G.R. No.

135808 October 6, 2008

SECURITIES AND EXCHANGE COMMISSION, petitioner,
vs.
INTERPORT RESOURCES CORPORATION, MANUEL S. RECTO, RENE S. VILLARICA, PELAGIO
RICALDE, ANTONIO REINA, FRANCISCO ANONUEVO, JOSEPH SY and SANTIAGO TANCHAN, JR.

FACTS:

SEC Chairman issued an Order finding that Interport Resources Corp.(IRC) violated the Rules on Disclosure
of Material Facts(Secs 8,30 and 36 of Revised Securities Act) , when it failed to make timely disclosure of its
negotiations with Ganda Holdings Berhard (GHB)regarding the Memorandum of Agreement executed by them where
IRC will acquire 100% or the entire capital stock of Ganda Energy Holdings Inc (GEHI).

Respondents filed an Omnibus Motion alleging that SEC had no authority to investigate the subject matter
since under Sec 8 of PD 902-A, jurisdiction of investigation was conferred upon the Prosecution and Enforcement
Department (PED) of the SEC. Also, they claim that their right to due process was violated when they were ordered
to appear before the SEC and show cause why no administrative, civil or criminal sanctions should be imposed on
them and thus shifted the burden of proof to them.

No formal hearings were conducted regarding the motions raised by respondent but the SEC issued on order
creating a special investigating panel to hear and decide the IRC’s case. Respondents questioned the said order via
petition for review before the CA with a writ of preliminary injunction enjoining the SEC and its agents from
investigating and proceeding with the hearing of its case which was granted by the CA on the basis that there were
no implementing rules and regulations regarding disclosure, insider trading, or any of the provisions of the
Revised Securities Acts which the respondents allegedly violated It further resolved that absent any implementing
rules, the SEC cannot be allowed to quash the assailed Omnibus Orders for the sole purpose of re-filing the same case
against the respondents. Hence, this petition by the SEC.

ISSUE:

Whether SEC is enjoined from filing any criminal, civil or administrative suit against IRC absent the
implementing rules and regulations of Sections 8,30 and 36 of the Revised Securities Act

RULING:

Sctions 8, 30 and 36 of the Revised Securities Act do not require the enactment of implementing
rules to make them binding and effective.

No. The lack of implementing rules cannot suspend the effectivity of these provisions. These provisions are
sufficiently clear and complete by themselves. Their requirements are specifically set out, and the acts which are
enjoined are determinable. To rule that the absence of implementing rules can render ineffective an act of Congress,
such as the Revised Securities Act, would empower the administrative bodies to defeat the legislative will by delaying
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 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 impossible to fully know.

It is well established that administrative authorities have the power to promulgate rules and regulations to
implement a given statute and to effectuate its policies, provided such rules and regulations conform to the terms and
standards prescribed by the statute as well as purport to carry into effect its general policies. Moreover, where the
statute contains sufficient standards and an unmistakable intent, as in the case of Sections 30 and 36 of the Revised
Securities Act, there should be no impediment to its implementation.
G.R. No. 164197 January 25, 2012

SECURITIES AND EXCHANGE COMMISSION, Petitioner,

vs.
PROSPERITY.COM, INC., Respondent.

FACTS:

Prosperity.Com Inc sold computer software and hosted websites without providing internet service. To make
a profit, PCI developed a network marketing scheme where a PCI buyer must enlist and sponsor at least two other
buyers as his own down-lines. These second tier of buyers could in turn build up their own down-lines. For each pair
of down-lines, the buyer-sponsor received a US$92.00 commission.

Apparently, Prosperity.Com patterned its scheme from Golconda Ventures, Inc. (GVI), which company
stopped operations after the Securities and Exchange Commission (SEC) issued a cease and desist order (CDO) against
it. As it later on turned out, the same persons who ran the affairs of GVI directed PCI’s actual operations. As a result,
GVI filed a complaint with the SEC against PCI alleging that the latter had taken over GVI’s operations. After
hearing,the SEC issued a CDO against PCI ruling that PCI’s scheme constitutes an Investment contract and, following
the Securities Regulations Code, it should have first registered such contract or securities with the SEC.

PCI then filed with the CA a petition for certiorari against SEC with an application for a TRO and preliminary
injunction which was granted by theca and ordered to set aside the SEC-issued CDO. The CA ruled that, following
the Howey test, PCI’s scheme did not constitute an investment contract that needs registration pursuant to R.A. 8799,
hence, this petition.

ISSUE:

Whether PCI’s scheme constitutes an investment contract that requires registration under RA 8799.

RULING:

No. The Securities Regulation Code treats investment contracts as "securities" that have to be registered with
the SEC .An investment contract is a contract, transaction, or scheme where a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others.

In Securities and Exchange Commission v. W.J. Howey Co.10, for an investment contract to exist, the
following elements, referred to as the Howey test must concur: (1) a contract, transaction, or scheme; (2) an
investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits
arising primarily from the efforts of others. Thus, to sustain the SEC position in this case, PCI’s scheme or contract
with its buyers must have all these elements.

Here, PCI’s clients do not make such investments. The buyers of the website do not invest money in PCI that
it could use for running some business that would generate profits for the investors. The commissions, interest in real
estate, and insurance coverage worth ₱50,000.00 are incentives to down-line sellers to bring in other customers. These
can hardly be regarded as profits from investment of money under the Howey test.

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