1

[G.R. No. 164197. January 25, 2012.]

SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. PROSPERITY.COM, INC., respondent.

DECISION

ABAD, J p:

This case involves the application of the Howey test in order to determine if a particular transaction is an investment contract.

The Facts and the Case

Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet service. To make a profit, PCI devised a scheme in which, for the price of US$234.00 (subsequently increased to US$294), a buyer could acquire from it an internet website of a 15-Mega Byte (MB) capacity. At the same time, by referring to PCI his own down-line buyers, a first-time buyer could earn commissions, interest in real estate in the Philippines and in the United States, and insurance coverage worth P50,000.00.

To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own down-lines. These second tier of buyers could in turn build up their own down-lines. For each pair of down-lines, the buyer-sponsor received a US$92.00 commission. But referrals in a day by the buyer-sponsor should not exceed 16 since the commissions due from excess referrals inure to PCI, not to the buyer-sponsor.

Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company stopped operations after the Securities and Exchange Commission (SEC) issued a cease and desist order (CDO) against it. As it later on turned out, the same persons who ran the affairs of GVI directed PCI's actual operations.

In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter had taken over GVI's operations. After hearing, 1 the SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The SEC ruled that PCI's scheme constitutes an Investment contract and, following the Securities Regulations Code, 2 it should have first registered such contract or securities with the SEC.

Instead of asking the SEC to lift its CDO in accordance with Section 64.3 of Republic Act (R.A.) 8799, PCI filed with the Court of Appeals (CA) a petition for certiorari against the SEC with an application for a temporary restraining order (TRO) and preliminary injunction in CA-G.R. SP 62890. Because the CA did not act promptly on this application for TRO, on January 31, 2001 PCI returned to the SEC and filed with it before the lapse of the five-day period a request to lift the CDO. On the following day, February 1, 2001, PCI moved to withdraw its petition before the CA to avoid possible forum shopping violation. SHacCD

During the pendency of PCI's action before the SEC, however, the CA issued a TRO, enjoining the enforcement of the CDO. 3 In response, the SEC filed with the CA a motion to dismiss the petition on ground of forum shopping. In a Resolution, 4 the CA initially dismissed the petition, finding PCI guilty of forum shopping. But on PCI's motion, the CA reversed itself and reinstated the petition. 5

In a joint resolution, 6 CA-G.R. SP 62890 was consolidated with CA-G.R. SP 64487 that raised the same issues. On July 31, 2003 the CA rendered a decision, granting PCI's petition and setting aside the SEC-issued CDO. 7 The CA ruled that, following the Howey test, PCI's scheme did not constitute an investment contract that needs registration pursuant to R.A. 8799, hence, this petition.

The Issue Presented

The sole issue presented before the Court is whether or not PCI's scheme constitutes an investment contract that requires registration under R.A. 8799.

The Ruling of the Court

The Securities Regulation Code treats investment contracts as "securities" that have to be registered with the SEC before they can be distributed and sold. An investment contract is a contract, transaction, or scheme where a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. 8

Apart from the definition, which the Implementing Rules and Regulations provide, Philippine jurisprudence has so far not done more to add to the same. Of course, the United States Supreme Court, grappling with the problem, has on several occasions discussed the nature of investment contracts. That court's rulings, while not binding in the Philippines, enjoy some degree of persuasiveness insofar as they are logical and consistent with the country's best interests. 9

The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. 10 that, for an investment contract to exist, the following elements, referred to as the Howey test must concur: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others. 11 Thus, to sustain the SEC position in this case, PCI's scheme or contract with its buyers must have all these elements.

An example that comes to mind would be the long-term commercial papers that large companies, like San Miguel Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor buys these papers or securities, he invests his money, together with others, in 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.

Here, 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. The client can use this website to enable people to have internet access to what he has to offer to them, say, some skin cream. The buyers of the website do not invest money in PCI that it could use for running some business that would generate profits for the investors. The price of US$234.00 is what the buyer pays for the use of the website, a tangible asset that PCI creates, using its computer facilities and technical skills.

Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for getting people to buy their products outside the usual retail system where products are bought from the store's shelf. Under this scheme, adopted by most health product distributors, the buyer can become a down-line seller. The latter earns commissions from purchases made by new buyers whom he refers to the person who sold the product to him. The network goes down the line where the orders to buy come.

The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to down-line sellers to bring in other customers. These can hardly be regarded as profits from investment of money under the Howey test.

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

WHEREFORE, the Court DENIES the petition and AFFIRMSthe decision dated July 31, 2003 and the resolution dated June 18, 2004 of the Court of Appeals in CA-G.R. SP 62890.

SO ORDERED.

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[G.R. No. 191995. August 3, 2011.]

PHILIPPINE VETERANS BANK, petitioner, vs. JUSTINA CALLANGAN, in her capacity as Director of the Corporation Finance Department of the Securities and Exchange Commission and/or the SECURITIES AND EXCHANGE COMMISSION, respondent.

RESOLUTION

BRION, J p:

2

We resolve the motion for reconsideration 1 filed by petitioner Philippine Veterans Bank (the Bank) dated August 5, 2010, addressing our June 16, 2010 Resolution that denied the Bank's petition for review on certiorari.

