SECURITIES
REGULATION
CODE
Securities
- are shares, participation or interests 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.
Q: Asia Pacific Finance Co. (Asia Pacific) was
engaged in purchasing receivables at a
discount. Baas contend that Asia Pacific was
organized as an investment house which
could not engage in the lending of funds
obtained from the public through receipt of
deposits. The disputed promissory note, deed
of chattel mortgage and continuing
undertaking were not intended to be valid and
binding on the parties as they were merely
devices to conceal their real intention which
was to enter into a contract of loan in violation
of banking laws. Is Asia Pacific engaged in
banking?
A: No. As defined in Section 2(a) of the Revised
Securities Act, securities “shall include commercial
papers evidencing indebtedness of any person, financial
or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed
to another with or without recourse, such as promissory
notes”. Clearly, the transaction between the petitioners
and respondent was one involving not a loan but
purchase of receivables at a discount, well within the
purview of “investing, re-investing, or trading in
securities” which an investment company, like Asia
Pacific is authorized to perform and does not constitute a
violation of the General Banking Act. But here, the funds
supposedly “lent” to petitioners have not been shown to
be obtained from the public by way of deposits, hence,
the inapplicability of banking laws. (Baas vs. Asia Pacific
Finance Corporation, G.R. No. 128703, October 18,
2000)
Uncertified Security
- A security evidenced by electronic or
similar records.
- Section 8 – Requirement of
Registration
Section 9 – Exempt Securities
Section 10 – Exempt Transactions
Pre-Need Plans
- Are contracts which provide for the
performance of future services or the
payment of future monetary considerations
at the time of actual need, for which
planholders pay in cash or installment at
stated prices, with or without interest or
insurance coverage and includes life,
pension, education, interment, and other
plans which the Commission may from
time to time approve.
Rules on Pre-Need Plans
- Section 16 of the SRC
Conditions when SEC may
issue Cease and Desist Order
1) It must conduct proper investigation or
verification; and,
2) 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. (SEC
vs. Performance Foreign Exchange
Corp., G.R. No. 154131, July 20, 2006)
Can the SEC issue a Cease and Desist
Order even without trial?
- Yes – Section 64 of the SRC
It was sufficient that the company was amply
appraised of the results of the SEC investigation
and then given the reasonable opportunity to
present its defense. A formal trial or hearing is not
necessary to comply with the requirements of due
process. Its essence is simply the opportunity to
explain one’s position. (Primanila Plans, Inc. vs.
SEC, G.R. No. 193791, August 6, 2014)
How may violations of the SRC
be pursued?
- Must be referred first to SEC
- Doctrine of primary jurisdiction
What about civil suits?
- RTC has jurisdiction
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. The Tender Offer Rule
applies also in an indirect acquisition arising
from the purchase of shares of a holding
company of the listed firm. Tender offer is in
place to protect minority stockholders 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 stockholders.
Cemco Holding Inc. versus National
Life Insurance Co., G.R. No. 171815,
August 7, 2007
Election Contest
- Refers to any controversy or dispute
involving title or claim to any elective office in
a stock or non-stock corporation, the
validation of proxies, the manner and validity
of elections, and the qualifications of
candidates, including the proclamation of
winners, to the office of the 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.
Jurisdiction over Validation of Proxies In
Relation to the Existence of Quorum for the
Election of Directors
- SEC has jurisdiction.
- SEC vs. CA, G.R. No. 187702, October 22,
2014
Jurisdiction on the matter of validity of
proxies in relation to election
controversies
- RTC
- GSIS vs. CA, G.R. No. 183905, April
16, 2009
Does SEC have the power to collect fees for
examining and filing of articles of
incorporation and by-laws?
- Yes
- SEC versus GMA Network, Inc., G.R.
No. 164026, December 23, 2008
It is argued that the Sandiganbayan has
jurisdiction over a stockholders’ suit to enforce
its rights of inspection under the Corporation
Code where the company subject matter of
the complaint is sequestered?
RTC and not Sandiganbayan
(Abad vs. Philippine Communications
Satellite Corporation, G.R. No. 200620,
March 18, 2015
Insider/Insider Trading
Section 3. 8 of the SRC and Section 27
of the SRC
Reason for Prohibition
The duty to disclose is based on 2 factors:
1) Existence of a relationship giving access,
directly or indirectly to information
intended to be available only for a
corporate purpose
2) Inherent unfairness involved when a party
takes advantage of such information
knowing it is unavailable to those with
whom he is dealing.
(SEC vs. Interport Resources Corp., G.R. No.
135808, October 6, 2008)
A fact of Special Significance
It may be:
1) A material fact which would be likely, on
being made generally available to effect
the market price of a security to a
significant extent; or,
2) One which a reasonable person would
consider especially important in
determining his course of action with
regard to the shares of stocks. (SEC vs.
Interport, G.R. No. 135808, October 6,
2008
Public Company
Not limited to a company whose shares of
stocks are publicly listed; even companies
whose shares are offered only to a specific
group of people, are considered a public
company, provided they meet the
requirements enumerated in the SRC such
as existence of assets exceeding P50M
and 395,998 shareholders. (Philippine
Veterans Bank vs. Callangan, G.R. No.
191995, August 3, 2011)
Investment Contract
A contract, transaction or scheme where a
persons invests his money in a common
enterprise and is led to expect profits
primarily from the efforts of others.
Sale of internet website does not fall under
investment contract as buyers do not invest
money in the company that it could use for
running some business that would
generate profits for the investors. (SEC vs.
Prosperity Com, Inc., G.R. No. 164197,
January 25, 2012)
Is network marketing an investment contract?
No. Network marketing, a scheme adopted
by companies for getting people to buy
their products where the buyer can become
a down-line seller, who earns commissions
from purchases made by new buyers who
he refers to the person who sold the
product to him, is not an investment
contract. (SEC vs. Prosperity Com, Inc.,
G.R. No. 164197, January 25, 2012)
Q: Becky Sia, an unregistered broker, convinced Al
and Fonso to make an investment under a second
product, Performance Management Portfolio (PMPA)
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 client’s
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 client’s
account every 8 weeks.
Is this an investment contract? Is there a violation of
the SRC?
A: Yes.
SEC vs. Santos, G.R. No. 195542,
March 19, 2014
Devices and Practices in which
Security Price is Manipulated
- Section 24 of the SRC