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1/13 ABACUS SECURITIES CORP. v. RUBEN U. AMPIL

• Section 23(b), the alleged violation of Abacus, which provides the basis for
1. Ampil opened a cash or regular account with Abacus for the purpose of buying Ampil’s defense, makes it unlawful for a broker to extend or maintain credit on
and selling securities. They became bound to the terms under the Account any securities other than in conformity with the rules and regulations issued by
Application Form. SEC.
2. Ampil actively traded his account, and accumulated an obligation in favor of • Section 25 lays down the rules to prevent indirect violations of Section 23 by
Abacus worth P6M. brokers or dealers.
3. Ampil failed to settle his account for the transactions on Apr. 10/11. • RSA Rule 25- 1 prescribes in detail the regulations governing cash accounts.
4. Abacus sold Ampil’s securities to set off against his unsettled obligations. There o Purchases shall be paid in full within 3 days after trade.
remained a P3.3M balance. o If full payment not received, broker shall cancel or liquidate the
5. Abacus’ counsel demanded that Ampil settle the balance plus the agreed transaction.
penalty. o If a transaction is cancelled/liquidated as a result of non-payment, prior
6. Ampil asked for an extension. Granted but still failed to pay. to any purchase during the next 90 days, customer shall be required to
7. Despite failure to pay, Abacus purchased and sold securities for Ampil’s account deposit sufficient funds in the account to cover each transaction.
(April 25/26). o Written application for an extension of time to pay is required to be
8. Abacus did not cancel or liquidate a substantial amount of Ampil’s stock submitted to PSE or SEC.
transactions until months after. • This purpose is to regulate the volume of credit flow, by way of speculative
9. His defense was that he was induced to trade in a stock security with Abacus transactions, into the securities market and redirect resources into more
because it allowed offset settlement where he is not obliged to pay the purchase productive uses.
price. • A related purpose of the governmental regulation of margins is the stabilization
a. Rather, it waits for the customer to sell. And if there is a loss, Abacus of the economy.
only required the payment of the deficiency. • The margin requirements set out in the RSA are primarily intended to achieve a
b. If the customer profits, Abacus deducts the purchase price and delivers macroeconomic purpose, the protection of the overall economy from excessive
the surplus, after charging commission. speculation in securities. Their recognized secondary purpose is to protect small
c. Further, he said all his trades were not paid in cash at any time after investors.
purchase or 4 days after transaction (T+4), and none was cancelled by • The law places the burden of compliance with margin requirements primarily
Abacus as agreed upon. upon the brokers and dealers.
d. Abacus also did not apply with PSE/SEC an extension of time for the • Sections 23 and 25 and Rule 25-1, otherwise known as the “mandatory close-out
payment of his cash purchases. rule,” clearly vest upon Abacus the obligation, not just the right, to cancel or
10. RTC: Abacus violated the Revised Securities Act when of failed to otherwise liquidate a customer’s order, if payment is not received within three
a. Require Ampil to pay for his stock purchases within 3 or 4 days from days from the date of purchase.
trading o The word “shall” as opposed to the word “may,” is imperative and
b. request from the appropriate authority an extension of time for the operates to impose a duty, which may be legally enforced.
payment of Ampil’s cash purchases. o For transactions subsequent to an unpaid order, the broker should
c. They were in pari delicto because Abacus allowed Ampil to trade his require its customer to deposit funds into the account sufficient to
account actively without cash, inducing him to purchase which results cover each purchase transaction prior to its execution.
to excessive credits. o These duties are imposed upon the broker to ensure faithful compliance
d. Ampil’s fault was incurring excessive credits and waiting to see how the with the margin requirements of the law, which forbids a broker from
investment would turn out before invoking the RSA. extending undue credit to a customer.
11. CA: Affirmed. • Nonetheless, these margin requirements are applicable only to transactions
entered into by the present parties subsequent to the initial trades of April 10
ISSUE: Whether there were violations of the RSA. YES. and 11, 1997.
o Abacus can still collect from Ampil to the extent of the difference 2 PHILIPPINE STOCK EXCHANGE v. CA
between the latter’s outstanding obligation as of April 11, 1997 less the
proceeds from the mandatory sell out of the shares pursuant to the RSA 1. Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, sought to offer
Rules. its shares to the public, to raise funds.
NOTE: 2. PALI was issued a Permit to Sell its shares to the public by the SEC. PALI filed w/
• A margin account is an account in which the broker lends the customer cash with the PSE an application to list its shares.
which to purchase securities. Unlike a cash account, a margin account allows an 3. BOG received a letter from the heirs of Marcos, requesting deferment of PALI’s
investor to buy securities with money that he does not have, by borrowing the application, claiming that:
money from the broker. The RSA limits margin borrowing to a maximum of 50% a. Late Pres. Marcos was the legal and beneficial owner of certain assets
of the amount invested. in PALI’s name
• In securities trading, the brokers are essentially the counterparties to the stock b. TDC, a stockholder of PALI, continues to be held in trust by Panlilio for
transactions at the Exchange. Since the principals of the broker are generally Marcos.
undisclosed, the broker is personally liable for the contracts thus made. 4. BOG rejected PALI’s application, citing the serious claims, issues and
o Hence, Abacus had to advance the payments for Ampil’s trades. Brokers circumstances surrounding PALI’s ownership over its assets that adversely affect
have a right to be reimbursed for sums advanced by them with the the suitability of listing PALI’s shares in the stock exchange.
express or implied authorization of the principal, in this case, Ampil. 5. PALI wrote SEC Acting Chairman Yasay, requesting that the SEC review the PSE’s
• The Court is not prepared to accept the self-serving assertions by an investor action on PALI’s listing application and institute such measures as are just and
that he was just an “innocent victim” in all the transactions where it appears that proper under the circumstances.
he is not an unsophisticated, small investor merely prodded by the stock broker 6. SEC reversed the PSE, ordering PSE to immediately cause the listing of the PALI
to speculate on the market with the possibility of large profits with low, or no shares in the Exchange. CA affirmed.
capital outlay but rather is an experienced and knowledgeable trader who is well 7. PSE argues: CA erred in ruling that the SEC had authority to order the PSE to list
versed in the securities market and who made his own investment decisions the shares of PALI in the stock exchange.
o Ampil’s conduct is precisely the behavior of an investor deplored by law. a. SEC does not have the power to reverse the decisions of the stock
o We find Ampil equally guilty in entering into the transactions in violation exchange.
of the RSA and RSA Rules. b. The business judgment rule precludes the reversal of PSE’s decision to
deny a listing application, absent a showing a bad faith on the part of
the PSE.
c. PALI did not comply with the listing rules and disclosure requirements.
Its application contained misrepresentations and misleading
statements, and concealed material information.
ISSUE: W/N the SEC had authority to order the PSE to list the shares of PALI in the
stock exchange. NONE.
• The SEC’s regulatory authority over private corporations encompasses a wide

