the SRC.
In order to put said phrase in its proper perspective, reference must be made The CA, therefore, did not commit any error when it ruled that "the phrase
to the rule of statutory construction that every part of the statute must be 'any liability' in subsection 62.2 can only refer to other liabilities that are
interpreted with reference to the context, i.e., that every part of the statute also civil in nature. The phrase could not have suddenly intended to mean
must be considered together with the other parts, and kept subservient to the criminal liability for this would go beyond the context of the other
general intent of the whole enactment. Section 62.2 should not be read in provisions among which it is found."
isolation of the other provision included in Section 62, particularly Section
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Given the absence of a prescriptive period for the enforcement of the Hand in hand with Section 1, Section 2 of Act No. 3326 states that
criminal liability in violations of the SRC, Act No. 3326 now comes into "prescription shall begin to run from the day of the commission of the
play. Panaguiton, Jr. v. Department of Justice expressly ruled that Act No. violation of the law, and if the same be not known at the time, from the
3326 is the law applicable to offenses under special laws which do not discovery thereof and the institution of judicial proceedings for its
provide their own prescriptive periods. investigation and punishment." In Republic v. Cojuangco, Jr.the Court ruled
that Section 2 provides two rules for determining when the prescriptive
Section 1 of Act No. 3326 provides: period shall begin to run: first, from the day of the commission of the
violation of the law, if such commission is known; and second, from its
Violations penalized by special acts shall, unless otherwise provided in such discovery, if not then known, and the institution of judicial proceedings for
acts, prescribe in accordance with the following rules: (a) after a year for its investigation and punishment.
offenses punished only by a fine or by imprisonment for not more than one
month, or both; (b) after four years for those punished by imprisonment for The respondents alleged in their complaint that the transactions occurred
more than one month, but less than two years; (c) after eight years for those between September 2000, when they purchased the Subscription Agreement
punished by imprisonment for two years or more, but less than six years; for the purchase of USD 2,000,000.00 worth of Ceres II Finance Ltd.
and (d) after twelve years for any other offense punished by Income Notes, and July 31, 2003, when their Ceres II Finance Ltd. account
imprisonment for six years or more, except the crime of treason, which was totally wiped out. Nevertheless, it was only sometime in November
shall prescribe after twenty years. Violations penalized by municipal 2004 that the respondents discovered that the securities they purchased were
ordinances shall prescribe after two months. actually worthless. Thereafter, the respondents filed on October 23, 2005
with the Mandaluyong City Prosecutor's Office a complaint for violation of
Under Section 73 of the SRC, violation of its provisions or the rules and the RSA and SRC. In Resolution dated July 18, 2007, however, the
regulations is punishable with imprisonment of not less than seven (7) years prosecutor's office referred the complaint to the SEC. Finally, the
nor more than twenty-one (21) years. Applying Section 1 of Act No. 3326, respondents filed the complaint with the SEC on September 21, 2007. Based
a criminal prosecution for violations of the SRC shall, therefore, on the foregoing antecedents, only seven (7) years lapsed since the
prescribe in twelve (12) years. respondents invested their funds with the petitioners, and three (3) years
since the respondents' discovery of the alleged offenses, that the complaint
was correctly filed with the SEC for investigation. Hence, the respondents'
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complaint was filed well within the twelve (12)-year prescriptive period
provided by Section 1 of Act No. 3326. In this case, records bear that immediately after the respondents discovered
in 2004 that the securities they invested in were actually worthless, they
On the issue of laches. filed on October 23, 2005 a complaint for violation of the RSA and SRC
with the Mandaluyong City Prosecutor's Office. It took the prosecutor three
Petitioner Lim contends that the CA committed an error when it did not (3) years to resolve the complaint and refer the case to the SEC, in
apply the principle of laches vis-à-vis the petitioners' administrative conformity with the Court's pronouncement in Baviera that all complaints
liability. for any violation of the SRC and its implementing rules and regulations
should be filed with the SEC. Clearly, the filing of the complaint with the
Laches has been defined as the failure or neglect for an unreasonable and SEC on September 21, 2007 is not barred by laches as the respondents'
unexplained length of time to do that which, by exercising due diligence, judicious actions reveal otherwise.
could or should have been done earlier, thus, giving rise to a presumption
that the party entitled to assert it either has abandoned or declined to assert
it. 10. Pua v. Citibank N.A., G.R. No. 180064, 16 September 2013
Section 54 of the SRC provides for the administrative sanctions to be Facts:

imposed against persons or entities violating the Code, its rules or SEC
orders. Just as the SRC did not provide a prescriptive period for the On December 2, 2002, petitioners filed before the RTC a Complaint for
filing of criminal actions, it likewise omitted to provide for the period declaration of nullity of contract and sums of money with damages against
until when complaints for administrative liability under the law should respondent, docketed as Civil Case No. 19-1159. In their complaint,
be initiated. On this score, it is a well-settled principle of law that laches petitioners alleged that they had been depositors of Citibank Binondo
is a recourse in equity, which is, applied only in the absence of statutory Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada Ang,
law. And though laches applies even to imprescriptible actions, its elements Citibank Binondo's Branch Manager, invited Jose to a dinner party at the
must be proved positively. Ultimately, the question of laches is addressed to Manila Hotel where he was introduced to several officers and employees of
the sound discretion of the court and, being an equitable doctrine, its Citibank Hongkong Branch (Citibank Hongkong). A few months after,
application is controlled by equitable considerations. Chingyee Yau (Yau), Vice-President of Citibank Hongkong, came to
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the Philippines to sell securities to Jose. They averred that Yau required
Jose to open an account with Citibank Hongkong as it is one of the Petitioners opposed respondent's motion to dismiss, maintaining that the
conditions for the sale of the aforementioned securities. After opening such RTC has jurisdiction over their complaint. They asserted that Section 63 of
account, Yau offered and sold to petitioners numerous securities issued by the SRC expressly provides that the RTC has exclusive jurisdiction to hear
various public limited companies established in Jersey, Channel Isands. The and decide all suits to recover damages pursuant to Sections 56 to 61 of the
offer, sale, and signing of the subscription agreements of said securities same law.
were all made and perfected at Citibank Binondo in the presence of its
officers and employees. Later on, petitioners discovered that the securities Issue:
sold to them were not registered with the Securities and Exchange
Commission (SEC) and that the terms and conditions covering the Whether or not petitioners' action falls within the primary jurisdiction
subscription were not likewise submitted to the SEC for evaluation, of the SEC.
approval, and registration. Asserting that respondent's actions are in
violation of Republic Act No. 8799, entitled the "Securities Regulation Ruling:
Code" (SRC), they assailed the validity of the subscription agreements and
the terms and conditions thereof for being contrary to law and/or public Yes. The petition is meritorious.
policy.
