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such monetary instruments or property would thus be inhibited from

ANTI MONEY LAUNDERING ACT (AMLA) utilizing the same for the duration of the freeze order. To make such
freeze order anteceded by a judicial proceeding with notice to the
1. Republic of the Philippines vs Hon. Antonio M. account holder would allow for or lead to the dissipation of such funds
Eugenio Jr. even before the order could be issued.

Facts: A search and investigation was conducted in relation to the On the other hand, a bank inquiry order under Section 11 does not
corruptions surrounding the NAIA terminal 3 project. The search necessitate any form of physical seizure of property of the account
yielded that Pantaleon Alvarez maintained eight bank accounts in 6 holder. What the bank inquiry order authorizes is the examination of
different banks. the particular deposits or investments in banking institutions or non-
bank financial institutions. The monetary instruments or property
The council authorized the investigation into the bank accounts of deposited with such banks or financial institutions are not seized in a
Alvarez et al by the AMLC because of the findings that there was physical sense, but are examined on particular details such as the
transfer of deposits from HK to Alvarez’ bank account. account holders record of deposits and transactions. Unlike the assets
subject of the freeze order, the records to be inspected under a bank
Thereafter, Alvarez filed a motion to stay the said execution. Lilia inquiry order cannot be physically seized or hidden by the account
Cheng, wife of one of the accused in this case also filed for injunction, holder. Said records are in the possession of the bank and therefore
saying that there cannot be an ex parte application for inquiry into the cannot be destroyed at the instance of the account holder alone as
bank deposits as the same would deprive the other party of ones right that would require the extraordinary cooperation and devotion of the
to due process. bank.

Issue: What are the standards that should be observed in the The court cannot base its probable cause merely on the findings of the
application for said inquiry? AMLC.

Whether a bank inquiry order issued in accordance with Section 10 of Just because the AMLA establishes additional exceptions to the Bank
the AMLA may be stayed by injunction. Secrecy Act it does not mean that the later law has dispensed with the
general principle established in the older law that [a]ll deposits of
Held: Money laundering has been generally defined by the whatever nature with banks or banking institutions in the Philippines x
International Criminal Police Organization (Interpol) `as any act or x x are hereby considered as of an absolutely confidential nature.
attempted act to conceal or disguise the identity of illegally obtained
proceeds so that they appear to have originated from legitimate 2. Republic of the Philippines vs Glasgow Credit and
sources. Even before the passage of the AMLA, the problem was Collection Services Inc.
addressed by the Philippine government through the issuance of
various circulars by the Bangko Sentral ng Pilipinas. Yet ultimately, Facts:
legislative proscription was necessary, especially with the inclusion of
the Philippines in the Financial Action Task Forces list of non- A civil forfeiture case was filed against the bank account of respondent
cooperative countries and territories in the fight against money pursuant to AMLA was filed in the RTC of Manila.
laundering.
The trial court dismissed the case, on the ground of improper venue
The AMLA also authorizes certain provisional remedies that would aid since the case should have been filed in the RTC of Pasig City, where
the AMLC in the enforcement of the AMLA. These are the freeze order the depositary bank is located and for failure to state the cause of
authorized under Section 10, and the bank inquiry order authorized action.
under Section 11.
Issue:
Respondents posit that a bank inquiry order under Section 11 may be
obtained only upon the pre-existence of a money laundering offense Where is the proper venue involving civil forfeiture case?
case already filed before the courts.
Whether the complaint for civil forfeiture is premature because of the
The conclusion is based on the phrase upon order of any competent failure of the tribunal to prove unlawful activity?
court in cases of violation of this Act, the word cases generally Held:
understood as referring to actual cases pending with the courts.
1. The trial court acquired jurisdiction over the case
We are unconvinced by this proposition, and agree instead with the
then Solicitor General who conceded that the use of the phrase in Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the
cases of was unfortunate, yet submitted that it should be interpreted Rule of Procedure in Cases of Civil Forfeiture provides:
to mean in the event there are violations of the AMLA, and not that
there are already cases pending in court concerning such violations. Sec. 3. Venue of cases cognizable by the regional trial court. A petition
for civil forfeiture shall be filed in any regional trial court of the
Whether an ex parte application is allowed judicial region where the monetary instrument, property or
proceeds representing, involving, or relating to an unlawful
No, an ex parte application is not expressly prohibited. A reading of activity or to a money laundering offense are located; provided,
Section 10, which involves the freezing of the account expressly however, that where all or any portion of the monetary instrument,
provides that there can be an ex parte application. property or proceeds is located outside the Philippines, the petition
may be filed in the regional trial court in Manila or of the judicial region
The court said that both freezing and inquiry are two of the remedies where any portion of the monetary instrument, property, or proceeds
provided for by the said law. Hence, if the lawmakers intended that is located, at the option of the petitioner.
inquiry ex parte is allowed, then it should have expressly provided so
similar to that of Section 10. Under Section 3, Title II of the Rule of Procedure in Cases of Civil
Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of
The Court could divine the sense in allowing ex parte proceedings the judicial region where the monetary instrument, property or
under Section 10 and in proscribing the same under Section 11. A proceeds representing, involving, or relating to an unlawful activity or
freeze order under Section 10 on the one hand is aimed at preserving to a money laundering offense are located. Pasig City, where the
monetary instruments or property in any way deemed related to account sought to be forfeited in this case is situated, is within the
unlawful activities as defined in Section 3(i) of the AMLA. The owner of National Capital Judicial Region (NCJR). Clearly, the complaint for civil
forfeiture of the account may be filed in any RTC of the NCJR. Since a) Any person may be charged with and convicted of both the
the RTC Manila is one of the RTCs of the NCJR, it was a proper venue offense of money laundering and the unlawful activity as
of the Republics complaint for civil forfeiture of Glasgows account. defined under Rule 3(i) of the AMLA.

