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01 SECURITIES AND EXCHANGE COMMISSION, G.R. No.

154131
Petitioner,
Present:

PUNO, J., Chairperson,


- versus - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
PERFORMANCE FOREIGN EXCHANGE CORPORATION,
Respondent. Promulgated:

July 20, 2006

SANDOVAL-GUTIERREZ, J.:
For our resolution is the Petition for Review on Certiorari [1] assailing the Decision [2] dated February 11, 2002 and Resolution dated July 3, 2002 of the Court of Appeals in CA-G.R. SP No.
65217, entitled Performance Foreign Exchange Corporation, petitioner, versus Securities and Exchange Commission, respondent.

The pertinent facts as found by the Court of Appeals are:

Performance Foreign Exchange Corporation, herein respondent, is a domestic corporation duly registered on June 23, 1998 under
Securities and Exchange Commission (SEC) Registration No. A199808910, with the following purposes:

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

Secondary Purpose

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

After two years of operation, respondent received a letter dated November 28, 2000 from the SEC, herein petitioner, requiring it to appear before the Compliance and Enforcement
Department (CED) on December 14, 2000 for a clarificatory conference regarding its business operations. Respondents officers complied and explained before the CED the nature of their
business.

On January 16, 2001, Emilio B. Aquino, Director of CED, issued a Cease and Desist Order, [3] in CED Case No. 99-2297, stating that his department conducted an inquiry on respondents
business operations for possible violation of Republic Act (R.A.) No. 8799 (otherwise known as The Securities Regulation Code); that the outcome of the inquiry shows that respondent is
engaged in the trading of foreign currency futures contracts in behalf of its clients without the necessary license; that such transaction can be deemed as a direct violation of Section 11 of
R.A. No. 8799[4] and the related provisions of its Implementing Rules and Regulations; and that it is imperative to enjoin respondent from further operating as such to protect the interest of
the public. The dispositive portion of the said Order reads:

WHEREFORE, pursuant to the authority vested in the Commission, PERFORMANCE FOREIGN EXCHANGE CORPORATION, its officers, directors, agents, representatives, and any
and all persons claiming and acting under their authority, are hereby ordered to immediately CEASE AND DESIST from further engaging in the solicitation of funds
for foreign currency trading and operating as a foreign currency futures merchant/broker, upon receipt of this Order.
In accordance with the provisions of Section 64.3[5] of Republic Act 8799, otherwise known as the Securities Regulation Code, the parties subject of this Cease and
Desist Order may file a request for the lifting thereof within five (5) days from receipt hereof.
SO ORDERED.

On January 25, 2001, respondent filed with petitioner SEC a motion [6] praying for the lifting of the Cease and Desist Order, alleging that: (a) it has not violated any law or regulation
in the conduct of its business; (b) it has been operating in accordance with the purposes for which it was organized, which purposes were duly approved by petitioner; (c) it has not engaged
in currency futures contracts trading; and (d) its business involves spot currency trading which is not a form of currency futures transaction.

On February 8, 2001, then SEC Chairman Lilia R. Bautista, in her desire to know with certainty the nature of respondents business, sent a letter[7] to
the BangkoSentral ng Pilipinas (BSP), requesting a definitive statement that respondents business transactions are a form of financial derivatives and, therefore, can only be undertaken
by banks or non-bank financial intermediaries performing quasi-banking functions.

Without waiting for BSPs determination of the matter, petitioner, the following day (February 9, 2001), issued an Order [8] denying respondents motion for the lifting of the
Cease and Desist Order and directing that the same stays until respondent shall have submitted the appropriate endorsement from the BSP that it can engage in financial
derivative transactions. The Order states that the contracts entered into, offered and sold by respondent are in the nature of commodity futures contracts;[9] and that such contracts may
be considered a form of financial derivatives instruments, the trading of which is regulated by BSP.

On February 16, 2001, respondent filed a Manifestation With Urgent Motion [10] praying that, pending determination by the BSP of the real nature of its business, the implementation of
the February 9, 2001 Order be temporarily suspended to allow it to continue its operations.

On March 15, 2001, respondent, in compliance with petitioners February 9, 2001 Order requiring it to submit the appropriate BSP endorsement, presented before the BSP panel of
officers a summary of its operations and its foreign exchange spot product.

On April 23, 2001, petitioner issued an Order [11] making the Cease and Desist Order permanent, thus:

WHEREAS, on February 19, 2001, PFEC filed with the Commission its Manifestation with Urgent Motion to Temporarily Suspend Implementation of Order dated 09
February 2001, which Manifestation was denied by the Commission en banc during its meeting on February 22, 2001, and the said denial was conveyed verbally to the
corporation;

WHEREFORE, premises considered, and pursuant to the authority vested in the Commission, the Cease and Desist Order is now made permanent, and Performance
Foreign Exchange Corporation is hereby directed to show cause within thirty (30) days from receipt of this Order why its certificate of registration should not be
revoked for violation of the Securities Regulation Code, and/or PD 902-A specifically on the ground of serious misrepresentation as to what the corporation
can do or is doing, to the great prejudice or damage to the general public. (Underscoring supplied)

On May 4, 2001, respondent filed a motion [12] praying that the said Order be set aside. Petitioner, however, did not act on the motion. This prompted respondent to file with petitioner
a notice[13] dated June 14, 2001 that it is withdrawing its motion in order to seek a more appropriate and speedy remedy.

Feeling the injurious effects of petitioners acts to its business operations, respondent, on June 20, 2001, filed with the Court of Appeals a Petition for Certiorari [14] with prayer for a
temporary restraining order and preliminary injunction, docketed as CA-G.R. SP No. 65217. Respondent alleged, among others, that petitioner SEC acted without or in excess of its jurisdiction
or with grave abuse of discretion when it issued the Cease and Desist Order and its subsequent Order making the same permanent without waiting for the BSPs determination of the real
nature of its business operations; and that petitioners Orders, issued without any factual basis, violated its (respondents) fundamental right to due process.

Meanwhile, on August 13, 2001, Amado M. Tetangco, Jr., then Officer-in-Charge, Office of the Governor, BSP, in answer to SEC Chairman Lilia Bautistas letter-request of February 8,
2001, stated that respondents business activity does not fall under the category of futures trading and can not be classified as financial derivatives transactions, thus:

Dear Ms. Bautista,

This refers to your letter dated February 8, 2001 requesting for a definitive statement that the foreign currency leverage trading engage in by private corporations,
particularly, Performance Foreign Exchange Corporation (PFEC), is a financial derivatives transaction and that it can only be undertaken by banks or non-bank financial
intermediaries performing quasi-banking functions and/or its subsidiaries/affiliates.
As indicated in your description of the transactions and the documents submitted, the foreign currency leverage trading, subject of your query, is essentially
similar in mechanics to currency future trading, particularly with respect to the margin requirements, standard contract size, and daily market-to-market of open
position. However, it does not fall under the category of futures trading because it is not exchange-traded. Further, we can not classify it as being financial
derivatives transactions as we consider the transaction as plain currency margin trading, which by its mechanics, involve the set-up of margin and non-delivery of the
currencies involved.

In view of the foregoing facts, the activities of the aforesaid corporation are not covered by BSP guidelines on derivative licensing.

We hope we have satisfactorily clarified your concerns.

Very truly yours,


(Sgd.)
AMANDO M. TETANGCO, JR.[15]
On February 11, 2002, the Court of Appeals rendered a Decision [16] in favor of respondent, thus:

WHEREFORE, premises considered, the instant petition is GRANTED and accordingly, the assailed Orders dated January 16, 2001, February 9, 2001, February
22, 2001 and April 23, 2001 of the Securities and Exchange Commission are SET ASIDE.

SO ORDERED.

The Court of Appeals ruled that petitioner acted with grave abuse of discretion when it issued its challenged Orders without a positive factual finding that respondent violated the
Securities Regulation Code.

Petitioner filed a motion for reconsideration but it was denied by the appellate court in a Resolution [17] dated July 3, 2002.

Hence, the instant Petition for Review on Certiorari.

Petitioner, through the Solicitor General, contends that the Court of Appeals erred in not applying the rule that factual findings of quasi-judicial bodies, like the SEC, which have
acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only respect but even finality if such findings are supported by substantial evidence. [18]

In its Comment,[19] respondent counters that the instant petition utterly lacks merit and should be dismissed.

The issue for our resolution is whether petitioner SEC acted with grave abuse of discretion in issuing the Cease and Desist Order and its subsequent Order making it permanent.

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

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

x x x. (Underscoring supplied)

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

Here, the first requirement is not present. Petitioner did not conduct proper investigation or verification before it issued the challenged orders. The clarificatoryconference
undertaken by petitioner regarding respondents business operations cannot be considered a proper investigation or verification process to justify the issuance of the Cease and Desist
Order. It was merely an initial stage of such process, considering that after it issued the said order following the clarificatory conference, petitioner still soughtverification from the
BSP on the nature of respondents business activity. Its letter to the BSP dated February 8, 2001 states in part:
The Securities and Exchange Commission has been investigating corporations which engage in foreign currency trading abroad. The following illustrates their
operations:

xxx

Enclosed are pertinent documents which were submitted by a corporation showing how its transactions operate. It is claimed by the corporation in question that theirs
are all spot transactions and are not covered by the Bangko Sentral ng Pilipinas. We understand, however, that in other jurisdiction, this type of activity can only be done by
banks.

Previous inquiries from the Bangko Sentral ng Pilipinas, specifically Department of Commercial Banks II, and your department, Commercial Banks I, lead to conclude
that this kind of trading in foreign currencies may be a form of financial derivatives.

May we, therefore, request a definitive statement that the above-described transactions, and as illustrated in the attached documents, are a form
of financial derivatives and, therefore, can only be undertaken by banks, or non-bank financial intermediaries performing quasi-banking functions and/or
its subsidiaries/affiliates.[20] (Underscoring supplied)

Petitioners act of referring the matter to the BSP is an essential part of the investigation and verification process. In fact, such referral indicates that petitioner concedes to
the BSPs expertise in determining the nature of respondents business. It bears stressing, however, that such investigation and verification, to be proper, must be conducted by
petitioner before, not after, issuing the Cease and Desist Order in question. This, petitioner utterly failed to do. The issuance of such order even before it could finish its investigation
and verification on respondents business activity obviously contravenes Section 64 of R.A. No. 8799 earlier quoted.

Worse, when respondent filed a motion praying that the same order be lifted for being premature, petitioner, in its Order dated February 9, 2001, even denied the motion despite
its admission therein that it cannot determine certain material facts involving respondents transactions and, as such, the matter must be referred to the BSP for determination, thus:

In the light of the above circumstances, and the fact that the Commission cannot determine whether such transactions are actually executed in
Singapore or Hongkong as alleged, and whether the foreign currency rates used in the transactions are verifiable, it is our position that the same be
endorsed to the BSP.

In view of the foregoing, the cease and desist order stays against the corporation until the latter shall be able to submit the appropriate endorsement from
the Bangko Sentral ng Pilipinasthat it can engage in financial derivative transactions.

SO ORDERED.[21] (Underscoring supplied)

And worst, without waiting for BSPs action, petitioner proceeded to issue its Order dated April 23, 2001 making the Cease and Desist Order permanent. In the same Order, petitioner
further directed respondent to show cause x x x why its certificate of registration should not be revoked for alleged violation of the Securities Regulation Code and/or Presidential Decree No.
902-A, specifically on the ground of serious misrepresentation as to what the corporation can do or is doing to the great prejudice or damage to the general public. Obviously,
without BSPs determination of the nature of respondents business, there was no factual and legal basis to justify the issuance of such order.

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

In sum, we find no reversible error committed by the Court of Appeals in rendering its assailed Decision and Resolution.

WHEREFORE, we DENY the petition. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 65217 are AFFIRMED.
SO ORDERED.
02 CEMCO HOLDINGS, INC., G.R. No. 171815
Petitioner, August 7, 2007

NATIONAL LIFE INSURANCE COMPANY OF THE


PHILIPPINES, INC.,
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and set aside the 24 October 2005 Decision [1] and the 6 March 2006 Resolution [2] of the Court of Appeals
in CA-G.R. SP No. 88758 which affirmed the judgment [3] dated 14 February 2005 of the Securities and Exchange Commission (SEC) finding that the acquisition of petitioner Cemco Holdings,
Inc. (Cemco) of the shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas Cement Corporation (ACC) in Union Cement Holdings Corporation (UCHC) was covered by the
Mandatory Offer Rule under Section 19 of Republic Act No. 8799, otherwise known as the Securities Regulation Code.

The Facts

Union Cement Corporation (UCC), a publicly-listed company, has two principal stockholders UCHC, a non-listed company, with shares amounting to 60.51%, and petitioner Cemco with
17.03%. Majority of UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of UCHC stocks.

In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to Cemco BCIsstocks in UCHC
equivalent to 21.31% and ACCs stocks in UCHC equivalent to 29.69%.

In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated that as a result of petitioner Cemcos acquisition of BCI and ACCs shares in UCHC, petitioners total
beneficial ownership, direct and indirect, in UCC has increased by 36% and amounted to at least 53% of the shares of UCC, to wit [4]:

Particulars Percentage

Existing shares of Cemco in UCHC 9%


Acquisition by Cemco of BCIs and ACCs shares in UCHC 51%

Total stocks of Cemco in UCHC 60%

Percentage of UCHC ownership in UCC 60%


Indirect ownership of Cemco in UCC 36%

Direct ownership of Cemco in UCC 17%

Total ownership of Cemco in UCC 53%

As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July 2004, inquired as to whether the Tender Offer Rule under Rule 19 of the Implementing Rules of the
Securities Regulation Code is not applicable to the purchase by petitioner of the majority of shares of UCC.

In a letter dated 16 July 2004, Director Justina Callangan of the SECs Corporate Finance Department responded to the query of the PSE that while it was the stance of the department
that the tender offer rule was not applicable, the matter must still have to be confirmed by the SEC en banc

Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc had resolved that the Cemco transaction was not covered by the tender
offer rule.
On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter
to Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.

On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, as buyer.

On 12 August 2004, the transaction was consummated and closed.

On 19 August 2004, respondent National Life Insurance Company of the Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July 2004 Resolution and to declare
the purchase agreement of Cemco void and praying that the mandatory tender offer rule be applied to its UCC shares. Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC,
which were then required by the SEC to file their respective comment on the complaint. In their comments, they were uniform in arguing that the tender offer rule applied only to a direct
acquisition of the shares of the listed company and did not extend to an indirect acquisition arising from the purchase of the shares of a holding company of the listed firm.

In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent by reversing and setting aside its 27 July 2004 Resolution and directed petitioner Cemco to make a
tender offer for UCC shares to respondent and other holders of UCC shares similar to the class held by UCHC in accordance with Section 9(E), Rule 19 of the Securities Regulation Code.

Petitioner filed a petition with the Court of Appeals challenging the SECs jurisdiction to take cognizance of respondents complaint and its authority to require Cemco to make a tender
offer for UCC shares, and arguing that the tender offer rule does not apply, or that the SECs re-interpretation of the rule could not be made to retroactively apply to Cemcos purchase of UCHC
shares.

The Court of Appeals rendered a decision affirming the ruling of the SEC. It ruled that the SEC has jurisdiction to render the questioned decision and, in any event, Cemco was barred
by estoppel from questioning the SECs jurisdiction. It, likewise, held that the tender offer requirement under the Securities Regulation Code and its Implementing Rules applies
to Cemcos purchase of UCHC stocks. The decretal portion of the said Decision reads:

IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, and the preliminary injunction issued by the Court LIFTED. [5]
Cemco filed a motion for reconsideration which was denied by the Court of Appeals.

Hence, the instant petition

In its memorandum, petitioner Cemco raises the following issues:


I. ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFES COMPLAINT AND THAT THE SECS RE-INTERPRETATION OF THE TENDER OFFER RULE IS
CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED RETROACTIVELY TO CEMCOS PREJUDICE.
II. WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A
TENDER OFFER FOR UCC SHARES.
III WHETHER OR NOT CEMCOS PURCHASE OF UCHC SHARES IS SUBJECT TO THE TENDER OFFER REQUIREMENT.
IV. WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA DECISION, IS AN INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT. [6]

Simply stated, the following are the issues:


1. Whether or not the SEC has jurisdiction over respondents complaint and to require Cemco to make a tender offer for respondents UCC shares.
2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company, in this case, the indirect acquisition
by Cemco of 36% of UCC, a publicly-listed company, through its purchase of the shares in UCHC, a non-listed company.

3. Whether or not the questioned ruling of the SEC can be applied retroactively to Cemcos transaction which was consummated under the authority of the SECs
prior resolution.

On the first issue, petitioner Cemco contends that while the SEC can take cognizance of respondents complaint on the alleged violation by petitioner Cemco of the mandatory tender
offer requirement under Section 19 of Republic Act No. 8799, the same statute does not vest the SEC with jurisdiction to adjudicate and determine the rights and obligations of the parties
since, under the same statute, the SECs authority is purely administrative. Having been vested with purely administrative authority, the SEC can only impose administrative sanctions such as
the imposition of administrative fines, the suspension or revocation of registrations with the SEC, and the like. Petitioner stresses that there is nothing in the statute which authorizes the SEC
to issue orders granting affirmative reliefs. Since the SECs order commanding it to make a tender offer is an affirmative relief fixing the respective rights and obligations of parties, such order
is void.
Petitioner further contends that in the absence of any specific grant of jurisdiction by Congress, the SEC cannot, by mere administrative regulation, confer on itself that jurisdiction.

Petitioners stance fails to persuade.

In taking cognizance of respondents complaint against petitioner and eventually rendering a judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to
Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, to wit:
13. Violation
If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at threshold amounts without the required tender offer, the
Commission, upon complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other sanctions under
the Code.

The foregoing rule emanates from the SECs power and authority to regulate, investigate or supervise the activities of persons to ensure compliance with the Securities Regulation
Code, more specifically the provision on mandatory tender offer under Section 19 thereof. [7]

Another provision of the statute, which provides the basis of Rule 19(13) of the Amended Implementing Rules and Regulations of the Securities Regulation Code, is Section 5.1(n), viz:

[T]he Commission shall have, among others, the following powers and functions:
xxxx
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the
express powers granted the Commission to achieve the objectives and purposes of these laws.

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

We are nonetheless convinced that the SEC has the competence to render the particular decision it made in this case. A definite inference may be drawn from the
provisions of the SRC that the SEC has the authority not only to investigate complaints of violations of the tender offer rule, but to adjudicate certain rights and obligations of
the contending parties and grant appropriate reliefs in the exercise of its regulatory functions under the SRC. Section 5.1 of the SRC allows a general grant of adjudicative
powers to the SEC which may be implied from or are necessary or incidental to the carrying out of its express powers to achieve the objectives and purposes of the SRC. We
must bear in mind in interpreting the powers and functions of the SEC that the law has made the SEC primarily a regulatory body with the incidental power to conduct
administrative hearings and make decisions. A regulatory body like the SEC may conduct hearings in the exercise of its regulatory powers, and if the case involves violations
or conflicts in connection with the performance of its regulatory functions, it will have the duty and authority to resolve the dispute for the best interests of the public. [8]
For sure, the SEC has the authority to promulgate rules and regulations, subject to the limitation that the same are consistent with the declared policy of the Code. Among them is the
protection of the investors and the minimization, if not total elimination, of fraudulent and manipulative devises. Thus, Subsection 5.1(g) of the law provides:

Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations
and orders.
Also, Section 72 of the Securities Regulation Code reads:

72.1. x x x To effect the provisions and purposes of this Code, the Commission may issue, amend, and rescind such rules and regulations and orders necessary or
appropriate, x x x.