At the outset, the Court observes that respondent erroneously relied on
For its part, respondent filed a motion to dismiss alleging, inter alia, that the Baviera ruling to support its position that all complaints involving
petitioners' complaint should be dismissed outright for violation of the purported violations of the SRC should be first referred to the SEC. A
doctrine of primary jurisdiction. It pointed out that the merits of the case careful reading of the Baviera case would reveal that the same involves a
would largely depend on the issue of whether or not there was a violation of criminal prosecution of a purported violator of the SRC, and not a civil suit
the SRC, in particular, whether or not there was a sale of unregistered such as the case at bar. The pertinent portions of the Baviera ruling thus
securities. In this regard, respondent contended that the SRC conferred upon read:
the SEC jurisdiction to investigate compliance with its provisions and thus,
petitioners' complaint should be first filed with the SEC and not directly A criminal charge for violation of the Securities Regulation Code is a
before the RTC. specialized dispute. Hence, it must first be referred to an administrative
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agency of special competence, i.e., the SEC. Under the doctrine of construed as to apply only to criminal and not to civil suits such as
primary jurisdiction, courts will not determine a controversy involving petitioners' complaint.
a question within the jurisdiction of the administrative tribunal, where
the question demands the exercise of sound administrative discretion Moreover, it is a fundamental rule in procedural law that jurisdiction is
requiring the specialized knowledge and expertise of said conferred by law; it cannot be inferred but must be explicitly stated therein.
administrative tribunal to determine technical and intricate matters of Thus, when Congress confers exclusive jurisdiction to a judicial or quasi-
fact. The Securities Regulation Code is a special law. Its enforcement is judicial entity over certain matters by law, this, absent any other indication
particularly vested in the SEC. Hence, all complaints for any violation of to the contrary, evinces its intent to exclude other bodies from exercising the
the Code and its implementing rules and regulations should be filed same.
with the SEC. Where the complaint is criminal in nature, the SEC shall
indorse the complaint to the DOJ for preliminary investigation and It is apparent that the SRC provisions governing criminal suits are separate
prosecution as provided in Section 53.1 earlier quoted. and distinct from those which pertain to civil suits. On the one hand, Section
53 of the SRC governs criminal suits involving violations of the said
We thus agree with the Court of Appeals that petitioner committed a law, viz.:
fatal procedural lapse when he filed his criminal complaint directly
with the DOJ. Verily, no grave abuse of discretion can be ascribed to the SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
DOJ in dismissing petitioner's complaint.
53.1. The Commission may, in its discretion, make such investigations as it
Records show that petitioners' complaint constitutes a civil suit for deems necessary to determine whether any person has violated or is about to
declaration of nullity of contract and sums of money with damages, which violate any provision of this Code, any rule, regulation or order thereunder,
stemmed from respondent's alleged sale of unregistered securities, in or any rule of an Exchange, registered securities association, clearing
violation of the various provisions of the SRC and not a criminal case such agency, other self-regulatory organization, and may require or permit any
as that involved in Baviera. 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
In this light, when the Court ruled in Baviera that "all complaints for any the matter to be investigated. The Commission may publish information
violation of the SRC should be filed with the SEC," it should be concerning any such violations, and to investigate any fact, condition,
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practice or matter which it may deem necessary or proper to aid in the (a) Offers to sell or sells a security in violation of Chapter III;
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 or
recommending further legislation concerning the matters to which this Code
relates: Provided, however, That any person requested or subpoenaed to (b) Offers to sell or sells a security, whether or not exempted by the
produce documents or testify in any investigation shall simultaneously be provisions of this Code, by the use of any means or instruments of
notified in writing of the purpose of such investigation: Provided, further, transportation or communication, by means of a prospectus or other written
That all criminal complaints for violations of this Code, and the or oral communication, which includes an untrue statement of a material
implementing rules and regulations enforced or administered by the fact or omits to state a material fact necessary in order to make the
Commission shall be referred to the Department of Justice for statements, in the light of the circumstances under which they were made,
preliminary investigation and prosecution before the proper not misleading (the purchaser not knowing of such untruth or omission), and
court: Provided, furthermore, That in instances where the law allows who shall fail in the burden of proof that he did not know, and in the
independent civil or criminal proceedings of violations arising from the exercise of reasonable care could not have known, of such untruth or
same act, the Commission shall take appropriate action to implement the omission, shall be liable to the person purchasing such security from
same: Provided, finally, That the investigation, prosecution, and trial of such him, who may sue to recover the consideration paid for such security
cases shall be given priority. with interest thereon, less the amount of any income received thereon,
upon the tender of such security, or for damages if he no longer owns
On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC the security.
pertain to civil suits involving violations of the same law. Among these, the
applicable provisions to this case are Sections 57.1 and 63.1 of the SRC SEC. 63. Amount of Damages to be Awarded. 63.1. All suits to recover
which provide: damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought
before the Regional Trial Court which shall have exclusive jurisdiction
SEC. 57. Civil Liabilities Arising in Connection With Prospectus, to hear and decide such suits. The Court is hereby authorized to award
Communications and Reports. 57.1. Any person who: damages in an amount not exceeding triple the amount of the transaction
plus actual damages.
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Based on the foregoing, it is clear that cases falling under Section 57 of the On October 6, 1996, herein petitioner, Timeshare Realty, sold to Ceasar
SRC, which pertain to civil liabilities arising from violations of the M. Lao and Cynthia V. Cortez (respondents), one timeshare of Laguna
requirements for offers to sell or the sale of securities, as well as other civil de Boracay for US$7,500.00 payable in eight months and fully paid by
suits under Sections 56, 58, 59, 60, and 61 of the SRC shall be exclusively the respondents.
brought before the regional trial courts. It is a well-settled rule in
statutory construction that the term "shall" is a word of command, and one Sometime in February 1998, the SEC issued a resolution to the effect that
which has always or which must be given a compulsory meaning, and it is petitioner was without authority to sell securities, like timeshares, prior
generally imperative or mandatory. Likewise, it is equally revelatory that no to February 11, 1998. It further stated in the resolution/order that the
SRC provision of similar import is found in its sections governing criminal Registration Statement of petitioner became effective only on February 11,
suits; quite the contrary, the SRC states that criminal cases arising from 1998. It also held that the 30 days within which a purchaser may exercise
violations of its provisions should be first referred to the SEC. the option to unilaterally rescind the purchase agreement and receive the
refund of money paid applies to all purchase agreements entered into by
Therefore, based on these considerations, it stands to reason that civil suits petitioner prior to the effectivity of the Registration Statement.
falling under the SRC are under the exclusive original jurisdiction of the
regional trial courts and hence, need not be first filed before the SEC, unlike Petitioner sought a reconsideration of the aforesaid order but the SEC
criminal cases wherein the latter body exercises primary jurisdiction. denied the same in a letter dated March 9, 1998.