margin of areas, touching nearly all of a corporation’s concerns. This authority
springs from the fact that a corporation owes its existence to the concession of
its corporate franchise from the state.
• The SEC’s power to look into the subject ruling of the PSE may be implied from
or be considered as necessary or incidental to the carrying out of the SEC’s
express power to insure fair dealing in securities traded upon a stock exchange
or to ensure the fair administration of such exchange.
• HOWEVER, the PSE’s management prerogatives are NOT under the absolute (iv) had been engaged or is engaged or is about to engaged in
control of the SEC. The PSE has all the rights pertaining to corporations, such fraudulent transactions;
as the exercise of business judgment. (v) is in any was dishonest of is not of good repute; or
• Thus, notwithstanding the regulatory power of the SEC over the PSE, and the (vi) does not conduct its business in accordance with law or is
resultant authority to reverse the PSE’s decision in matters of application for engaged in a business that is illegal or contrary or government
listing in the market, the SEC may exercise such power only if the PSE’s rules and regulations.
judgment is attended by bad faith. (3) The enterprise or the business of the issuer is not shown to be sound or to
o Bad faith connotes a dishonest purpose or some moral obliquity and be based on sound business principles;
conscious doing of wrong. It means a breach of a known duty through (4) An officer, member of the board of directors, or principal stockholder of the
some motive or interest of ill will, partaking of the nature of fraud. issuer is disqualified to such officer, director or principal stockholder; or
Ø Circumstances that give rise to serious doubt as to PALI’s integrity as a stock (5) The issuer or registrant has not shown to the satisfaction of the Commission
issuer are present. that the sale of its security would not work to the prejudice to the public
o An order of sequestration against PALI properties was issued, and suit interest or as a fraud upon the purchaser or investors.
for reconveyance to the state has been filed in the Sandiganbayan. Ø PALI, on at least 2 points (nos. 1 and 5), has failed to clearly support the propriety
o How the properties were effectively transferred, despite the of the issue of its shares.
sequestration order, from the TDC and MSDC to Panlilio, and to PALI, in Ø PSE has acted with justified circumspection. Its action in refusing to allow the
only a short span of time, are not yet explained. listing of PALI in the stock exchange is justified by the law and by the
Ø Hence, PSE was correct when it refused application of PALI, for a contrary ruling circumstances attendant to this case.
was NOT to the best interest of the general public. Purpose of the Revised Ø SEC had acted arbitrarily in arrogating unto itself the discretion of approving
Securities Act is to give adequate and effective protection to the investing the application for listing in the PSE of PALI, since this is a matter addressed to
public against fraudulent representations, or false promises, and the the sound discretion of the PSE, a corporate entity, whose business judgments
imposition of worthless ventures. are respected in the absence of bad faith.
Ø For the purpose of determining whether PSE acted correctly in refusing the
application of PALI, what is material is that the uncertainty of the properties
ownership and alienability exists, and this puts to question the qualification of
PALI’s public offering.
• Section 9 of PD 902-A sets forth the possible Grounds for the Rejection of the
registration of a security:
(1) The registration statement is on its face incomplete or inaccurate in any
material respect or includes any untrue statement of a material fact or omits
to state a material facts required to be stated therein or necessary to make
the statements therein not misleading; or
(2) The issuer or registrant - -
(i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act,
or the rules promulgated pursuant thereto, or any order of the
Commission;
(iii) has failed to comply with any of the applicable requirements
and conditions that the Commission may, in the public interest
and for the protection of investors, impose before the security
can be registered;
3 SEC v Interport Resources Corporation (IRC) • The gravamen of the illegal conduct under Sec. 30 of the RSA is the insider’s
misuse of non-public and undisclosed information. Its purpose is the protection
1. The Board of Directors of IRC approved a Memorandum of Agreement with of investors against fraud, committed when an insider, using secret information,
Ganda Holdings Berhad (GHB). Under the MoA, IRC acquired 100% of the entire takes advantage of an uninformed investor.
capital stock of Ganda Energy Holdings Inc. (GEHI). In exchange, IRC will issue to o IRC also averred that under Sec. 301, SEC still needs to define the
GHB, 55% of the expanded capital stock of IRC. Further, GEHI would assume a 5- following terms: a) material fact2, b) reasonable person3, c) nature and
year power purchase contract with NAPOCOR while IRC would acquire 67% of reliability4, and c) generally available5. However, according to the SC,
the entire capital stock of Philippine Racing Club Inc. the provisions are sufficiently clear and complete by themselves.
2. SEC averred that it received reports that IRC failed to make timely public • Sec. 8 is a straightforward enumeration of the procedure for the registration of
disclosures of its negotiations with GHB and that some of its directors heavily securities and the particular matters that need to be reported in the registration
traded IRC shares utilizing this material insider information. statement. There is no valid reason to exempt IRC from such requirements.
a. The Revised Securities Act (RSA) imposes upon (1) a beneficial • Sections 30 and 36 of the RSA were enacted to promote full disclosure in the
owner of more than ten percent of any class of any equity security securities market and prevent unscrupulous individuals, who by their positions
or (2) a director or any officer of the issuer of such security, the obtain non-public information, from taking advantage of an uninformed public.
obligation to submit a statement indicating his or her ownership of o The fact that the Full Disclosure Rules were promulgated later does not
the issuers securities and such changes in his or her ownership render ineffective in the meantime Section 36 of the Revised Securities
thereof. Act.
3. After investigation, SEC issued an order finding that the IRC violated the Rules on • While the case was pending, the Securities Regulations Code was promulgated.
Disclosure of Material Facts. SEC also found that the directors of IRC entered into The Securities Regulations Code absolutely repealed the Revised Securities Act.
transactions involving IRC shares in violation of the RSA. While the absolute repeal of a law generally deprives a court of its authority to
4. IRC questioned the SEC’s authority to investigate the subject matter, since penalize the person charged with the violation of the old law prior to its repeal,
according to PD 902-A, jurisdiction upon the matter was conferred upon the an exception thereto comes about when the repealing law also punishes the act
Prosecution and Enforcement Department of the SEC. previously penalized under the old law- as in this case with regard to Secs. 8, 30,
5. The case reached the CA and said court ruled in favor of IRC and effectively and 36 of the RSA. Clearly, the legislature had not intended to deprive the courts
enjoined the SEC from filing any criminal, civil or administrative cases against of their authority to punish a person charged with violation of the old law that
respondents. was repealed.
a. CA held that there were no rules and regulations implementing the
rules on disclosure, inside trading, or any of the provisions of the Dissent by J. Carpio: Action had already prescribed as SEC’s administrative
RSA; SEC had no authority to file suits. investigation did not interrupt the prescriptive period. Under the law, only judicial
proceedings interrupt such period.
ISSUE: WON the SEC has the authority to initiate and file any suit (civil, criminal or
administrative) against IRC and its directors with respect to Sec 30 (inside trading)
and Sec. 36 (directors, officers and principal stockholders) of the Revised Securities
Act- YES
• The mere absence of implementing rules cannot effectively invalidate provisions