72.2. The Commission shall promulgate rules and regulations providing for reporting, disclosure and the prevention of fraudulent, deceptive or manipulative practices
in connection with the purchase by an issuer, by tender offer or otherwise, of and equity security of a class issued by it that satisfies the requirements of Subsection
17.2. Such rules and regulations may require such issuer to provide holders of equity securities of such dates with such information relating to the reasons for such purchase,
the source of funds, the number of shares to be purchased, the price to be paid for such securities, the method of purchase and such additional information as the
Commission deems necessary or appropriate in the public interest or for the protection of investors, or which the Commission deems to be material to a determination by
holders whether such security should be sold.
The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition of the complexity and the constantly-fluctuating nature of the market and the
impossibility of foreseeing all the possible contingencies that cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v. Social Security Commission[9]:

Rules and regulations when promulgated in pursuance of the procedure or authority conferred upon the administrative agency by law, partake of the nature of a statute, and
compliance therewith may be enforced by a penal sanction provided in the law. This is so because statutes are usually couched in general terms, after expressing the policy,
purposes, objectives, remedies and sanctions intended by the legislature. The details and the manner of carrying out the law are often times left to the administrative agency
entrusted with its enforcement. In this sense, it has been said that rules and regulations are the product of a delegated power to create new or additional legal provisions that
have the effect of law.

Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It must be pointed out that petitioner had participated in all the proceedings before the SEC and had
prayed for affirmative relief. In fact, petitioner defended the jurisdiction of the SEC in its Comment dated 15 September 2004, filed with the SEC wherein it asserted:

This Honorable Commission is a highly specialized body created for the purpose of administering, overseeing, and managing the corporate industry, share investment
and securities market in the Philippines. By the very nature of its functions, it dedicated to the study and administration of the corporate and securities laws and has
necessarily developed an expertise on the subject. Based on said functions, the Honorable Commission is necessarily tasked to issue rulings with respect to matters involving
corporate matters and share acquisitions. Verily when this Honorable Commission rendered the Ruling that the acquisition of Cemco Holdings of the majority shares of Union
Cement Holdings, Inc., a substantial stockholder of a listed company, Union Cement Corporation, is not covered by the mandatory tender offer requirement of the SRC Rule
19, it was well within its powers and expertise to do so. Such ruling shall be respected, unless there has been an abuse or improvident exercise of authority. [10]

Petitioner did not question the jurisdiction of the SEC when it rendered an opinion favorable to it, such as the 27 July 2004 Resolution, where the SEC opined that
the Cemco transaction was not covered by the mandatory tender offer rule. It was only when the case was before the Court of Appeals and after the SEC rendered an unfavorable judgment
against it that petitioner challenged the SECs competence. As articulated in Ceroferr Realty Corporation v. Court of Appeals[11]:

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

On the second issue, petitioner asserts that the mandatory tender offer rule applies only to direct acquisition of shares in the public company
This contention is not meritorious.

Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. [12] A public company is
defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more stockholders, at least 200 of them holding not less than
100 shares of such company. [13] Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms
specified in the offer. [14] Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the
chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders. [15]

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


Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least fifteen percent (15%) of any class of any equity security of a
listed corporation or of any class of any equity security of a corporation with assets of at least Fifty million pesos ( P50,000,000.00) and having two hundred (200) or more
stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall make
a tender offer to stockholders by filing with the Commission a declaration to that effect; and furnish the issuer, a statement containing such of the information required in
Section 17 of this Code as the Commission may prescribe. Such person or group of persons shall publish all requests or invitations for tender, or materials making a tender
offer or requesting or inviting letters of such a security. Copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or
request shall contain such information as the Commission may prescribe, and shall be filed with the Commission and sent to the issuer not later than the time copies of such
materials are first published or sent or given to security holders.
Under existing SEC Rules, [16] the 15% and 30% threshold acquisition of shares under the foregoing provision was increased to thirty-five percent (35%). It is further provided therein
that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of
the public company.[17]

The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC shares is covered by the
mandatory tender offer rule.
This interpretation given by the SEC and the Court of Appeals must be sustained.

The rule in this jurisdiction is that the construction given to a statute by an administrative agency charged with the interpretation and application of that statute is entitled to great
weight by the courts, unless such construction is clearly shown to be in sharp contrast with the governing law or statute. [18] The rationale for this rule relates not only to the emergence of the
multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also relates to accumulation of
experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute.[19]

The SEC and the Court of Appeals accurately pointed out that the coverage of the mandatory tender offer rule covers not only direct acquisition but also indirect acquisition or any
type of acquisition. This is clear from the discussions of the Bicameral Conference Committee on the Securities Act of 2000, on 17 July 2000.

SEN. S. OSMEA. Eto ang mangyayari diyan, eh. Somebody controls 67% of the Company. Of course, he will pay a premium for the first 67%. Control yan,
eh. Eh, kawawa yung mgamaiiwan, ang 33% because the value of the stock market could go down, could go down after that, because there will (p. 41) be no more
market. Wala nang gustong bumenta. Wala nang I mean maraming gustong bumenta, walang gustong bumili kung hindi yung majority owner. And they will not buy. They
already have 67%. They already have control. And this protects the minority.And we have had a case in Cebu wherein Ayala A who already owned 40% of Ayala B made an
offer for another 40% of Ayala B without offering the 20%. Kawawa naman yung nakahawakngayon ng 20%. Ang baba ng share sa market. But we did not have a law
protecting them at that time.

CHAIRMAN ROCO. So what is it that you want to achieve?


SEN. S. OSMEA. That if a certain group achieves a certain amount of ownership in a corporation, yeah, he is obligated to buy anybody who wants to sell.
CHAIRMAN ROCO. Pro-rata lang. (p. 42).
xxxx
REP. TEODORO. As long as it reaches 30, ayan na. Any type of acquisition just as long as it will result in 30 (p.50) reaches 30, ayan na. Any type of
acquisition just as long as it will result in 30, general tender, pro-rata.[20] (Emphasis supplied.)

Petitioner counters that the legislators reference to any type of acquisition during the deliberations on the Securities Regulation Code does not indicate that congress meant to include
the indirect acquisition of shares of a public corporation to be covered by the tender offer rule. Petitioner also avers that it did not directly acquire the shares in UCC and the incidental benefit
of having acquired the control of the said public company must not be taken against it.

These arguments are not convincing. The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purpose
of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks
or through an indirect means, mandatory tender offer applies. As appropriately held by the Court of Appeals:

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 owner of UCC. We are
constrained, however, to construe ownership acquisition to mean both direct and indirect. What is decisive is the determination of the power of control. The legislative intent
behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control of the listed company through the purchase of
shares. Control may [be] effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must
occur. The bottomline of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in connection with a transfer of control. x x x.
[21]

As to the third issue, petitioner stresses that the ruling on mandatory tender offer rule by the SEC and the Court of Appeals should not have retroactive effect or be made to apply to
its purchase of the UCHC shares as it relied in good faith on the letter dated 27 July 2004 of the SEC which opined that the proposed acquisition of the UCHC shares was not covered by the
mandatory offer rule.

The argument is not persuasive.

The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed as passing merits or giving approval to the questioned transaction. As aptly
pointed out by the respondent, the letter dated 27 July 2004 of the SEC was nothing but an approval of the draft letter prepared by Director Callanga. There was no public hearing where
interested parties could have been heard. Hence, it was not issued upon a definite and concrete controversy affecting the legal relations of parties thereby making it a judgment conclusive
on all the parties. Said letter was merely advisory. Jurisprudence has it that an advisory opinion of an agency may be stricken down if it deviates from the provision of the statute. [22] Since the
letter dated 27 July 2004 runs counter to the Securities Regulation Code, the same may be disregarded as what the SEC has done in its decision dated 14 February 2005.
Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the same cannot be utilized to determine the rights of the parties. What is to be applied in the present case
is the subsequent ruling of the SEC dated 14 February 2005 abandoning the opinion embodied in the letter dated 27 July 2004. In Serrano v. National Labor Relations Commission,[23] an
argument was raised similar to the case under consideration. Private respondent therein argued that the new doctrine pronounced by the Court should only be applied prospectively. Said
postulation was ignored by the Court when it ruled:

While a judicial interpretation becomes a part of the law as of the date that law was originally passed, this is subject to the qualification that when a doctrine of this
Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectively and should not apply to
parties who relied on the old doctrine and acted in good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition
of what had transpired prior to such adjudication.

It is apparent that private respondent misconceived the import of the ruling. The decision in Columbia Pictures does not mean that if a new rule is laid down in a case,
it should not be applied in that case but that said rule should apply prospectively to cases arising afterwards. Private respondents view of the principle of prospective
application of new judicial doctrines would turn the judicial function into a mere academic exercise with the result that the doctrine laid down would be no more than a dictum
and would deprive the holding in the case of any force.

Indeed, when the Court formulated the Wenphil doctrine, which we reversed in this case, the Court did not defer application of the rule laid down imposing a fine on
the employer for failure to give notice in a case of dismissal for cause. To the contrary, the new rule was applied right then and there. x x x.

Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005 is incomplete and produces no effect.

This contention is baseless.

The decretal portion of the SEC decision states:


In view of the foregoing, the letter of the Commission, signed by Director Justina F. Callangan, dated July 27, 2004, addressed to the Philippine Stock Exchange is
hereby REVERSED and SET ASIDE. Respondent Cemco is hereby directed to make a tender offer for UCC shares to complainant and other holders of UCC shares similar to the
class held by respondent UCHC, at the highest price it paid for the beneficial ownership in respondent UCC, strictly in accordance with SRC Rule 19, Section 9(E). [24]

A reading of the above ruling of the SEC reveals that the same is complete. It orders the conduct of a mandatory tender offer pursuant to the procedure provided for under Rule 19(E)
of the Amended Implementing Rules and Regulations of the Securities Regulation Code for the highest price paid for the beneficial ownership of UCC shares. The price, on the basis of the SEC
decision, is determinable. Moreover, the implementing rules and regulations of the Code are sufficient to inform and guide the parties on how to proceed with the mandatory tender offer.

WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24 October 2005 and 6 March 2006, respectively, affirming the Decision dated 14 February 2005 of the
Securities and Exchange Commission En Banc, are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

03 POWER HOMES UNLIMITED CORPORATION, Petitioner, - versus - CORONA, SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO, Respondents. February 26, 2008

DECISION

PUNO, C.J.:

This petition for review seeks the reversal and setting aside of the July 31, 2003 Decision [1] of the Court of Appeals that affirmed the January 26, 2001 Cease and Desist Order (CDO)
of public respondent Securities and Exchange Commission (SEC) enjoining petitioner Power Homes Unlimited Corporations (petitioner) officers, directors, agents, representatives and any
[2]

and all persons claiming and acting under their authority, from further engaging in the sale, offer for sale or distribution of securities; and its June 18, 2004 Resolution [3] which denied
petitioners motion for reconsideration.
The facts: Petitioner is a domestic corporation duly registered with public respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary purpose is:
To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision
and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing. [4]

On October 27, 2000, respondent Noel Manero requested public respondent SEC to investigate petitioners business. He claimed that he attended a seminar conducted by petitioner where the
latter claimed to sell properties that were inexistent and without any brokers license.

On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether petitioners business involves legitimate network marketing.

On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a conference on December 13, 2000 that was attended by petitioners incorporators John
Lim, Paul Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioners marketing scheme and list of its members with addresses.
The following day or on December 14, 2000, petitioner submitted to public respondent SEC copies of its marketing course module and letters of accreditation/authority or
confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it gathered documents such as certificates of accreditation to several real estate
companies, list of members with web sites, sample of member mail box, webpages of two (2) members, and lists of Business Center Owners who are qualified to acquire real estate properties
and materials on computer tutorials.
On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of
Republic Act (R.A.) No. 8799 (The Securities Regulation Code), [5] but failed to register them in violation of Sec. 8.1 of the same Act, [6] public respondent SEC issued a CDO that reads:

WHEREFORE, pursuant to the authority vested in the Commission, POWER HOMES UNLIMITED, CORP., its officers, directors, agents, representatives and any and all
persons claiming and acting under their authority, are hereby ordered to immediately CEASE AND DESIST from further engaging in the sale, offer or distribution of the
securities upon the receipt of this order.

In accordance with the provisions of Section 64.3 of Republic Act No. 8799, otherwise known as the Securities Regulation Code, the parties subject of this Cease and
Desist Order may file a request for the lifting thereof within five (5) days from receipt. [7]

On February 5, 2001, petitioner moved for the lifting of the CDO, which public respondent SEC denied for lack of merit on February 22, 2001.

Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of discretion amounting to lack or excess of jurisdiction on public respondent SEC for issuing the order. It also
applied for a temporary restraining order, which the appellate court granted.
On May 23, 2001, the Court of Appeals consolidated petitioners case with CA-G.R. [SP] No. 62890 entitled Prosperity.Com, Incorporated v. Securities and Exchange Commission
(Compliance and Enforcement Department), Cristina T. De La Cruz, et al.

On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the Issuance of a Writ of Preliminary Injunction. On July 6, 2001, the motion was heard. On July 12, 2001, public
respondent SEC filed its opposition. On July 13, 2001, the appellate court granted petitioners motion, thus:
Considering that the Temporary Restraining Order will expire tomorrow or on July 14, 2001, and it appearing that this Court cannot resolve the petition immediately
because of the issues involved which require a further study on the matter, and considering further that with the continuous implementation of the CDO by the SEC would
eventually result to the sudden demise of the petitioners business to their prejudice and an irreparable damage that may possibly arise, we hereby resolve to grant the
preliminary injunction.

WHEREFORE, let a writ of preliminary injunction be issued in favor of petitioner, after posting a bond in the amount of P500,000.00 to answer whatever damages the
respondents may suffer should petitioner be adjudged not entitled to the injunctive relief herein granted. [8]

On August 8, 2001, public respondent SEC moved for reconsideration, which was not resolved by the Court of Appeals.

On July 31, 2003, the Court of Appeals issued its Consolidated Decision. The disposition pertinent to petitioner reads: [9]

WHEREFORE, x x x x the petition for certiorari and prohibition filed by the other petitioner Powerhomes Unlimited Corporation is hereby DENIED for lack of merit and
the questioned Cease and Desist Order issued by public respondent against it is accordingly AFFIRMED IN TOTO.

On June 18, 2004, the Court of Appeals denied petitioners motion for reconsideration; [10] hence, this petition for review.
The issues for determination are: (1) whether public respondent SEC followed due process in the issuance of the assailed CDO; and (2) whether petitioners business constitutes an
investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public.

On the first issue, Sec. 64 of R.A. No. 8799 provides:


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

We hold that petitioner was not denied due process. The records reveal that public respondent SEC properly examined petitioners business operations when it (1) called into
conference three of petitioners incorporators, (2) requested information from the incorporators regarding the nature of petitioners business operations, (3) asked them to submit documents
pertinent thereto, and (4) visited petitioners business premises and gathered information thereat. All these were done before the CDO was issued by the public respondent SEC. Trite to state,
a formal trial or hearing is not necessary to comply with the requirements of due process. Its essence is simply the opportunity to explain ones position. Public respondent SEC abundantly
allowed petitioner to prove its side.

The second issue is whether the business of petitioner involves an investment contract that is considered security [11] and thus, must be registered prior to sale or offer for sale or
distribution to the public pursuant to Section 8.1 of R.A. No. 8799, viz:

Section 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration
statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may
prescribe, shall be made available to each prospective purchaser.

Public respondent SEC found the petitioner as a marketing company that promotes and facilitates sales of real properties and other related products of real estate developers through
effective leverage marketing. It also described the conduct of petitioners business as follows:

The scheme of the [petitioner] corporation requires an investor to become a Business Center Owner (BCO) who must fill-up and sign its application form. The Terms
and Conditions printed at the back of the application form indicate that the BCO shall mean an independent representative of Power Homes, who is enrolled in the companys
referral program and who will ultimately purchase real property from any accredited real estate developers and as such he is entitled to a referral
bonus/commission. Paragraph 5 of the same indicates that there exists no employer/employee relationship between the BCO and the Power Homes Unlimited, Corp.

The BCO is required to pay US$234 as his enrollment fee. His enrollment entitles him to recruit two investors who should pay US$234 each and out of which amount
he shall receive US$92. In case the two referrals/enrollees would recruit a minimum of four (4) persons each recruiting two (2) persons who become his/her own down lines,
the BCO will receive a total amount of US$147.20 after deducting the amount of US$36.80 as property fund from the gross amount of US$184. After recruiting 128 persons in
a period of eight (8) months for each Left and Right business groups or a total of 256 enrollees whether directly referred by the BCO or through his down lines, the BCO who
receives a total amount of US$11,412.80 after deducting the amount of US$363.20 as property fund from the gross amount of US$11,776, has now an accumulated amount of
US$2,700 constituting as his Property Fund placed in a Property Fund account with the Chinabank. This accumulated amount of US$2,700 is used as partial/full down payment
for the real property chosen by the BCO from any of [petitioners] accredited real estate developers. [12]

An investment contract is defined in the Amended Implementing Rules and Regulations of R.A. No. 8799 as a contract, transaction or scheme (collectively contract) whereby a person
invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.[13]

It behooves us to trace the history of the concept of an investment contract under R.A. No. 8799. Our definition of an investment contract traces its roots from the 1946 United States
(US) case of SEC v. W.J. Howey Co.[14] In this case, the US Supreme Court was confronted with the issue of whether the Howey transaction constituted an investment contract under the
Securities Acts definition of security. [15] The US Supreme Court, recognizing that the term investment contract was not defined by the Act or illumined by any legislative report, [16] held that
Congress was using a term whose meaning had been crystallized [17] under the states blue sky laws[18] in existence prior to the adoption of the Securities Act. [19] Thus, it ruled that the use of
the catch-all term investment contract indicated a congressional intent to cover a wide range of investment transactions. [20] It established a test to determine whether a transaction falls
within the scope of an investment contract. [21] Known as the Howey Test, it requires a transaction, contract, or scheme whereby a person (1) makes an investment of money, (2) in a
common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others.[22] Although the proponents must establish all four elements, the US Supreme Court
stressed that the Howey Test embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the
use of the money of others on the promise of profits. [23] Needless to state, any investment contract covered by the Howey Test must be registered under the Securities Act, regardless of
whether its issuer was engaged in fraudulent practices.
After Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises, Inc. et al.[24] In this case, the 9th Circuit of the US Court of Appeals ruled that the element that profits
must come solely from the efforts of others should not be given a strict interpretation. It held that a literal reading of the requirement solely would lead to unrealistic results. It reasoned out
that its flexible reading is in accord with the statutory policy of affording broad protection to the public. Our R.A. No. 8799 appears to follow this flexible concept for it defines an investment
contract as a contract, transaction or scheme (collectively contract) whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily
from the efforts of others. Thus, to be a security subject to regulation by the SEC, an investment contract in our jurisdiction must be proved to be: (1) an investment of money, (2) in a
common enterprise, (3) with expectation of profits, (4) primarily from efforts of others.

Prescinding from these premises, we affirm the ruling of the public respondent SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution of an
investment contract. Interestingly, the facts of SEC v. Turner[25] are similar to the case at bar. In Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a company
offering to sell to the public contracts characterized as self-improvement courses. On appeal from a grant of preliminary injunction, the US Court of Appeals of the 9 th Circuit held that self-
improvement contracts which primarily offered the buyer the opportunity of earning commissions on the sale of contracts to others were investment contracts and thus were securities within
the meaning of the federal securities laws. This is regardless of the fact that buyers, in addition to investing money needed to purchase the contract, were obliged to contribute their own
efforts in finding prospects and bringing them to sales meetings. The appellate court held:

It is apparent from the record that what is sold is not of the usual business motivation type of courses. Rather, the purchaser is really buying the possibility of
deriving money from the sale of the plans by Dare to individuals whom the purchaser has brought to Dare. The promotional aspects of the plan, such as seminars, films,
and records, are aimed at interesting others in the Plans. Their value for any other purpose is, to put it mildly, minimal.