All told, petitioners' filing of a civil suit against respondent for purported On March 30, 1998, respondents wrote petitioner demanding their right and
violations of the SRC was properly filed directly before the RTC. option to cancel their Contract, as it appears that Laguna de Boracay is
selling said shares without license or authority from the SEC. For failure to
get an answer to the said letter, respondents this time, through counsel,
11. Timeshare Realty v. Lao, G.R. No. 158941, 11 February 2008 reiterated their demand through another letter dated June 29, 1998. But
despite repeated demands, petitioner failed and refused to refund or pay
Facts: respondents.
Issue:
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Whether the issuance by the SEC of an authority to sell securities in Prior to fulfillment of all the other requirements of Section 8, petitioner
favor of Timeshare Realty, at a later date, will have the effect of is absolutely proscribed under Section 4 from dealing with unregistered
ratifying those transactions entered into, at an earlier date, without timeshares, thus:
such license to sell said securities.
Section 4. Requirement of registration of securities. - (a) No securities,
Ruling: except of a class exempt under any of the provisions of Section five
hereof or unless sold in any transaction exempt under any of the
No. The provisions of B.P. Blg. 178 do not support the contention of provisions of Section six hereof, shall be sold or offered for sale or
petitioner that its mere registration as a corporation already authorizes it to distribution to the public within the Philippines unless such securities
deal with unregistered timeshares. Corporate registration is just one of shall have been registered and permitted to be sold as hereinafter
several requirements before it may deal with timeshares: provided.
Section 8. Procedure for registration. - (a) All securities required to be

registered under subsection (a) of Section four of this Act shall be 12. SEC v. Hon. Laigo, G.R. No. 188639, 2 September 2015
registered through the filing by the issuer or by any dealer or
underwriter interested in the sale thereof, in the office of the Facts:
Commission, of a sworn registration statement with respect to such
securities, containing or having attached thereto, the following: Republic Act (R.A.) No. 8799, otherwise known as the Securities
Regulation Code (SRC), specifically Section 16 thereof, mandated the
(36) Unless previously filed and registered with the Commission and Securities and Exchange Commission (SEC) to prescribe rules and
brought up to date: regulations governing the pre-need industry.
(a) A copy of its articles of incorporation with all amendments It required from the pre-need providers the creation of trust funds as a
thereof and its existing by-laws or instruments corresponding thereto, requirement for registration.
whatever the name, if the issuer be a corporation.
Trust Fund' means a fund set up from planholders' payments, separate
and distinct from the paid-up capital of a registered pre-need company,
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established with a trustee under a trust agreement approved by the The RTC stated that the trust fund could be withdrawn by the Assignee to
SEC, to pay for the benefits as provided in the pre-need plan. be used for the expenses he would incur in the discharge of his functions
and to be distributed among the creditors who had officially filed their valid
Legacy, being a pre-need provider, complied with the trust fund requirement claims with the court.
and entered into a trust agreement with the Land Bank of the Philippines
(IBP). Intent on protecting the interest of the investing public and securing the trust
fund exclusively for the planholders, the SEC filed "this present recourse
In mid-2000, the industry collapsed for a range of reasons. Legacy, like directly to this Honorable Court in accordance with Section 5 (1), Article
the others, was unable to pay its obligations to the planholders. VIII of the 1987 Constitution for the reason that the matters involve an issue
of transcendental importance
This resulted in Legacy being the subject of a petition for involuntary
insolvency by private respondents in their capacity as planholders. The SEC's Position.
Through its manifestation filed in the RTC, Legacy did not object to the
proceedings. Accordingly, it was declared insolvent by the RTC in its The SEC contends that Judge Laigo gravely abused his discretion in
Order, the RTC ordered the SEC, being the pre-need industry's treating the trust fund as part of the insolvency estate of Legacy. It
regulator, to submit the documents pertaining to Legacy's assets and argues that the trust fund should redound exclusively to the benefit of
liabilities. the planholders, who are the ultimate beneficial owners; that the trust
fund is held, managed and administered by the trustee bank to address
The SEC opposed the inclusion of the trust fund in the inventory of and answer the claims against the pre-need company by all its
corporate assets on the ground that to do so would contravene the New planholders and/or beneficiaries; that to consider the said fund as
Rules which treated trust funds as principally established for the exclusive... corporate assets is to open the floodgates to creditors of bank.
purpose of guaranteeing the delivery of benefits due to the planholders...
despite the opposition of the SEC, Judge Laigo ordered the insolvency Legacy other than the planholders; and that, in issuing the order, Judge
Assignee, Gener T. Mendoza (Assignee) to take possession of the trust fund. Laigo effectively allowed non-planholders to reach the trust fund in patent
violation of the New Rules established to protect the pre-need investors.
Judge Laigo viewed the trust fund as Legacy's corporate assets and, for
said reason, included it in the insolvent's estate.
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The SEC stressed that the setting-up of the trust funds effectively created a In sum, the Assignee interprets the June 26, 2009 Order in this wise: that the
demarcation line between the claims of planholders vis-a-vis those of the creditors, planholders or not, should first line up and file valid claims with
other creditors of Legacy that Legacy's interest over the trust properties the insolvency court and not get entangled in the validation process of the
was only by virtue of it being a trustor and not the owner; and that the SEC; and that once the planholders have... qualified, they will be given
SEC was authorized to validate claims of planholders in the exercise of preference in the distribution of the trust assets.
its power as regulator of pre-need corporations.