of law, where a reasonable construction that will support the law may be given.
1 Under the law, what is required to be disclosed is a fact of “special significance” which may be (a) a material fact which 4 The “nature and reliability” of a significant fact in determining the course of action a reasonable person takes regarding
would be likely, on being made generally available, to affect the market price of a security to a significant extent, or (b) securities must be clearly viewed in connection with the particular circumstances of a case.
one which a reasonable person would consider especially important in determining his course of action with regard to 5 Whether information found in a newspaper, a specialized magazine, or any cyberspace media be sufficient for the term
the shares of stock. “generally available” is a matter which may be adjudged given the particular circumstances of the case—the standards
2 A material fact is one that induces or tends to induce or otherwise affect the sale or purchase of securities. cannot remain at a standstill.
3 It is the standard on which most of our legal doctrines stand.
4 SEC vs. CA and CUALOPING SECURITIES CORPORATION AND FIDELITY STOCK those who are adversely affected by the transfer of the pilfered certificates of
TRANSFERS, INC stock.
• Any peremptory judgment by the SEC, without such proceedings having first
1. Cualoping Securities Corp is a stockbroker while Fidelity Stock Transfer is the been initiated, would be precipitate.
stock transfer agent of Philex Mining.
2. In 1988, certificate of stocks of PHILEX representing 1.4M shares were stolen ISSUE: WON the imposition of by the SEC of a 50K fine is proper. YES.
from the premises of FIDELITY. These are stock dividends returned to FIDELITY
for lack of forwarding addresses to shareholders. • This time, it is the regulatory power of the SEC which is involved. When, on
3. Later, the stolen stock certificates ended in the hands of a certain Lopez who appeal to the Court of Appeals, the latter set aside the fines imposed by the SEC,
then brough the stolen stock certificates to CUALOPING for trading and sale. the latter, in its instant petition, can no longer be deemed just a nominal party
4. Upon inspection of CUALOPING, the certificates bore the apparent indorsement but a real party in interest sufficient to pursue an appeal to this Court.
in blank of the owners of the certificates and the words “Signature Verified” • The Revised Securities Act is designed, in main, to protect public investors from
apparently of FIDELITY were stamped on each and every certificate. It also fraudulent schemes by regulating the sale and disposition of securities.
showed the usual initials of the officers of FIDELITY. • While both FIDELITY and CUALOPING are guilty of being negligent, to constitute,
5. CUALOPING stamped the certificate with “Indorsement guaranteed” and however, a violation of the Revised Securities Act that can warrant an imposition
thereafter traded the same with the stock exchange. of a fine under Section 29(3), in relation to Section 46 of the Act, fraud or deceit,
6. When the certificates were sold, the certificates were delivered to FIDELITY for not mere negligence, on the part of the offender must be established.
the cancellation of stock certificates. FIDELITY conducted an investigation and • Fraud here is akin to bad faith which implies a conscious and intentional design
found that 2 of its employees were involved. to do a wrongful act for a dishonest purpose or moral obliquity.
7. FIDELITY rejected the issuance of new certificates in favor of the buyers alleging • However, the court said that they are still liable to pay the fine not under the
that the signatures of the owners of the certificates were allegedly forged. Revised Securites Act, but under SEC-BED Memorandum Circular No. 9 Series of
8. FIDELITY sought for the opinion of SEC which ordered FIDELITY to replace all the 1987 which provides:
subject shares and to cause the transfer thereof in the names of the buyers and o From transfer agent back to clearing house and/or broker — not longer
CUALOPING is ordered to pay a fine of 50k for violating Sec. 29(3) of the Revised than ten (10) days from receipt of documents provided there is a "good
Securities Act. delivery," where there is no "good delivery," the certificate and the
9. Commission En Bank ruled that both are negligent and therefore, both will jointly accompanying documents shall be returned to the clearing house or
replace the subject shares and pay the fine. broker not later than two (2) days after receipt thereo
10. CA reversed the order setting aside the SEC’s adjudication without prejudice to • Although this was not brought up in the lower courts, a court has the authority
the right of persons injured. to include all such issues in passing upon and resolving the controversy.
ISSUE: WON the SEC can exercise its adjudicative function. NO.
• This case, it might be recalled, has started only on the basis of a request by
FIDELITY for an opinion from the SEC. The stockholders who have been deprived
of their certificates of stock or the persons to whom the forged certificates have
ultimately been transferred by the supposed indorsee thereof are yet to initiate,
if minded, an appropriate adversarial action. Neither have they been made
parties to the proceedings now at bench.
• SEC's exclusive jurisdiction would require an assertion of a right by a proper party
against another who, in turn, contests it.
• In the case, the proper parties that can bring the controversy and can cause an
exercise by the SEC of its original and exclusive jurisdiction would be all or any of
5 PINEDA V. LANTIN • The contention carries no weight. This Court has thoroughly read through the
petition for prohibition with the lower court. But, even a cursory reading would
1. In a letter addressed to SEC. La and Lopez (stockholders) complained of the have revealed so fully that its main aim was have an order of the Securities and
actions of Bacolod-Murcia Milling, and its Pres. (Araneta) Exchange Commission reviewed
a. Violated acts in violation of the AoI, the Corp. Code, and the rules of SEC • Even assuming that they just wanted to stop the investigation, SC still has juris.
2. Pineda as Comm. of SEC ordered investigation with respect to the incidental orders of the SEC.
a. It ordered subpoena duces tecum to Araneta • The role of SEC in our national economy cannot be minimized. The legislature
b. Araneta argued that with the approval of RA 1143, the power given to has entrusted to it the serious responsibility of enforcing all laws affecting
SEC to conduct investigations has been qualified and made subject to corporations and other forms of associations not otherwise vested in some other
the condition that investigations must be conducted in accordance with government offices. Being charged, therefore, with overseeing the operations of
the rules adopted by the Comm. those various corporate enterprises from which our government derives great
c. And, since SEC had not yet adopted such rules, it could not proceed with revenues and income, it cannot afford to be impeded or restrained in the
the investigation performance of its functions by writs of injunction emanating from tribunals
3. Pineda denied the petition filed by Araneta subordinate to this Court.
4. Bacolod-Murcia and Araneta filed Motion to Quash and Discontinue Entire
Proceedings
a. Same contentions (fact no. 2 b)
b. Denied
5. Bacolod-Murcia and Araneta filed SCA for prohib. Before the CFI
6. SEC field MTD. Beyond the juris. Of CFI
7. CFI: MTD was denied
8. SEC filed MR. only the SC may review orders of SEC. that CFI was beyond its juris.
– dismissed
ISSUE: Whether CFI has jurisdiction. NO.
• Under the Rules of Court and the law applicable to the case at bar, a Court of
First Instance has no jurisdiction to grant injunctive reliefs against the Securities
and Exchange Commission. That power is lodged exclusively with this Court
• whenever a party is aggrieved by or disagrees with an order or ruling of the
Securities and Exchange Commission, his remedy is to come to this Court on a
petition for review. He is not permitted to seek relief from courts of general
jurisdiction.
• The two provisions (Section 1 of Rule 43 of RoC and Sec 35 of RA 635- setting
forth the powers of SEC) clearly pronounce that only SC possesses the
jurisdiction to review or pass upon the legality or correctness of any order or
decision of the Securities and Exchange Commission, and, as circumstances
might warrant, to modify, reverse, or, set aside the same.
• It was urged by Bacolod-Murcia and Araneta that the principal purpose of their
action in the lower court was not to have an order of the Securities and Exchange
Commission reviewed but to have the investigation stopped because of an
alleged lack of jurisdiction to proceed with the same
6 CEMCO V. NATIONAL LIFE INSURANCE CORP. • In taking cognizance of respondents complaint against petitioner and eventually
rendering a judgment which ordered the latter to make a tender offer, the SEC
1. Union Cement Corporations (UCC) is a publicly-listed company. It has  two was acting pursuant to the Amended Implementing Rules and Regulations of the
principal stockholders: UCHC – 60.51%; and Cemco – 17.03%.   Securities Regulation Code6
2. Majority of UCHC stocks are owned by: BCI – 21.31%; ACC (BCI’s  subsidiary) – • The rule emanates from the SECs power and authority to regulate, investigate or
29.69%; and Cemco – 9% supervise the activities of persons to ensure compliance with the Securities
3. In a letter, BCI and ACC informed the Philippine Stock Exchange of their Regulation Code, more specifically the provision on mandatory tender offer
resolutions to sell their stocks in UCHC to Cemco. As a result of the acquisition, under Section 19 thereof.
Cemco’s total beneficial ownership, direct and indirect, in UCC has increased by • The provisions bestow upon the SEC the general adjudicative power which is
36% and amounted to at least 53% of the shares of UCC. implied from the express powers of the Commission or which is incidental to, or
4. PSE inquired with the SEC as to whether the Tender Offer Rule under Rule 19 of reasonably necessary to carry out, the performance of the administrative duties
the Implementing Rules of the Securities Regulation Code is not applicable to the entrusted to it. As a regulatory agency, it has the incidental power to conduct
purchase by petitioner of the majority of shares of UCC. Director Callangan of hearings and render decisions fixing the rights and obligations of the parties.
SEC Corporate Finance Department confirmed that the SEC en banc had resolved • Moreover, CEMCO is barred from questioning the jurisdiction of the SEC. CEMCO
that the Cemco transaction was not covered by the tender offer rule.   had participated in all the proceedings before the SEC and had prayed for
5. Respondent National Life Insurance Company of the Philippines (NLIC), minority affirmative relief. In fact, petitioner defended the jurisdiction of the SEC in its
stockholder of UCC, sent a letter to Cemco demanding the latter to comply with Comment dated 15 September 2004, filed with the SEC.
the rule on mandatory tender offer. Cemco refused.
6. Share Purchase Agreement was executed by ACC and BCI, as sellers, and Cemco, SECOND ISSUE
as buyer, and the transaction was consummated and closed. • Tender offer is a publicly announced intention by a person acting alone or in
7. NLIC then filed a complaint with the SEC asking it to reverse its Resolution and to concert with other persons to acquire equity securities of a public company7.
declare the purchase agreement of Cemco void and praying that the mandatory • Tender offer is in place to protect minority shareholders against any scheme that
tender offer rule be applied to its UCC shares. dilutes the share value of their investments. It gives the minority shareholders
8. Cemco and other impleaded parties argued that the tender offer rule applied the chance to exit the company under reasonable terms, giving them the
only to a direct acquisition of the shares of the listed company and did not extend opportunity to sell their shares at the same price as those of the majority
to an indirect acquisition arising from the purchase of the shares of a holding shareholders
company of the listed firm. • Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under
9. SEC reversed its resolution. It ruled in favor of NLIC and directed the foregoing provision was increased to thirty-five percent (35%). It is further
petitioner Cemco to make a tender offer for UCC shares to respondent and other provided therein that mandatory tender offer is still applicable even if the
holders of UCC shares. CA held that SEC has jurisdiction over the petition and acquisition is less than 35% when the purchase would result in ownership of over
affirmed SEC. 51% of the total outstanding equity securities of the public company.
• The SEC and the Court of Appeals ruled that the indirect acquisition by petitioner
ISSUE: of 36% of UCC shares through the acquisition of the non-listed UCHC shares is
1. WON SEC has jurisdiction. YES. covered by the mandatory tender offer rule. This interpretation given by the SEC
2. WON the transaction was covered under the mandatory tender offer rule. YES. and the Court of Appeals must be sustained.
o It is a rule that construction given to a statute by an administrative
FIRST ISSUE agency charged with the interpretation and application of that statute
is entitled to great weight by the courts, unless such construction is
6 13. Violation - If there shall be violation of this Rule by pursuing a purchase of equity shares of a public 7Public company - a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00
company at threshold amounts without the required tender offer, the Commission, upon complaint, may and with 200 or more stockholders, at least 200 of them holding not less than 100 shares of such company.
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.
clearly shown to be in sharp contrast with the governing law or statute. 7 POWER HOMES UNLIMITED CORP. v. SEC
• SEC and CA accurately pointed out that the coverage of the mandatory tender
offer rule covers not only direct acquisition but also indirect acquisition or “any 1. Power Homes (PHUC) is a domestic corporation duly registered with public
type of acquisition.” This is clear from the discussions of the Bicameral respondent SEC.
Conference Committee on the Securities Act of 2000. a. Its purpose is to engage in the transaction of promoting, acquiring,
• The legislative intent of Section 19 of the Code is to regulate activities relating to managing, leasing, obtaining options on, development, and
acquisition of control of the listed company and for the purpose of protecting improvement of real estate properties for subdivision and allied
the minority stockholders of a listed corporation. Whatever may be the method purposes, and in the purchase, sale and/or exchange of said subdivision
by which control of a public company is obtained, either through the direct and properties through network marketing. 8
purchase of its stocks or through an indirect means, mandatory tender offer 2. On the basis of the letters of respondent Noel Manero and Romulo Munsayac to
applies. check whether the business of Power Homes is legitimate, public respondent SEC
  held a conference
3. PHUC 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.