Once an individual has purchased a Plan, he turns his efforts toward bringing others into the organization, for which he will receive a part of what
they pay. His task is to bring prospective purchasers to Adventure Meetings.
The business scheme of petitioner in the case at bar is essentially similar. An investor enrolls in petitioners program by paying US$234. This entitles him to recruit two (2) investors who pay
US$234 each and out of which amount he receives US$92. A minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at least two (2) each, entitles the principal
investor to US$184 and the pyramid goes on.

We reject petitioners claim that the payment of US$234 is for the seminars on leverage marketing and not for any product. Clearly, the trainings or seminars are merely designed to
enhance petitioners business of teaching its investors the know-how of its multi-level marketing business. An investor enrolls under the scheme of petitioner to be entitled to recruit other
investors and to receive commissions from the investments of those directly recruited by him. Under the scheme, the accumulated amount received by the investor comes primarily from the
efforts of his recruits.

We therefore rule that the business operation or the scheme of petitioner constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with
public respondent SEC before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its offering to the public was rightfully enjoined by public
respondent SEC. The CDO was proper even without a finding of fraud. As an investment contract that is security under R.A. No. 8799, it must be registered with public respondent SEC,
otherwise the SEC cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital markets depend on the investing
publics level of confidence in the system.

IN VIEW WHEREOF, the petition is DENIED. The July 31, 2003 Decision of the Court of Appeals, affirming the January 26, 2001 Cease and Desist Order issued by public respondent
Securities and Exchange Commission against petitioner Power Homes Unlimited Corporation, and its June 18, 2004 Resolution denying petitioners Motion for Reconsideration are
AFFIRMED. No costs.

SO ORDERED.

04 SEC vs. Interport Resources Corporation, Manuel Recto, Rene Villarica, etc.

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision, [1] dated 20 August 1998, rendered by the Court of Appeals in C.A.-G.R. SP No. 37036,
enjoining petitioner Securities and Exchange Commission (SEC) from taking cognizance of or initiating any action against the respondent corporation Interport Resources Corporation (IRC)
and members of its board of directors, respondents Manuel S. Recto, Rene S. Villarica, Pelagio Ricalde, Antonio Reina, Francisco Anonuevo, Joseph Sy and Santiago Tanchan, Jr., with respect to
Sections 8, 30 and 36 of the Revised Securities Act. In the same Decision of the appellate court, all the proceedings taken against the respondents, including the assailed SEC Omnibus Orders
of 25 January 1995 and 30 March 1995, were declared void.

The antecedent facts of the present case are as follows.

On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda Holdings Berhad (GHB). Under the Memorandum of Agreement, IRC acquired
100% or the entire capital stock of Ganda Energy Holdings, Inc. (GEHI),[2] which would own and operate a 102 megawatt (MW) gas turbine power-generating barge. The agreement also
stipulates that GEHI would assume a five-year power purchase contract with National Power Corporation. At that time, GEHIs power-generating barge was 97% complete and would go on-
line by mid-September of 1994. In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to 40.88 billion shares which had a total par value of P488.44
million.[3]

On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI). PRCI owns 25.724 hectares of real estate property in Makati.Under the
Agreement, GHB, a member of the Westmont Group of Companies in Malaysia, shall extend or arrange a loan required to pay for the proposed acquisition by IRC of PRCI. [4]

IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent through facsimile transmission to the Philippine Stock Exchange and the SEC, but
that the facsimile machine of the SEC could not receive it. Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994.[5]

The SEC averred that it received reports that IRC failed to make timely public disclosures of its negotiations with GHB and that some of its directors, respondents herein, heavily
traded IRC shares utilizing this material insider information. On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to the SEC a copy of its aforesaid Memorandum
of Agreement with GHB. The SEC Chairman further directed all principal officers of IRC to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain
IRCs failure to immediately disclose the information as required by the Rules on Disclosure of Material Facts. [6]

In compliance with the SEC Chairmans directive, the IRC sent a letter dated 16 August 1994 to the SEC, attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel
Recto, Rene Villarica and Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRCs alleged failure to immediately disclose material information as required under the
Rules on Disclosure of Material Facts.[7]

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 Old Securities Act of 1936, when it
failed to make timely disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the officers and directors of IRC entered into transactions involving IRC shares in
violation of Section 30, in relation to Section 36, of the Revised Securities Act. [8]

Respondents filed an Omnibus Motion, dated 21 September 1994, which was superseded by an Amended Omnibus Motion, filed on 18 October 1994, alleging that the SEC had no authority
to investigate the subject matter, since under Section 8 of Presidential Decree No. 902-A, [9] as amended by Presidential Decree No. 1758, jurisdiction was conferred upon the Prosecution
and Enforcement Department (PED) of the SEC. Respondents also claimed that the SEC violated their right to due process when it ordered that the respondents 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 the respondents. Lastly, they sought to have their cases
tried jointly given the identical factual situations surrounding the alleged violation committed by the respondents. [10]

Respondents also filed a Motion for Continuance of Proceedings on 24 October 1994, wherein they moved for discontinuance of the investigations and the proceedings before the SEC until
the undue publicity had abated and the investigating officials had become reasonably free from prejudice and public pressure. [11]

No formal hearings were conducted in connection with the aforementioned motions, but on 25 January 1995, the SEC issued an Omnibus Order which thus disposed of the same in this
wise:[12]

WHEREFORE, premised on the foregoing considerations, the Commission resolves and hereby rules:

1. To create a special investigating panel to hear and decide the instant case in accordance with the Rules of Practice and Procedure Before the Prosecution and Enforcement
Department (PED), Securities and Exchange Commission, to be composed of Attys. James K. Abugan, Medardo Devera (Prosecution and Enforcement Department), and
Jose Aquino (Brokers and Exchanges Department), which is hereby directed to expeditiously resolve the case by conducting continuous hearings, if possible.

2. To recall the show cause orders dated September 19, 1994 requiring the respondents to appear and show cause why no administrative, civil or criminal sanctions should be
imposed on them.
3. To deny the Motion for Continuance for lack of merit.

Respondents filed an Omnibus Motion for Partial Reconsideration, [13] questioning the creation of the special investigating panel to hear the case and the denial of the Motion for
Continuance. The SEC denied reconsideration in its Omnibus Order dated 30 March 1995.[14]
The respondents filed a petition before the Court of Appeals docketed as C.A.-G.R. SP No. 37036, questioning the Omnibus Orders dated 25 January 1995 and 30 March 1995.[15] During the
proceedings before the Court of Appeals, respondents filed a Supplemental Motion [16] dated 16 May 1995, wherein they prayed for the issuance of a writ of preliminary injunction enjoining
the SEC and its agents from investigating and proceeding with the 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, which effectively enjoined the SEC from filing any criminal, civil or administrative case against the respondents herein. [17]

On 23 October 1995, the SEC filed a Motion for Leave to Quash SEC Omnibus Orders so that the case may be investigated by the PED in accordance with the SEC Rules and
Presidential Decree No. 902-A, and not by the special body whose creation the SEC had earlier ordered. [18]

The Court of Appeals promulgated a Decision [19] on 20 August 1998. It determined that there were no implementing rules and regulations regarding disclosure, insider trading, or
any of the provisions of the Revised Securities Acts which the respondents allegedly violated. The Court of Appeals likewise noted that it found no statutory authority for the SEC to initiate
and file any suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act. Thus, it ruled that no civil, criminal or administrative proceedings may possibly be held against
the respondents without violating their rights to due process and equal protection. It further resolved that absent any implementing rules, the SEC cannot be allowed to quash the assailed
Omnibus Orders for the sole purpose of re-filing the same case against the respondents. [20]
The Court of Appeals further decided that the Rules of Practice and Procedure Before the PED, which took effect on 14 April 1990, did not comply with the statutory requirements
contained in the Administrative Code of 1997. Section 8, Rule V of the Rules of Practice and Procedure Before the PED affords a party the right to be present but without the right to cross-
examine witnesses presented against him, in violation of Section 12(3), Chapter 3, Book VII of the Administrative Code. [21]

In the dispositive portion of its Decision, dated 20 August 1998, the Court of Appeals ruled that [22]:

WHEREFORE, [herein petitioner SECs] Motion for Leave to Quash SEC Omnibus Orders is hereby DENIED. The petition for certiorari, prohibition and mandamus is
GRANTED.Consequently, all proceedings taken against [herein respondents] in this case, including the Omnibus Orders of January 25, 1995 and March 30, 1995 are declared
null and void. The writ of preliminary injunction is hereby made permanent and, accordingly, [SEC] is hereby prohibited from taking cognizance or initiating
any action, be they civil, criminal, or administrative against [respondents] with respect to Sections 8 (Procedure for Registration), 30 (Insiders duty to disclose when trading)
and 36 (Directors, Officers and Principal Stockholders) in relation to Sections 46 (Administrative sanctions) 56 (Penalties) 44 (Liabilities of Controlling persons) and 45
(Investigations, injunctions and prosecution of offenses) of the Revised Securities Act and Section 144 (Violations of the Code) of the Corporation Code. (Emphasis provided.)

The SEC filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution [23] issued on 30 September 1998.

Hence, the present petition, which relies on the following grounds [24]:

THE COURT OF APPEALS ERRED WHEN IT DENIED PETITIONERS MOTION FOR LEAVE TO QUASH THE ASSAILED SEC OMNIBUS ORDERS DATED JANUARY 25 AND MARCH 30,
1995.

II

THE COURT OF APPEALS ERRED WHEN IT RULED THAT THERE IS NO STATUTORY AUTHORITY WHATSOEVER FOR PETITIONER SEC TO INITIATE AND FILE ANY SUIT BE THEY CIVIL,
CRIMINAL OR ADMINISTRATIVE AGAINST RESPONDENT CORPORATION AND ITS DIRECTORS WITH RESPECT TO SECTION 30 (INSIDERS DUTY TO DISCOLSED [sic] WHEN
TRADING) AND 36 (DIRECTORS OFFICERS AND PRINCIPAL STOCKHOLDERS) OF THE REVISED SECURITIES ACT; AND

III

THE COURT OF APPEALS ERRED WHEN IT RULED THAT RULES OF PRACTICE AND PROSECUTION BEFORE THE PED AND THE SICD RULES OF PROCEDURE ON ADMINISTRATIVE
ACTIONS/PROCEEDINGS[25] ARE INVALID AS THEY FAIL TO COMPLY WITH THE STATUTORY REQUIREMENTS CONTAINED IN THE ADMINISTRATIVE CODE OF 1987.
The petition is impressed with merit.

Before discussing the merits of this case, it should be noted that while this case was pending in this Court, Republic Act No. 8799, otherwise known as the Securities Regulation
Code, took effect on 8 August 2000. Section 8 of Presidential Decree No. 902-A, as amended, which created the PED, was already repealed as provided for in Section 76 of the Securities
Regulation Code:

SEC. 76. Repealing Clause. The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its entirety, and Sections 2, 4 and 8 of Presidential Decree 902-A,
as amended, are hereby repealed. All other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code are hereby repealed or modified
accordingly.

Thus, under the new law, the PED has been abolished, and the Securities Regulation Code has taken the place of the Revised Securities Act.

The Court now proceeds with a discussion of the present case.

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

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 administrative actions can possibly be had
against the respondents without violating their right to due process and equal protection, citing as its basis the case Yick Wo v. Hopkins.[26] This is untenable.

In the absence of any constitutional or statutory infirmity, which may concern Sections 30 and 36 of the Revised Securities Act, this Court upholds these provisions as legal and
binding. It is well settled that every law has in its favor the presumption of validity. Unless and until a specific provision of the law is declared invalid and unconstitutional, the same is valid
and binding for all intents and purposes. [27] The mere absence of implementing rules cannot effectively invalidate provisions of law, where a reasonable construction that will support the law
may be given. In People v. Rosenthal,[28] this Court ruled that:

In this connection we cannot pretermit reference to the rule that legislation should not be held invalid on the ground of uncertainty if susceptible of any reasonable
construction that will support and give it effect. An Act will not be declared inoperative and ineffectual on the ground that it furnishes no 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 instrumentalities necessary for its execution are within the
reach of those intrusted therewith. (25 R.C.L., pp. 810, 811)

In Garcia v. Executive Secretary,[29] the Court underlined the importance of the presumption of validity of laws and the careful consideration with which the judiciary strikes down as
invalid acts of the legislature:

The policy of the courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and
unmistakable showing to the contrary. To doubt is to sustain. This presumption is based on the doctrine of separation of powers which enjoins upon each department a
becoming respect for the acts of the other departments.The theory is that as the joint act of Congress and the President of the Philippines, a law has been carefully studied
and determined to be in accordance with the fundamental law before it was finally enacted.

The necessity for vesting administrative authorities with power to make rules and regulations is based on the impracticability of lawmakers providing general regulations for various
and varying details of management. [30] 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. [31] 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. Nevertheless, it is undisputable that the rules and
regulations cannot assert for themselves a more extensive prerogative or deviate from the mandate of the statute. [32]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.
The reliance placed by the Court of Appeals in Yick Wo v. Hopkins[33] shows a glaring error. In the cited case, this Court found unconstitutional an ordinance which gave the board of
supervisors authority to refuse 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 highly
discriminatory and hostile to Chinese residents and not because the standards provided therein were vague or ambiguous.

This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities Act, such that the acts proscribed and/or required would not be
understood by a person of ordinary intelligence.

Section 30 of the Revised Securities Act

Section 30 of the Revised Securities Act reads:

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

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

(c) A fact is of special significance if (a) in addition to being material it would be likely, on being made generally available, to affect the market price of a security to a
significant extent, or (b) a reasonable person would consider it especially important under the circumstances in determining his course of action in the light of such factors as
the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability.

(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he knows of a fact of special significance by virtue of his being
an insider.

The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information is the gravamen of illegal conduct. The intent of the law is the protection of
investors against fraud, committed when an insider, using secret information, takes advantage of an uninformed investor. Insiders are obligated to disclose material information to the other
party or abstain from trading the shares of his corporation. This duty to disclose or abstain is based on two factors: first, the existence of a relationship giving access, directly or indirectly, to
information intended to be available only for a corporate purpose and not for the personal benefit of anyone; and second, the inherent unfairness involved when a party takes advantage of
such information knowing it is unavailable to those with whom he is dealing. [34]

In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on corporate insiders, particularly officers, directors, or controlling stockholders, but
that definition has since been expanded. [35] The term insiders now includes persons whose relationship or former relationship to the issuer gives or gave them access to a fact of special
significance about the issuer or the security that is not generally available, and one who learns such a fact from an insider knowing that the person from whom he learns the fact is such an
insider. Insiders have the duty to disclose material facts which are known to them by virtue of their position but which are not known to persons with whom they deal and which, if known,
would affect their investment judgment. In some cases, however, there may be valid corporate reasons for the nondisclosure of material information. Where such reasons exist, an issuers
decision not to make any public disclosures is not ordinarily considered as a violation of insider trading. At the same time, the undisclosed information should not be improperly used for non-
corporate purposes, particularly to disadvantage other persons with whom an insider might transact, and therefore the insider must abstain from entering into transactions involving such
securities.[36]

Respondents further aver that under Section 30 of the Revised Securities Act, the SEC still needed to define the following terms: material fact, reasonable person, nature and
reliability and generally available. [37] In 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 understand how the terms were used in the aforementioned provision, a discussion of what the law recognizes as a fact of special significance is required, since the duty to disclose such
fact or to abstain from any transaction is imposed on the insider only in connection with a fact of special significance.
Under the law, what is required to be disclosed is a fact of special significance which may be (a) a material fact which would be likely, on being made generally available, to affect
the market price of a security to a significant extent, or (b) one which a reasonable person would consider especially important in determining his course of action with regard to the shares of
stock.

(a) Material Fact The concept of a material fact is not a new one. As early as 1973, the Rules Requiring Disclosure of Material Facts by Corporations Whose Securities Are Listed In
Any Stock Exchange or Registered/Licensed Under the Securities Act, issued by the SEC on 29 January 1973, explained that [a] fact is material if it induces or tends to induce or otherwise
affect the sale or purchase of its securities. Thus, Section 30 of the Revised Securities Act provides that if a fact affects the sale or purchase of securities, as well as its price, then the insider
would be required to disclose such information to the other party to the transaction involving the securities. This is the first definition given to a fact of special significance.
(b.1) Reasonable Person The second definition given to a fact of special significance involves the judgment of a reasonable person. Contrary to the allegations of the respondents, a
reasonable person is not a problematic legal concept that needs to be clarified for the purpose of giving effect to a statute; rather, it is the standard on which most of our legal doctrines
stand. The doctrine on negligence uses the discretion of the reasonable man as the standard. [38] A purchaser in good faith must also take into account facts which put a reasonable man on his
guard.[39] In addition, it is the belief of the reasonable and prudent man that an offense was committed that sets the criteria for probable cause for a warrant of arrest. [40] This Court, in such
cases, differentiated the reasonable and prudent man from a person with training in the law such as a prosecutor or a judge, and identified him as the average man on the street, who weighs
facts and circumstances without resorting to the calibrations of our technical rules of evidence of which his knowledge is nil. Rather, he relies on the calculus of common sense of which all
reasonable men have in abundance.[41] In the same vein, the U.S. Supreme Court similarly determined its standards by the actual significance in the deliberations of a reasonable investor,
when it ruled in TSC Industries, Inc. v. Northway, Inc.,[42] that the determination of materiality requires delicate assessments of the inferences a reasonable shareholder would draw from a
given set of facts and the significance of those inferences to him.

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

Among the factors to be considered in determining whether information is material under this test are the degree of its specificity, the extent to which it differs from
information previously publicly disseminated, and its reliability in light of its nature and source and the circumstances under which it was received.

It can be deduced from the foregoing that the nature and reliability of a significant fact in determining the course of action a reasonable person takes regarding securities must be clearly
viewed in connection with the particular circumstances of a case. To enumerate all circumstances that would render the nature and reliability of a fact to be of special significance is close to
impossible. Nevertheless, the proper adjudicative body would undoubtedly be able to determine if facts of a certain nature and reliability can influence a reasonable persons decision to
retain, sell or buy securities, and thereafter explain and justify its factual findings in its decision.

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

A bright-line rule indeed is easier to follow than a standard that requires the exercise of judgment in the light of all the circumstances. But ease of application alone is not an
excuse for ignoring the purposes of the Securities Act and Congress policy decisions. Any approach that designates a single fact or occurrence as always determinative of an
inherently fact-specific finding such as materiality, must necessarily be overinclusive or underinclusive.

Moreover, materiality will depend at any given time upon a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the
totality of the company activity.[45] In drafting the Securities Act of 1934, the U.S. Congress put emphasis on the limitations to the definition of materiality:

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 that such a goal is
illusory and unrealistic. The materiality concept is judgmental in nature and it is not possible to translate this into a numerical formula. The Committee's
advice to the [SEC] is to avoid this quest for certainty and to continue consideration of materiality on a case-by-case basis as disclosure problems are
identified. House Committee on Interstate and Foreign Commerce, Report of the Advisory Committee on Corporate Disclosure to the Securities and Exchange Commission,
95th Cong., 1st Sess., 327 (Comm.Print 1977). (Emphasis provided.)[46]
(d) Generally Available Section 30 of the Revised Securities Act allows the insider the defense that in a transaction of securities, where the insider is in possession of facts of
special significance, such information is generally available to the public. Whether information found in a newspaper, a specialized magazine, or any cyberspace media be sufficient for
the term generally available is a matter which may be adjudged given the particular circumstances of the case. The standards cannot remain at a standstill. A medium, which is widely
used today was, at some previous point in time, inaccessible to most. Furthermore, it would be difficult to approximate how the rules may be applied to the instant case, where
investigation has not even been started. Respondents failed to allege that the negotiations of their agreement with GHB were made known to the public through any form of media for
there to be a proper appreciation of the issue presented.