Issue:
Private Respondents 'position, the private respondents, submit that nothing
in the New Rules expressly provided that the trust fund is excluded from the Whether or not the Trust Funds of Legacy form part of its Corporate
inventory of corporate assets which is required to be submitted to the Assets.
insolvency court; that the SEC's interference in the insolvency proceedings
is incongruous to the legal system; and that under the provisions of the Ruling:
Insolvency Law, all claims, including those against the trust funds should be
filed in the liquidation proceedings. No. This Court rules to grant the petition filed by the SEC. The Court finds
that Judge Laigo gravely abused his discretion in treating the trust fund as
The Assignee's Position contends that the trust fund forms part of assets that form part of Legacy's insolvency estate and in enjoining the
Legacy's corporate assets for the following reasons: first, the insolvency SEC's validation of the planholders' claims against the trust properties.
court has jurisdiction over all the claims against the insolvent and the
trust fund forms part of the company's corporate assets. The Trust Fund is for the sole benefit of the planholders and cannot be
used to satisfy the claims of other creditors of Legacy
It cited Abrera v. College Assurance Plan where the Court held that claims
arising from pre-need contracts should not be treated separately from other Section 30 of the Pre-Need Code clearly provides that the proceeds of trust
claims against a pre-need company. As such, the claims over the trust fund, funds shall redound solely to the planholders.
being claims against Legacy, are necessarily lodged with the insolvency
Section 30 reads:
court.
SECTION 30. Trust Fund.
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Assets in the trust fund shall at all times remain for the sole benefit of The Trustee shall from time to time on the written directions of the
the planholders. At no time shall any part of the trust fund be used for Company make payments out of the Trust Fund to the Company. To the
or diverted to any purpose other than for the exclusive benefit of the extent permitted by law, the Trustee shall be under no liability for any
planholders. In no case shall the trust fund assets be used to satisfy payment made pursuant to the direction of the Company. Any written
claims of other creditors of the pre-need company. The provision of any direction of the Company shall constitute a certification that the distribution
law to the contrary notwithstanding, in case of insolvency of the pre- of payment so directed is one which the Company is authorized to direct.
need company, the general creditors shall not be entitled to the trust
fund. To the Assignee, these "control" mechanisms are indicative of the interest of
Legacy in the enforcement of the trust fund because the agreement gives it
The termination values payable to the planholders, the insurance premium the power to dictate on LBP the fulfillment of the trust, such as the delivery
payments for insurance-funded benefits of memorial life plans and other of monies to it to facilitate the payment to... the planholders.
costs necessary to ensure the delivery of benefits or services to...
planholders, no withdrawal shall be made from the trust fund unless The Court, however, sees it differently.
approved by the Commission
In the course of delving into the complex relationships created by the
The Assignee argues that Legacy has retained a beneficial interest in the agreement and the existing regulatory framework, this Court finds that
trust fund despite the execution of the trust agreement and that the Legacy's claimed interest in the enforcement of the trust and in the trust
properties can be the subject of insolvency proceedings. properties is mere apparent than real. Legacy is not a beneficiary.
In this regard, the Assignee calls the Court's attention to the trust... First, it must be stressed that a person is considered as a beneficiary of a
agreement provisions which supposedly refer to the interest of Legacy in the trust if there is a manifest intention to give such a person the beneficial
trust properties... the COMPANY shall be solely and exclusive (sic) interest over the trust properties
responsible for (1) fulfilling the services referred to in the recital clauses, (ii)
the settlement/payment of claims of any person or firm availing of such Here, the terms of the trust agreement plainly confer the status of
services, (iii) compliance with all laws and governmental regulations on pre- beneficiary to the planholders, not to Legacy. In the recital clauses of the
need plans, and (iv) submission of... other data or information as may be said agreement, Legacy bound itself to provide for the sound, prudent and
prescribed by the Commission. efficient management and administration of... such portion of the collection
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"for the benefit and account of the planholders," through LBP (as the Income Instruments, Mutual Funds, Equities, and Real Estate, subject to
trustee). certain limitations.
This categorical declaration doubtless indicates that the intention of the Further, Rule 20.1 directs the trustee to exercise due diligence for the
trustor is to make the planholders the beneficiaries of the trust properties, protection of the planholders guided by sound investment principles in the
and not Legacy. It is clear that because the beneficial ownership is vested in exclusive management and control over the funds and its right, at any time,
the planholders and the legal ownership in the... trustee, LBP, Legacy, as to sell, convert, invest, change, transfer, or otherwise change or dispose of
trustor, is left without any iota of interest in the trust fund. the assets comprising the funds.
Second, considering the fact that a mandated pre-need trust is one imbued This consistently runs in accord with the legislative intent laid down in
with public interest, the issue on who the beneficiary is must be determined Chapter IV of R.A. No. 8799, or the SRC, which provides for the
on the basis of the entire regulatory framework. Under the New Rules, it is establishment of trust funds for the payment of benefits under such plans.
unmistakable that the beneficial interest... over the trust properties is Section 16 of the SRC provides:
with the planholders.
SEC. 16. Pre-Need Plans. - No person shall sell or offer for sale to the
Rule 16.3 of the New Rules provides that : no withdrawal shall be made public any pre-need plan except in accordance with rules and regulations
from the trust fund except for paying the benefits such as monetary which the Commission shall prescribe. Such rules shall regulate the sale of
consideration, the cost of services rendered or property delivered, trust... pre-need plans by, among other... things, requiring the registration of pre-
fees, bank charges and investment expenses in the operation of the trust need plans, licensing persons involved in the sale of pre-need plans. It is
fund, termination values payable to the planholders, annuities, contributions clear from Section 16 that the underlying congressional intent is to make the
of cancelled plans to the fund and taxes on trust funds. planholders the exclusive beneficiaries. It has been said that what is within
the spirit is within the law even if it is not within the letter of the law
Rule 17.1 also states that to ensure the liquidity of the trust fund to because the spirit prevails over the letter.
guarantee the delivery of the benefits provided for under the plan contract
and to obtain sufficient capital growth to meet the growing actuarial reserve SECTION 33. Responsibilities of the Trustee. - The trustee shall: c) Not
liabilities, all investments of the trust fund shall... be limited to Fixed use the trust fund to invest in or extend any loan or
credit accommodation to the pre-need company, its directors,
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officers, stockholders, and related interests as well as to persons or Third, the perceived interest of Legacy, as touted by the Assignee, has
enterprises controlling, owned or controlled by, simply no basis. It may appear that Legacy under the agreement has control
or under common control with said company, its directors, officers, over the enforcement of the trust because of its provisions stating that
stockholders and related interests except for entities which are direct Legacy shall "solely and exclusively be responsible for fulfilling the
providers of pre-need companies. services referred to in the recital clauses and the settlement/payment of
claims of any person or firm availing of such services"
SECTION 38. Trustees. — Upon approval of the Commission or when the
Commission requires for the protection of planholders, the pre-need In effect, Legacy merely agreed to facilitate the payment of the benefits
company shall entrust the management and administration of the trust fund from the trust fund to the intended... beneficiaries, acting as a conduit or an
to any reputable bank's trust department, trust company or any... entity agent of the trustee in the enforcement of the trust agreement. Under the
authorized to perform trust functions in the Philippines: Provided, That no general principles of trust, a trustee, by the terms of the agreement may be
director and/or officer of the pre-need company shall at the same time serve permitted to delegate to agents or to co-trustees or to other persons the
as director and/or officer of the affiliate or related trust entity: Provided, administration of the trust or the performance of act which could not
further, That no trust fund shall... be established by a pre-need company otherwise be properly delegated.