Factual Antecedents

On March 17, 2004, respondent Justina F. Callangan, the Director of the Corporation Finance Department of the Securities and Exchange Commission (SEC), sent the Bank a letter, informing it that it qualifies as a "public company" under Section 17.2 of the Securities Regulation Code (SRC) in relation with Rule 3 (1) (m) of the Amended Implementing Rules and Regulations of the SRC. The Bank is thus required to comply with the reportorial requirements set forth in Section 17.1 of the SRC. 2

The Bank responded by explaining that it should not be considered a "public company" because it is a private company whose shares of stock are available only to a limited class or sector, i.e., to World War II veterans, and not to the general public. 3

In a letter dated April 20, 2004, Director Callangan rejected the Bank's explanation and assessed it a total penalty of One Million Nine Hundred Thirty-Seven Thousand Two Hundred Sixty-Two and 80/100 Pesos (P1,937,262.80) for failing to comply with the SRC reportorial requirements from 2001 to 2003. The Bank moved for the reconsideration of the assessment, but Director Callangan denied the motion in SEC-CFD Order No. 085, Series of 2005 dated July 26, 2005. 4When the SEC En Banc also dismissed the Bank's appeal for lack of merit in its Order dated August 31, 2006, prompting the Bank to file a petition for review with the Court of Appeals (CA). 5 AaSTIH

On March 6, 2008, the CA dismissed the petition and affirmed the assailed SEC ruling, with the modification that the assessment of the penalty be recomputed from May 31, 2004. 6

The CA also denied the Bank's motion for reconsideration, 7 opening the way for the Bank's petition for review on certiorari filed with this Court. 8

On June 16, 2010, the Court denied the Bank's petition for failure to show any reversible error in the assailed CA decision and resolution. 9

The Motion for Reconsideration

The Bank reiterates that it is not a "public company" subject to the reportorial requirements under Section 17.1 of the SRC because its shares can be owned only by a specific group of people, namely, World War II veterans and their widows, orphans and compulsory heirs, and is not open to the investing public in general. The Bank also asks the Court to take into consideration the financial impact to the cause of "veteranism"; compliance with the reportorial requirements under the SRC, if the Bank would be considered a "public company," would compel the Bank to spend approximately P40 million just to reproduce and mail the "Information Statement" to its 400,000 shareholders nationwide.

The Court's Ruling

We DENY the motion for reconsideration for lack of merit.

To determine whether the Bank is a "public company" burdened with the reportorial requirements ordered by the SEC, we look to Subsections 17.1 and 17.2 of the SRC, which provide:

Section 17.Periodic and Other Reports of Issuers. —

17.1.Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the Commission:

a)Within one hundred thirty-five (135) days, after the end of the issuer's fiscal year, or such other time as the Commission may prescribe, an annual report which shall include, among others, a balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year, certified by an independent certified public accountant, and a management discussion and analysis of results of operations; and

b)Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer as the Commission may prescribe as necessary to keep current information on the operation of the business and financial condition of the issuer. CcHDSA

17.2.The reportorial requirements of Subsection 17.1 shall apply to the following:

xxx xxx xxx

c)An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other amount as the Commission shall prescribe, and having two hundred (200) or more holders each holding at least one hundred (100) shares of a class of its equity securities: Provided, however, That the obligation of such issuer to file reports shall be terminated ninety (90) days after notification to the Commission by the issuer that the number of its holders holding at least one hundred (100) shares is reduced to less than one hundred (100). (emphases supplied)

We also cite Rule 3 (1) (m) of the Amended Implementing Rules and Regulations of the SRC, which defines a "public company" as "any corporation with a class of equity securities listed on an Exchange or with assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders, at least two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities."

From these provisions, 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.

The records establish, and the Bank does not dispute, that the Bank has assets exceeding P50,000,000.00 and has 395,998 shareholders. 10 It is thus considered a public company that must comply with the reportorial requirements set forth in Section 17.1 of the SRC.

The Bank also argues that even assuming it is considered a "public company" pursuant to Section 17 of the SRC, the Court should interpret the pertinent SRC provisions in such a way that no financial prejudice is done to the thousands of veterans who are stockholders of the Bank. Given that the legislature intended the SRC to apply only to publicly traded companies, the Court should exempt the Bank from complying with the reportorial requirements. ATICcS

On this point, the Bank is apparently referring to the obligation set forth in Subsections 17.5 and 17.6 of the SRC, which provide:

Section 17.5. Every issuer which has a class of equity securities satisfying any of the requirements in Subsection 17.2 shall furnish to each holder of such equity security an annual report in such form and containing such information as the Commission shall prescribe.

Section 17.6. Within such period as the Commission may prescribe preceding the annual meeting of the holders of any equity security of a class entitled to vote at such meeting, the issuer shall transmit to such holders an annual report in conformity with Subsection 17.5. (emphases supplied)

In making this argument, the Bank ignores the fact that the first and fundamental duty of the Court is to apply the law. 11 Construction and interpretation come only after a demonstration that the application of the law is impossible or inadequate unless interpretation is resorted to. 12 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.

Additionally, and contrary to the Bank's claim, the Bank's 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 Bank's 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. For many stockholders, these 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. THIECD

WHEREFORE, premises considered, petitioner Philippine Veterans Bank's motion for reconsideration is hereby DENIED with finality.

SO ORDERED.

3

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[G.R. No. 195542. March 19, 2014.]

SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. OUDINE SANTOS, respondent.

DECISION

PEREZ, J p:

Before us is another cautionary tale of an investment arrangement which, at the outset, appeared good, unraveling unhappily as a deal too-good-to-be-true.

This petition for review on certiorari under Rule 45 of the Rules of Court assails the Decision 1 of the Court of Appeals in CA-G.R. SP No. 112781 affirming the Resolutions 2 of the Secretary of Justice in I.S. No. 2007-1054 which, among others, dismissed the criminal complaint for violation of Section 28 of Republic Act No. 8799, the Securities Regulation Code, filed by petitioner Securities and Exchange Commission (SEC) against respondent Oudine Santos (Santos).

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

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

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

The common recital in the 31 complaints is that:

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

Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a complaint-affidavit for violation of Sections 8, 4 26 5 and 28 6 of the Securities Regulation Code before the Department of Justice which was docketed as I.S. No. 2007-1054. Among the respondents in the complaint-affidavit were the principal officers of PIPC: Liew, Chairman and President; Cristina Gonzalez-Tuason, Director and General Manager; Ma. Cristina Bautista-Jurado, Director; and herein respondent Santos.