Section 36(a) of the Revised Securities Act

As regards Section 36(a) of the Revised Securities Act, respondents claim that the term beneficial ownership is vague and that it requires 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 beneficial owner of more than ten percent of any class of any equity security or (2) a
director or any officer of the issuer of such security, the obligation to submit a statement indicating his or her ownership of the issuers securities and such changes in his or her ownership
thereof. The said provision reads:

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

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

[F]irst, to indicate the interest of a beneficiary in trust property (also called equitable ownership); and second, to refer to the power of a corporate shareholder to buy or sell
the shares, though the shareholder is not registered in the corporations books as the owner. Usually, beneficial ownership is distinguished from naked ownership, which is the
enjoyment of all the benefits and privileges of ownership, as against possession of the bare title to property. [47]
Even assuming that the term beneficial ownership was vague, it would not affect respondents case, where the respondents are directors and/or officers of the corporation, who are specifically
required to comply with the reportorial requirements under Section 36(a) of the Revised Securities Act. The validity of a statute may be contested only by one who will sustain a direct injury
as a result of its enforcement. [48]

Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities market and prevent unscrupulous individuals, who by their positions obtain
non-public information, from taking advantage of an uninformed public. No individual would invest in a market which can be manipulated by a limited number of corporate insiders. Such
reaction would stifle, if not stunt, the growth of the securities market. To avert the occurrence of such an event, Section 30 of the Revised Securities Act prevented the unfair use of non-public
information in securities transactions, while Section 36 allowed the SEC to monitor the transactions entered into by corporate officers and directors as regards the securities of their
companies.

In the case In the Matter of Investors Management Co.,[49] it was cautioned that the broad language of the anti-fraud provisions, which include the provisions on insider trading, should
not be circumscribed by fine distinctions and rigid classifications. The ambit of anti-fraud provisions is necessarily broad so as to embrace the infinite variety of deceptive conduct. [50]

In Tatad v. Secretary of Department of Energy,[51] this Court brushed aside a contention, similar to that made by the respondents in this case, that certain words or phrases used in a
statute do not set determinate standards, declaring that:

Petitioners contend that the words as far as practicable, declining and stable should have been defined in R.A. No. 8180 as they do not set determinate and determinable
standards. This stubborn submission deserves scant consideration. The dictionary meanings of these words are well settled and cannot confuse men of reasonable
intelligence. x x x. The fear of petitioners that these words will result in the exercise of executive discretion that will run riot is thus groundless. To be sure, the Court has
sustained the validity of similar, if not more general standards in other cases.

Among the words or phrases that this Court upheld as valid standards were simplicity and dignity, [52] public interest,[53] and interests of law and order.[54]
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules were promulgated by the SEC only on 24 July 1996 does not render ineffective in
the meantime Section 36 of the Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full disclosure and the Full Disclosure Rules were issued to make the
enforcement of the law more consistent, efficient and effective. It is equally reasonable to state that the disclosure forms later provided by the SEC, do not, in any way imply that no
compliance was required before the forms were provided. The effectivity of a statute which imposes reportorial requirements cannot be suspended by the issuance of specified forms,
especially where compliance therewith may be made even without such forms. The forms merely made more efficient the processing of requirements already identified by the statute.

For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or administrative actions can possibly be had against the respondents in connection
with Sections 8, 30 and 36 of the Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently clear and complete by themselves.Their 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 straightforward enumeration of the procedure for the
registration of securities and the particular matters which need to be reported in the registration statement thereof. The Decision, dated 20 August 1998, provides no valid reason to exempt
the respondent IRC from such requirements. The lack of implementing rules cannot suspend the effectivity of these provisions. Thus, this Court cannot find any cogent reason to prevent the
SEC from exercising its authority to investigate respondents for violation of Section 8 of the Revised Securities Act.

II. The right to cross-examination is not absolute and cannot be demanded during investigative proceedings before the PED.
In its assailed Decision dated 20 August 1998, the Court of Appeals pronounced that the PED Rules of Practice and Procedure was invalid since Section 8, Rule V [56]thereof failed to
provide for the parties right to cross-examination, in violation of the Administrative Code of 1987 particularly Section 12(3), Chapter 3, Book VII thereof. This ruling is incorrect.

Firstly, Section 4, Rule I of the PED Rules of Practice and Procedure, categorically stated that the proceedings before the PED are summary in nature:

Section 4. Nature of Proceedings Subject to the requirements of due process, proceedings before the PED shall be summary in nature not necessarily adhering to or following
the technical rules of evidence obtaining in the courts of law. The Rules of Court may apply in said proceedings in suppletory character whenever practicable.

Rule V of the PED Rules of Practice and Procedure further specified that:

Section 5. Submission of Documents During the preliminary conference/hearing, or immediately thereafter, the Hearing Officer may require the parties to simultaneously
submit their respective verified position papers accompanied by all supporting documents and the affidavits of their witnesses, if any which shall take the place of their direct
testimony. The parties shall furnish each other with copies of the position papers together with the supporting affidavits and documents submitted by them.

Section 6. Determination of necessity of hearing. Immediately after the submission by the parties of their position papers and supporting documents, the Hearing Officer shall
determine whether there is a need for a formal hearing. At this stage, he may, in his discretion, and for the purpose of making such determination, elicit pertinent facts or
information, including documentary evidence, if any, from any party or witness to complete, as far as possible, the facts of the case. Facts or information so elicited may serve
as basis for his clarification or simplifications of the issues in the case. Admissions and stipulation of facts to abbreviate the proceedings shall be encouraged.

Section 7. Disposition of Case. If the Hearing Officer finds no necessity of further hearing after the parties have submitted their position papers and supporting documents, he
shall so inform the parties stating the reasons therefor and shall ask them to acknowledge the fact that they were so informed by signing the minutes of the hearing and the
case shall be deemed submitted for resolution.

As such, the PED Rules provided that the Hearing Officer may require the parties to submit their respective verified position papers, together with all supporting documents and affidavits of
witnesses. A formal hearing was not mandatory; it was within the discretion of the Hearing Officer to determine whether there was a need for a formal hearing.Since, according to the
foregoing rules, the holding of a hearing before the PED is discretionary, then the right to cross-examination could not have been demanded by either party.

Secondly, it must be pointed out that Chapter 3, Book VII of the Administrative Code, entitled Adjudication, does not affect the investigatory functions of the agencies. The law
creating the PED, Section 8 of Presidential Decree No. 902-A, as amended, defines the authority granted to the PED, thus:

SEC. 8. The Prosecution and Enforcement Department shall have, subject to the Commissions control and supervision , the exclusive authority to investigate, on
complaint or motu proprio, any act or omission of the Board of Directors/Trustees of corporations, or of partnerships, or of other associations, or of their stockholders, officers
or partners, including any fraudulent devices, schemes or representations, in violation of any law or rules and regulations administered and enforced by the Commission; to
file and prosecute in accordance with law and rules and regulations issued by the Commission and in appropriate cases, the corresponding criminal or civil case before the
Commission or the proper court or body upon prima facie finding of violation of any laws or rules and regulations administered and enforced by the Commission; and to
perform such other powers and functions as may be provided by law or duly delegated to it by the Commission. (Emphasis provided.)

The law creating PED empowers it to investigate violations of the rules and regulations promulgated by the SEC and to file and prosecute such cases. It fails to mention any adjudicatory
functions insofar as the PED is concerned. Thus, the PED Rules of Practice and Procedure need not comply with the provisions of the Administrative Code on adjudication, particularly Section
12(3), Chapter 3, Book VII.

In Cario v. Commission on Human Rights,[57] this Court sets out the distinction between investigative and adjudicative functions, thus:

Investigate, commonly understood, means to examine, explore, inquire or delve or probe into, research on, study. The dictionary definition of investigate is to observe
or study closely; inquire into systematically: to search or inquire into xx to subject to an official probe xx: to conduct an official inquiry. The purpose of an investigation, of
course is to discover, to find out, to learn, obtain information. Nowhere included or intimated is the notion of settling, deciding or resolving a controversy involved in the facts
inquired into by application of the law to the facts established by the inquiry.

The legal meaning of investigate is essentially the same: (t)o follow up step by step by patient inquiry or observation. To trace or track; to search into; to examine and
inquire into with care and accuracy; to find out by careful inquisition; examination; the taking of evidence; a legal inquiry; to inquire; to make an investigation, investigation
being in turn described as (a)n administrative function, the exercise of which ordinarily does not require a hearing. 2 Am J2d Adm L Sec. 257; xx an inquiry, judicial or
otherwise, for the discovery and collection of facts concerning a certain matter or matters.

Adjudicate, commonly or popularly understood, means to adjudge, arbitrate, judge, decide, determine, resolve, rule on, settle. The dictionary defines the term as to
settle finally (the rights and duties of parties to a court case) on the merits of issues raised: xx to pass judgment on: settle judicially: xx act as judge. And adjudge means to
decide or rule upon as a judge or with judicial or quasi-judicial powers: xx to award or grant judicially in a case of controversy x x x.

In a legal sense, adjudicate means: To settle in the exercise of judicial authority. To determine finally. Synonymous with adjudge in its strictest sense; and adjudge
means: To pass on judicially, to decide, settle, or decree, or to sentence or condemn. x x x Implies a judicial determination of a fact, and the entry of a judgment.

There is no merit to the respondents averment that the sections under Chapter 3, Book VII of the Administrative Code, do not distinguish between investigative and adjudicatory
functions. Chapter 3, Book VII of the Administrative Code, is unequivocally entitled Adjudication.

Respondents insist that the PED performs adjudicative functions, as enumerated under Section 1(h) and (j), Rule II; and Section 2(4), Rule VII of the PED Rules of Practice and
Procedure:

Section 1. Authority of the Prosecution and Enforcement Department Pursuant to Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily charged with the following:

xxxx

(h) Suspends or revokes, after proper notice and hearing in accordance with these Rules, the franchise or certificate of registration of corporations, partnerships or
associations, upon any of the following grounds:

1. Fraud in procuring its certificate of registration;

2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public;

3. Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts which would amount to a grave violation of its franchise;

xxxx

(j) Imposes charges, fines and fees, which by law, it is authorized to collect;
xxxx

Section 2. Powers of the Hearing Officer. The Hearing Officer shall have the following powers:

xxxx

4. To cite and/or declare any person in direct or indirect contempt in accordance with pertinent provisions of the Rules of Court.

Even assuming that these are adjudicative functions, the PED, in the instant case, exercised its investigative powers; thus, respondents do not have the requisite standing to assail
the validity of the rules on adjudication. A valid source of a statute or a rule can only be contested by one who will sustain a direct injury as a result of its enforcement. [58]In the instant case,
respondents are only being investigated by the PED for their alleged failure to disclose their negotiations with GHB and the transactions entered into by its directors involving IRC shares. The
respondents have not shown themselves to be under any imminent danger of sustaining any personal injury attributable to the exercise of adjudicative functions by the SEC. They are not
being or about to be subjected by the PED to charges, fees or fines; to citations for contempt; or to the cancellation of their certificate of registration under Section 1(h), Rule II of the PED
Rules of Practice and Procedure.

To repeat, the only powers which the PED was likely to exercise over the respondents were investigative in nature, to wit:

Section 1. Authority of the Prosecution and Enforcement Department Pursuant to Presidential Decree No. 902-A, as amended by Presidential Decree No. 1758, the Prosecution
and Enforcement Department is primarily charged with the following:
xxxx

b. Initiates proper investigation of corporations and partnerships or persons, their books, records and other properties and assets, involving their business transactions,
in coordination with the operating department involved;

xxxx

e. Files and prosecutes civil or criminal cases before the Commission and other courts of justice involving violations of laws and decrees enforced by the Commission and
the rules and regulations promulgated thereunder;

f. Prosecutes erring directors, officers and stockholders of corporations and partnerships, commercial paper issuers or persons in accordance with the pertinent rules on
procedures;

The authority granted to the PED under Section 1(b), (e), and (f), Rule II of the PED Rules of Practice and Procedure, need not comply with Section 12, Chapter 3, Rule VII of the Administrative
Code, which affects only the adjudicatory functions of administrative bodies. Thus, the PED would still be able to investigate the respondents under its rules for their alleged failure to disclose
their negotiations with GHB and the transactions entered into by its directors involving IRC shares.

This is not to say that administrative bodies performing adjudicative functions are required to strictly comply with the requirements of Chapter 3, Rule VII of the Administrative Code,
particularly, the right to cross-examination. It should be noted that under Section 2.2 of Executive Order No. 26, issued on 7 October 1992, abbreviated proceedings are prescribed in the
disposition of administrative cases:

2. Abbreviation of Proceedings. All administrative agencies are hereby directed to adopt and include in their respective Rules of Procedure the following provisions:
xxxx

2.2 Rules adopting, unless otherwise provided by special laws and without prejudice to Section 12, Chapter 3, Book VII of the Administrative Code of 1987, the mandatory use
of affidavits in lieu of direct testimonies and the preferred use of depositions whenever practicable and convenient.
As a consequence, in proceedings before administrative or quasi-judicial bodies, such as the National Labor Relations Commission and the Philippine Overseas Employment Agency,
created under laws which authorize summary proceedings, decisions may be reached on the basis of position papers or other documentary evidence only.They are not bound by technical
rules of procedure and evidence. [59] In fact, the hearings before such agencies do not connote full adversarial proceedings. [60] Thus, it is not necessary for the rules to require affiants to
appear and testify and to be cross-examined by the counsel of the adverse party. To require otherwise would negate the summary nature of the administrative or quasi-judicial proceedings.
[61]
In Atlas Consolidated Mining and Development Corporation v. Factoran, Jr.,[62] this Court stated that:

[I]t is sufficient that administrative findings of fact are supported by evidence, or negatively stated, it is sufficient that findings of fact are not shown to be unsupported by
evidence. Substantial evidence is all that is needed to support an administrative finding of fact, and substantial evidence is such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.

In order to comply with the requirements of due process, what is required, among other things, is that every litigant be given reasonable opportunity to appear and defend his right and to
introduce relevant evidence in his favor. [63]

III. The Securities Regulations Code did not repeal Sections 8, 30 and 36 of the Revised Securities Act since said provisions were
reenacted in the new law.

The Securities Regulations Code absolutely repealed the Revised Securities Act. While the absolute repeal of a law generally deprives a court of its authority to penalize the person
charged with the violation of the old law prior to its appeal, an exception to this rule comes about when the repealing law punishes the act previously penalized under the old law. The Court,
in Benedicto v. Court of Appeals, sets down the rules in such instances: [64]

As a rule, an absolute repeal of a penal law has the effect of depriving the court of its authority to punish a person charged with violation of the old law prior to its
repeal. This is because an unqualified repeal of a penal law constitutes a legislative act of rendering legal what had been previously declared as illegal, such that the offense
no longer exists and it is as if the person who committed it never did so. There are, however, exceptions to the rule. One is the inclusion of a saving clause in the repealing
statute that provides that the repeal shall have no effect on pending actions. Another exception is where the repealing act reenacts the former statute and punishes the act
previously penalized under the old law. In such instance, the act committed before the reenactment continues to be an offense in the statute books and pending cases are not
affected, regardless of whether the new penalty to be imposed is more favorable to the accused. (Emphasis provided.)

In the present case, a criminal case may still be filed against the respondents despite the repeal, since Sections 8, [65] 12,[66] 26,[67] 27[68] and 23[69] of the Securities Regulations Code
impose duties that are substantially similar to Sections 8, 30 and 36 of the repealed Revised Securities Act.

Section 8 of the Revised Securities Act, which previously provided for the registration of securities and the information that needs to be included in the registration statements, was
expanded under Section 12, in connection with Section 8 of the Securities Regulations Code. Further details of the information required to be disclosed by the registrant are explained in the
Amended Implementing Rules and Regulations of the Securities Regulations Code, issued on 30 December 2003, particularly Sections 8 and 12 thereof.

Section 30 of the Revised Securities Act has been reenacted as Section 27 of the Securities Regulations Code, still penalizing an insiders misuse of material and non-public information
about the issuer, for the purpose of protecting public investors. Section 26 of the Securities Regulations Code even widens the coverage of punishable acts, which intend to defraud public
investors through various devices, misinformation and omissions.

Section 23 of the Securities Regulations Code was practically lifted from Section 36(a) of the Revised Securities Act. Both provisions impose upon (1) a beneficial owner of more than
ten percent of any class of any equity security or (2) a director or any officer of the issuer of such security, the obligation to submit a statement indicating his or her ownership of the issuers
securities and such changes in his or her ownership thereof.

Clearly, the legislature had not intended to deprive the courts of their authority to punish a person charged with violation of the old law that was repealed; in this case, the Revised
Securities Act.

IV. The SEC retained the jurisdiction to investigate violations of the Revised Securities Act, reenacted in the Securities Regulations
Code, despite the abolition of the PED.
Section 53 of the Securities Regulations Code clearly provides that criminal complaints for violations of rules and regulations enforced or administered by the SEC shall be referred to
the Department of Justice (DOJ) for preliminary investigation, while the SEC nevertheless retains limited investigatory powers. [70] Additionally, the SEC may still impose the appropriate
administrative sanctions under Section 54 of the aforementioned law. [71]

In Morato v. Court of Appeals,[72] the cases therein were still pending before the PED for investigation and the SEC for resolution when the Securities Regulations Code was
enacted. The case before the SEC involved an intra-corporate dispute, while the subject matter of the other case investigated by the PED involved the schemes, devices, and violations of
pertinent rules and laws of the companys board of directors. The enactment of the Securities Regulations Code did not result in the dismissal of the cases; rather, this Court ordered the
transfer of one case to the proper regional trial court and the SEC to continue with the investigation of the other case.

The case at bar is comparable to the aforecited case. In this case, the SEC already commenced the investigative proceedings against respondents as early as 1994. Respondents were called
to appear before the SEC and explain their failure to disclose pertinent information on 14 August 1994. Thereafter, the SEC Chairman, having already made initial findings that respondents
failed to make timely disclosures of their negotiations with GHB, ordered a special investigating panel to hear the case. The investigative proceedings were interrupted only by the writ of
preliminary injunction issued by the Court of Appeals, which became permanent by virtue of the Decision, dated 20 August 1998, in C.A.-G.R. SP No. 37036. During the pendency of this case,
the Securities Regulations Code repealed the Revised Securities Act. As in Morato v. Court of Appeals, the repeal cannot deprive SEC of its jurisdiction to continue investigating the case; or
the regional trial court, to hear any case which may later be filed against the respondents.

V. The instant case has not yet prescribed.

Respondents have taken the position that this case is moot and academic, since any criminal complaint that may be filed against them resulting from the SECs investigation of this case has
already prescribed.[73] They point out that the prescription period applicable to offenses punished under special laws, such as violations of the Revised Securities Act, is twelve years under
Section 1 of Act No. 3326, as amended by Act No. 3585 and Act No. 3763, entitled An Act to Establish Periods of Prescription for Violations Penalized by Special Acts and Municipal Ordinances
and to Provide When Prescription Shall Begin to Act. [74] Since the offense was committed in 1994, they reasoned that prescription set in as early as 2006 and rendered this case moot. Such
position, however, is incongruent with the factual circumstances of this case, as well as the applicable laws and jurisprudence.

It is an established doctrine that a preliminary investigation interrupts the prescription period. [75] A preliminary investigation is essentially a determination whether an offense has
been committed, and whether there is probable cause for the accused to have committed an offense:

A preliminary investigation is merely inquisitorial, and it is often the only means of discovering the persons who may be reasonably charged with a crime, to enable the fiscal to
prepare the complaint or information. It is not a trial of the case on the merits and has no purpose except that of determining whether a crime has been committed or whether
there is probable cause to believe that the accused is guilty thereof. [76]

Under Section 45 of the Revised Securities Act, which is entitled Investigations, Injunctions and Prosecution of Offenses, the Securities Exchange Commission (SEC) has the authority
to make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Act XXX. After a finding that a person has violated
the Revised Securities Act, the SEC may refer the case to the DOJ for preliminary investigation and prosecution.