4. The SEC visited the business premises of petitioner wherein it gathered
documents (certificates of accreditation to several real estate companies, and
lists of Business Center Owners who are qualified to acquire real estate
properties).
5. On the same day, after finding petitioner to be engaged in the sale or offer for
sale or distribution of investment contracts, the SEC issued a CDO since PHUC
failed to register these as required by law.
6. Petitioner moved for the lifting of the CDO, which public respondent SEC denied
for lack of merit.
7. CA affirmed the decision of the SEC.
ISSUE: WON 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. – YES
• 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.
• Our definition of an investment contract traces its roots from the 1946 United
States (US) case of SEC v. W.J. Howey Co.
8 The scheme of the [petitioner] corporation requires an investor to become a Business Center Owner (BCO) who must business groups or a total of 256 enrollees whether directly referred by the BCO or through his down lines, the BCO who
fill-up and sign its application form. The BCO is required to pay US$234 as his enrollment fee. His enrollment entitles him receives a total amount of US$11,412.80 after deducting the amount of US$363.20 as property fund from the gross
to recruit two investors who should pay US$234 each and out of which amount he shall receive US$92. In case the two amount of US$11,776, has now an accumulated amount of US$2,700 constituting as his Property Fund placed in a
referrals/enrollees would recruit a minimum of four (4) persons each recruiting two (2) persons who become his/her own Property Fund account with the Chinabank. This accumulated amount of US$2,700 is used as partial/full down payment
down lines, the BCO will receive a total amount of US$147.20 after deducting the amount of US$36.80 as property fund for the real property chosen by the BCO from any of [petitioners] accredited real estate developers.
from the gross amount of US$184. After recruiting 128 persons in a period of eight (8) months for each Left and Right
• In this case, the US Supreme Court was confronted with the issue of whether of earning commissions on the sale of contracts to others were investment
the Howey transaction constituted an investment contract under the Securities contracts and thus were securities within the meaning of the federal
Acts definition of security. The US Supreme Court, recognizing that the term securities laws. This is regardless of the fact that buyers, in addition to
investment contract was not defined by the Act or illumined by any legislative investing money needed to purchase the contract, were obliged to
report, held that Congress was using a term whose meaning had been crystallized contribute their own efforts in finding prospects and bringing them to sales
under the states blue sky laws in existence prior to the adoption of the Securities meetings.
Act. Thus, it ruled that the use of the catch-all term investment contract indicated • The SC therefore ruled that the business operation or the scheme of
a congressional intent to cover a wide range of investment transactions. It petitioner constitutes an investment contract that is a security under R.A.
established a test to determine whether a transaction falls within the scope of No. 8799.
an investment contract. • Thus, it must be registered with public respondent SEC before its sale or
• Known as the Howey Test, it requires a transaction, contract, or scheme offer for sale or distribution to the public. As petitioner failed to register the
whereby a person same, its offering to the public was rightfully enjoined by public respondent
(1) makes an investment of money, SEC.
(2) in a common enterprise,
(3) with the expectation of profits,
(4) to be derived solely from the efforts of others.
• 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.
• 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 follows this flexible concept for it defines an investment
contract as a contract, transaction or scheme whereby a
person invests his money in a common enterprise and is led to expect profits n
ot 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.
• The facts of SEC v. Turner 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 the US Court of Appeals of the 9th Circuit held that self-
improvement contracts which primarily offered the buyer the opportunity
8 Union Bank vs. SEC 9 NESTLE PHILS. v. CA and SEC
1. Union Bank sought SEC Chairman Yasay’s opinion on whether the Full Material BACKGROUND:
Disclosure Rule on banks is applicable 1. Nestle’s capital stock was increased from P300M (3M shares) to P600M.
a. Yasay said that such requirement does not apply to security of banks which 2. It underwent the necessary procedures involving Board and SH approvals and
are exempt under the Revised Securities Act, but if the stocks are traded, effected the filings to secure the approval of the increase of authorized CS by SEC
then they are covered and certain reports have to be filed. (which was granted).
2. SEC then wrote to Union Bank asking it to explain why it should not be penalized 3. Nestle paid P50k as filing fees.
for failing to submit a Proxy or Infromation Statement as to the meeting held by 4. Nestle only has 2 principal SH: San Miguel (SMC) and Nestle S.A.
it, thus violating the Full Material Disclosure Rule
a. SEC fined Union Bank with P91K as penalty for failing to file said report FACTS:
3. Union Bank argues that is not required to file the prescribed report because its 1. The BoD approved the resolutions authorizing the issuance of 344,500 shares
securities are exempt from registration requirements under the Revised out of the previously authorized but unissued CS of Nestle, exclusively to SMC
Securities Act (RSA) and Nestle SA.
a. SMC: 168,800; Nestle SA: 175,700
ISSUE: WON Union Bank is still subject to SEC Rules. YES 2. Nestle filed a letter with the SEC seeking exemption of its proposed issuance of
additional shares to its existing principal SHs from:
• RSA Sec. 5, a, 3 – Exempt Securities from Registration – Any security issued or a. The registration requirement of Sec. 4 of the Revised Securities Act
guaranteed by any banking institution authorized to do business in the b. Payment of the fee required under Sec. 6(c).
Philippines, the business of which is substantially confined to banking, or a 3. Nestle’s main contentions:
financial institution licensed to engage in quasi-banking, and is supervised by the a. Sec. 6(a)(4). Exempt transactions. The requirement of registration shall
Central Bank. not apply to the sale of any security in any of the ff. transactions:
o The registration exemption does not mean it is exempt from reportorial i. the issuance of additional capital stock of a corporation sold or
requirements distributed by it among its own stockholders exclusively,
o Union Bank, as a bank, is primarily subject to the control of the BSP; and as where no commission or other remuneration is paid or given
a corporation trading its securities in the stock market, it is under the directly or indirectly in connection with the sale or distribution
supervision of the SEC. of such increased capital stock.
o the mere fact that in regard to its banking functions, petitioner is already b. The use of the term ‘increased capital stock’ should be interpreted to
subject to the supervision of the BSP does not exempt the former from refer to additional capital stock or equity participation of the existing
reasonable disclosure regulations issued by the SEC stockholders as a consequence of either an increase of the authorized
o Moreover, Union Bank is a listed corporation in the stock exchange. Thus, it capital stock or the issuance of unissued capital stock.
must adhere both to the banking laws, and the rules promulgated by SEC c. RE: Exemption from fee (Sec. 6)
o The RSA rules are designed to ensure full, fair and accurate disclosure of i. SEC could not collect fees for “the same transaction” twice. It
information to protect the investing public already paid P50k as filing fees to the SEC
4. SEC denied the requests. Section 6(a)(4) is applicable only where there is an
increase in the authorized CS of a corporation.
a. However, SEC said that the transaction may be considered under Sec.
6(b): The commission may exempt transactions if it finds that the
enforcement of the requirements of registration is not necessary in the
public interest and for the protection of the investors by reason of the
small amount involved or the limited character of the public offering.
5. Sec advised Nestle to file the appropriate request and pay the fee under Sec. 6 • SEC ruled: An issuance of previously authorized but still unissued capital stock
(one-tenth of 1% of the maximum aggregate price or issued value of the may, in a particular instance, be held to be an exempt transaction by the SEC
securities shall be collected for granting a general or particular exemption from under Section 6(b) so long as the SEC finds that the requirements of registration
registration). under the Revised Securities Act are not necessary in the public interest and for
6. CA: Sustained. the protection of the investors by reason of the small amount of stock that is
proposed to be issued or because the potential buyers are very limited in number
ISSUES: and are in a position to protect themselves.
1. Whether the transaction involved can be exempted from the registration • In fine, Nestle’s proposed construction of Section 6(a) (4) would establish an
requirements. NO. inflexible rule of automatic exemption of issuances of additional, previously
2. Whether Nestle has to pay the required fees under Sec. 6 (c). YES. authorized but unissued, capital stock.
• SC must reject an interpretation which may disable the SEC from rendering
RE: EXEMPTION FROM THE REGISTRATION REQUIREMENTS protection to investors, in the public interest, precisely when such protection
• Both the SEC and the CA resolved the ambiguity by construing Section 6(a)(4) as may be most needed.
referring only to the issuance of shares of stock as part of and in the course of
increasing the authorized capital stock of Nestlé. RE: PAYMENT OF FEES
• In this case, since the 344,500 shares of Nestlé capital stock are proposed to be • The fee collected by the SEC was assessed in connection with the examination
issued from already authorized but still unissued capital stock and since the and approval of the certificate of increase of authorized capital stock then
present authorized capital stock of 6M shares is not proposed to be further submitted by Nestle.
increased, the SEC and the CA rejected Nestle’s petition. • The fee provided for in Section 6 (c) which Nestle will be required to pay if it does
• SC upheld SEC and CA’s construction of the provision. file an application for exemption under Section 6 (b), is quite different:
• The reading by the SEC of the scope of application of Section 6(a)(4) permits o This is a fee specifically authorized by the Revised Securities Act, (not
greater opportunity for the SEC to implement the statutory objective of the Corporation Code) in connection with the grant of an exemption
protecting the investing public by requiring proposed issuers of capital stock to from normal registration requirements imposed by that Act.
inform such public of the true financial conditions and prospects of the
corporation.
• By limiting the class of exempt transactions contemplated by the last clause of
Section 6(a)(4) to issuances of stock done in the course of and as part of the
process of increasing the authorized capital stock of a corporation, the SEC is
enabled
o to examine issuances by a corporation of previously authorized but
unissued capital stock, on a case-to-case basis, under Section 6(b);
o to grant or withhold exemption from the normal registration
requirements depending upon the perceived level of need for
protection by the investing public in particular cases.
• Nestlé argues that the issuance of previously authorized but unissued CS would
automatically constitute an exempt transaction, without regard to the length of
time which may have intervened between the last increase in authorized capital
stock and the proposed issuance during which time the condition of the
corporation may have substantially changed, and without regard to whether the
existing stockholders to whom the shares are proposed to be issued are only two
giant corporations as in the instant case, or are individuals numbering in the
hundreds or thousands.
10 ROY NICOLAS v. CA and BLESILO BUAN • Where a profit or loss statement shows a loss, the statement must show income
and items of expense to explain the method of determining such loss.
1. Roy Nicolas and Blesito Buan entered into a Portfolio Management Agreement
(PMA) wherein Nicolas was to manage the stock transactions of Buan for 3 Ø Nicolas did not state the reasons and the factors behind the losses incurred in
months w/ automatic renewal clause. the course of the transactions. It is an incomplete record yielding easily to the
2. However, Buan terminated the agreement and requested for an accounting of inclusion or deletion of certain matters.
all transactions made by Nicolas. Ø Hence, no evidentiary value can be attributed to these statements.
3. 3 weeks after the termination of the agreement, Nicolas demanded from Buan
P68,263.67 representing his management fees. Demands went unheeded. (2) Nicolas was unlicensed.
4. Nicolas filed a complaint for collection of sum of money against Buan. Buan Ø Nicolas traded securities for the account of others without the necessary license
contended that Nicolas mismanaged his transactions resulting in losses, thus, not from the SEC. This omission was in violation of Section 19 of the Revised
entitled to any management fees. Securities Act which provides that no broker shall sell any securities unless he is
registered with the SEC.
ISSUE: W/N Nicolas was entitled to the management fees. NO, BECAUSE OF 2 • An unlicensed person may NOT recover compensation for services as a broker
REASONS. where a statute requiring a license is applicable and such statute or ordinance
is of a regulatory nature, which was enacted in the exercise of the police power
• Under the PMA. Buan would pay Nicolas 20% of all realized profits every end of for the purpose of protecting the public.
the month as management fees. The key word in the provision is profits. • Stock market trading, a technical and highly specialized institution in the
• Like any services rendered or performed, stock brokers are entitled to Philippines, must be entrusted to individuals with proven integrity, competence
commercial fees or compensation under the Revised Securities Act Rule 19-13: and knowledge, who have due regard to the requirements of the law.
“Charges by brokers or dealers, if any, for service performed, including • The purpose of the statute requiring the registration of brokers selling securities
miscellaneous services such as collection of monies due for principal, and the filing of data regarding securities which they propose to sell, is to protect
dividends, interests, exchange or transfer of securities, appeals, safekeeping or the public and strengthen the securities mechanism.
custody of securities, and other services, shall be reasonable and not unfairly
discriminatory between customers.”
(1) Nicolas failed to present any evidence of Buan’s alleged profits