Private complainants, Lorenzo and Sy, in their affidavits annexed to SEC's complaint-affidavit, respectively narrated Santos' participation in how they came to invest their monies in PIPC Corporation:

1. Lorenzo's affidavit CSaIAc

xxx xxx xxx

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

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

xxx xxx xxx

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

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

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

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

xxx xxx xxx

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

9. Afterwards, I received a letter dated 17 April 2006, signed by Michael H.K. Liew, welcoming my investment.

xxx xxx xxx

10. Sometime on May 2006, I added another US$60,000.00 to my then subsisting account #181372, thus totaling US$100,000.00. This amount, pursuant to the instructions of Oudine Santos, was remitted to Standard Chartered Bank.

xxx xxx xxx

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

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

xxx xxx xxx

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

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

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

xxx xxx xxx

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

5. Sy's affidavit

2. I have been a depositor of the Bank of the Philippine Islands (BPI) Pasong Tamo branch for the past 15 years. Sometime in the last quarter of 2006, I was at BPI Pasong Tamo to accomplish certain routine transactions. Being a client of long standing, the bank manager[,] as a matter of courtesy, allowed me to wait in her cubicle. It was there that the bank manager introduced me to another bank client, Ms. Oudine Santos. After exchanging pleasantries, and

4

in the course of a brief conversation, Ms. Santos told me that she is a resident of Damariñas Village and was working as an investment consultant for a certain company, Performance Investment Products Corporation [PIPC]. She told me that she wanted to invite me to her office at the Citibank Tower in Makati so that she could explain the investment products that they are offering. I gave her my contact number and finished my transaction with the bank for that day;

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

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

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

6. In November of 2006, I decided to invest USD40,000 specifically in Performance Management Portfolio I . . . . After signing the Partnership Agreement, . . ., I was instructed by Ms. Santos to deposit the amount by telegraphic transfer to [PIPC's] account in ABN AMRO Bank Hong Kong. I did as instructed;

xxx xxx xxx

8. Sometime January to March of 2007, [Santos] was convincing me to make an additional investment under a second product, Performance Management Portfolio II [PMP II] which provides a more limited guarantee for the principal investment of USD100,000 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; SIcEHC

xxx xxx xxx

10. After I made my USD40,000 PMP I investment, Ms. Santos invited me to meet Mr. Michael Liew in the business lounge some time during the first quarter of this year. My impression was that he was quite unassuming considering that he was the head of an international investment firm. . . . . 8

On the whole, Lorenzo and Sy charge Santos in her capacity as investment consultant of PIPC Corporation who actively engaged in the solicitation and recruitment of investors. Private complainants maintain that Santos, apart from being PIPC Corporation's employee, acted as PIPC Corporation's agent and made representations regarding its investment products and that of the supposed global corporation PIPC-BVI. Facilitating Lorenzo's and Sy's investment with PIPC Corporation, Santos represented to the two that investing with PIPC Corporation, an affiliate of PIPC-BVI, would be safe and full-proof.

In SEC's complaint-affidavit, it charged the following:

xxx xxx xxx

12. This case stems from the act of fraud and chicanery masterfully orchestrated and executed by the officers and agents of PIPC Corp. against their unsuspecting investors. The deception is founded on

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

xxx xxx xxx

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

xxx xxx xxx

22. . . . .

Name of Broker/ Bank/Location Date Account Amount of Bank/Location

Investors Agent to which funds Number Investment xxx

were transferred

xxxx

23. Luisa Oudine RZB Austria, June 2007 R149432 US$500,000 Not

Mercedes P. Santos Singapore provided

Lorenzo Branch

xxxx

32. Ricky Oudine ABN-AMRO 9 October 0800287 US$40,000 BPI Pasong

Albino P. Sy Santos Bank Hongkong 2006 769 Tamo B 9

23. A careful perusal of the complaint-affidavits revealed that for every completed investment transaction, a company brochure, depending on the type of investment portfolio chosen, was provided to each investor containing the following information on Performance BVI and its investment product called Performance Managed Portfolio or PMP, the points of which are as follows: TADIHE

a. 8 calendar week maturity period[,]

b. principal investment (minimum of USD40,000) is protected[,]

c. investments maintained in strict confidentiality[,]

d. features: security, liquidity, short term commitment,

5

e. tax-exemption status for offshore investments.

24. The investment flow is described as follows:

a. Investors' funds will be placed into a fixed deposit account with a PIPC designated bank and shall not be exposed for trading purposes. The PIPC designated bank shall then extend a margin line request for trading based on the deposit;

b. PIPC shall open a separate account which will contain an amount of not more than 30% of its own funds to serve as a profit and loss account;

c. Trading will commence with PIPC designated bank closely monitoring the performance to ensure that if losses are incurred trading will cease immediately should the 20% stop limit be hit;

d. Profits will be credited into the Profit and Loss account with PIPC designated bank account. Losses will be debited from the same account up to the controlled 20% limit; acAESC

e. Notice of withdrawals must be submitted two weeks prior to schedule of maturity otherwise investment is automatically rolled over to the next batch;

f. At maturity, profits accumulated in the settlement account shall be distributed and deposited into each investor's dollar bank account within fourteen (14) banking days;

g. The funds of various investors are pooled, batched and deposited with PIPC designated bank account acting as custodian bank, to form a massive asset base. This account is separate and distinct from the Profit and Loss Account. The line from this pooled fund is then entrusted to full time professional and experienced foreign traders who each specialize in the following currencies: Japanese Yen, Euro, British Pound, Swiss Francs and Australian Dollar. Profits generated from trading these major currencies is credited into the Profit and Loss Account, which at the end of the eight calendar week lock-in period, will be distributed among the investors. Investors are informed of their account status thru trading statements issued by PIPC every time there is a trade made in their respective accounts.