While the SEC investigation serves the same purpose and entails substantially similar duties as the preliminary investigation conducted by the DOJ, this process cannot simply be
disregarded. In Baviera v. Paglinawan,[77] this Court enunciated that a criminal complaint is first filed with the SEC, which determines the existence of probable cause, before a preliminary
investigation can be commenced by the DOJ. In the aforecited case, the complaint filed directly with the DOJ was dismissed on the ground that it should have been filed first with the
SEC. Similarly, the offense was a violation of the Securities Regulations Code, wherein the procedure for criminal prosecution was reproduced from Section 45 of the Revised Securities
Act. [78] This Court affirmed the dismissal, which it explained thus:

The Court of Appeals held that under the above provision, a criminal complaint for violation of any law or rule administered by the SEC must first be filed with the
latter. If the Commission finds that there is probable cause, then it should refer the case to the DOJ. Since petitioner failed to comply with the foregoing procedural
requirement, the DOJ did not gravely abuse its discretion in dismissing his complaint in I.S. No. 2004-229.

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

We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed his criminal complaint directly with the DOJ. Verily, no grave
abuse of discretion can be ascribed to the DOJ in dismissing petitioners complaint.

The said case puts in perspective the nature of the investigation undertaken by the SEC, which is a requisite before a criminal case may be referred to the DOJ. The Court declared
that it is imperative that the criminal prosecution be initiated before the SEC, the administrative agency with the special competence.

It should be noted that the SEC started investigative proceedings against the respondents as early as 1994. This investigation effectively interrupted the prescription period.However,
said proceedings were disrupted by a preliminary injunction issued by the Court of Appeals on 5 May 1995, which effectively enjoined the SEC from filing any criminal, civil, or administrative
case against the respondents herein. [79] Thereafter, on 20 August 1998, the appellate court issued the assailed Decision in C.A. G.R. SP. No. 37036 ordering that the writ of injunction be made
permanent and prohibiting the SEC from taking cognizance of and initiating any action against herein respondents. The SEC was bound to comply with the aforementioned writ of preliminary
injunction and writ of injunction issued by the Court of Appeals enjoining it from continuing with the investigation of respondents for 12 years. Any deviation by the SEC from the injunctive
writs would be sufficient ground for contempt. Moreover, any step the SEC takes in defiance of such orders will be considered void for having been taken against an order issued by a court of
competent jurisdiction.

An investigation of the case by any other administrative or judicial body would likewise be impossible pending the injunctive writs issued by the Court of Appeals. Given the ruling of
this Court in Baviera v. Paglinawan,[80] the DOJ itself could not have taken cognizance of the case and conducted its preliminary investigation without a prior determination of probable cause
by the SEC. Thus, even presuming that the DOJ was not enjoined by the Court of Appeals from conducting a preliminary investigation, any preliminary investigation conducted by the DOJ
would have been a futile effort since the SEC had only started with its investigation when respondents themselves applied for and were granted an injunction by the Court of Appeals.

Moreover, the DOJ could not have conducted a preliminary investigation or filed a criminal case against the respondents during the time that issues on the effectivity of Sections 8, 30
and 36 of the Revised Securities Act and the PED Rules of Practice and Procedure were still pending before the Court of Appeals. After the Court of Appeals declared the aforementioned
statutory and regulatory provisions invalid and, thus, no civil, criminal or administrative case may be filed against the respondents for violations thereof, the DOJ would have been at a loss, as
there was no statutory provision which respondents could be accused of violating.
Accordingly, it is only after this Court corrects the erroneous ruling of the Court of Appeals in its Decision dated 20 August 1998 that either the SEC or DOJ may properly conduct any
kind of investigation against the respondents for violations of Sections 8, 30 and 36 of the Revised Securities Act. Until then, the prescription period is deemed interrupted.

To reiterate, the SEC must first conduct its investigations and make a finding of probable cause in accordance with the doctrine pronounced in Baviera v. Paglinawan.[81]In this case,
the DOJ was precluded from initiating a preliminary investigation since the SEC was halted by the Court of Appeals from continuing with its investigation. Such a situation leaves the
prosecution of the case at a standstill, and neither the SEC nor the DOJ can conduct any investigation against the respondents, who, in the first place, sought the injunction to prevent their
prosecution. All that the SEC could do in order to break the impasse was to have the Decision of the Court of Appeals overturned, as it had done at the earliest opportunity in this
case. Therefore, the period during which the SEC was prevented from continuing with its investigation should not be counted against it. The law on the prescription period was never intended
to put the prosecuting bodies in an impossible bind in which the prosecution of a case would be placed way beyond their control; for even if they avail themselves of the proper remedy, they
would still be barred from investigating and prosecuting the case.

Indubitably, the prescription period is interrupted by commencing the proceedings for the prosecution of the accused. In criminal cases, this is accomplished by initiating the
preliminary investigation. The prosecution of offenses punishable under the Revised Securities Act and the Securities Regulations Code is initiated by the filing of a complaint with the SEC or
by an investigation conducted by the SEC motu proprio. Only after a finding of probable cause is made by the SEC can the DOJ instigate a preliminary investigation. Thus, the investigation
that was commenced by the SEC in 1995, soon after it discovered the questionable acts of the respondents, effectively interrupted the prescription period. Given the nature and purpose of
the investigation conducted by the SEC, which is equivalent to the preliminary investigation conducted by the DOJ in criminal cases, such investigation would surely interrupt the prescription
period.

VI. The Court of Appeals was justified in denying SECs Motion for Leave to Quash SEC Omnibus Orders dated 23 October 1995.
The SEC avers that the Court of Appeals erred when it denied its Motion for Leave to Quash SEC Omnibus Orders, dated 23 October 1995, in the light of its admission that the PED had
the sole authority to investigate the present case. On this matter, this Court cannot agree with the SEC.

In the assailed decision, the Court of Appeals denied the SECs Motion for Leave to Quash SEC Omnibus Orders, since it found other issues that were more important than whether or
not the PED was the proper body to investigate the matter. Its refusal was premised on its earlier finding that no criminal, civil, or administrative case may be filed against the respondents
under Sections 8, 30 and 36 of the Revised Securities Act, due to the absence of any implementing rules and regulations. Moreover, the validity of the PED Rules on Practice and Procedure
was also raised as an issue. The Court of Appeals, thus, reasoned that if the quashal of the orders was granted, then it would be deprived of the opportunity to determine the validity of the
aforementioned rules and statutory provisions. In addition, the SEC would merely pursue the same case without the Court of Appeals having determined whether or not it may do so in
accordance with due process requirements. Absent a determination of whether the SEC may file a case against the respondents based on the assailed provisions of the Revised Securities Act,
it would have been improper for the Court of Appeals to grant the SECs Motion for Leave to Quash SEC Omnibus Orders.

IN ALL, this Court rules that no implementing rules were needed to render effective Sections 8, 30 and 36 of the Revised Securities Act; nor was the PED Rules of Practice and
Procedure invalid, prior to the enactment of the Securities Regulations Code, for failure to provide parties with the right to cross-examine the witnesses presented against them. Thus, the
respondents may be investigated by the appropriate authority under the proper rules of procedure of the Securities Regulations Code for violations of Sections 8, 30, and 36 of the Revised
Securities Act.[82]

IN VIEW OF THE FOREGOING, the instant Petition is GRANTED. This Court hereby REVERSES the assailed Decision of the Court of Appeals promulgated on 20 August 1998 in CA-
G.R. SP No. 37036 and LIFTS the permanent injunction issued pursuant thereto. This Court further DECLARES that the investigation of the respondents for violations of Sections 8, 30 and 36
of the Revised Securities Act may be undertaken by the proper authorities in accordance with the Securities Regulations Code. No costs.

SO ORDERED.

05 JOSE U. PUA and BENJAMIN HANBEN U. PUA, Petitioners,


vs.
CITIBANK, N. A., Respondent.
DECISION
PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari 1 are the Decision2 dated May 21, 2007 and Resolution3 dated October 16, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 79297, which
reversed and set aside the Orders dated May 14, 2003 4 and July 16, 20035 of the Regional Trial Court of Cauayan City, Isabela, Branch 19 (RTC), dismissing petitioners Jose(Jose) and Benjamin
Hanben U. Pua's (petitioners) complaint against respondent Citibank, N. A. (respondent).

The Facts

On December 2, 2002, petitioners filed before the RTC a Complaint 6 for declaration of nullity of contract and sums of money with damages against respondent, 7 docketed as Civil Case No. 19-
1159.8 In their complaint, petitioners alleged that they had been depositors of Citibank Binondo Branch (Citibank Binondo) since 1996. Sometime in 1999, Guada Ang, Citibank Binondos
Branch Manager, invited Jose to a dinner party at the Manila Hotel where he was introduced to several officers and employees of Citibank Hongkong Branch (Citibank Hongkong). 9 A few
months after, Chingyee Yau (Yau), Vice-President of Citibank Hongkong, came to 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 conditions for the sale of the aforementioned securities. 10 After opening such account, Yau offered and sold to petitioners numerous securities 11 issued by various
public limited companies established in Jersey, Channel I sands. The offer, sale, and signing of the subscription agreements of said securities were all made and perfected at Citibank Binondo
in the presence of its officers and employees. 12 Later on, petitioners discovered that the securities sold to them were not registered with the Securities and Exchange Commission (SEC)and
that the terms and conditions covering the subscription were not likewise submitted to the SEC for evaluation, approval, and registration. 13 Asserting that respondents actions are in violation
of Republic Act No.8799, entitled the "Securities Regulation Code" (SRC), they assailed the validity of the subscription agreements and the terms and conditions thereof for being contrary to
law and/or public policy.14

For its part, respondent filed a motion to dismiss15 alleging, inter alia, that petitioners complaint should be dismissed outright for violation of the doctrine of primary jurisdiction. It pointed out
that the merits of the case would largely depend on the issue of whether or not there was a violation of the SRC, in particular, whether or not there was a sale of unregistered securities. In
this regard, respondent contended that the SRC conferred upon the SEC jurisdiction to investigate compliance with its provisions and thus, petitioners complaint should be first filed with the
SEC and not directly before the RTC.16

Petitioners opposed17 respondents motion to dismiss, maintaining that the RTC has jurisdiction over their complaint. They asserted that Section 63of the SRC expressly provides that the RTC
has exclusive jurisdiction to hear and decide all suits to recover damages pursuant to Sections 56 to 61 of the same law. 18

The RTC Ruling


In an Order19 dated May 14, 2003, the RTC denied respondents motion to dismiss. It noted that petitioners complaint is for declaration of nullity of contract and sums of money with damages
and, as such, it has jurisdiction to hear and decide upon the case even if it involves the alleged sale of securities. It ratiocinated that the legal questions or issues arising from petitioners
causes of action against respondent are more appropriate for the judiciary than for an administrative agency to resolve. 20
Respondent filed an omnibus motion21 praying, among others, for there consideration of the aforesaid ruling, which petitioners, in turn, opposed. 22 In an Order23 dated July 16, 2003, the RTC
denied respondents omnibus motion with respect to its prayer for reconsideration. Dissatisfied, respondent filed a petition for certiorari before the CA. 24
The CA Ruling
In a Decision25 dated May 21, 2007, the CA reversed and set aside the RTCs Orders and dismissed petitioners complaint for violation of the doctrine of primary jurisdiction. The CA agreed
with respondents contention that since the case would largely depend on the issue of whether or not the latter violated the provisions of the SRC, the matter is within the special competence
or knowledge of the SEC. Citing the case of Baviera v. Paglinawan 26(Baviera), the CA opined that all complaints involving violations of the SRC should be first filed before the SEC. 27
Aggrieved, petitioners moved for reconsideration, 28 which was, however, denied by the CA in a Resolution 29dated October 16, 2007.Hence, this petition.
The Issue Before the Court
The essential issue in this case is whether or not petitioners action falls within the primary jurisdiction of the SEC.
Petitioners reiterate their original position that the SRC itself provides that civil cases for damages arising from violations of the same law fall within the exclusive jurisdiction of the regional
trial courts.30
On the contrary, respondent maintains that since petitioners complaint would necessarily touch on the issue of whether or not the former violated certain provisions of the SRC, then the said
complaint should have been first filed with the SEC which has the technical competence to resolve such dispute. 31

The Courts Ruling


The petition is meritorious.

At the outset, the Court observes that respondent erroneously relied on the Baviera ruling to support its position that all complaints involving purported violations of the SRC should be first
referred to the SEC. A careful reading of the Baviera case would reveal that the same involves a criminal prosecution of a purported violator of the SRC, and not a civil suit such as the case at
bar. The pertinent portions of the Baviera ruling thus read:
A criminal charge for violation of the Securities Regulation Code is a specialized dispute. Hence, it must first be referred to an administrative agency of special competence, i.e., the SEC.
Under the doctrine of primary jurisdiction, courts will not determine a controversy involving a question within the jurisdiction of the administrative tribunal, where the question demands the
exercise of sound administrative discretion requiring the specialized knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact. The
Securities Regulation Code is a special law. Its enforcement is particularly vested in the SEC.
Hence, all complaints for any violation of the Code and its implementing rules and regulations should be filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse
the complaint to the DOJ for preliminary investigation and prosecution as provided in Section 53.1 earlier quoted.

We thus agree with the Court of Appeals that petitioner committed a fatal procedural lapse when he filed his criminal complaint directly with the DOJ. Verily, no grave abuse of discretion can
be ascribed to the DOJ in dismissing petitioners complaint. 32 (Emphases and underscoring supplied)

Records show that petitioners complaint constitutes a civil suit for declaration of nullity of contract and sums of money with damages, which stemmed from respondents alleged sale of
unregistered securities, in violation of the various provisions of the SRC and not a criminal case such as that involved in Baviera.

In this light, when the Court ruled in Baviera that "all complaints for any violation of the [SRC] x x x should be filed with the SEC," 33 it should be construed as to apply only to criminal and not
to civil suits such as petitioners complaint.
Moreover, it is a fundamental rule in procedural law that jurisdiction is conferred by law; 34 it cannot be inferred but must be explicitly stated therein. Thus, when Congress confers exclusive
jurisdiction to a judicial or quasi-judicial entity over certain matters by law, this, absent any other indication to the contrary, evinces its intent to exclude other bodies from exercising the
same.
It is apparent that the SRC provisions governing criminal suits are separate and distinct from those which pertain to civil suits. On the one hand, Section 53 of the SRC governs criminal suits
involving violations of the said law, viz.:
SEC. 53. Investigations, Injunctions and Prosecution of Offenses.
53.1. The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated or is about to violate any provision of this Code,
any rule, regulation or order thereunder, or any rule of an Exchange, registered securities association, clearing agency, other self-regulatory organization, and may require or permit any
person to file with it a statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter to be investigated. The
Commission may publish information concerning any such violations, and to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as a basis for recommending further legislation
concerning the matters to which this Code relates: Provided, however, That any person requested or subpoenaed to produce documents or testify in any investigation shall simultaneously be
notified in writing of the purpose of such investigation:

Provided, further, That all criminal complaints for violations of this Code, and the implementing rules and regulations enforced or administered by the Commission shall be referred to the
Department of Justice for preliminary investigation and prosecution before the proper court:

Provided, furthermore, That in instances where the law allows independent civil or criminal proceedings of violations arising from the same act, the Commission shall take appropriate action
to implement the same: Provided, finally, That the investigation, prosecution, and trial of such cases shall be given priority.
On the other hand, Sections 56, 57, 58, 59, 60, 61, 62, and 63 of the SRC pertain to civil suits involving violations of the same law. Among these, the applicable provisions to this case are
Sections 57.1 and 63.1 of the SRC which provide:

SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports.
57.1. Any person who:
(a) Offers to sell or sells a security in violation of Chapter III;
or
(b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code, by the use of any means or instruments of transportation or communication, by means of
a prospectus or other written or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall fail in the burden of
proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him,
who may sue to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for
damages if he no longer owns the security.
xxxx
SEC. 63. Amount of Damages to be Awarded. 63.1. All suits to recover damages pursuant to Sections 56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court which shall
have exclusive jurisdiction to hear and decide such suits. The Court is hereby authorized to award damages in an amount not exceeding triple the amount of the transaction plus actual
damages.
x x x x (Emphases and underscoring supplied)

Based on the foregoing, it is clear that cases falling under Section 57of the SRC, which pertain to civil liabilities arising from violations of the requirements for offers to sell or the sale of
securities, as well as other civil suits under Sections 56, 58, 59, 60, and 61 of the SRC shall be exclusively brought before the regional trial courts. It is a well-settled rule in statutory
construction that the term "shall" is a word of command, and one which has always or which must be given a compulsory meaning, and it is generally imperative or mandatory. 35 Likewise, it
is equally revelatory that no SRC provision of similar import is found in its sections governing criminal suits; quite the contrary, the SRC states that criminal cases arising from violations of its
provisions should be first referred to the SEC.1wphi1
Therefore, based on these considerations, it stands to reason that civil suits 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 criminal cases wherein the latter body exercises primary jurisdiction.

All told, petitioners' filing of a civil suit against respondent for purported violations of the SRC was properly filed directly before the RTC.

WHEREFORE, the petition is GRANTED. Accordingly, the Court of Appeals' Decision dated May 21, 2007 and Resolution dated October 16,2007 in CA-G.R. SP No. 79297 are hereby REVERSED
and SET ASIDE. Let Civil Case No. 19-1159 be REINSTATED and REMANDED to the Regional Trial Court of Cauayan City, Isabela, Branch 19 for further proceedings.

06 Citibank vs. Tanco-Gabaldon


07 SECURITIES AND EXCHANGE COMMISSION, Petitioner, v. OUDINE SANTOS, Respondent.

Before us is another cautionary tale of an investment arrangement which, at the outset, appeared good, unraveling unhappily as a deal toogoodtobetrue.

This petition for review on certiorari under Rule 45 of the Rules of Court assails the Decision 1 of the Court of Appeals in CAG.R. SP No. 112781 affirming the Resolutions 2 of the Secretary of Justice in
I.S. No. 20071054 which, among others, dismissed the criminal complaint for violation of Section 28 of Republic Act No. 8799, the Securities Regulation Code, filed by petitioner Securities and
Exchange Commission (SEC) against respondent Oudine Santos (Santos).

Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary perpetrator, Michael H.K. Liew (Liew), a selfstyled financial guru and Chairman of the Board of
Directors of Performance Investment Products Corporation (PIPCBVI), a foreign corporation registered in the British Virgin Islands.

To do business in the Philippines, PIPCBVI incorporated herein as Philippine International Planning Center Corporation (PIPC Corporation).

Because the head of PIPC Corporation had gone missing and with it the monies and investment of a significant number of investors, the SEC was flooded with complaints from thirtyone (31)
individuals against PIPC Corporation, its directors, officers, employees, agents and brokers for alleged violation of certain provisions of the Securities Regulation Code, including Section 28 thereof.
Santos was charged in the complaints in her capacity as investment consultant of PIPC Corporation, who supposedly induced private complainants Luisa Mercedes P. Lorenzo (Lorenzo) and Ricky Albino
P. Sy (Sy), to invest their monies in PIPC Corporation.