with a subsidiary, affiliate or related trust entity
Thus, by the terms of the trust, as in this case, a trustee may be authorized or
To rule that Legacy has retained a beneficial interest in the trust fund is to permit an agent to do acts such as the delivery of the benefits out of the trust
perpetuate the injustices being committed against the planholders and fund.
violate not only the spirit of the trust agreement but, more importantly, the
lawmaker's intent. If indeed Legacy had an interest that could be reached by The Court cannot subscribe either to the Assignee's position that Legacy is a
its creditors even during insolvency, the planholders would be prejudiced as debtor of the planholders relative to the trust fund. In trust, it is the trustee,
they would be forced to share in the assets that would be distributed pro rata and not the trustor, who owes fiduciary duty to the beneficiary.
to all creditors, whether planholders or not. It would contradict the very
purpose for which the... trust was mandated by the Congress in the first The Restatement is clear on this point. Section 170... thereof provides that
place. the "trustee is under a duty to the beneficiary to administer the trust solely in
the interest of the beneficiary."
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Thus, LBP is tasked with the fiduciary duty to act for the benefit of the The authority granted to the Commission under this subsection shall also
planholders as to matters within the scope of the relation. apply to all funds established for the protection of investors (which
necessarily includes the trust funds), whether established by the
Like a debtor, LBP owes the planholders the amounts due from the Commission or otherwise.
trust fund. As to the planholders, as creditors, they can rightfully use
equitable remedies against the trustee for the protection of their Therefore, even prior to the transfer to the IC of matters pertaining to pre-
interest in the trust fund and, in particular, their right to demand the need plans and trust funds, the SEC had authority to regulate, manage, and
payment of what is due them from the fund. Verily, Legacy is out of the hear all claims involving trust fund assets, if in its discretion, public interest
picture and exists only as a representative of the trustee, LBP, with the so required. Accordingly, all claims against... the trust funds, which have
limited role of facilitating the delivery of the benefits of the trust fund been pending before it, are clearly within the SEC's authority to rule upon.
to the beneficiaries -the planholders.
WHEREFORE, the petition is GRANTED. The June 26, 2009 Order of the
It is an error for the Assignee to assume that the authority of the RTC Regional Trial Court, Branch 56, Makati City, is declared NULL and
extends to the claims against the trust fund. Claims against the trust fund VOID.
must be distinguished from claims against Legacy. The claims against
the trust fund are directed not against Legacy, but against LBP, the The Securities and Exchange Commission is directed to process the claims
trustee, being the debtor relative to the trust properties. of legitimate planholders with dispatch.
The Pre-Need Code recognizes that the jurisdiction over pending claims
against the trust funds prior to its effectivity is vested with the SEC. Such 13. People v. Tibayan, G.R. Nos. 209655-60, 14 January 2015 (Ponzi
authority can be easily discerned even from the provisions of the SRC. Scheme)
Section 4 thereof provides that despite the transfer of jurisdiction to the
RTC of those matters enumerated under Section 5 of P.D. No. 902-A. The Facts:
SEC remains authorized to "exercise such other powers as may be provided
by law as well as those which may be implied from, or which are necessary Tibayan Group Investment Company, Inc. (TGICI) is is an open-end
or incidental to the carrying out of, the express powers granted the investment company registered with the Securities and Exchange
Commission Commission (SEC) on September 21, 2001.10 Sometime in 2002, the SEC
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conducted an investigation on TGICI and its subsidiaries. In the course checks to the TGICI office to demand payment. At the office, the TGICI
thereof, it discovered that TGICI was selling securities to the public employees took the said checks, gave private complainants
without a registration statement in violation of Republic Act No. 8799, acknowledgement receipts, and reassured that their investments, as well as
otherwise known as “The Securities Regulation Code,” and that TGICI the interests, would be paid. However, the TGICI office closed down
submitted a fraudulent Treasurer’s Affidavit before the SEC. without private complainants having been paid and, thus, they were
Resultantly, on October 21, 2003, the SEC revoked TGICI’s corporate constrained to file criminal complaints against the incorporators and
registration for being fraudulently procured. directors of TGICI.
The foregoing led to the filing of multiple criminal cases for In their defense, accused-appellants denied having conspired with the
Syndicated Estafa against the incorporators and directors of TGICI, namely, other TGICI incorporators to defraud private complainants.
Jesus Tibayan, Ezekiel D. Martinez, Liborio E. Elacio, Jimmy C. Catigan, Particularly, Puerto claimed that his signature in the Articles of
Nelda B. Baran, and herein accused-appellants. Consequently, warrants of Incorporation of TGICI was forged and that since January 2002,he was
arrest were issued against all of them; however, only accused-appellants no longer a director of TGICI. For her part, Tibayan also claimed that
were arrested, while the others remained at large. her signature in the TGICI’s Articles of Incorporation was a forgery, as
she was neither an incorporator nor a director of TGICI.