xxx xxx xxx

25. Furthermore, it was relayed by the officers and agents to complainants-investors that PIPC Corp. is the Philippine office of the Performance Group of Companies affiliates situated in different parts of the world, particularly China, Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands (BVI), even reaching Switzerland. With such basic depiction of the legitimacy and stability of PIPC Corp., complainants-investors deduced that it was clothed with the authority to solicit, offer [and] sell securities. As regards the officers and agents of [PIPC Corp.], they secured proper individual licenses with the SEC as brokers/dealers of securities to enable to solicit, offer and/or sell the same. DIEcHa

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

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

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

legitimate purpose, and certainly not for the purpose of perpetrating a fraud against the public. aAcHCT

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

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

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

xxx xxx xxx

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

xxx xxx xxx

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

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

25. It also bears stressing that of the twenty-one (21) complainants in this case, only complainant Ricky Albino Sy alleged that he had actually dealt with me. Complainant Sy himself never alleged that he delivered or entrusted any money or property to me. On the contrary, complainant Sy admitted that he deposited his investment of U.S.$40,000.00 by bank transfer to PIPC-BVI's account in the ABN

6

Amro Bank. That the money was delivered to PIPC-BVI, and not to me, is shown by the fact that the receipt was issued by PIPC-BVI. I never signed or issued any acknowledgement receipt, as I never received any such money. Neither did I ever gain physical or juridical possession of the said money. 11 (Emphasis and underscoring supplied). HIaTDS

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

On 18 April 2008, the DOJ, in I.S. No. 2007-1054, issued a Resolution signed by a panel of three (3) prosecutors, with recommendation for approval of the Assistant Chief State Prosecutor, and ultimately approved by Chief State Prosecutor Jovencito R. Zuño, indicting: (a) Liew and Gonzalez-Tuason for violation of Sections 8 and 26 of the Securities Regulation Code; and (b) herein respondent Santos, along with Cristina Gonzalez-Tuason and 12 others for violation of Section 28 of the Securities Regulation Code. The same Resolution likewise dismissed the complaint against 8 of the respondents therein for insufficiency of evidence. In the 18 April 2008 Resolution, the DOJ discussed at length the liability of PIPC Corporation and its officers, employees, agents and all those acting on PIPC Corporation's behalf, to wit: DCATHS

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

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

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

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

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

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

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Respondents Liew and Tuason are directors and officers of PIPC Corp. who exercise power of control and supervision in the management of said corporation. Surely they cannot claim having no knowledge of the operations of PIPC Corp. vis-à-vis its scope of authority since they are the ones who actually created and manage the same. They are well aware that PIPC Corp. is a mere financial research facility and has nothing to do with selling or offering for sale securities to the general

public. But despite knowledge, they continue to recruit and deceive the general public by making it appear that PIPC Corp. is a legitimate investment company.

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

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

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

An examination of the records and the evidence submitted by the parties, we have observed that all respondents are investors of PIPC-BVI, same with the private complainants, they also lost thousands of dollars. We also noted the fact that most of the private complainants and alleged brokers or agents are long time friends if not blood related individuals. Notably also is the fact that most of them are highly educated businessmen/businesswomen who are financially well-off. Hence, they are regarded to be wiser and more prudent and expected to exercise due diligence of a good father of a family in managing their finances as compared to those who are less fortunate in life. TCaSAH

However, we still need to delve deeper into the facts and the [evidence] on record to determine the degree of respondents' participations and if on the basis of their actions, it can be inferred that they acted as employees-agents or investor-agents of PIPC Corp. or PIPC-BVI then are liable under Section 28 of the SRC otherwise, they cannot be [blamed] for being mere employees or investors thereof.

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

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

1. Cristina Gonzalez-Tuason

2. . . . .

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13. Oudine Santos

The above-named respondents, aside from being officers, employees or investors, clearly acted as agents of PIPC Corp. who made representations regarding PIPC Corp. and PIPC-BVI investment

7

products. They assured their clients that investing with PIPC-BVI will be 100% guaranteed. In addition, they also facilitated their clients' investments with PIPC-BVI and some, if not all, even received money investors as evidenced by the acknowledgement receipts they signed and on behalf of PIPC-BVI. The documentary evidence submitted by witnesses and their categorical and positive assertion of facts which, taken together corroborate one another, prevails over the defense of denial raised by the above-named respondents which are mostly self-serving in nature.

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

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

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

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WHEREFORE, the foregoing considered, it is respectfully recommended that this resolution be APPROVED and that:

1. An information for violation of Section 8 of the SRC be filed against respondent PIPC Corp., MICHAEL H. LIEW and CRISTINA GONZALEZ-TUASON;

2. An information for violation of Section 26 thereof be also filed against respondents MICHAEL H. LIEW and CRISTINA GONZALEZ-TUASON; and

3. An information for violation of Section 28 thereof be filed against respondents CRISTINA GONZALEZ-TUASON, MA. CRISTINA BAUTISTA-JURADO, BARBARA GARCIA, ANTHONY KIERULF, EUGENE GO, MICHAEL MELCHOR NUBLA, MA. PAMELA MORRIS, LUIS 'JIMBO' ARAGON, RENATO SARMIENTO, JR., VICTOR JOSE VERGEL DE DIOS, NICOLINE AMORANTO MENDOZA, JOSE 'JAY' TENGCO III, [respondent] OUDINE SANTOS AND HERLEY JESUITAS; and AHaETS

4. he complaint against MAYENNE CARMONA, YEYE SAN PEDRO-CHOA, MIA LEGARDA, NICOLE ORTEGA, DAVID CHUA-UNSU, STANLEY CHUA-UNSU, DEBORAH V. YABUT, CHRISTINE YU and JONATHAN OCAMPO be dismissed for insufficiency of evidence. 12 (Emphasis supplied).