The common recital in the 31 complaints is that: chanRoble svirtualLawlibrary

x x x [D]ue to the inducements and solicitations of the PIPC corporations directors, officers and employees/agents/brokers, the former were enticed to invest their hardearned money, the minimum
amount of which must be US$40,000.00, with PIPCBVI, with a promise of higher income potential of an interest of 12 to 18 percentum (%) per annum at relatively lowrisk investment program. The
private complainants also claimed that they were made to believe that PIPC Corporation refers to Performance Investment Product Corporation, the Philippine office or branch of PIPCBVI, which is an
entity engaged in foreign currency trading, and not Philippine International Planning Center Corporation. 3

Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a complaintaffidavit for violation of Sections 8, 4 265 and 286 of the Securities Regulation Code before the Department
of Justice which was docketed as I.S. No. 20071054. Among the respondents in the complaintaffidavit were the principal officers of PIPC: Liew, Chairman and President; Cristina GonzalezTuason,
Director and General Manager; Ma. Cristina BautistaJurado, Director; and herein respondent Santos.

Private complainants, Lorenzo and Sy, in their affidavits annexed to SECs complaintaffidavit, respectively narrated Santos participation in how they came to invest their monies in PIPC
Corporation:chanRoble svirtualLawlibrary

1. Lorenzos affidavit

2. I heard about PIPC Corporation from my friend Derrick Santos during an informal gathering sometime in March 2006. He said that the investments in PIPC Corporation generated a return of 18
20% p.a. every two (2) months. He then gave me the number of his sister, Oudine Santos who worked for PIPC Philippines to discuss the investment further.

3. I then met with Oudine Santos sometime during the first week of April 2006 at PIPC Philippines lounge x x x. Oudine Santos conducted for my personal benefit a presentation of the characteristics
of their investment product called Performance Managed Portfolio (PMP). The main points of her presentation are indicated in a summary she gave me, x x x: chanRoblesvirtualLawlibrary

4. I asked Oudine Santos who were the traders, she said their names were confidential.

5. Oudine Santos also emphasized in that same meeting that I should keep this transaction to myself because they were not allowed to conduct foreign currency trading. However, she assured me that
I should not worry because they have a lot of big people backing them up. She also mentioned that they were applying for a seat in the stock exchange.

6. I ultimately agreed to put in FORTY THOUSAND US DOLLARS (US$40,000.00) in their investment product.

7. Oudine Santos then gave me instructions on how to place my money in PMP and made me sign a Partnership Agreement. x x x.

8. Soon thereafter, pursuant to the instructions Oudine Santos gave me, I remitted US$40,000.00 to ABNAMRO Hong Kong.

9. Afterwards, I received a letter dated 17 April 2006, signed by Michael H.K. Liew, welcoming my investment.
10. Sometime on May 2006, I added another US$ 60,000.00 to my then subsisting account #181372, thus totaling US$100,000.00. This amount, pursuant to the instructions of Oudine Santos, was
remitted to Standard Chartered Bank

14. Then sometime on May 2007, I planned to pull out my remaining US$100,000.00 investment in PIPC Philippines. On 22 May 2007, I met with Oudine Santos at the 15th Floor of Citibank Tower in
Makati City. I told her I wanted to terminate all my investments.

15. Oudine Santos instead said that PIPC Philippines has a new product I might be interested in. x x x She explained that this product had the following characteristics: chanRoblesvirtualLawlibrary

16. Oudine Santos reiterated these claims in an email she sent me on 22 May 2007. x x x.

17. Enticed by these assurances and promises of large earnings, I put in FOUR HUNDRED THOUSAND US DOLLARS (US$400,000.00) in PMP (RZB), which became account # R149432.

18. Pursuant to the instructions Oudine Santos gave me, I remitted the amount of US$ 400,000.00 to RZB Austria, Singapore Branch.

22. I tried calling Oudine Santos and was finally able to reach her at around 7 in the morning. She confirmed what Leah Caringal told me. I told her then that I want full recovery of my investment in
accordance with their 100% principal guarantee. To this day[,] I have not received my principal investment. 7

5. Sys affidavit

2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15 years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain
routine transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to wait in her cubicle. It was there that the bank manager introduced me to another bank
client, Ms. Oudine Santos. After exchanging pleasantries, and in the course of a brief conversation, Ms. Santos told me that she is a resident of Damarias Village and was working as an investment
consultant for a certain company, Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office at the Citibank Tower in Makati so that she could explain
the investment products that they are offering. I gave her my contact number and finished my transaction with the bank for that day;

3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the business lounge of [PIPC] located at the 15th Floor of Citibank Tower, Makati. During the meeting, Ms. Santos
enticed me to invest in their Performance Managed Portfolio which she explained was a risk controlled investment program designed for individuals like me who are looking for higher investment
returns than bank deposits while still having the advantage of security and liquidity. She told me that they were engaged in foreign currency trading abroad and that they only employ professional and
experienced foreign exchange traders who specialize in trading the Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told her that I did not have any experience in foreign
currency trading and was quite conservative in handling my money;

4. Ms. Santos quickly allayed my fears by emphasizing that the capital for any investment with [PIPC] is secure. She then trumpeted [PIPCs] track record in the Philippines, having successfully
solicited investments from many wealthy and wellknown individuals since 2001;

5. Ms. Santos convinced me to invest in Performance Management Portfolio I x x x [which] features full protection for the principal investment and a 60%40% sharing of the profit between the client
and [PIPC] respectively;

6. In November of 2006, I decided to invest USD 40,000 specifically in Performance Management Portfolio I x x x. After signing the Partnership Agreement, x x x, I was instructed by Ms. Santos to
deposit the amount by telegraphic transfer to [PIPCs] account in ABN AMRO Bank Hong Kong. I did as instructed;

8. Sometime January to March of 2007, [Santos] was convincing me to make an additional investment under a second product, Performance Management Portfolio II [PMP II] which provides a more
limited guarantee for the principal investment of USD 100,000 and a 80%20% sharing of the profit between the client and [PIPC] respectively. In both schemes, the clients participation will be limited
to choosing two currencies which will in turn be traded by professional traders abroad. Profit earned from the transaction will then be remitted to the clients account every 8 weeks;

10. After I made my USD 40,000 PMP I investment, Ms. Santos invited me to meet Mr. Michael Liew in the business lounge some time during the first quarter of this year. My impression was that he
was quite unassuming considering that he was the head of an international investment firm. x x x.8

On the whole, Lorenzo and Sy charge Santos in her capacity as investment consultant of PIPC Corporation who actively engaged in the solicitation and recruitment of investors. Private complainants
maintain that Santos, apart from being PIPC Corporations employee, acted as PIPC Corporations agent and made representations regarding its investment products and that of the supposed global
corporation PIPCBVI. Facilitating Lorenzos and Sys investment with PIPC Corporation, Santos represented to the two that investing with PIPC Corporation, an affiliate of PIPCBVI, would be safe and
fullproof.
In SECs complaintaffidavit, it charged the following: chanRoblesvirtualLawlibrary

12. This case stems from the act of fraud and chicanery masterfully orchestrated and executed by the officers and agents of PIPC Corp. against their unsuspecting investors. The deception is founded
on the basic fact that neither PIPC Corp. nor its officers, employees and agents are registered brokers/dealers, making their numerous transactions of buying and selling securities to the public a
blatant violation of the provisions of the SRC, specifically Sections 8 and 28 thereof. Their illegal offer/sale of securities in the form of the Performance Management Partnership Agreement to the
public was perpetrated for about nine (9) years and would have continued were it not for the alleged, and most probably, contrived and deliberate withdrawal of the entire funds of the corporation by
Michael H.K. Liew. The [scam] was masked by a supposed offshore foreign currency trading scheme promising that the principal or capital infused will be guaranteed or fully protected. Coupled with
this [full] guarantee for the principal is the prospect of profits at an annual rate of 12 to 18%. [One of] the other enticements provided by the subject company were free use of its business either for
personal or business purposes, free subscription of imported magazines, [trips] abroad, and insurance coverage, just to name a few. Fully convinced and enamored [by the] thought of earning higher
rates of interest along with the promise of a guaranteed [capital] the investors placed and entrusted their money to PIPC Corp., only to find out later [that they] had been deceived and taken for a ride.

17. Sometime in 2006, an investigation was undertaken by the [Compliance and Enforcement Division of the SEC] on the [account] of PIPC Corp. Per its Articles of Incorporation, PIPC Corp. was
authorized to engage [in the] dissemination of information on the current flow of foreign exchange (forex) as x x x precious metals such as gold, silver, and oil, and items traded in stock and
securities/commodities exchanges around the world. To be more specific, PIPC Corp. [was] authorized to act only as a research arm of their foreign clients

22. x x x.
Name of Investors Broker / Agent Bank/Location Date Account Amount of Investment Bank/Location
to which Number xxx
funds were
transferred
xxxx
23. Luisa Mercedes P. Oudine Santos RZB Austria, Singapore June 2007 R149432 US$500,000 Not provided
Lorenzo Branch
xxxx
32. Ricky Albino P. Sy Oudine Santos ABNAMRO Bank Hongkong 9 October 2006 0800287769 US$40,000 BPI Pasong Tamo B9

23. A careful perusal of the complaintaffidavits revealed that for every completed investment transaction, a company brochure, depending on the type of investment portfolio chosen, was provided to
each investor containing the following information on Performance BVI and its investment product called Performance Managed Portfolio or PMP, the points of which are as follows:
a. 8 calendar week maturity period[,]
b. principal investment (minimum of USD 40,000) is protected[,]
c. investments maintained in strict confidentiality[,]
d. features: security, liquidity, short term commitment,
e. taxexemption status for offshore investments.
24. The investment flow is described as follows:
a. Investors funds will be placed into a fixed deposit account with a PIPC designated bank and shall not be exposed for trading purposes. The PIPC designated bank shall then extend a margin
line request for trading based on the deposit;
b. PIPC shall open a separate account which will contain an amount of not more than 30% of its own funds to serve as a profit and loss account;
c. Trading will commence with PIPC designated bank closely monitoring the performance to ensure that if losses are incurred trading will cease immediately should the 20% stop limit be hit;
d. Profits will be credited into the Profit and Loss account with PIPC designated bank account. Losses will be debited from the same account up to the controlled 20% limit;
e. Notice of withdrawals must be submitted two weeks prior to schedule of maturity otherwise investment is automatically rolled over to the next batch;
f. At maturity, profits accumulated in the settlement account shall be distributed and deposited into each investors dollar bank account within fourteen (14) banking days;
g. The funds of various investors are pooled, batched and deposited with PIPC designated bank account acting as custodian bank, to form a massive asset base. This account is separate and
distinct from the Profit and Loss Account. The line from this pooled fund is then entrusted to full time professional and experienced foreign traders who each specialize in the following
currencies: Japanes Yen, Euro, British Pound, Swiss Francs and Australian Dollar. Profits generated from trading these major currencies is credited into the Profit and Loss Account, which at the
end of the eight calendar week lockin period, will be distributed among the investors. Investors are informed of their account status thru trading statements issued by PIPC every time there is
a trade made in their respective accounts.
xxxx
25. Furthermore, it was relayed by the officers and agents to complainantsinvestors that PIPC Corp. is the Philippine office of the Performance Group of Companies affiliates situated in different parts
of the world, particularly China, Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands (BVI), even reaching Switzerland. With such basic depiction of the legitimacy and stability
of PIPC Corp., complainantsinvestors deduced that it was clothed with the authority to solicit, offer [and] sell securities. As regards the officers and agents of [PIPC Corp.], they secured proper
individual licenses with the SEC as brokers/dealers of securities to enable to solicit, offer and/or sell the same.

26. Official SEC documents would show that while PIPC Corp. is indeed registered with the SEC, it having engaged in the solicitation and sale of securities was contrary to the purpose for which it was
established which is only to act as a financial research. Corollarily, PIPC Corp.s officers, agents, and brokers were not licensed to solicit, offer and sell securities to the public, a glaring violation of
Sections 8 and 28 of the SRC.10

In refutation, Santos denied intentionally defrauding complainants Lorenzo and Sy: chanRoble svirtualLawlibrary

12. I cannot understand how I can be charged of forming, or even of being a part of, a syndicate formed with the intention of carrying an unlawful or illegal act, transaction, enterprise or scheme. If
this charge has reference to PIPC Corp. then I certainly cannot be held liable therefore. As I mentioned above, I joined PIPC Corp. only in April 2005 and, by that time, the company was already in
existence for over four years. I had no participation whatsoever in its creation or formation, as I was not even connected with PIPC Corp. at the time of its incorporation. In fact, I have never been a
stockholder, director, general manager or officer of PIPC Corp. Further, PIPC Corp. was duly registered with the Securities and Exchange Commission and was organized for a legitimate purpose, and
certainly not for the purpose of perpetrating a fraud against the public.

13. That I was an employee and, later on, an independent information provider of PIPC Corp. is of little consequence. My duties as such were limited to providing information about the corporate
clients of PIPC Corp. that had been expressly requested by interested individuals. I performed my assigned job without any criminal intent or malice. In this regard, I have been advised that offenses
penalized under the RPC are intentional felonies for which criminal liability attaches only when it is shown that the malefactors acted with criminal intent or malice. There can be no crime when the
criminal mind is wanting. In this case, I performed my task of providing requested information about the clients of PIPC Corp. without any intent to violate the law. Thus, there can be no criminal
liability.

[14]. I have also been advised that under the law, the directors and officers of a corporation who act for and in behalf of the corporation, who keep within the lawful scope of their authority, and act in
good faith, do not become liable, whether civilly or otherwise, for the consequences of their acts, as these acts are properly attributed to the corporation alone. The same principle should apply to
individual, like myself, who was only acting within the bounds of her assigned tasks and had absolutely no decisionmaking power in the management and supervision of the company.

[15]. Neither can I be liable of forming a syndicate with respect to PIPCBVI. To reiterate, at no time was I ever a stockholder, director, employee, officer or agent of PIPCBVI. Said company is simply
one of many companies serviced by PIPC Corp. I had no participation whatsoever in its creation and/or in the direction of its daytoday affairs.

xxxx

19. Further, I have been advised by counsel that conspiracy must be established by positive and conclusive evidence. It cannot be based on mere conjecture but must be established as a fact. In this
case, no proof of conspiracy was presented against me. In fact, it appears that I have been dragged in to this allegation based on the hearsay statement of Felicia Tirona that I was one of the inhouse
account executives or work force of PIPCBVI and PIPC Corp. There was no allegation whatsoever of any illegal act done by me to warrant the institution of criminal charges against me. If at all,
only Michael Liew should be held criminally liable, as he was clearly the one who absconded with the money of the investors of PIPCBVI. Mr. Liew has since disappeared and efforts to locate him have
apparently proved to be futile to date.

xxxx

23. In the first place, I did not receive any money or property from any of the complainants. As clearly shown by the documents submitted to this Honorable Office, particularly, the Portfolio
Management Partnership Agreement, Security Agreement, Declaration of Trust, bank statements and acknowledgement receipts, complainants delivered their money to PIPCBVI, not to PIPC Corp.
Complainants deposited their investment in PIPCBVIs bank account, and PIPCBVI would subsequently issue an acknowledgement receipt. No part of the said money was ever delivered to PIPC Corp.
or to me.

24. Indeed, complainants own evidence show that the Portfolio Management Partnership Agreement, Security Agreement and Declaration of Trust were executed between PIPCBVI and the individual
complainants. Further, paragraph 2 of the Declaration of Trust explicitly stated that PIPCBVI hold the said amount of money UPON TRUST for the Beneficiary Owner. The complainants cannot,
therefore, hold PIPC Corp., or any of its officers or employees, with misappropriating their money or property when they were fully aware that they delivered their money to, and transacted solely with,
PIPCBVI, and not PIPC Corp.

25. It also bears stressing that of the twentyone (21) complainants in this case, only complainant Ricky Albino Sy alleged that he had actually dealt with me. Complainant Sy himself never alleged
that he delivered or entrusted any money or property to me. On the contrary, complainant Sy admitted that he deposited his investment of U.S.$40,000.00 by bank transfer to PIPCBVIs account in
the ABN Amro Bank. That the money was delivered to PIPCBVI, and not to me, is shown by the fact that the receipt was issued by PIPCBVI. I never signed or issued any acknowledgement receipt,
as I never received any such money. Neither did I ever gain physical or juridical possession of the said money.11 (Emphasis and underscoring supplied).

Santos defense consisted in: (1) denying participation in the conspiracy and fraud perpetrated against the investorcomplainants of PIPC Corporation, specifically Sy and Lorenzo; (2) claiming that she
was initially and merely an employee of, and subsequently an independent information provider for, PIPC Corporation; (3) PIPC Corporation being a separate entity from PIPCBVI of which Santos has
never been a part of in any capacity; (4) her not having received any money from Sy and Lorenzo, the two having, in actuality, directly invested their money in PIPCBVI; (5) Santos having dealt only
with Sy and the latter, in fact, deposited money directly into PIPCBVIs account; and (6) on the whole, PIPCBVI as the other party in the investment contracts signed by Sy and Lorenzo, thus the only
corporation liable to Sy and Lorenzo and the other complainants.

On 18 April 2008, the DOJ, in I.S. No. 20071054, issued a Resolution signed by a panel of three (3) prosecutors, with recommendation for approval of the Assistant Chief State Prosecutor, and
ultimately approved by Chief State Prosecutor Jovencito R. Zuo, indicting: (a) Liew and GonzalezTuason for violation of Sections 8 and 26 of the Securities Regulation Code; and (b) herein
respondent Santos, along with Cristina GonzalezTuason and 12 others for violation of Section 28 of the Securities Regulation Code. The same Resolution likewise dismissed the complaint against 8 of
the respondents therein for insufficiency of evidence. In the 18 April 2008 Resolution, the DOJ discussed at length the liability of PIPC Corporation and its officers, employees, agents and all those
acting on PIPC Corporations behalf, to wit:chanRoble svirtualLawlibrary

Firstly, complainant SEC filed the instant case for alleged violation by respondents [therein, including herein respondent, Santos,] of Section 8 of the SRC.

Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved
by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

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

However, Section 8.5 thereof provides that The Commission may audit the financial statements, assets and other information of a firm applying for registration of its securities whenever it deems the
same necessary to insure full disclosure or to protect the interest of the investors and the public in general.

The abovequoted provision is loud and clear and needs no further interpretation. It is the firm through its authorized officers that is required to register its securities with the SEC and not the
individual persons allegedly selling and/or offering for sale said unregistered securities. To do otherwise would open the floodgates to numerous complaints against innocent individuals who have no
hand in the control, decisionmaking and operations of said investment company.

Clearly, it is only the PIPC Corp. and respondents Michael H. Liew and Cristina GonzalezTuason being the President and the General Manager respectively, of PIPC Corp. who violated Section 8 of the
SRC.

Respondents Liew and Tuason are directors and officers of PIPC Corp. who exercise power of control and supervision in the management of said corporation. Surely they cannot claim having no
knowledge of the operations of PIPC Corp. visvis its scope of authority since they are the ones who actually created and manage the same. They are well aware that PIPC Corp. is a mere financial
research facility and has nothing to do with selling or offering for sale securities to the general public. But despite knowledge, they continue to recruit and deceive the general public by making it
appear that PIPC Corp. is a legitimate investment company.

Moreover, they cannot evade liability by hiding behind the veil of a corporate fiction. x x x.

In the case at bar, the investors were made to believe that PIPC Corp. and PIPCBVI is one and the same corporation. There is nothing on record that would show that private complainants were
informed that PIPC Corp. and PIPCBVI are two entities distinct and separate from one another. In fact, when they invested their money, they dealt with PIPC Corp. and the people acting on its behalf
but when they signed documents they were provided with ones bearing the name of PIPCBVI. Clearly, this obvious and intentional confusion of names of the two entities is designed to defraud and
later to avoid liabilities from their victims. Therefore, the defense of a corporate fiction is unavailing in the instant case.

Buying and selling of securities is an indispensable element that makes one a broker or dealer. So if one is not engaged in the business of buying and selling of securities, naturally he or she cannot be
considered as a broker or dealer. However, a person may be considered as an agent of another, juridical or natural person, if it can be inferred that he or she acts as an agent of his or her principal as
abovedefined. One can also be an investor and agent at the same time.