According to the prosecution, private complainants Hector H. Alvarez,
Milagros Alvarez, Clarita P. Gacayan, Irma T. Ador, Emelyn Gomez, Issue:
Yolanda Zimmer, Nonito Garlan, Judy C. Rillon, Leonida D. Jarina,
Reynaldo A. Dacon, Cristina Dela Peña, and Rodney E. Villareal (private Whether or not accused-appellants are guilty beyond reasonable doubt
complainants) were enticed to invest in TGICI due to the offer of high of the crime of Syndicated Estafa defined and penalized under Item 2
interest rates, as well as the assurance that they will recover their (a), Paragraph 4, Article 315 of the RPC in relation to PD 1689.
investments. After giving their money to TGICI, private complainants
received a Certificate of Share and post-dated checks, representing the Ruling:
amount of the principal investment and the monthly interest earnings,
respectively. Upon encashment, the checks were dishonored, as the account The Court sustains the convictions of accused-appellants.
was already closed, prompting private complainants to bring the bounced
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Item 2 (a), Paragraph 4, Article 315 of the RPC provides: amended, shall be punished by life imprisonment to death if the swindling
Art. 315. Swindling (estafa). – Any person who shall defraud another by (estafa) is committed by a syndicate consisting of five or more persons
any means mentioned herein below shall be punished by: formed with the intention of carrying out the unlawful or illegal act,
transaction, enterprise or scheme, and the defraudation results in the
2. By means of any of the following false pretenses or fraudulent acts misappropriation of moneys contributed by stockholders, or members of
executed prior to or simultaneously with the commission of the fraud: rural banks, cooperatives, “samahang nayon(s),” or farmers’ associations, or
funds solicited by corporations/associations from the general public.
(a) By using a fictitious name, or falsely pretending to possess power,
influence, qualifications, property, credit, agency, business, or imaginary Thus, the elements of Syndicated Estafa are: (a) Estafa or other forms
transactions; or by means of other similar deceits. of swindling, as defined in Articles 315 and 316 of the RPC,, is
committed; (b) the Estafa or swindling is committed by a syndicate of
The elements of Estafa by means of deceit under this provision are the five (5) or more persons; and (c) defraudation results in the
following: (a) that there must be a false pretense or fraudulent misappropriation of moneys contributed by stockholders, or members
representation as to his power, influence, qualifications, property, of rural banks, cooperative, “samahang nayon(s),” or farmers’
credit, agency, business or imaginary transactions; (b) that such false associations, or of funds solicited by corporations/associations from the
pretense or fraudulent representation was made or executed prior to or general public.
simultaneously with the commission of the fraud; (c) that the offended
party relied on the false pretense, fraudulent act, or fraudulent means In this case, a judicious review of the records reveals TGICI’s modus
and was induced to part with his money or property; and (d) that, as a operandi of inducing the public to invest in it on the undertaking that
result thereof, the offended party suffered damage. their investment would be returned with a very high monthly interest
rate ranging from three to five and a half percent (3%-5.5%). Under
In relation thereto, Section 1 of PD 1689 defines Syndicated Estafa as such lucrative promise, the investing public are enticed to infuse funds
follows: into TGICI. However, as the directors/incorporators of TGICI knew
from the start that TGICI is operating without any paid-up capital and
Section 1. Any person or persons who shall commit estafa or other forms of has no clear trade by which it can pay the assured profits to its
swindling as defined in Articles 315 and 316 of the Revised Penal Code, as investors, they cannot comply with their guarantee and had to simply
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abscond with their investors’ money. Thus, the CA correctly held that representations to the investing public – in this case, the private
accused-appellants, along with the other accused who are still at large, complainants – regarding a supposed lucrative investment opportunity with
used TGICI to engage in a Ponzi scheme, resulting in the defraudation TGICI in order to solicit money from them; (b) the said false pretenses and
of the TGICI investors. representations were made prior to or simultaneous with the commission of
fraud; (c) relying on the same, private complainants invested their hard
To be sure, a Ponzi scheme is a type of investment fraud that involves earned money into TGICI; and (d) the incorporators/directors of TGICI
the payment of purported returns to existing investors from funds ended up running away with the private complainants’ investments,
contributed by new investors. Its organizers often solicit new investors obviously to the latter’s prejudice.
by promising to invest funds in opportunities claimed to generate high
returns with little or no risk. In many Ponzi schemes, the perpetrators Corollary thereto, the CA correctly upgraded accused-appellants’ conviction
focus on attracting new money to make promised payments to earlier-stage from simple Estafa to Syndicated Estafa. In a criminal case, an appeal
investors to create the false appearance that investors are profiting from a throws the whole case wide open for review. Issues whether raised or not by
legitimate business. It is not an investment strategy but a gullibility scheme, the parties may be resolved by the appellate court. Hence, accused-
which works only as long as there is an ever increasing number of new appellants’ appeal conferred upon the appellate court full jurisdiction and
investors joining the scheme. It is difficult to sustain the scheme over a long rendered it competent to examine the records, revise the judgment appealed
period of time because the operator needs an ever larger pool of later from, increase the penalty, and cite the proper provision of the penal law.
investors to continue paying the promised profits to early investors. The
idea behind this type of swindle is that the “con-man” collects his money
from his second or third round of investors and then absconds before anyone 14. Primanila Plans v. SEC, G.R. No. 193791, 6 August 2014
else shows up to collect. Necessarily, Ponzi schemes only last weeks, or
months at the most. Facts:
In this light, it is clear that all the elements of Syndicated Estafa, committed On April 9, 2008, SEC issued the subject cease and desist order after an
through a Ponzi scheme, are present in this case, considering that: (a) the investigation conducted by the SEC’s Compliance and Enforcement
incorporators/directors of TGICI comprising more than five (5) people, Department (CED) on Primanila, a corporation operating as a pre-need
including herein accused-appellants, made false pretenses and company, yielded the following factual findings: Primanila’s website
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(www.primanila.com) was offering a pension plan product called To equally protect individuals and corporations from baseless and
Primasa Plan, that no registration statement has been filed by improvident issuances, the authority of the SEC under this rule is
Primanila for the approval of said Primasa Plan, and that many of its nonetheless with defined limits. A cease and desist order may only be
planholders mostly members of the PNP remitted the total amount of issued by the Commission after proper investigation or verification, and
Php 2,072,149.38 to Primanila representing the aforementioned upon showing that the acts sought to be restrained could result in
premium collections via salary deductions, among others. injury or fraud to the investing public. Without doubt, these requisites
were duly satisfied by the SEC prior to its issuance of the subject cease and
Issue: desist order.
(1) Whether or not Primanila was accorded due process The SEC was not mandated to allow Primanila to participate in the
notwithstanding the SEC’s immediate issuance of the cease and desist investigation conducted by the Commission prior to the cease and desist
order. order’s issuance. Given the circumstances, it was sufficient for the
satisfaction of the demands of due process that the company was amply
(2) Whether or not Primanila violated Sec. 16 of SRC which barred the apprised of the results of the SEC investigation, and then given the
sale or offer for sale to the public of a pre-need product except in reasonable opportunity to present its defense. Primanila was able to do this
accordance with SEC rules and regulations. via its motion to reconsider and lift the cease and desist order.