In sum, the DOJ panel based its finding of probable cause on the collective acts of the majority of the respondents therein, including herein respondent Santos, which consisted in their acting as employees-agent and/or investor-agents of PIPC Corporation and/or PIPC-BVI. Specifically alluding to Santos as Investment Consultant of PIPC Corporation, the DOJ found probable cause to indict her for violation of Section 28 of the Securities Regulation Code for engaging in the business of selling or offering for sale securities, on behalf of PIPC Corporation and/or PIPC-BVI (which were found to be an issuer 13 of securities without the necessary registration from the SEC) without Santos being registered as a broker, dealer, salesman or an associated person.

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

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

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

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

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

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

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

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

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

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

8

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

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

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

We resolve in the negative.

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

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

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

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

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

The annex "D" ("Welcome to PMP" Letter dated [17 April 2006] addressed to Luisa Mercedes P. Lorenzo signed by Michael Liew as president of PIPC-BVI), Annex "E" (Fixed Deposit Advice Letter dated [26 June 2006] addressed to Luisa Mercedes P. Lorenzo and stamped signature for PIPC-BVI), and Annex "H" ("Welcome to PMP" Letter dated [30 May 2007] addressed to Luisa Mercedes P. Lorenzo signed by Michael Liew as President of PIPC-BVI) of the complaint-affidavit dated [11 September 2007] of Luisa Mercedes P. Lorenzo show that she directly dealt with PIPC-BVI in placing her investment. The same is true with regard to Annex "A" series (Portfolio Management Partnership Agreement between Ricky Albino P. Sy and PIPC-BVI, Security Agreement between Ricky Albino P. Sy and PIPC-BVI, and Declaration of Trust between Ricky Albino P. Sy and PIPC-BVI), Annex "B" (Official Receipt dated 09 November 2006 issued by PIPC-BVI), Annex "C" ("Welcome to PMP" Letter dated [10 November 2006] addressed to Ricky Albino P. Sy and signed by Michael [Liew] as President of PIPC-BVI), and Annex "D" (Fixed Deposit Advice Letter dated [29 January 2007] addressed to Ricky Albino P. Sy with stamped signature for PIPC-BVI) of the complaint-affidavit dated [26 September 2007] of Ricky Albino P. Sy. These documents categorically show that the parties therein, i.e., Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy and PIPC-BVI, transacted with each other directly without any participation from respondent Santos. These

documents speak for themselves. Moreover, it bears stressing that Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy admit in their respective affidavits that they directly deposited their investments by bank transfer to PIPC-BVI's offshore bank account. aDACcH

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

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

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

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

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

The Court of Appeals dismissed the SEC's petition for certiorari and affirmed the 1 October 2009 Resolution of the Secretary of the DOJ:

Prescinding from the foregoing, a person must first and foremost be engaged in the business of buying and selling securities in the Philippines before he can be considered as a broker, a dealer or salesman within the coverage of the Securities Regulation Code. The record in this case however is bereft of any showing that [Santos] was engaged in the business of buying and selling securities in the Philippines, whether for herself or in behalf of another person or entity. Apart from [SEC's] sweeping allegation that [Santos] enticed Sy and Lorenzo and solicited from them investments for PIPC-BVI without first being registered as broker, dealer or salesman with SEC, no evidence had been adduced that shows [Santos'] actual participation in the alleged offer and sale of securities to the public, particularly to Sy and Lorenzo, within the Philippines. There was likewise no exchange of funds between Sy and Lorenzo, on one hand, and [Santos], on the other hand, as the price of certain securities offered by PIPC-BVI. There was even no specific proof that [Santos] misrepresented to Sy and Lorenzo that she was a licensed broker, dealer or salesperson of

9

securities, thereby inducing them to invest and deliver their hard-earned money with PIPC-BVI. In fact, the Information Dissemination Agreement between PIPC Corporation, [Santos' employer], and PIPC-BVI clearly provides that [Santos] was prohibited from soliciting investments in behalf of PIPC-BVI and that her authority is limited only to providing prospective client with the "necessary information on how to communicate directly with PIPC." Thus, it is obvious that the final decision of investing and reinvesting their money with PIPC-BVI was made solely by Sy and Lorenzo themselves. CSIDEc

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WHEREFORE, in view of the foregoing premises, the petition filed in this case is hereby DENIED and, consequently, DISMISSED. The assailed Resolutions dated [1 October 2009] and [23 November 2009] of the Secretary of Justice in I.S. No. 2007-1054 are hereby AFFIRMED. 16

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

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

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

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

1. when necessary to afford adequate protection to the constitutional rights of the accused; ETDAaC

2. when necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions;

3. when there is a prejudicial question which is sub judice;

4. when the acts of the officer are without or in excess of authority;

5. where the prosecution is under an invalid law, ordinance or regulation;

6. when double jeopardy is clearly apparent;

7. where the court has no jurisdiction over the offense;

8. where it is a case of persecution rather than prosecution;

9. where the charges are manifestly false and motivated by the lust for vengeance; DIEcHa

10. when there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied. 19 (Italics supplied).

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

To get to that conclusion, the Secretary of the DOJ and the appellate court ruled that no evidence was adduced showing Santos' actual participation in the final sale by PIPC Corporation and/or PIPC-BVI of unregistered securities since the very affidavits of complainants Lorenzo and Sy proved that Santos had

never signed, neither was she mentioned in, any of the investment documents between Lorenzo and Sy, on one hand, and PIPC Corporation and/or PIPC-BVI, on the other hand.

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

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

Sec. 3. Definition of Terms. — . . . .