• The complaint is similar to an action for damages, wherein for the same to be
recoverable, it must actually be proved with a reasonable degree of certainty,
and courts, in making the awards, must posit specific facts which could afford
sufficient basis for measuring compensatory or actual damages.
Ø Nicolas has the burden to prove that the transaction realized gains or profits. He
submitted the profit and loss statements, showing a total profit of P341,318, of
which 20% would represent his management fees amounting to P68,263.
Ø However, these statements are nothing but bare assertions, of no concrete basis
or specifics as to the amounts were arrived at.
o It did not even state when the stocks were purchased, the type of stocks
bought, when the stocks were sold, the acquisition and selling price of
each stock, when the profits were delivered to the Buan, the cost of
safekeeping or custody of the stocks, and the taxes paid for each
transaction.
11/15 Carlina Industries Inc v CMS Stock Brokerage Inc

1. If it were true that Lim or CI gave to CMS the order to purchase, it is unusual why
1. CI (Lim is the president) opened a margin account with CMS for purchasing and the alleged order of CI for Marinduque shares were (a) not placed in writing, (b)
selling stocks and securities listed in the Makati Stock Exchange. It deposited not entered in the buying order form, or (c) time-stamped to indicate the date
therein a total of P634,796. and time of the order.
2. As of 12 September 1969, CI owed CMS P804,179 exclusive of the stipulated daily a. Rule B-7 of the SEC IRR provides that all buying and selling orders
interest; subsequent thereto, CMS purchased 14,235 shares of Marinduque received, including the forms on which verbal and telephone orders are
Mining and Industrial Corporation- increasing its liability to P3,463,700. entered, shall be time-stamped upon their receipt and also upon their
Thereafter, CMS unilaterally liquidated its margin account by selling at a execution, withdrawal or cancellation so as to indicate the date and
tremendous loss all the stocks and securities credited to its account, thereby time on which they were received, executed, withdrawn or cancelled.
completely wiping out its P634,796 investment. i. The obvious purpose of this rule is to safeguard public interest
3. According to CI: and protect the investing public from fraud and deceit in
a. CMS acted fraudulently in buying the Marinduque shares without CI’s securities transaction. It is intended to prevent stockbrokers
authority. from dumping to the account of stock investors unprofitable
b. The credit or margin that CMS had extended to CI is equal to 73.42% of stock transactions initially purchased by brokers on their own
the market or more than 20% over the 50% ceiling set by Section 18(a) account.
(1) of the Securities Act. b. No proof was presented by CMS showing the official suspension by the
c. After CI protested the unauthorized purchase of the Marinduque SEC of the aforesaid Rule. On the contrary, what appears on record is
shares, CMS agreed not to charge the purchase to CI’s account and that the SEC took measures to ensure compliance therewith through
instead to release to it the following stocks and securities: (i) 318,000 the issuance of a memo.
shares of Lepanto Consolidated Mining Company, plus a stock dividend 2. The main purpose of Section 18 (a) (1) of the Securities Act and Rule 12 of the
of 33-1/3%, (ii) 94,000 shares of Palawan Quicksilver Mines, Inc., and IRR is to prevent the excessive use of credit for the purchase and carrying on of
(iii) 70,000 shares of Copper Belt plus pre-emptive rights declared securities, and of reducing the aggregate amount of the national credit resources
thereon on the condition that plaintiff would pay its liability; and that which are directed by speculation into the stock market and of achieving a more
pursuant to this agreement, it delivered to CMS a check for P500k and balanced use of such resources. The secondary purpose is the protection of the
another for P250,000.00, pending determination of the exact amount investor.
of its liability . a. The aforecited provisions enjoin the over-extension of credit and not
d. CI stopped payment of the abovementioned checks because CMS the application for excessive credit. Therefore, it does not mean that
liquidated CI’s margin accounts with the sales of the securities given as the customer to whom credit has been extended or for whom it has
collaterals therefor. been arranged has acted in violation of the Act or any rule or regulation
4. CI seeks to order CMS to pay it P634,796.00 or to deliver to it the stocks and thereunder.
securities they agreed upon subject to CI’s payment of its liability. b. The nature of the brokerage business is such that it is the broker, not
5. CA ruled against CI, holding that CI is liable to pay CMS plus damages; that CMS the client, who is in a position to verify, at any time, the status of the
did not violate the Securities Act; that CI authorized the purchase of the client's account. It is only the broker, therefore, who can prevent the
Marinduque shares; and that CMS was justified in liquidating CI’s margin over-extension of credit.
account. c. In this case, CI did not even know the exact amount of its undermargin.
3. Pursuant to Rule 14 of the SEC Rules, a broker shall not sell the customer's
ISSUES: securities for insufficiency of margin until after the broker has given the
1. WON CI authorized the purchase of Marinduque shares- NO customer at least 48 hours to maintain the margin. Under these circumstances,
2. WON CMS violated the Securities Act by allowing CI’s account to be excessively the liquidation in this case was, therefore, premature.
undermargin- YES 4. Pursuant to the clear and explicit provision of Section 38(b) (1) of the Securities
3. WON the liquidation of CI’s margin account was justified- NO Act, every contract made in violation of any provision of this Act or of any rule or
regulation thereunder shall be void as regards the rights of any person who, in 12 BAVIERA V. PAGLINAWAN
violation of any such provision, rule, or regulation shall have made or engaged in
the performance of any contract. 1. Baviera was the former head of HR Service Deliver and Industrial Relations of
a. CMS Stock Brokerage, Inc. is therefore ordered to pay Carolina Standard Chartered Bank (SCB). SCB is a foreign banking corporation engaged in
Industries, Inc. the amount of P634,796, representing its liquidated banking in the PH subject to certain conditions imposed by BSP.
margin deposit 2. Apparently, SCB did not comply with the conditions acted as a stock broker,
soliciting from local residents foreign securities called GLOBAL THIRD PARTY
MUTUAL FUNDS (GTPMF), denominated in US dollars.
a. These securities were not registered with the Securities and Exchange
Commission (SEC). These were then remitted outwardly to SCB-Hong
Kong and SCB-Singapore.
3. It was advised by Romulo Law Office to proceed selling foreign securities
although unregistered with SEC under the guise of a custodianship agreement
and if questioned, they will invoke the General Banking Act.
4. The Investment Capital Association of the Philippines (ICAP) filed with the SEC a
complaint alleging that SCB violated the Revised Securities Act selling of
securities without prior registration with the SEC; and that its actions are
potentially damaging to the local mutual fund industry.
5. SEC issued a cease and desist order against SCB. SEC referred ICAP’s complaint
to BSP. SEC withdrew the GTPMF securities from the market and it will not sell
them without the necessary clearances.
6. BSP directed SCB not to include investments in global mutual funds issue abroad
in its trust investment portfolios without prior registration with SEC. SCB sent a
letter confirming the directive. However, SCB still continued to sell GTPMF
securities.
7. Baviera entered with SCB into an Investment trust agreement wherein Baviera
purchased US$8k worth of securities, with a 40% return of investment and a
guarantee that his money was safe. After 6 months, Baviera learned that the
value went down to US$7k. Baviera tried to withdraw his investment, but SCB
persuaded him to hold on to it, promising that the market would pick it up.
8. BSP fined SCB for failing to comply with its directive which led to Baviera’s
investment to go down again. Baviera learned that BSP prohibited SCB from
selling GTPMF securities. Baviera filed with BSP a letter complaint demanding
compensation with his lost investment. SCB denied his demand because his
investment was regular.
9. Baviera filed with DOJ a complaint charging SCB BoD and officers of syndicated
estafa.
10. SEC lifted its cease and desist order upon P7M settlement by SCB and SCB made
a commitment not to further sell unregistered GTPMF securities.
11. Baviera filed with DOJ a complaint against SCB for violation of SRC. DOJ dismissed
the complaint for syndicated estafa. The complaint for violation of SEC was also
denied because it should have been filed with SEC. CA affirmed DOJ.
14 LOPEZ, LOCSIN, LEDESMA & CO. INC., v. CA