2. The complaint provides for a specific cause of action b) Any proceeding relating to the unlawful activity shall be
given precedence over the prosecution of any offense or
Section 4, Title II of the Rule of Procedure in Cases of Civil Forfeiture violation under the AMLA without prejudice to the
provides: application ex-parte by the AMLC to the Court of Appeals for
a freeze order with respect to the monetary instrument or
Sec. 4. Contents of the petition for civil forfeiture. - The petition for property involved therein and resort to other remedies
civil forfeiture shall be verified and contain the following allegations: provided under the AMLA, the Rules of Court and other
pertinent laws and rules.
(a) The name and address of the respondent;
Finally, Section 27 of the Rule of Procedure in Cases of Civil Forfeiture
(b) A description with reasonable particularity of the monetary provides:
instrument, property, or proceeds, and their location; and
Sec. 27. No prior charge, pendency or conviction necessary. No prior
(c) The acts or omissions prohibited by and the specific provisions of criminal charge, pendency of or conviction for an unlawful
the Anti-Money Laundering Act, as amended, which are alleged to be activity or money laundering offense is necessary for the
the grounds relied upon for the forfeiture of the monetary instrument, commencement or the resolution of a petition for civil
property, or proceeds; and forfeiture. (emphasis supplied)

[(d)] The reliefs prayed for. Thus, regardless of the absence, pendency or outcome of a criminal
prosecution for the unlawful activity or for money laundering, an action
In this case, the complaint was able to meet the requirements stated for civil forfeiture may be separately and independently prosecuted
in Section 4. and resolved.

RA 9160, as amended, and its implementing rules and regulations lay


down two conditions when applying for civil forfeiture: SECURITIES REGULATION CODE (SRC)

i. When there is a suspicious transaction report or a covered 1. SEC vs Universal Rightfield Property Holdings Inc.
transaction report deemed suspicious after investigation by
the AMLC and Facts: Petitioner Securities and Exchange Commission (SEC), through
its Corporate Finance Department, issued an Order revoking URPHI's
ii. The court has, in a petition filed for the purpose, ordered the Registration of Securities and Permit to Sell Securities to the Public for
seizure of any monetary instrument or property, in whole or its failure to timely file its Year 2001 Annual Report and Year 2002 1st,
in part, directly or indirectly, related to said report. 2nd and 3rd Quarterly Reports pursuant to Section 173 of the
Securities Regulation Code (SRC).
It is the preliminary seizure which brings the property within the reach
of the court. The injunctive writ placed the said property in the URPI was given an extension, yet they still failed to comply with the
possession of the court. requirements. SEC revoked URPHI's Registration of Securities and
Permit to Sell Securities to the Public for its failure to submit its
Since the account covered a series of covered and suspicious reportorial requirements within the final extension period.
transactions and was placed in the process of the court, the case was
not prematurely filed. The CA granted the petition and set aside the SEC Order of Revocation
after finding that URPHI was not afforded due process because no due
Whether or not there is truth in the allegation that the account notice was given and no hearing was conducted before its registration
contains the proceeds of unlawful activities is an evidentiary matter of securities and permit to sell them to the public was revoked. The CA
that may be proven during trial. noted that the hearing conducted was only for the purpose of
determining whether URPHI's registration and permit to sell should be
A criminal conviction for an unlawful activity is not a prerequisite for suspended and not whether said registration should be revoked.
the institution of a civil forfeiture proceeding. Stated otherwise, a
finding of guilt for an unlawful activity is not an essential element of Issue: Whether a separate notice is needed for the revocation of the
civil forfeiture. permit?