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

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

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

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

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

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

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

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

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

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

10

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

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

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

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

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

Santos countered that:

28. I also categorically deny complainant Sy's allegation that I "enticed" him to enter into a Partnership Agreement with PIPC-BVI. In the first place, I came to know complainant Sy only when he was referred to me by a mutual acquaintance, Ms. Ana Liliosa Santos, who was then the Manager of the Bank of the Philippine Islands, Pasong Tamo Branch. Ms. Ana Santos set up a meeting between complainant Sy and me because complainant Sy wanted to know more about PIPC-BVI. As with the other individuals who expressed interest in PIPC Corp.'s client companies, I then provided complainant Sy with additional information about PIPC-BVI. The decision to enter into the aforementioned Partnership Agreement with PIPC-BVI was made by complainant Sy alone without any inducement or undue influence from me, as in fact I only met him twice — the first one was on the meeting set up by Ms. Ana Santos and the second one was to introduce him to Michael Liew. Indeed, complainant Sy appears to be a well-educated person with years of experience as a businessman. It is reasonable to assume that before entering into the said Partnership. Agreement with PIPC-BVI, complainant Sy had fully understood the nature of the agreement and that in entering thereto, he had been motivated by a desire to earn a profit and had believed, as I myself have been led to believe, that PIPC-BVI was a legitimate business concern which offered a reasonable return on investment, Moreover, complainant Sy could have withdrawn his initial investment of US$40,000.00 on its date of maturity, i.e., 26 January 2007, as indicated in the PIPC-BVI's letter dated 10 November 2006, a copy of which is attached to complainant Sy's Sworn Statement. Complainant Sy, however, obviously decided on his own volition to keep his investment

with PIPC-BVI presumably because he wanted to gain more profit therefrom. Complainant Sy in fact admitted that he received monetary returns from PIPC-BVI in the total amount of US$2,439.12. 22

What is palpable from the foregoing is that Sy and Lorenzo did not go directly to Liew or any of PIPC Corporation's and/or PIPC-BVI's principal officers before making their investment or renewing their prior investment. However, undeniably, Santos actively recruited and referred possible investors to PIPC Corporation and/or PIPC-BVI and acted as the go-between on behalf of PIPC Corporation and/or PIPC-BVI.

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

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

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

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

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

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

SO ORDERED.

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[G.R. No. 164182. February 26, 2008.]

POWER HOMES UNLIMITED CORPORATION, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION AND NOEL MANERO, respondents.

D E C I S I O N

PUNO, C.J p:

This petition for review seeks the reversal and setting aside of the July 31, 2003 Decision 1 of the Court of Appeals that affirmed the January 26, 2001 Cease and Desist Order (CDO) 2 of public respondent Securities and Exchange Commission (SEC) enjoining petitioner Power Homes Unlimited Corporation's (petitioner) officers, directors, agents, representatives and any and all persons claiming and acting under their authority, from further engaging in the sale, offer for sale or distribution of securities; and its June 18, 2004 Resolution 3 which denied petitioner's motion for reconsideration.

The facts: Petitioner is a domestic corporation duly registered with public respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary purpose is:

11

To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing. 4

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

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

On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a conference on December 13, 2000 that was attended by petitioner's incorporators John Lim, Paul Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioner's marketing scheme and list of its members with addresses.

The following day or on December 14, 2000, petitioner submitted to public respondent SEC copies of its marketing course module and letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it gathered documents such as certificates of accreditation to several real estate companies, list of members with web sites, sample of member mail box, webpages of two (2) members, and lists of Business Center Owners who are qualified to acquire real estate properties and materials on computer tutorials.

On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code),5 but failed to register them in violation of Sec. 8.1 of the same Act, 6 public respondent SEC issued a CDO that reads:

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

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

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

Aggrieved, petitioner went to the Court of Appeals imputing grave abuse of discretion amounting to lack or excess of jurisdiction on public respondent SEC for issuing the order. It also applied for a temporary restraining order, which the appellate court granted.

On May 23, 2001, the Court of Appeals consolidated petitioner's case with CA-G.R. [SP] No. 62890 entitled Prosperity.Com, Incorporated v. Securities and Exchange Commission (Compliance and Enforcement Department), Cristina T. de la Cruz, et al.

On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the Issuance of a Writ of Preliminary Injunction. On July 6, 2001, the motion was heard. On July 12, 2001, public respondent SEC filed its opposition. On July 13, 2001, the appellate court granted petitioner's motion, thus:

Considering that the Temporary Restraining Order will expire tomorrow or on July 14, 2001, and it appearing that this Court cannot resolve the petition immediately because of the issues involved which require a further study on the matter, and considering further that with the continuous implementation of the CDO by the SEC would eventually result to the sudden demise of the petitioner's business to their prejudice and an irreparable damage that may possibly arise, we hereby resolve to grant the preliminary injunction.

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

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

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

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

On June 18, 2004, the Court of Appeals denied petitioner's motion for reconsideration; 10 hence, this petition for review.

The issues for determination are: (1) whether public respondent SEC followed due process in the issuance of the assailed CDO; and (2) whether petitioner's business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public.

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

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

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

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

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

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

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

12

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

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

It behooves us to trace the history of the concept of an investment contract under R.A. No. 8799. Our definition of an investment contract traces its roots from the 1946 United States (US) case of SEC v. W.J. Howey Co. 14 In this case, the US Supreme Court was confronted with the issue of whether the Howey transaction constituted an "investment contract" under the Securities Act's definition of "security." 15 The US Supreme Court, recognizing that the term "investment contract" was not defined by the Act or illumined by any legislative report, 16 held that "Congress was using a term whose meaning had been crystallized" 17 under the state's "blue sky" laws 18 in existence prior to the adoption of the Securities Act. 19 Thus, it ruled that the use of the catch-all term "investment contract" indicated a congressional intent to cover a wide range of investment transactions. 20 It established a test to determine whether a transaction falls within the scope of an "investment contract." 21 Known as the Howey Test, it requires a transaction, contract, or scheme whereby a person (1) makes an investment of money, (2) in a common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others. 22 Although the proponents must establish all four elements, the US Supreme Court stressed that the Howey Test "embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits." 23 Needless to state, any investment contract covered by the Howey Test must be registered under the Securities Act, regardless of whether its issuer was engaged in fraudulent practices.