ISSUE: WON SEC has jurisdiction? YES.
• A criminal charge for violation of the Securities Regulation Code is a 1. CMS Stock Brokerage, Inc. (CMS) sold to Lopez, Locsin, Ledesma and Co., Inc.,
specialized dispute. Hence, it must first be referred to an administrative (LLL) on the floor of the Makati Stock Exchange, among others, 2,650 Benguet
agency of special competence, i.e., the SEC. Consolidated shares for the total price of P297,650.00 on a ten (10) to twenty
• Under the doctrine of primary jurisdiction, courts will not determine a (20) days delayed delivery basis as evidences by Exchange contracts.
controversy involving a question within the jurisdiction of the administrative 2. CMS, however, failed to deliver to LLL the said shares within the stipulated
tribunal, where the question demands the exercise of sound administrative period.
discretion requiring the specialized knowledge and expertise of said 3. 4 months later, in the course of an audit of CMS's books of accounts, the auditors
administrative tribunal to determine technical and intricate matters of fact. discovered that the 2,650 Benguet Consolidated shares which CMS sold to LLL
• The Securities Regulation Code is a special law. Its enforcement is still remained undelivered and unpaid by LLL. (auditor nila was SGV)
particularly vested in the SEC. Hence, all complaints for any violation of the 4. So CMS made known the LLL that it would effect delivery of said shares of stocks
Code and its implementing rules and regulations should be filed with the the following day. However, LLL refused to accept delivery at that late time since
SEC. Where the complaint is criminal in nature, the SEC shall indorse the its clients for whom the purchases were made had "elected to cancel" the
complaint to the DOJ for preliminary investigation and prosecution as orders.
provided in Section 53.1 earlier quoted. 5. CMS replied that, pursuant to the Rules and Regulations of the Makati Stock
Exchange, LLL had no right to cancel its orders, nevertheless, made a disposal in
favor of LLL the next day. LLL refused to acknowledge receipt of and sign the
covering disposal letter so CMS deposited the letter with the stock exchange.
6. The dispute was referred to the Board of Governors of the Makati Stock Exhange.
It held that both parties have violated the Rules and Regulations of the Makati
Stock Exchange and held that the contending parties are left to settle their
dispute on their own because of their violations. (VIOLATION: LLL– failure to
advise CMS within a reasonable time; CMS – failure to notify LLL on the agreed
date of delivery of the shares)
7. CMS filed a complaint before the CFI for specific performance to compel LLL to
accept the subject chairs. CFI ruled in favor of CMS. On appeal, CA affirmed the
CFI decision. Hence, this petition.
ISSUES:
1. WON the buying member of shares can refuse to accept a delivery made beyond
the period stipulated in the exchange contracts it executed with the selling
member. NO.
2. WON the Rules can affect contracts involving third persons. YES.  
FIRST ISSUE:
To resolve the issues raised by the parties, we first examine the nature and
purposes of an exchange:
• Exchange - a voluntary association or corporation organized for the purpose of
furnishing to its members a convenient and suitable place to transact their
business of promoting uniformity in the customs and usages of merchants, of
inculcating principles of justice and equity in trade, of facilitating the speedy
adjustment of business disputes, of acquiring and disseminating valuable • The rule also provides a remedy in case the selling member fails to deliver the
commercial and economic information and generally of securing to its members stocks ordered from the seller. (REMEDY LAST PAR. IN THIS DIGEST!!!)
the benefits of cooperation in the furtherance of their legitimate pursuits. o Unless the buying member timely notifies the seller that he is canceling
• Like any other association, an exchange has the power to adopt its own his orders, then the orders placed by the buying member still stand.
constitution, by-laws, rules and regulations so far as they are not contrary to law o LLL must, therefore, accept the delivery of the shares of stocks. If the
or public policy and which will secure to the members exclusive rights and shares had doubled or trebled in value, it could demand delivery of
privileges which the courts have fully recognized. what it purchased.
• Anyone who becomes a member of the exchange voluntarily submits himself o The rule is clear. It was the duty of LLL to make a demand in the event
to the operation of these rules and is expected to be bound by and to respect CMS failed to deliver within the stipulated time.
them.
• There is no dispute that the exchange contracts in question were drawn up on SECOND ISSUE:
the floor of the Makati Stock Exchange between two (2) member stockbrokers, • The contention that rules and regulations of the exchange should not apply to or
CMS as the seller and LLL, as the buyer for and on orders of the third parties. affect contracts which may involve third persons is without merit.
As members of the stock exchange, they are bound by the rules and by-laws of • Carolina Industries, Inc., v. CMS Stock Brokerage, Inc. - rules and regulations of
the exchange. the Stock Exchange form part of the contract. Such rules and regulations become
special terms of the contract.
FIRST ISSUE: • In this case, the shares of stocks were bought by petitioner for and on orders of
• The rule at issue in the instant case is Section I, Article V9 of the Rules and Rene Ledesma, Jose Ma. Lopez, Alfredo Ramos and Cesar A. Lopez, Jr. As a
Regulations. general rule and subject to certain limitations, a customer who engages a
• Sec.1(3) of Art. 5 of the Rules provides that “15 days shall be considered a broker to execute an order on a stock or produce exchange confers authority
reasonable period of time within which to effect delivery, unless otherwise on such broker to conduct the transaction according to the rules and
stated in the sales contract.” established customs of the exchange on which he deals, and the customer is
o The exchange contracts in the instant case falls under the “unless” thereby bound by such rules and customs, even though he may not have actual
clause. The parties merely stipulated a period (10-20 days) but such knowledge of them.
qualification does not in any way change the nature of the exchange • There are certain limitations such as when the rules and customs of the exchange
contracts. vary or contradict the contract between the customer and his broker, or change
• The buying member’s duties under Sec. 1(4) of Art. 5 of the Rules remain: the legal relations of the parties or when they are illegal or unreasonable,where
o It shall be the buyer’s duty to advise the selling member in writing in the customers are not bound. However, these limitations are not at all attendant
case the latter fails to delivery the stocks sold under a delayed delivery in the present case.
contract; and  
o In the event that the seller is unable to make delivery within said period, AS TO THE ALLEGATION THAT THE CMS ALSO VIOLATED THE CONTRACT, MAKING
the buying member shall deliver a copy of his letter of demand to the THEM IN PARI DELICTO – RULES ON NCC ON RESCISSION OF CONTRACT DO NOT
chairman of the Floor Trading and Arbitration Committee who may APPLY
purchase the shares for the selling member’s accounts.   • Court held that time is of the essence in these particular contracts because of
• More than any person, it is the buyer who should be aware whether or not what the speculative and fluctuating value of stocks.
he purchased has been delivered to him. Because of this awareness, the • Under the applicable rule, the failure of the seller to deliver the stocks does not
Exchange imposes upon him the primary obligation of giving notice. give the buying member the right to rescind the contract. If the selling member
9In the event of a Selling Member failing to make delivery within a reasonable period of time of shares sold under delayed Fifteen days shall be considered a reasonable period of time within which to effect delivery unless otherwise stated in the
delivery contract, it shall be the Buying Member duty to advise the Selling Member in writing giving him 1 full business sales contract.
day from the time of receipt of said letter of demand to make delivery. In the event a Selling Member is unable to make delivery within said period, the Buying Member shall deliver a copy of
The Buying Member shall obtain a written receipt from the Selling Member on the duplicate copy of the letter of demand. his letter of demand to the Chairman of the Floor Trading & Arbitration Committee who may purchase the shares for the
This receipt must state the time of delivery of the letter of demand to the Selling Member. Selling Member's Account.
fails or refuses to deliver, it may be compelled through the Chairman of the Floor 16 SEC vs. Performance Foreign Exchange Corp.,
Trading and Arbitration Committee to purchase the same for the selling
member's account. There being a special remedy agreed upon by the members, 1. Performance was registered under SEC with a purpose under its Articles “to
the right of rescission under the New Civil Code as invoked by the petitioner is operate as a broker/agent between market participants in transactions
inapplicable. involving, but not limited to, foreign exchange, deposits, certificate of deposits,
bills of exchange 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.
a. Secondary purpose is to engage as a money changer
2. SEC sent a letter to Performance requiring it to appear before the Compliance
and Enforcement Department (CED) for a clarificatory conference
a. After the meeting CED director said that there is a possible violation of the
SRC because it was found engaged in the trading of foreign currency futures
contracts without a license. CED issued a cease and desist order.
b. SEC Chairman sent a letter to BSP requesting whether transactions
involving financial derivatives can be undertaking by those performing
quasi-banking functions.
c. Despite the SEC Chairman’s letter, SEC denied the MR of Performance as
regards the cease and desist order. And eventually made such order
permanent.
i. It even stated in the denial that the SEC cannot determine
whether such transactions are executed in Singapore or HK;
and whether the foreign currency rates are verifiable
d. Performance elevated the case to the CA
3. BSP, in the meantime wrote to SEC Chairman saying that the activity of
Performance is valid.
ISSUE: WON the issuance of the Cease and Desist Order is valid. NO
• SRC provides that the Cease and Desist order may be issued by the SEC after
proper investigation or verification, motu proprio or upon verified complaint.
This is without need of a prior hearing if the act or practice, unless restrained,
will operate as fraud on investors or will cause grave and irreparable injury to
the prejudice of the investing public.
o The requisites are:
§ it must conduct proper investigation or verification
§ 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, there was no proper investigation or verification
o the clarificatory conference is not an investigation – it was merely the initial
stage. In fact, SEC Chairman even asked for verification from the BSP
o it even admitted it cannot determine certain facts – where the execution 17 PHILIPPINE STOCK EXCHANGE, INC. v. CA, SEC, and PUERTO AZUL
was made or whether the rates used are verifiable
o They even issued the Cease and Desist Order even before the BSP opinion 1. Puerto Azul Land (PALI) sought to offer its shares to the public in order to raise
came out funds to develop its properties and pay its loans.
• Thus, since there was no proper investigation, they could not determine whether 2. SEC issued PALI a Permit to Sell its shares to the public.
the act will operate as fraud to the public unless restraind 3. PALI sought to course the trading of its shares through PSE, for which it filed with
PSE an application to list its shares.
4. Before it could act upon PALI’s application, the Board of Governors of the PSE
received a letter from the heirs of Ferdinand Marcos, requesting PALI’s
application to be deferred, claiming that:
a. The late Marcos was the legal and beneficial owner of certain properties
forming part of the Puerto Azul Beach Hotel and Resort Complex which
PALI claims to be among its assets.
b. The Ternate Development Corporation (TDC), which is among the
stockholders of PALI, is in trust by Panlilio for Marcos (how his estate).
5. PALI: They are not claiming the properties as their assets. Further, TDC only owns
1.2% of PALI.
6. PSE was informed that a TRO was issued enjoining the Marcoses from interfering
with the approval by PSE of the initial public offering of PALI.
7. The Board of Governors of PSE, however, rejected PALI’s application, citing the
existence of serious claims and issues surrounding PALI’s ownership over its
assets.
8. PALI wrote a letter to SEC, bringing into its attention the action taken by PALI and
requested that SEC, in the exercise of its supervisory and regulatory powers over
stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSE’s action and
institute such measures as are just and proper under the circumstances.
9. SEC: In favor of PALI.
10. CA: Affirmed. SEC had both jurisdiction and authority to look into the decision of
PSE, pursuant to Section 3 of the Revised Securities Act in relation to Section 6(j)
and 6(m) of P.D. No. 902-A, and Section 38(b) of the Revised Securities Act, and
for the purpose of ensuring fair administration of the exchange.
ISSUE: Whether SEC had the power to reverse PSE’s actions. YES, but it did not do so
in this case because there was no bad faith.
• The question as to what policy is, or should be relied upon in approving the
registration and sale of securities in the PSE is not for the Supreme Court to
determine, but is left to the sound discretion of the Securities and Exchange
Commission.
• In mandating the SEC to administer the Revised Securities Act, and in
performing its other functions under pertinent laws, the Revised Securities Act,
under Section 3, gives the SEC the power to promulgate such rules and
regulations as it may consider appropriate in the public interest for the 18 SEC v. PROSPERITY.COM
enforcement of the said laws.
• The second paragraph of Section 4 of the said law, on the other hand, provides 1. Prosperity.Com, Inc. (PCI) sold computer software and hosted websites.
that no security, unless exempt by law, shall be issued, endorsed, sold, 2. PCI devised a scheme, patterned after that of Golconda Ventures, Inc. (GVI). GVI
transferred or in any other manner conveyed to the public, unless registered in stopped operations after the SEC issued a cease and desist order (CDO) against
accordance with the rules and regulations that shall be promulgated in the public it. The scheme:
interest and for the protection of investors by the Commission. a. For US$234, a buyer acquires from it an internet website of a 15MB
• Presidential Decree No. 902-A, on the other hand, provides that the SEC, as capacity.
regulatory agency, has supervision and control over all corporations and over the b. By referring to PCI his own down-line buyers, a first-time buyer could
securities market as a whole, and as such, is given ample authority in determining earn commissions, interest in real estate, and insurance coverage
appropriate policies. worth P50k.
• Notwithstanding the regulatory power of the SEC over the PSE, and the c. These second tier of buyers could in turn build up their own down-
resultant authority to reverse the PSE’s decision in matters of application for lines. For each pair of down-lines, the sponsor received US$92.
listing in the market, the SEC may exercise such power only if the PSE’s 3. Persons who ran the affairs of GVI directed PCI’s actual operations.
judgment is attended by bad faith. 4. Disgruntled officers of GVI filed a complaint with the SEC against PCI, alleging
• In reaching its decision to deny the application for listing of PALI, PSE considered that PCI had taken over GVI’s operations.
important facts, which, in the general scheme, brings to serious question the 5. SEC issued a CDO against PCI. Found that PCI’s scheme constitutes an
qualification of PALI to sell its shares to the public through the stock exchange. Investment contract, thus, it should have first registered such contract or
• During the time for receiving objections to the application, PSE heard from the securities with the SEC.
representative of Marcos and his family who claim the properties of PALI to be
part of the Marcos estate. ISSUE: W/N PCI’S scheme constitutes an investment contract. NO, BECAUSE THE
o In time, the PCGG confirmed this claim. LAST REQUISITE OF THE HOWEY TEST IS LACKING,
o In fact, an order of sequestration has been issued covering the
properties of PALI, and suit for reconveyance to the state has been filed • An investment contract is a contract, transaction, or scheme where a person
in the Sandiganbayan Court. invests his money in a common enterprise and is led to expect profits primarily
o How the properties were effectively transferred, despite the from the efforts of others. SRC treats investment contracts as securities that
sequestration order, from the TDC and MSDC to Panlilio, and to PALI, in have to be registered with the SEC before they can be distributed and sold.
only a short span of time, are not yet explained to the Court, but it is • For an investment contract to exist, the ff elements, referred to as
clear that such circumstances give rise to serious doubt as to the the Howey test must concur:
integrity of PALI as a stock issuer. 1. a contract, transaction, or scheme
• PSE was in the right when it refused application of PALI, for a contrary ruling was 2. an investment of money
not to the best interest of the general public. 3. investment is made in a common enterprise
• The purpose of the Revised Securities Act, after all, is to give adequate and 4. expectation of profits
effective protection to the investing public against fraudulent representations, 5. profits arising primarily from the efforts of others.
or false promises, and the imposition of worthless ventures.  • Example: The long-term commercial papers that large companies, like San
Miguel Corporation, offer to the public for raising funds that it needs for
expansion. When an investor buys these papers or securities, he invests his
money in SMC with an expectation of profits arising from the efforts of those
who manage and operate that company. SMC has to register these commercial
papers with the SEC before offering them to investors.
Ø PCI’s clients do not make such investments. They buy a product of some value
to them: an Internet website of a 15-MB capacity.
Ø The buyers of the website do not invest money in PCI that it could use for running 19 SEC v CA (same case as number 4)
some business that would generate profits for the investors.
o The US$234 it gets from its clients is merely a consideration for the sale 1. Cualoping is a stockbroker, while Fidelity is the stock transfer agent of Philex
of the websites. Mining Corporation.
Ø Actually, PCI appears to be engaged in network marketing. 2. 1.4M shares of stock (stock dividends that were returned for lack of forwarding
o The commissions, interest in real estate, and insurance coverage are addresses of the shareholders concerned) of Philex were stolen from the
incentives to down-line sellers to bring in other customers. These can premises of Fidelity.
hardly be regarded as profits from investment of money under 3. The stolen stock certificates ended in the hands of Agustin Lopez.
the Howey test. 4. Lopez brought such stock certificates to Cualoping for trading and sale with the
o PCI expects profit from the network marketing of its products. stock exchange.
a. All of the said stock certificates bore the signature in blank of the
owners thereof and a verification of such signatures by Fidelity.
5. Cualoping traded the same with the stock exchange. After the stock exchange
awarded and confirmed the sale of the stocks represented by said certificates to
different buyers, the same were delivered to Fidelity for the cancellation of the
stocks certificates and for issuance of new certificates in the name of the new
buyers.
6. Fidelity rejected the issuance of new certificates in favor of the buyers because
the signatures of the owners of the certificates were allegedly forged by 2 of its
employees, thus the cancellation and new issuance thereof cannot be effected.
7. Fidelity sought an opinion on the matter from SEC
a. SEC i) ordered the 2 stock transfer agencies to jointly replace the subject
shares and for Fidelity to cause the transfer thereof in the names of the
buyers, and ii) for each to pay a fine; CA reversed.
ISSUE: WON SEC had the authority to rule in such wise- NO AS TO FIRST PART, YES
AS TO SECOND PART.
• As regards the portion of the SEC decision which ordered the replacement of the
subject shares and for the transfer thereof in the name of the buyers, such calls
for the exercise of SEC’s adjudicative jurisdiction.
o The proper parties that can bring the controversy and can cause an
exercise by the SEC of its original and exclusive jurisdiction would be all
or any of those who are adversely affected by the transfer of the
pilfered certificates of stock- stockholders who have been deprived of
their certificates of stock or the persons to whom the forged certificates
have ultimately been transferred by the supposed endorsee.
• As regards the portion of the SEC decision which ordered the payment of a fine,
such is an exercise of the regulatory power of the SEC.
o The SEC is given the authority to impose a) suspension or revocation of
registration/permit or b) fine if after proper notice and hearing, it finds
that there is a violation of the Revised Securities Act, its rules, or its
orders. 20 SALES V. SEC