An examination of the records and the evidence submitted by the parties, we have observed that all respondents are investors of PIPCBVI, same with the private complainants, they also lost
thousands of dollars. We also noted the fact that most of the private complainants and alleged brokers or agents are long time friends if not blood related individuals. Notably also is the fact that most
of them are highly educated businessmen/businesswomen who are financially welloff. Hence, they are regarded to be wiser and more prudent and expected to exercise due diligence of a good father
of a family in managing their finances as compared to those who are less fortunate in life.
However, we still need to delve deeper into the facts and the [evidence] on record to determine the degree of respondents participations and if on the basis of their actions, it can be inferred that they
acted as employeesagents or investoragents of PIPC Corp. or PIPCBVI then are liable under Section 28 of the SRC otherwise, they cannot be [blamed] for being mere employees or investors
thereof.

Oudine Santos. Investment Consultant of PIPC Corp. who allegedly invited, convinced and assured private complainants Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy to invest in PIPC Corp. To
prove their allegations, respondents attached email exchanges with respondent Santos regarding the details in investing with PIPCBVI. Respondent Santos failed to submit counteraffidavit despite
subpoena.

xxxx

After painstakingly going over the record and the supporting documents attached thereto and after carefully evaluating the respective claims and defenses raised by all the parties, the undersigned
panel of prosecutors has a reason to believe that Section 28 of the SRC has been violated and that the following respondents are probably guilty thereof and should, therefore, be held for trial:
1. Cristina GonzalezTuason
2. x x x.

13. Oudine Santos


The abovenamed respondents, aside from being officers, employees or investors, clearly acted as agents of PIPC Corp. who made representations regarding PIPC Corp. and PIPCBVI investment
products. They assured their clients that investing with PIPCBVI will be 100% guaranteed. In addition, they also facilitated their clients investments with PIPCBVI and some, if not all, even received
money investors as evidenced by the acknowledgement receipts they signed and on behalf of PIPCBVI. The documentary evidence submitted by witnesses and their categorical and positive assertion
of facts which, taken together corroborate one another, prevails over the defense of denial raised by the abovenamed respondents which are mostly selfserving in nature.

A formal or written contract of agency between two or more persons is not necessary for one to become an agent of the other for as long as it can be inferred from their actions that there exists a
principalagent relationship between them on the one hand and the PIPC Corp. or PIPCBVI on the other hand, then, it is implied that a contract of agency is created.

As to their contention that they are not officers or employees of PIPC Corp., the Supreme Court ruled that one may be an agent of a domestic corporation although he or she is not an officer thereto. x
x x. The basis of agency is representation; the question of whether an agency has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or
substantial evidence; though that fact or extent of authority of the agents may not, as a general rule, be established from the declarations of the agents alone, if one professes to act as agent for
another, he or she is estopped to deny her agency both as against the asserted principal and third persons interested in the transaction in which he or she is engaged.

Further, they cannot raise the defense of good faith for the simple reason that the SRC is a special law where criminal intent is not an essential element. Mere violation of which is punishable except in
some provisions thereof where fraud is a condition sine qua non such as Section 26 of the said law.

WHEREFORE, the foregoing considered, it is respectfully recommended that this resolution be APPROVED and that:
1. An information for violation of Section 8 of the SRC be filed against respondent PIPC Corp., MICHAEL H. LIEW and CRISTINA GONZALEZTUASON;
2. An information for violation of Section 26 thereof be also filed against respondents MICHAEL H. LIEW and CRISTINA GONZALEZTUASON; and
3. An information for violation of Section 28 thereof be filed against respondents CRISTINA GONZALEZTUASON, MA. CRISTINA BAUTISTAJURADO, BARBARA GARCIA, ANTHONY KIERULF,
EUGENE GO, MICHAEL MELCHOR NUBLA, MA. PAMELA MORRIS, LUIS JIMBO ARAGON, RENATO SARMIENTO, JR., VICTOR JOSE VERGEL DE DIOS, NICOLINE AMORANTO MENDOZA, JOSE JAY
TENGCO III, [respondent] OUDINE SANTOS AND HERLEY JESUITAS; and
4. The complaint against MAYENNE CARMONA, YEYE SAN PEDROCHOA, MIA LEGARDA, NICOLE ORTEGA, DAVID CHUAUNSU, STANLEY CHUAUNSU, DEBORAH V. YABUT, CHRISTINE YU and
JONATHAN OCAMPO be dismissed for insufficiency of evidence. 12 (Emphasis supplied)

In sum, the DOJ panel based its finding of probable cause on the collective acts of the majority of the respondents therein, including herein respondent Santos, which consisted in their acting as
employeesagent and/or investoragents of PIPC Corporation and/or PIPCBVI. Specifically alluding to Santos as Investment Consultant of PIPC Corporation, the DOJ found probable cause to indict
her for violation of Section 28 of the Securities Regulation Code for engaging in the business of selling or offering for sale securities, on behalf of PIPC Corporation and/or PIPCBVI (which were found
to be an issuer13 of securities without the necessary registration from the SEC) without Santos being registered as a broker, dealer, salesman or an associated person.

On separate motions for reconsideration of the respondents therein, including herein respondent Santos, the DOJ panel issued a Resolution dated 2 September 2008 modifying its previous ruling and
excluding respondent Victor Jose Vergel de Dios from prosecution for violation of Section 28 of the Securities Regulation Code, thus: chanRoble svirtualLawlibrary

After an assiduous reevaluation of the facts and the evidence submitted by the parties in support of their respective positions, the undersigned panel finds x x x [that the] rest of the respondents
mainly rehashed their earlier arguments except for a few respondents who, in one way or another, failed to participate in the preliminary investigation; hence raising their respective defenses for the
first time in their motions for reconsideration.

With respect to respondents Luis Jimbo Aragon and Oudine Santos who also claimed to have not received subpoenas, this panel, after thoroughly evaluating their respective defenses, finds them to
be similarly situated with the other respondents who acted as agents for and in behalf of PIPC Corp. and/or PIPCBVI; hence, their inclusion in the information is affirmed.

x x x As to the issue on whether or not PMPA is a security contract, we rule in the affirmative, as supported by the herein below provisions of the SRC, particularly: chanRoblesvirtualLawlibrary

Sec. 8. Requirement of Registration of Securities. 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without registration statement duly filed with and approved
by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

Securities have been defined as shares, participation or interest in a corporation or in a commercial enterprise or profit making venture and evidenced by a certificate, contract, instrument, whether
written or electronic in character. It includes among others, investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription.

Under the SRCs Amended Implementing Rules and Regulations, specifically Rule 3, par. 1 subpar. G, an investment contract has been defined as a contract, transaction or scheme (collectively
contract), whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. It is likewise provided in the said provision that an investment
contract is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits and a common enterprise is deemed created when two (2) or more investors
pool their resources creating a common enterprise, even if the promoter receives nothing more than a brokers commission. Undoubtedly, the PMPA is an investment contract falling within the
purview of the term securities as defined by law.

It bears to emphasize that the purpose of a preliminary investigation and/or confrontation between the partylitigants is for them to lay down all their cards on the table to properly inform and apprise
the other of the charges against him/her, to avoid suprises and to afford the adverse party all the opportunity to defend himself/herself based on the evidence submitted against him/her. Thus, failure
on the part of the defaulting party to submit evidence that was then available to him is deemed a waiver on his part to submit it in the same proceedings against the same party for the same issue.

WHEREFORE, the foregoing premises considered, the undersigned panel of prosecutors respectfully recommends that the assailed resolution be modified by dismissing the complaint against Victor Jose
Vergel De Dios and that the Information filed with the appropriate court for violation of Section 28 of the SRC be amended accordingly.14

Respondent Santos filed a petition for review before the Office of the Secretary of the DOJ assailing the Resolutions dated 18 April 2008 and 2 September 2008 and claiming that she was a mere
clerical employee/information provider who never solicited nor recruited investors, in particular complainants Sy and Lorenzo, for PIPC Corporation or PIPCBVI. Santos also claimed dearth of evidence
indicating she was a salesman/agent or an associated person of a broker or dealer, as defined under the Securities Regulation Code.

The SEC filed its Comment opposing Santos petition for review. Thereafter, the Office of the Secretary of the DOJ, through its then Undersecretary Ricardo R. Blancaflor, issued a Resolution dated 1
October 2009 which, as previously adverted to, excluded respondent Santos from prosecution for violation of Section 28 of the Securities Regulation Code. For a complete picture, we quote in full the
disquisition of the Secretary of the DOJ: chanRoble svirtualLawlibrary

[Santos] argues that while Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy mentioned two (2) instances wherein she allegedly enticed them to invest, their own pieces of evidence, particularly the
Annex E series (several Details of Profit distribution & Renewal of Partnership Agreement bearing different dates addressed to Ricky Albino P. Sy with stamped signature for PIPCBVI), indicate that
they invested and reinvested their money with PIPCBVI repeatedly and even earned profits from these transactions through direct dealing with PIPCBVI and without her participation. In addition, she
maintains that Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy had several opportunities to divest or withdraw their respective investments but opted not to do so at their own volitions.

The sole issue in this case is whether or not respondent Santos acted as agent of PIPC Corp. or had enticed Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPCBVIs investment
products.

We resolve in the negative.

Section 28 of the Securities Regulation Code (SRC) reads:

SEC. [28]. Registration of Brokers, Dealers, Salesmen and Associated Persons. 28.1. No person shall engage in the business of buying or selling securities in the Philippines as a broker or
dealer unless registered as such with the Commission.

28.2. No registered broker or dealer shall employ any salesman or any associated person, and no issuer shall employ any salesman, who is not registered as such with the Commission.

Jurisprudence defines an agent as a business representative, whose function is to bring about, modify, affect, accept performance of, or terminate contractual obligations between principal and third
persons. x x x On the other hand, the Implementing Rules of the SRC simply provides that an agent or a salesman is a person employed as such or as an agent, by the dealer, issuer or broker to
buy and sell securities x x x.

A judicious examination of the records indicates the lack of evidence that respondent Santos violated Section 28 of the SRC, or that she had acted as an agent for PIPC Corp. or enticed Luisa Mercedes
P. Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPCBVIs investment products.

The annex D (Welcome to PMP Letter dated [17 April 2006] addressed to Luisa Mercedes P. Lorenzo signed by Michael Liew as president of PIPCBVI), Annex E (Fixed Deposit Advice Letter dated
[26 June 2006] addressed to Luisa Mercedes P. Lorenzo and stamped signature for PIPCBVI), and Annex H (Welcome to PMP Letter dated [30 May 2007] addressed to Luisa Mercedes P. Lorenzo
signed by Michael Liew as President of PIPCBVI) of the complaintaffidavit dated [11 September 2007] of Luisa Mercedes P. Lorenzo show that she directly dealt with PIPCBVI in placing her
investment. The same is true with regard to Annex A series (Portfolio Management Partnership Agreement between Ricky Albino P. Sy and PIPCBVI, Security Agreement between Ricky Albino P. Sy
and PIPCBVI, and Declaration of Trust between Ricky Albino P. Sy and PIPCBVI), Annex B (Official Receipt dated 09 November 2006 issued by PIPCBVI), Annex C (Welcome to PMP Letter dated
[10 November 2006] addressed to Ricky Albino P. Sy and signed by Michael [Liew] as President of PIPCBVI), and Annex D (Fixed Deposit Advice Letter dated [29 January 2007] addressed to Ricky
Albino P. Sy with stamped signature for PIPCBVI) of the complaintaffidavit dated [26 September 2007] of Ricky Albino P. Sy. These documents categorically show that the parties therein, i.e., Luisa
Mercedes P. Lorenzo or Ricky Albino P. Sy and PIPCBVI, transacted with each other directly without any participation from respondent Santos. These documents speak for themselves. Moreover, it
bears stressing that Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy admit in their respective affidavits that they directly deposited their investments by bank transfer to PIPCBVIs offshore bank
account.

Annex B (Printed background of the PMP of [PIPC]BVI enumerating the features of said product) and Annex C (Printed Procedures in PMP Account Opening instructing the client what to do in
placing his/her investment) of the complaintaffidavit of Luisa Mercedes P. Lorenzo actually supports the allegations of respondent Santos that there were printed forms/brochures for distribution to
persons requesting the same. These printed/prepared handouts contain the assurances or guarantees of PIPCBVI and the instructions on where and how to deposit the investors money.

Likewise, Luisa Mercedes P. Lorenzos Annex A (2006 GIS of PIPC Corp. listing the stockholders, board of directors an[d] officers thereof), Annex F (Deposit Confirmation dated [14 June 2006] from
Standard Chartered Bank) and Annexes I to L (SEC Certifications stating that PIPC Corp., PIPC, PIPCBVI and Performance Investment Products Ltd., respectively, are not registered issuer of
securities nor licensed to offer or sell securities to the public) are not evidence against respondent Santos. Her name is not even mentioned in any of these documents. If at all, these documents are
evidence against PIPC Corp. and its officers named therein.

Further, it is important to note that in the Request Form, one of the documents being distributed by respondent Santos x x x, it is categorically stated therein that said request shall not be taken as
an investment solicitation x x x, but is mainly for the purpose of providing me with information. Clearly, this document proves that respondent Santos did not or was not involved in the solicitation of
investments but merely shows that she is an employee of PIPC Corp. In addition, the Information Dissemination Agreement between her employer PIPC Corp. and PIPCBVI readably and
understandably provides that she is prohibited from soliciting investments in behalf of PIPCBVI and her authority is limited only to providing interested persons with the necessary information
regarding how to communicate directly with PIPC. Parenthetically, the decision to sign the partnership Agreement with PIPCBVI to invest and repeatedly reinvest their monies with PIPCBVI were
made by Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy themselves without any inducement or undue influence from respondent Santos.

xxxx

WHEREFORE, the assailed resolution is hereby MODIFIED, the Chief State Prosecutor is directed to EXCLUDE respondent Oudine Santos from the Information for violation of Section 28 of the Securities
and Regulation Code, if any has been filed, and report the action taken thereon within ten (10) days from receipt hereof. 15

Expectedly, after the denial of the SECs motion for reconsideration before the Secretary of the DOJ, the SEC filed a petition for certiorari before the Court of Appeals seeking to annul the 1 October
2009 Resolution of the DOJ.

The Court of Appeals dismissed the SECs petition for certiorari and affirmed the 1 October 2009 Resolution of the Secretary of the DOJ: chanRoble svirtualLawlibrary

Prescinding from the foregoing, a person must first and foremost be engaged in the business of buying and selling securities in the Philippines before he can be considered as a broker, a dealer or
salesman within the coverage of the Securities Regulation Code. The record in this case however is bereft of any showing that [Santos] was engaged in the business of buying and selling securities in
the Philippines, whether for herself or in behalf of another person or entity. Apart from [SECs] sweeping allegation that [Santos] enticed Sy and Lorenzo and solicited from them investments for PIPC
BVI without first being registered as broker, dealer or salesman with SEC, no evidence had been adduced that shows [Santos] actual participation in the alleged offer and sale of securities to the
public, particularly to Sy and Lorenzo, within the Philippines. There was likewise no exchange of funds between Sy and Lorenzo, on one hand, and [Santos], on the other hand, as the price of certain
securities offered by PIPCBVI. There was even no specific proof that [Santos] misrepresented to Sy and Lorenzo that she was a licensed broker, dealer or salesperson of securities, thereby inducing
them to invest and deliver their hardearned money with PIPCBVI. In fact, the Information Dissemination Agreement between PIPC Corporation, [Santos employer], and PIPCBVI clearly provides
that [Santos] was prohibited from soliciting investments in behalf of PIPCBVI and that her authority is limited only to providing prospective client with the necessary information on how to
communicate directly with PIPC. Thus, it is obvious that the final decision of investing and reinvesting their money with PIPCBVI was made solely by Sy and Lorenzo themselves.
WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby DENIED and, consequently, DISMISSED. The assailed Resolutions dated [1 October 2009] and [23 November
2009] of the Secretary of Justice in I.S. No. 20071054 are hereby AFFIRMED.16

Hence, this appeal by certiorari raising the sole error of Santos exclusion from the Information for violation of Section 28 of the Securities Regulation Code.

Generally, at the preliminary investigation proper, the investigating prosecutor, and ultimately, the Secretary of the DOJ, is afforded wide latitude of discretion in the exercise of its power to determine
probable cause to warrant criminal prosecution. The determination of probable cause is an executive function where the prosecutor determines merely that a crime has been committed and that the
accused has committed the same.17 The rules do not require that a prosecutor has moral certainty of the guilt of a person simply for preliminary investigation purposes.

However, the authority of the prosecutor and the DOJ is not absolute; it cannot be exercised arbitrarily or capriciously. Where the findings of the investigating prosecutor or the Secretary of the DOJ as
to the existence of probable cause are equivalent to a gross misapprehension of facts, certiorari will lie to correct these errors.18

While it is our policy not to interfere in the conduct of preliminary investigations, we have, on more than one occasion, adhered to some exceptions to the general rule: chanRoble svirtualLawlibrary

1. when necessary to afford adequate protection to the constitutional rights of the accused;
2. when necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions;
3. when there is a prejudicial question which is sub judice;
4. when the acts of the officer are without or in excess of authority;
5. where the prosecution is under an invalid law, ordinance or regulation;
6. when double jeopardy is clearly apparent;
7. where the court has no jurisdiction over the offense;
8. where it is a case of persecution rather than prosecution;
9. where the charges are manifestly false and motivated by the lust for vengeance;
10. when there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied. 19 (Italics supplied).

In excluding Santos from the prosecution of the supposed violation of Section 28 of the Securities Regulation Code, the Secretary of the DOJ, as affirmed by the appellate court, debunked the DOJ
panels finding that Santos was prima facie liable for either: (1) selling securities in the Philippines as a broker or dealer, or (2) acting as a salesman, or an associated person of any broker or dealer on
behalf of PIPC Corporation and/or PIPCBVI without being registered as such with the SEC.

To get to that conclusion, the Secretary of the DOJ and the appellate court ruled that no evidence was adduced showing Santos actual participation in the final sale by PIPC Corporation and/or PIPC
BVI of unregistered securities since the very affidavits of complainants Lorenzo and Sy proved that Santos had never signed, neither was she mentioned in, any of the investment documents between
Lorenzo and Sy, on one hand, and PIPC Corporation and/or PIPCBVI, on the other hand.

The conclusions made by the Secretary of the DOJ and the appellate court are a myopic view of the investment solicitations made by Santos on behalf of PIPC Corporation and/or PIPCBVI while she
was not licensed as a broker or dealer, or registered as a salesman, or an associated person of a broker or dealer.

We sustain the DOJ panels findings which were not overruled by the Secretary of the DOJ and the appellate court, that PIPC Corporation and/or PIPCBVI was: (1) an issuer of securities without the
necessary registration or license from the SEC, and (2) engaged in the business of buying and selling securities. In connection therewith, we look to Section 3 of the Securities Regulation Code for
pertinent definitions of terms: chanRoblesvirtualLawlibrary

Sec. 3. Definition of Terms. x x x.

3.3. Broker is a person engaged in the business of buying and selling securities for the account of others.

3.4. Dealer means [any] person who buys [and] sells securities for his/her own account in the ordinary course of business.

3.5. Associated person of a broker or dealer is an employee thereof whom, directly exercises control of supervisory authority, but does not include a salesman, or an agent or a person whose
functions are solely clerical or ministerial.

3.13. Salesman is a natural person, employed as such [or] as an agent, by a dealer, issuer or broker to buy and sell securities.

To determine whether the DOJ Secretarys Resolution was tainted with grave abuse of discretion, we pass upon the elements for violation of Section 28 of the Securities Regulation Code: (a) engaging
in the business of buying or selling securities in the Philippines as a broker or dealer; or (b) acting as a salesman; or (c) acting as an associated person of any broker or dealer, unless registered as
such with the SEC.