Ruling: (2) Yes. The Court held that Primanila clearly violated Section 16 of the
SRC which states that “no person shall sell or offer for sale to the public
(1) Yes. The Court held that a cease and desist order may be issued by any pre-need plan except in accordance with rules and regulations
the SEC motu proprio, it being unnecessary that it results from a which the Commission shall prescribe. Such rules shall regulate the sale
verified complaint from an aggrieved party. A prior hearing is also not of pre-need plans by, among other things, requiring the registration of
required whenever the Commission finds it appropriate to issue a cease pre-need plans, licensing persons involved in the sale of pre-need plans,
and desist order that aims to curtail fraud or grave or irreparable requiring disclosures to prospective plan holders, prescribing
injury to investors. There is good reason for this provision, as any delay advertising guidelines, providing for uniform plans, imposing capital,
in the restraint of acts that yield such results can only generate further bonding and other financial responsibility, and establishing trust funds
injury to the public that the SEC is obliged to protect. for the payment of benefits under such plans.
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15. SEC v. Universal Rightfield Property Holdings, Inc., G.R. No. show cause why its Registration of Securities and Certificate of Permit
181381, 20 July 2015 to Sell Securities to the Public should not be suspended for failure to
submit the said requirements. Pertinent portion of the notice reads:
Facts:
Records show that the corporation has failed to submit the following reports
Respondent Universal Rightfield Property Holdings, Inc. (URPHI) is a in violation of SRC Rule 17.1:
corporation duly registered and existing under the Philippine Laws, and is
engaged in the business of providing residential and leisure-related needs (1) 2003 Annual Report (SEC Form 17-A); an
and wants of the middle and upper middle-income market. (2) 2004 1st Quarter Report (SEC Form 17-Q)
On May 29, 2003, petitioner Securities and Exchange Commission (SEC), The company has been allowed a non-extendible period until May 31, 2004
through its Corporate Finance Department, issued an Order revoking within which to file its 2003 Annual Report but to date the said report has
URPHI's Registration of Securities and Permit to Sell Securities to the not been submitted.
Public for its failure to timely file its Year 2001 Annual Report and Year
2002 1st, 2nd and 3rd Quarterly Reports pursuant to Section 17 of the In view of the foregoing and considering the inadequate information
Securities Regulation Code (SRC), Republic Act No. 8799. available to the public, the corporation is hereby directed to show cause why
the Registration of its Securities and Certificate of Permit to Sell Securities
On October 16, 2003, URPHI filed with the SEC a Manifestation/Urgent should not be suspended, in a hearing scheduled before Atty. Francia A.
Motion to Set Aside Revocation Order and Reinstate Registration after Tiuseco-Manlapaz on July 6, 2004, at the Securities Registration Division,
complying with its reportorial requirements. On October 24, 2003, the SEC Corporation Finance Department of the Commission, 6th Floor, SEC
granted URPHI's motion to lift the revocation order, considering the current Building, EDA, Greenhills, Mandaluyong, Metro Manila at 10:00 o'clock in
economic situation, URPHI's belated filing of the required annual and the morning. Failure of the company to appear, through its representative, at
quarterly reports, and its payment of the reduced fine of P82,000.00. the said hearing shall be deemed a waiver on its part to be heard with regard
Thereafter, URPHI failed again to comply with the same reportorial to the suspension of its Certificate of Permit to Sell Securities to the Public.
requirements.
During the scheduled hearing on July 6, 2004, URPHI, through its
In a Notice of Hearing dated June 25, 2004, the SEC directed URPHI to
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Chief Accountant, Rhodora Lahaylahay, informed the SEC why it We refer to your Order dated 27 July 2004, wherein the Commission
failed to submit the reportorial requirements, viz.: (1) it was resolved to SUSPEND the Corporation's Registration of Securities and
constrained to reduce its accounting staff due to cost-cutting measures; Permit to Sell Securities to the Public due to non-filing of the Corporation's
thus, some of the audit requirements were not completed within the reportorial requirements under SRC Rule 17 effective for sixty (60) days or
original timetable; and (2) its audited financial statements for the until the reporting requirements are complied with; otherwise, the
period ending December 31, 2003 could not be finalized by reason of Commission shall proceed with the revocation of the Corporation's
the delay in the completion of some of its audit requirements. registration of securities. To date, the Corporation has not filed with the
Commission its 2003 Annual Report in SEC Form 17-A and 2004 1st and
In an Order dated July 27, 2004, the SEC suspended URPHI's 2nd Quarterly reports in SEC Form 17-Q. The non-submission of these
Registration of Securities and Permit to Sell Securities to the Public for reportorial requirements, as we have already disclosed to you per our letter
failure to submit its reportorial requirements despite the lapse of the dated 13 September 2004, was due to the non-finalization of the
extension period, and due to lack of sufficient justification for its Corporation's audited financial statement for the fiscal year ended
inability to comply with the said requirements. December 31, 2003.
On August 23, 2004, the SEC, through its Corporation Finance Department, During our meeting with our external auditor, SGV & Co. last 8 September
informed URPHI that it failed to submit its 2004 2 nd Quarter Report (SEC 2004, SGV agreed to facilitate the finalization of our financial statements
Form 17-Q) in violation of the Amended Implementing Rules and within two (2) weeks. Notwithstanding the same, the Corporation foresees
Regulations of the SRC Rule 17.1(1)(A)(ii). It also directed URPHI to file the impossibility of complying with its submission until the end of the
the said report, and to show cause why it should not be held liable for month, as the partners of SGV are still reviewing the final draft of the
violation of the said rule. financial statements.
In a letter dated September 28, 2004, URPHI requested for a final extension, The Corporation intends to comply with its reportorial requirements.
or until November 15, 2004, within which to submit its reportorial However, due to the foregoing circumstances, the finalization of our
requirements. Pertinent portions of the letter read: financial statement has again been delayed. In this regard, may we request
for the last time until November 15, 2004 within which to submit said
reportorial requirements.
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On December 1, 2004, URPHI filed with the SEC its 2003 Annual Report. The petition is meritorious. However, the patitioners were accorded due
process to explain why they were not able to comply with the
In an Order of Revocation7 dated December 8, 2004, the SEC revoked reportorial requirements by the SEC.