o Both Fidelity and Cualoping have been guilty of negligence in the
conduct of their affairs involving the questioned certificates of stock. To 1. State Investment House entered into a sales agreement with Sipalay Mining
constitute, however, a violation of the Revised Securities Act that can whereby the latter sold to the former 2.6M common shares of its capital stock,
warrant an imposition of a fine, fraud or deceit, not mere negligence, on the condition that State Investment shall not sell more than 1M shares per
on the part of the offender must be established. Fraud here is akin to buyer.
bad faith which implies a conscious and intentional design to do a 2. Subsequently, the restriction on the sale of the shares was modified by allowing
wrongful act for a dishonest purpose or moral obliquity. sale in blocks from 1M shares to 5M shares per buyer. State Investment sold the
§ In this case, therefore, Fidelity and Cualoping may not be made 200M shares to Anselmo Trinidad & Co., Inc. (ATCO).
liable. 3. During the time that ATCO held the shares, it voted them in the stockholders'
• The violation by Fidelity, however, of SEC-BED Memorandum Circular No. 9, meetings of Sipalay Mining.
series of 1987 as regards the delivery of stock certificates (failure to return to the 4. Later on, ATCO in turn sold 198.5M of the shares to VULCAN.
clearing house or broker not later than 2 days after receipt of the certificates of 5. By resolution of the BODs of Sipalay Mining, its President was directed to sign
stock where there is no good delivery thereof), calls for the imposition of a fine. the certificate of stock that would effect the transfer.
6. Prior to the scheduled annual stockholders’ meeting of Sipalay Mining,
petitioners filed before the SEC a petition to nullify the sale of the shares to
VULCAN, with a prayer for the issuance of a writ of preliminary injunction to
enjoin VULCAN from voting the shares.
7. The SEC temporarily restrained VULCAN from voting its 198.5M shares at the
1979 annual stockholders’ meeting pending resolution of petitioners’ petition
for the issuance of a writ of preliminary injunction.
8. The annual stockholders’ meeting of Sipalay Mining proceeded without the
participation of VULCAN’s 198.5M shares and the members of the BODs were
elected.
9. Petitioners were able to elect candidates from their group.
10. SEC lifted the injunction and ruled that the shares of VULCAN be allowed to vote.
Furthermore, SEC created a committee to oversee the election of the BOD.
11. It is this election of members of the board of directors on July 18, 1979, which is
being questioned by respondent Vulcan wherein it prays that the stockholders'
meeting on the aforementioned date be declared null and void.
ISSUE: If the sale of shares to VULCAN is valid. YES.
• The sale of the shares of stock had long been perfected and is presumed valid
until declared otherwise.
• The Court is not at liberty to review whether or not the decision of the board to
direct its President to sign the stock certificate was to the best interest of the
corporation: It is a well-known rule of law that questions of policy or of
management are left solely to the honest decision of officers and directors of a
corporation, and the court is without authority to substitute its judgment for the
judgment of the board of directors; the board is the business manager of the
corporation, and so long as it acts in good faith its orders are not reviewable by 21 PHILIPPINE VETERANS BANK V. CALLANGAN
courts.
• Moreover, there is legal basis to support the SEC's view that "considering that 1. Callangan, Dir. Of the Corporation Finance Dept. of SEC, sent Veterans a letter
the questioned shares constitute the majority, it is more equitable that the same a. That it qualifies as a public company under the SRC
be allowed to vote rather than be enjoined. b. The bank is thus required to comply with the reportorial requirements
• The Court will not deprive a stockholder of his right to vote his shares in the 2. Veterans responded that it should not be considered as a public company
annual stockholders' meeting, except upon a clear showing of its lawful denial because it is a private one whose shares of stock are available only to a limited
under the articles of incorporation or by-laws of the corporation, as it is a right class or sector (WWII veterans only)
inherent in stock ownership. 3. Callangan rejected Veterans explanation and assessed it a penalty of 1.9M for
failing to comply from 2001 to 2003
NOTE: Guys eto lang nakita kong issue about securities, puro Corp and REM yung iba 4. MR was denied. SEC EB also dismissed appeal. CA affirmed SEC
huhu.
ISSUE: Whether Veterans Bank is a public company burdened with the reportorial
requirements under SRC. YES.
• Bank asks the Court to take into consideration the financial impact to the cause
of veteranism; if the Bank would be considered a public company, would compel
the Bank to spend approximately 40M just to reproduce and mail the
Information Statement to its 400,000 shareholders nationwide.
• SRC: a public company is any corporation with a class of equity securities listed
on an Exchange or with assets in excess of 50M and having 200 or more holders,
at least 200 of which are holding at least 100 shares of a class of its equity
securities.
• It is clear that a public company, as contemplated by the SRC, is not limited to a
company whose shares of stock are publicly listed; even companies like the Bank,
whose shares are offered only to a specific group of people, are considered a
public company, provided they meet the requirements enumerated above
• Records establish, and the Bank does not dispute, that the Bank has assets
exceeding 50M and has 395,998 shareholders. It is thus considered a public
company
• Bank also argues that even assuming it is considered a public company, the Court
should interpret the pertinent SRC provisions in such a way that no financial
prejudice is done to the thousands of veterans “furnish to each holder of such
equity security an annual report”
• Duty of the Court is to apply the law. Construction and interpretation come only
after a demonstration that the application of the law is impossible or inadequate
unless interpretation is resorted to. In this case, we see the law to be very clear
and free from any doubt or ambiguity; thus, no room exists for construction or
interpretation
• Contrary to the Banks claim, the Banks obligation to provide its stockholders with
copies of its annual report is actually for the benefit of the veterans-
stockholders, as it gives these stockholders access to information on the Banks
financial status and operations, resulting in greater transparency on the part of