After Howey came the 1973 US case of SEC v. Glenn W. Turner Enterprises, Inc. et al. 24 In this case, the 9th Circuit of the US Court of Appeals ruled that the element that profits must come "solely" from the efforts of others should not be given a strict interpretation. It held that a literal reading of the requirement "solely" would lead to unrealistic results. It reasoned out that its flexible reading is in accord with the statutory policy of affording broad protection to the public. Our R.A. No. 8799 appears to follow this flexible concept for it defines an investment contract as a contract, transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily from the efforts of others.Thus, to be a security subject to regulation by the SEC, an investment contract in our jurisdiction must be proved to be: (1) an investment of money, (2) in a common enterprise, (3) with expectation of profits, (4) primarily from efforts of others.

Prescinding from these premises, we affirm the ruling of the public respondent SEC and the Court of Appeals that the petitioner was engaged in the sale or distribution of an investment contract. Interestingly, the facts of SEC v. Turner 25are similar to the case at bar. In Turner, the SEC brought a suit to enjoin the violation of federal securities laws by a company offering to sell to the public contracts characterized as self-improvement courses. On appeal from a grant of preliminary injunction, the US Court of Appeals of the 9th Circuit held that self-improvement contracts which primarily offered the buyer the opportunity of earning commissions on the sale of contracts to others were "investment contracts" and thus were "securities" within the meaning of the federal securities laws. This is regardless of the fact

that buyers, in addition to investing money needed to purchase the contract, were obliged to contribute their own efforts in finding prospects and bringing them to sales meetings. The appellate court held:

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

Once an individual has purchased a Plan, he turns his efforts toward bringing others into the organization, for which he will receive a part of what they pay. His task is to bring prospective purchasers to "Adventure Meetings."

The business scheme of petitioner in the case at bar is essentially similar. An investor enrolls in petitioner's program by paying US$234. This entitles him to recruit two (2) investors who pay US$234 each and out of which amount he receives US$92. A minimum recruitment of four (4) investors by these two (2) recruits, who then recruit at least two (2) each, entitles the principal investor to US$184 and the pyramid goes on.

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

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

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

SO ORDERED.

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[G.R. No. 171815. August 7, 2007.]

CEMCO HOLDINGS, INC., petitioner, vs. NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC., respondent.

D E C I S I O N

CHICO-NAZARIO, J p:

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

The Facts

13

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

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

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

Particulars Percentage

Existing shares of Cemco in UCHC 9%

Acquisition by Cemco of BCI's and ACC's shares in UCHC 51%

Total stocks of Cemco in UCHC 60%

Percentage of UCHC ownership in UCC 60%

Indirect ownership of Cemco in UCC 36%

Direct ownership of Cemco in UCC 17%

Total ownership of Cemco in UCC 53%

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

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

Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan confirmed that the SEC en banc had resolved that the Cemco transaction was not covered by the tender offer rule.

On 28 July 2004, feeling aggrieved by the transaction, respondent National Life Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent a letter to Cemco demanding the latter to comply with the rule on mandatory tender offer. Cemco, however, refused.

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

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

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

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

Petitioner filed a petition with the Court of Appeals challenging the SEC's jurisdiction to take cognizance of respondent's complaint and its authority to require Cemco to make a tender offer for UCC shares, and

arguing that the tender offer rule does not apply, or that the SEC's re-interpretation of the rule could not be made to retroactively apply to Cemco's purchase of UCHC shares.

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

IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, and the preliminary injunction issued by the Court LIFTED. 5

Cemco filed a motion for reconsideration which was denied by the Court of Appeals.

Hence, the instant petition.

In its memorandum, petitioner Cemco raises the following issues:

I.

ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFE'S COMPLAINT AND THAT THE SEC'S RE-INTERPRETATION OF THE TENDER OFFER RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED RETROACTIVELY TO CEMCO'S PREJUDICE.

II.

WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO TO MAKE A TENDER OFFER FOR UCC SHARES.

III.

WHETHER OR NOT CEMCO'S PURCHASE OF UCHC SHARES IS SUBJECT TO THE TENDER OFFER REQUIREMENT.

IV.

WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA DECISION, IS AN INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT. 6

Simply stated, the following are the issues:

1. Whether or not the SEC has jurisdiction over respondent's complaint and to require Cemco to make a tender offer for respondent's UCC shares.

2. Whether or not the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed company, in this case, the indirect acquisition by Cemco of 36% of UCC, a publicly-listed company, through its purchase of the shares in UCHC, a non-listed company.

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

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

Petitioner further contends that in the absence of any specific grant of jurisdiction by Congress, the SEC cannot, by mere administrative regulation, confer on itself that jurisdiction.

Petitioner's stance fails to persuade.

14

In taking cognizance of respondent's complaint against petitioner and eventually rendering a judgment which ordered the latter to make a tender offer, the SEC was acting pursuant to Rule 19 (13) of the Amended Implementing Rules and Regulations of The Securities Regulation Code, to wit:

13. Violation

If there shall be violation of this Rule by pursuing a purchase of equity shares of a public company at threshold amounts without the required tender offer, the Commission, upon complaint, may nullify the said acquisition and direct the holding of a tender offer. This shall be without prejudice to the imposition of other sanctions under the Code.