URPHI's Registration of Securities and Permit to Sell Securities to the
Public for its failure to submit its reportorial requirements within the final There is no dispute that violation of the reportorial requirements under
extension period. Section 17.1 of the Amended Implementing Rules and Regulation of the
SRC is a ground for suspension or revocation of registration of securities
On December 9, 10, and 14, 2004, URPHI finally submitted to the SEC its pursuant to Sections 13.1 and 54.1 of the SRC. However, contrary to the CA
1st Quarterly Report for 2004, 2nd Quarterly Report for 2004, and ruling that separate notices and hearings for suspension and revocation of
3rdQuarterly Report for 2004, respectively. Meantime, URPHI appealed the registration of securities and permit to sell them to the public are required,
SEC Order of Revocation dated December 8, 2004 by filing a Notice of Sections 13.1 and 54.1 of the SRC expressly provide that the SEC may
Appeal and a Memorandum both dated January 3, 2005. suspend or revoke such registration only after due notice and hearing, to wit:
In a Resolution dated December 15, 2005, the SEC denied URPHI's appeal. 13.1. The Commission may reject a registration statement and refuse
registration of the security thereunder, or revoke the effectivity of a
Issue: registration statement and the registration of the security thereunder after
due notice and hearing by issuing an order to such effect, setting forth its
Whether the revocation of the corporation’s registration of securities findings in respect thereto, if it finds that:
and permit to sell them to the public is inequitable under the
circumstances and argued instead that the interest of the investing a) The issuer:
public will be better served if, instead of revoking its registration of
securities, the SEC will merely impose penalties and allow it to continue (ii) Has violated any of the provisions of this Code, the rules
as a going concern in the hope that it may later return to profitability. promulgated pursuant thereto, or any order of the Commission of which
the issuer has notice in connection with the offering for which a registration
Ruling: statement has been filed;
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54.1. If, after due notice and hearing, the Commission finds invoked by a party who has had the opportunity to be heard on such
that:(a) There is a violation of this Code, its rules, or its orders; (b) Any motion. What the law prohibits is not the absence of previous notice,
registered broker or dealer, associated person thereof has failed reasonably but the absolute absence thereof and the lack of opportunity to be
to supervise, with a view to preventing violations, another person subject to heard.
supervision who commits any such violation; (c) Any registrant or other
person has, in a registration statement or in other reports, applications, In the present case, due notice of revocation was given to URPHI
accounts, records or documents required by law or rules to be filed with the through the SEC Order dated July 27, 2004 which reads:
Commission, made any untrue statement of a material fact, or omitted to
state any material fact required to be stated therein or necessary to make the Considering that the company is under rehabilitation, the request was
statements therein not misleading; or, in the case of an underwriter, has granted and it was given a non-extendible period until May 31, 2004 within
failed to conduct an inquiry with reasonable diligence to insure that a which to comply.
registration statement is accurate and complete in all material respects; or
(d) Any person has refused to permit any lawful examinations into its Despite the extension, however, it failed to submit said reports. Hence, a
affairs, it shall, in its discretion, and subject only to the limitations hearing was held on July 6, 2004 wherein the company's representative,
hereinafter prescribed, impose any or all of the following sanctions as may its Chief Accountant and a Researcher appeared. No sufficient reason
be appropriate in light of the facts and circumstances: or justification for the company's inability to comply with its reporting
obligation was presented.
(i) Suspension, or revocation of any registration for the offering of
securities; In view thereof, the Commission, in its meeting held on July 22, 2004,
resolved to SUSPEND the Registration of Securities and Permit to Sell
The Court has consistently held that the essence of due process is simply Securities to the Public issued to UNIVERSAL RIGHTFIELD PROPERTY
an opportunity to be heard, or as applied to administrative proceedings, HOLDINGS, INC., in accordance with Section 54 of the Securities
an opportunity to explain one's side or an opportunity to seek a Regulation Code.
reconsideration of the action or ruling complained of. Any seeming
defect in its observance is cured by the filing of a motion for This said Suspension shall be effective for sixty (60) days or until the
reconsideration, and denial of due process cannot be successfully reporting requirements are complied [with,] otherwise the Commission
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shall proceed with the revocation of the company's registration of In A.Z. Arnaiz, Realty, Inc. v. Office of the President, the Court held that
securities. due process, as a constitutional precept, does not always, and in all
situations, require a trial-type proceeding. Litigants may be heard
Contrary to the view that a separate notice of hearing to revoke is necessary through pleadings, written explanations, position papers, memoranda
to initiate the revocation proceeding, the Court holds that such notice would or oral arguments. The standard of due process that must be met in
be a superfluity since the Order dated July 27, 2004 already states that such administrative tribunals allows a certain degree of latitude as long as
proceeding shall ensue if URPHI would still fail to submit the reportorial fairness is not ignored. It is, therefore, not legally objectionable for being
requirements after the lapse of the 60-day suspension period. After all, violative of due process for an administrative agency to resolve a case based
“due notice” simply means the information that must be given or made solely on position papers, affidavits or documentary evidence submitted by
to a particular person or to the public within a legally mandated period the parties. Guided by the foregoing principle, the Court rules that URPHI
of time so that its recipient will have the opportunity to respond to a was afforded opportunity to be heard when the SEC took into account in its
situation or to allegations that affect the individual’s or public’s legal Order of Revocation URPHI's September 13 and 28, 2004 letters, explaining
rights or duties. its failure to submit the reportorial requirements, as well as its request for
final extension within which to comply.
Granted that no formal hearing was held before the issuance of the
Order of Revocation, the Court finds that there was substantial
compliance with the requirements of due process when URPHI was
given opportunity to be heard. Upon receipt of the SEC Order dated
July 27, 2004, URPHI filed the letters dated September 13 and 28, 2004,
seeking a final extension to submit the reportorial requirements, and
admitting that its failure to submit its 2nd Quarterly Report for 2004
was due to the same reasons that it was unable to submit its 2003
Annual Report and 1st Quarterly Report for 2004. Notably, in its Order
of Revocation, the SEC considered URPHI's letters and stated that it
still failed to submit the required reports, despite the lapse of the final
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Banking Laws Case Digests

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Banking Laws Case Digests

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MAXWELL NICKY NOTES Tahanlangit, Maxi Dominick D.

settlements wherein he is not obliged to pay the purchase price. Rather, it

In 2001, disgruntled elements of GVI filed a complaint with the SEC

Solicitation is the act of seeking or asking for business or information; it

Issue: In the absence of any constitutional or statutory infirmity, which may

Section 54 of the SRC provides for the administrative sanctions to be Facts:

Section 8. Procedure for registration. - (a) All securities required to be

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