Tying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation and/or PIPCBVI, a corporation which sold or offered for sale unregistered securities in the Philippines. To escape
probable culpability, Santos claims that she was a mere clerical employee of PIPC Corporation and/or PIPCBVI and was never an agent or salesman who actually solicited the sale of or sold
unregistered securities issued by PIPC Corporation and/or PIPCBVI.

Solicitation is the act of seeking or asking for business or information; it is not a commitment to an agreement. 20

Santos, by the very nature of her function as what she now unaffectedly calls an information provider, brought about the sale of securities made by PIPC Corporation and/or PIPCBVI to certain
individuals, specifically private complainants Sy and Lorenzo by providing information on the investment products of PIPC Corporation and/or PIPCBVI with the end in view of PIPC Corporation closing
a sale.

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

No matter Santos strenuous objections, it is apparent that she connected the probable investors, Sy and Lorenzo, to PIPC Corporation and/or PIPCBVI, acting as an ostensible agent of the latter on
the viability of PIPC Corporation as an investment company. At each point of Sys and Lorenzos investment, Santos participation thereon, even if not shown strictly on paper, was prima
facie established.

In all of the documents presented by Santos, she never alleged or pointed out that she did not receive extra consideration for her simply providing information to Sy and Lorenzo about PIPC
Corporation and/or PIPCBVI. Santos only claims that the monies invested by Sy and Lorenzo did not pass through her hands. In short, Santos did not present in evidence her salaries as a supposed
mere clerical employee or information provider of PIPCBVI. Such presentation would have foreclosed all questions on her status within PIPC Corporation and/or PIPCBVI at the lowest rung of the
ladder who only provided information and who did not use her discretion in any capacity.

We cannot overemphasize that the very information provided by Santos locked the deal on unregistered securities with Sy and Lorenzo.

In fact, Sy alleged in his affidavit, which allegation was not refuted by Santos, that he was introduced to Santos while he performed routine transactions at his bank: chanRoblesvirtualLawlibrary

2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15 years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain
routine transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to wait in her cubicle. It was there that the bank manager introduced me to another bank
client, Ms. Oudine Santos. After exchanging pleasantries, and in the course of a brief conversation, Ms. Santos told me that she is a resident of Damarias Village and was working as an investment
consultant for a certain company, Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office at the Citibank Tower in Makati so that she could explain
the investment products that they are offering. I gave her my contact number and finished my transaction with the bank for that day;

3. Ms. Santos texted me to confirm our meeting. A few days later, I met her at the business lounge of [PIPC] located at the 15th Floor of Citibank Tower, Makati. During the meeting, Ms. Santos
enticed me to invest in their Performance Managed Portfolio which she explained was a risk controlled investment program designed for individuals like me who are looking for higher investment
returns than bank deposits while still having the advantage of security and liquidity. She told me that they were engaged in foreign currency trading abroad and that they only employ professional and
experienced foreign exchange traders who specialize in trading the Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. I then told her that I did not have any experience in foreign
currency trading and was quite conservative in handling my money; 21

Santos countered that: chanRoble svirtualLawlibrary

28. I also categorically deny complainant Sys allegation that I enticed him to enter into a Partnership Agreement with PIPCBVI. In the first place, I came to know complainant Sy only when he was
referred to me by a mutual acquaintance, Ms. Ana Liliosa Santos, who was then the Manager of the Bank of the Philippine Islands, Pasong Tamo Branch. Ms. Ana Santos set up a meeting between
complainant Sy and me because complainant Sy wanted to know more about PIPCBVI. As with the other individuals who expressed interest in PIPC Corp.s client companies, I then provided
complainant Sy with additional information about PIPCBVI. The decision to enter into the aforementioned Partnership Agreement with PIPCBVI was made by complainant Sy alone without any
inducement or undue influence from me, as in fact I only met him twice the first one was on the meeting set up by Ms. Ana Santos and the second one was to introduce him to Michael Liew. Indeed,
complainant Sy appears to be a welleducated person with years of experience as a businessman. It is reasonable to assume that before entering into the said Partnership Agreement with PIPCBVI,
complainant Sy had fully understood the nature of the agreement and that in entering thereto, he had been motivated by a desire to earn a profit and had believed, as I myself have been led to
believe, that PIPCBVI was a legitimate business concern which offered a reasonable return on investment, Moreover, complainant Sy could have withdrawn his initial investment of US$40,000.00 on its
date of maturity, i.e., 26 January 2007, as indicated in the PIPCBVIs letter dated 10 November 2006, a copy of which is attached to complainant Sys Sworn Statement. Complainant Sy, however,
obviously decided on his own volition to keep his investment with PIPCBVI presumably because he wanted to gain more profit therefrom. Complainant Sy in fact admitted that he received monetary
returns from PIPCBVI in the total amount of US$2,439.12. 22
What is palpable from the foregoing is that Sy and Lorenzo did not go directly to Liew or any of PIPC Corporations and/or PIPCBVIs principal officers before making their investment or renewing their
prior investment. However, undeniably, Santos actively recruited and referred possible investors to PIPC Corporation and/or PIPCBVI and acted as the gobetween on behalf of PIPC Corporation and/or
PIPCBVI.

The DOJs and Court of Appeals reasoning that Santos did not sign the investment contracts of Sy and Lorenzo is specious. The contracts merely document the act performed by Santos.

Individual complainants and the SEC have categorically alleged that Liew and PIPC Corporation and/or PIPCBVI is not a legitimate investment company but a company which perpetrated a scam on 31
individuals where the president, a foreign national, Liew, ran away with their money. Liews absconding with the monies of 31 individuals and that PIPC Corporation and/or PIPCBVI were not licensed
by the SEC to sell securities are uncontroverted facts.

The transaction initiated by Santos with Sy and Lorenzo, respectively, is an investment contract or participation in a profit sharing agreement that falls within the definition of the law. When the investor
is relatively uninformed and turns over his money to others, essentially depending upon their representations and their honesty and skill in managing it, the transaction generally is considered to be an
investment contract.23 The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial
efforts of others.24

At bottom, the exculpation of Santos cannot be preliminarily established simply by asserting that she did not sign the investment contracts, as the facts alleged in this case constitute fraud perpetrated
on the public. Specially so because the absence of Santos signature in the contract is, likewise, indicative of a scheme to circumvent and evade liability should the pyramid fall apart.

Lastly, we clarify that we are only dealing herein with the preliminary investigation aspect of this case. We do not adjudge respondents guilt or the lack thereof. Santos defense of being a mere
employee or simply an information provider is best raised and threshed out during trial of the case.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CAG.R. No. SP No. 112781 and the Resolutions of the Department of Justice dated 1 October 2009 and 23 November
2009 are ANNULLED and SET ASIDE. The Resolution of the Department of Justice dated 18 April 2008 and 2 September 2008 are REINSTATED. The Department of Justice is directed to include
respondent Oudine Santos in the Information for violation of Section 28 of the Securities and Regulation Code.

SO ORDERED.

08 SECURITIES AND EXCHANGE COMMISSION, Petitioner, vs. THE HONORABLE COURT OF APPEALS, OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING
TIA, Respondents.

G.R. No. 189014


ASTRA SECURITIES CORPORATION, Petitioner, vs. OMICO CORPORATION, EMILIO S. TENG AND TOMMY KIN HING TIA, Respondents.

G.R. No. 187702 is a Petition for Certiorari under Rule 65 of the Rules of Court seeking to nullify the Court of Appeals (CA) Decision 1 dated 18 March 2009 in CA-G.R. SP No. 106006. G.R. No.
189014 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the same Decision, as well as the CA Resolution 2 dated 9 July 2009. On 12 October 2009, the Court
resolved to consolidate the two cases.3
The CA Decision ruled that because controversies involving the validation of proxies are considered election contests under the Interim Rules of Procedure Governing Intra-Corporate
Controversies, they are properly cognizable by the regular courts, not by the Securities and Exchange Commission. The CA Resolution denied the motion for reconsideration filed by Astra
Securities Corporation.

FACTS
Omico Corporation (Omico) is a company whose shares of stock arelisted and traded in the Philippine Stock Exchange, Inc. 4 Astra Securities Corporation (Astra) is one of the stockholders of
Omico owning about 18% of the latters outstanding capital stock. 5
Omico scheduled its annual stockholders meeting on 3 November 2008. 6 It set the deadline for submission of proxies on 23 October 2008 and the validation of proxies on 25 October 2008.
Astra objected to the validation of the proxies issued in favor of Tommy Kin Hing Tia (Tia), representing about 38% of the outstanding capital stock of Omico. 7 Astra also objected to the
inclusion of the proxies issued in favor of Tia and/or Martin Buncio, representing about 2% of the outstanding capital stock of Omico. 8
Astra maintained that the proxy issuers, who were brokers, did not obtain the required express written authorization of their clients when they issued the proxies in favor of Tia. In so doing,
the issuers were allegedly in violation of SRC Rule 20(11)(b)(xviii) 9 of the Amended Securities Regulation Code (SRC or Republic Act No. 8799) Rules. 10 Furthermore, the proxies issued in favor
of Tia exceeded 19, thereby giving rise to the presumption of solicitation thereof under SRC Rule 20(2)(B)(ii)(b) 11 of the Amended SRC Rules. Tia did not comply with the rules on proxy
solicitation, in violation of Section 20.112 of the SRC.
Despite the objections of Astra, Omicos Board of Inspectors declared that the proxies issued in favor of Tia were valid. 13
On 27 October 2008, Astra filed a Complaint14 before the Securities and Exchange Commission (SEC) praying for the invalidation of the proxies issued in favor of Tia. Astra also prayed for the
issuance of a cease and desist order (CDO) enjoining the holding of Omicos annual stockholders meeting until the SEC had resolved the issues pertaining to the validation of proxies.
On 30 October 2008, SEC issuedthe CDO enjoining Omico from accepting and including the questioned proxies in determining a quorum and in electing the members of the board of directors
during the annual stockholders meeting on 3 November 2008. 15
Attempts to serve the CDO on 3 November 2008 failed, and the stockholders meeting proceeded as scheduled with 52.3% of the outstanding capital stock of Omico present in person or by
proxy.16 The nominees for the board of directors were elected upon motion. 17
Astra instituted before the SEC a Complaint18 for indirect contempt against Omico for disobedience of the CDO. On the other hand, Omico filed before the CA a Petition for Certiorari and
Prohibition19 imputing grave abuse of discretion on the part of the SEC for issuing the CDO.

RULING OF THE CA
In the assailed Decision dated 18March 2009, the CA declared the CDO null and void. 20
The CA held that the controversy was an intra-corporate dispute. 21 The SRC expressly transferred the jurisdiction over actions involving intracorporate controversies from the SEC to the
regional trial courts.22 Furthermore, Section 2, Rule 623 of the Interim Rules of Procedure Governing Intra-Corporate Disputes, 24 provides that any controversy or dispute involving the validation
of proxies is an election contest, the jurisdiction over which has also been transferred by the SRC to the regular courts. 25
Thus, according to the CA, the SEC committed grave abuse of discretion in taking cognizance of Astras complaint. 26 The CDO was a patent nullity, for an order issued without jurisdiction is no
order at all.
Aggrieved by the CA Decision, the SEC filed before us the instant Petition for Certiorari docketed as G.R. No. 187702. 27 Meanwhile, Astra filed a Motion for Reconsideration before the
CA,28 which subsequently denied the motion in the assailed Resolution dated 9 July 2009. On 14 September 2009, Astra filed the instant Petition for Review on Certiorari docketed as G.R. No.
189014.29 The Court consolidated the two petitions on 12 October 2009. 30

ISSUE
Whether the SEC has jurisdiction over controversies arising from the validation of proxies for the election of the directors of a corporation.

OUR RULING
About a month after the CA issued the assailed Decision, this Court promulgated GSIS v. CA, 31 which squarely answered the above issue in the negative.

In that case, we observed that Section 632 (g) of Presidential Decree No. (P.D.) 902-A dated 11 March 1976 conferred on SEC the power "[t]o pass upon the validity of the issuance and use of
proxies and voting trust agreements for absent stockholders ormembers." Section 6, however, opens thus: "In order to effectively exercise such jurisdiction x x x." This opening clearly refers
to the preceding Section 5.33 The Court pointed out therein that the power to pass upon the validity of proxies was merely incidental or ancillary to the powers conferred on the SEC under
Section 5 of the same decree. With the passage of the SRC, the powers granted to SEC under Section 5 were withdrawn, together withthe incidental and ancillary powers enumerated in
Section 6.

While the regular courts now had the power to hear and decide cases involving controversies in the election of directors, it was not clear whether the SRC also transferred to these courtsthe
incidental and ancillary powers of the SEC as enumerated in Section 6 of P.D. 902-A. Thus, in GSIS v. CA, it was necessary for the Court to determine whether the action to invalidate the
proxies was intimately tied to an election controversy. Hence, the Court pronounced:
Under Section 5(c) of PresidentialDecree No. 902-A, in relation to the SRC, the jurisdiction of the regular trial courts with respect to election related controversies is specifically confined to
"controversies in the election or appointment of directors, trustees, officers or managers of corporations, partnerships, or associations." Evidently, the jurisdiction of the regular courts over
so-called election contests or controversies under Section 5 (c) does not extend toevery potential subject that may be voted on by shareholders, but only to the election of directors or
trustees, in which stockholders are authorized to participate under Section 24 of the Corporation Code.
This qualification allows for a useful distinction that gives due effect to the statutory right of the SEC to regulate proxy solicitation, and the statutory jurisdiction of regularcourts over election
contests or controversies. The power of the SEC toinvestigate violations of its rules on proxy solicitation is unquestioned whenproxies are obtained to vote on matters unrelated to the cases
enumerated under Section 5 of Presidential Decree No. 902-A. However, when proxies are solicited in relation to the election of corporate directors, the resulting controversy, even if it
ostensibly raised the violation of the SEC rules on proxy solicitation, should be properly seen as an election controversy within the original and exclusive jurisdiction of the trial courts by
virtue of Section 5.2 of the SRC in relation to Section 5 (c) of Presidential Decree No. 902-A.
The conferment of original and exclusive jurisdiction on the regular courts over such controversies in the election of corporate directors must be seen as intended to confine to one body the
adjudication of all related claims and controversy arising from the election of such directors. For that reason, the aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term
"election contest" as encompassing all plausible incidents arising from the election ofcorporate directors, including: (1) any controversy or dispute involving title or claim to any elective office
in a stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of elections and (4) the qualifications of candidates, including the proclamation of winners. If all
matters anteceding the holding of such election which affectits manner and conduct, such as the proxy solicitation process, are deemed within the original and exclusive jurisdiction of the
SEC, then the prospect of overlapping and competing jurisdictions between that body and the regular courts becomes frighteningly real. From the languageof Section 5 (c) of Presidential
Decree No. 902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of votes cast in favor of a candidate for election to the board of directors are
properly cognizable and adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases. 34 x x x.
The ruling harmonizes the seeming conflict between the Amended SRC Rules promulgated by the SEC and the Interim Rules of Procedure Governing Intra-Corporate Disputes promulgated by
the Court.
SRC Rule 20(11)(b)(xxi) of the Amended SRC Rules provides:

SRC RULE 20.

Disclosures to Stockholders Prior to Meeting


(formerly, SRC Rule 20 The Proxy Rule)
xxxx
11. Other Procedural Requirements
xxxx
b. Proxy
xxxx
xxi. In the validation of proxies, a special committee of inspectors shall be designated or appointed by the Board of Directors which shall be empoweredto pass on the validity of proxies. Any
dispute that may arise pertaining thereto, shall be resolved by the Securities and Exchange Commission upon formal complaint filed by the aggrieved party, or by the SEC officer supervising
the proxy validation process. (Emphasis supplied)
On the other hand, these are the provisions of Section 1, Rule 1; and Section 2, Rule 6 of the Interim Rules of Procedure Governing IntraCorporate Disputes:

RULE 1
General Provisions
SECTION 1. (a) Cases Covered These Rules shall govern the procedure to be observed in civil cases involving the following:
a) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental
to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association;
b) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and
the corporation, partnership, or association of which they are stockholders, members, or associates, respectively;
c) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations;
d) Derivative suits; and
e) Inspection of corporate books.
xxxx
RULE 6
Election Contests
xxxx
SECTION 2. Definition. An election contest refers to any controversy or dispute involvingtitle or claim to any elective office in a stock or nonstock corporation, the validation of proxies, the
manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the
stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide. (Emphases supplied)
The Court explained that the powerof the SEC to regulate proxies remains in place in instances when stockholders vote on matters other than the election of directors. 35 The test is whether
the controversy relates to such election. All matters affecting the manner and conduct of the election of directors are properly cognizable by the regular courts. Otherwise, these matters may
be brought before the SEC for resolution based on the regulatory powers it exercises over corporations, partnerships and associations.
Astra endeavors to remove the instant case from the ambit of GSIS v. CAby arguing that 1) the validation of proxies in this case relates to the determination of the existence of a quorum; and
2) no actual voting for the members of the board of directors was conducted, as the directors were merely elected by motion.
Indeed, the validation of proxies in this case relates to the determination of the existence of a quorum.1wphi1 Nonetheless, it is a quorum for the election of the directors, and, assuch,
which requires the presence in person or by proxy of the owners of the majority of the outstanding capital stock of Omico. 36 Also, the fact that there was no actual voting did not make the
election any less so, especially since Astra had never denied that an election of directors took place.
We find no merit either in the proposal of Astra regarding the "two (2) viable, non-exclusive and successive legal remedies to question the validity of proxies." 37 It suggests that the power to
pass upon the validity of proxies to determine the existence of a quorum prior to the conduct of the stockholders meeting should lie with the SEC; but, after the stockholders meeting,
questions regarding the use of invalid proxies in the election of directors should be cognizable by the regular courts, since there was already an election to speak of.

First, this interpretation is akin to the argument struck down by the Court in GSIS v. CA. If the Court adopts the suggestion, "we would be perpetually confronted with the spectacle of election
controversies being heard and adjudicated by both the SEC and the regular courts, made possible through a mere allegation that the anteceding x x x process was errant, but the competing
cases [were] filed with one objective in mind - to affect the outcome of the election of the board of directors." 38

Second, the validation of proxies serves a number of purposes, including determining the existence of a quorum and ascertaining the authenticity of proxies to be used for the election of
directors at the stockholders' meeting. Section 2, Rule 6, of the Interim Rules of Procedure Governing Intra-Corporate Disputes provides that an election contest covers any controversy or
dispute involving the validation of proxies, in general. Thus, it can only refer to all the beneficial purposes that validation of proxies can bring about when made in connection with a
forthcoming election of directors. Thus, there is no point in making distinctions between who has jurisdiction before and who has jurisdiction after the election of directors, as all controversies
related thereto - whether before, during or after - shall be passed upon by regular courts as provided by law. The Court closes with an observation.
As in the instant cases, GSIS v. CA is a consolidation of two cases, one of which was filed by a private party and the other by the SEC itself. In both cases, the parties were aggrieved by the
CA ruling, so they filed the cases seeking a pronouncement from the Court that it recognizes the jurisdiction of the SEC over the controversy.

Calling to mind established jurisprudential principles, the Court therein ruled that quasi-judicial agencies do not have the right to seek the review of an appellate court decision reversing any
of their rulings.39 This is because they are not real parties-in-interest. Thus, the Court expunged the petition filed by the SEC for the latter's lack of capacity to file the suit. So it must be in the
instant cases.

WHEREFORE, the petition in G.R. No. 187702 is EXPUNGED for lack of capacity of petitioner to file the suit.

The petition in G.R. No. 189014 is DENIED. The Court of Appeals Decision dated 18 March 2009 and Resolution dated 9 July 2009 in CA-G.R. SP No. 106006 are AFFIRMED.

SO ORDERED.

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