the Bank. While compliance with this requirement will undoubtedly cost the
Bank money, the benefit provided to the shareholders clearly outweighs the
expense.
• Annual reports are the only means of keeping in touch with the state of health
of their investments; to them, these are invaluable and continuing links with the
Bank that immeasurably contribute to the transparency in public companies that
the law envisions.

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1|SRC| Angsiy|Lazatin|Montealto|Panday|Reyes|Sullano|Ting|Yumul

1/13 ABACUS SECURITIES CORP. v. RUBEN U. AMPIL

• The SEC’s regulatory authority over private corporations encompasses a wide

• The mere absence of implementing rules cannot effectively invalidate provisions

ISSUE: Whether CFI has jurisdiction. NO.

ISSUE: WON petitioners business constitutes an investment contract which should be

• An investment contract is defined in the Amended Implementing Rules and

8 Union Bank vs. SEC 9 NESTLE PHILS. v. CA and SEC

(1) Nicolas failed to present any evidence of Buan’s alleged profits

11/15 Carlina Industries Inc v CMS Stock Brokerage Inc

14 LOPEZ, LOCSIN, LEDESMA & CO. INC., v. CA

orders. 20 SALES V. SEC

ISSUE: If the sale of shares to VULCAN is valid. YES.

financial status and operations, resulting in greater transparency on the part of

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