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

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

[T]he Commission shall have, among others, the following powers and functions:

xxx xxx xxx

(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

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

We are nonetheless convinced that the SEC has the competence to render the particular decision it made in this case. A definite inference may be drawn from the provisions of the SRC that the SEC has the authority not only to investigate complaints of violations of the tender offer rule, but to adjudicate certain rights and obligations of the contending parties and grant appropriate reliefs in the exercise of its regulatory functions under the SRC. Section 5.1 of the SRC allows a general grant of adjudicative powers to the SEC which may be implied from or are necessary or incidental to the carrying out of its express powers to achieve the objectives and purposes of the SRC. We must bear in mind in interpreting the powers and functions of the SEC that the law has made the SEC primarily a regulatory body with the incidental power to conduct administrative hearings and make decisions. A regulatory body like the SEC may conduct hearings in the exercise of its regulatory powers, and if the case involves violations or conflicts in connection with the performance of its regulatory functions, it will have the duty and authority to resolve the dispute for the best interests of the public. 8

For sure, the SEC has the authority to promulgate rules and regulations, subject to the limitation that the same are consistent with the declared policy of the Code. Among them is the protection of the investors and the minimization, if not total elimination, of fraudulent and manipulative devises. Thus, Subsection 5.1 (g) of the law provides:

Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders.

Also, Section 72 of The Securities Regulation Code reads:

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

72.2. The Commission shall promulgate rules and regulations providing for reporting, disclosure and the prevention of fraudulent, deceptive or manipulative practices in connection with the purchase by

an issuer, by tender offer or otherwise, of and equity security of a class issued by it that satisfies the requirements of Subsection 17.2. Such rules and regulations may require such issuer to provide holders of equity securities of such dates with such information relating to the reasons for such purchase, the source of funds, the number of shares to be purchased, the price to be paid for such securities, the method of purchase and such additional information as the Commission deems necessary or appropriate in the public interest or for the protection of investors, or which the Commission deems to be material to a determination by holders whether such security should be sold. SAHIaD

The power conferred upon the SEC to promulgate rules and regulations is a legislative recognition of the complexity and the constantly-fluctuating nature of the market and the impossibility of foreseeing all the possible contingencies that cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v. Social Security Commission: 9

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

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

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

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

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

On the second issue, petitioner asserts that the mandatory tender offer rule applies only to direct acquisition of shares in the public company.

This contention is not meritorious.

Tender offer is a publicly announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company. 12 A public company is defined as a corporation which is listed on an exchange, or a corporation with assets exceeding P50,000,000.00 and with 200 or more

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stockholders, at least 200 of them holding not less than 100 shares of such company. 13 Stated differently, a tender offer is an offer by the acquiring person to stockholders of a public company for them to tender their shares therein on the terms specified in the offer. 14 Tender offer is in place to protect minority shareholders against any scheme that dilutes the share value of their investments. It gives the minority shareholders the chance to exit the company under reasonable terms, giving them the opportunity to sell their shares at the same price as those of the majority shareholders. 15

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

Tender Offers. 19.1. (a) Any person or group of persons acting in concert who intends to acquire at least fifteen percent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of a corporation with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing with the Commission a declaration to that effect; and furnish the issuer, a statement containing such of the information required in Section 17 of this Code as the Commission may prescribe. Such person or group of persons shall publish all requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of such a security. Copies of any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall contain such information as the Commission may prescribe, and shall be filed with the Commission and sent to the issuer not later than the time copies of such materials are first published or sent or given to security holders.

Under existing SEC Rules, 16 the 15% and 30% threshold acquisition of shares under the foregoing provision was increased to thirty-five percent (35%). It is further provided therein that mandatory tender offer is still applicable even if the acquisition is less than 35% when the purchase would result in ownership of over 51% of the total outstanding equity securities of the public company. 17 THaAEC

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

This interpretation given by the SEC and the Court of Appeals must be sustained.

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

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

SEN. S. OSMEÑA.

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

CHAIRMAN ROCO.

So what is it that you want to achieve?

SEN. S. OSMEÑA.

That if a certain group achieves a certain amount of ownership in a corporation, yeah, he is obligated to buy anybody who wants to sell.

CHAIRMAN ROCO.

Pro-rata lang. (p. 42).

xxx xxx xxx

REP. TEODORO.

As long as it reaches 30, ayan na. Any type of acquisition just as long as it will result in 30 . . . (p. 50) . . . reaches 30, ayan na. Any type of acquisition just as long as it will result in 30, general tender, pro-rata. 20 (Emphasis supplied.) cHSTEA

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

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

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

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

The argument is not persuasive.

The action of the SEC on the PSE request for opinion on the Cemco transaction cannot be construed as passing merits or giving approval to the questioned transaction. As aptly pointed out by the respondent, the letter dated 27 July 2004 of the SEC was nothing but an approval of the draft letter prepared by Director Callanga. There was no public hearing where interested parties could have been heard. Hence, it was not issued upon a definite and concrete controversy affecting the legal relations of parties thereby making it a judgment conclusive on all the parties. Said letter was merely advisory. Jurisprudence has it that an advisory opinion of an agency may be stricken down if it deviates from the provision of the statute. 22 Since the letter dated 27 July 2004 runs counter to The Securities Regulation Code, the same may be disregarded as what the SEC has done in its decision dated 14 February 2005. TEDaAc

Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the same cannot be utilized to determine the rights of the parties. What is to be applied in the present case is the subsequent ruling of the SEC dated 14 February 2005 abandoning the opinion embodied in the letter dated 27 July 2004. In Serrano v. National Labor Relations Commission, 23 an argument was raised similar to the case under

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consideration. Private respondent therein argued that the new doctrine pronounced by the Court should only be applied prospectively. Said postulation was ignored by the Court when it ruled:

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

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

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

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

This contention is baseless.

The decretal portion of the SEC decision states:

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

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

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

SO ORDERED.