Section 6 of RA 9160, as amended, provides: Held: No, Contrary to the view that a separate notice of hearing to
revoke is necessary to initiate the revocation proceeding, the Court
SEC. 6. Prosecution of Money Laundering. holds that such notice would be a superfluity since the Order dated
July 27, 2004 already states that such proceeding shall ensue if URPHI
(a) Any person may be charged with and convicted of both the would still fail to submit the reportorial requirements after the lapse of
offense of money laundering and the unlawful activity as the 60-day suspension period. After all, "due notice" simply means the
herein defined. information that must be given or made to a particular person or to
the public within a legally mandated period of time so that its recipient
(b) Any proceeding relating to the unlawful activity shall be will have the opportunity to respond to a situation or to allegations
given precedence over the prosecution of any offense or that affect the individual's or public's legal rights or duties.
violation under this Act without prejudice to the freezing and
other remedies provided. Granted that no formal hearing was held before the issuance of the
Order of Revocation, the Court finds that there was substantial
Rule 6.1 of the Revised Implementing Rules and Regulations of RA compliance with the requirements of due process when URPHI was
9160, as amended, states: given opportunity to be heard. Upon receipt of the SEC Order dated
July 27, 2004, URPHI filed the letters dated September 13 and 28,
Rule 6.1. Prosecution of Money Laundering 2004, seeking a final extension to submit the reportorial requirements,
and admitting that its failure to submit its 2nd Quarterly Report for
2004 was due to the same reasons that it was unable to submit its
2003 Annual Report and 1st Quarterly Report for 2004. Notably, in its FACTS: Subic Bay Golf Course, also known as Binictican Valley Golf
Order of Revocation, the SEC considered URPHI's letters and stated Course, was operated by Subic Bay Metropolitan Authority (SBMA).
that it still failed to submit the required reports, despite the lapse of Universal International Group of Taiwan (UIG), a Taiwanese
the final extension requested. corporation, was chosen to implement the plan to privatize the golf
course.
There is no dispute that violation of the reportorial requirements under
Section 17.119 of the Amended Implementing Rules and Regulation20 Subsequently, SBMA and UIG entered into a Lease and Development
of the SRC is a ground for suspension or revocation of registration of Agreement. UIG agreed to "develop, manage and maintain the golf
securities pursuant to Sections 13.1 and 54.1 of the SRC. However, course and other related facilities within the complex.” Later, Universal
contrary to the CA ruling that separate notices and hearings for International Group Development Corporation (UIGDC) succeeded to
suspension and revocation of registration of securities and permit to the interests of UIG on the golf course development.
sell them to the public are required, Sections 13 .1 and 54.1 of the
SRC expressly provide that the SEC may suspend or revoke such UIGDC executed a Deed of Assignment in favor of Subic Bay Golf and
registration only after due notice and hearing, to wit: Country Club, Inc. (SBGCCI). Under the Deed of Assignment, UIGDC
assigned all its rights and interests in the golf course's development,
13.1. The Commission may reject a registration statement and refuse operations, and marketing to SBGCCI. SBGCCI and UIGDC entered into
registration of the security thereunder, or revoke the effectivity of a a Development Agreement. UIGDC agreed to "finance, construct and
registration statement and the registration of the security thereunder develop the golf course for and in consideration of the payment by
after due notice and hearing by issuing an order to such effect, setting SBGCCI of its 1,530 shares of stock."
forth its findings in respect thereto, if it finds that:
Thereafter, SBGCCI applied in the SEC for the permit to offer the
a) The issuer: shares. The SEC then approved the sale of 3,000 shares valued at
P425,000 per share. The proceeds will be used to pay UIGDC for the
xxxx development of the golf course.

(ii) Has violated any of the provisions of this Code, the rules Thereafter, certain buyers of the shares asked for a refund because
promulgated pursuant thereto, or any order of the Commission of the promised facilities of the golf course were not delivered. Moreover,
which the issuer has notice in connection with the offering for which a they claimed that despite SBGCCI's and UIGDC's failure to deliver the
registration statement has been filed; promised amenities, they started to charge them monthly dues. They
also never received any billing statement from them until they were
xxxx sent a demand notice to pay the alleged back dues of P39,000.00
within five (5) days.
54.1. If, after due notice and hearing, the Commission finds that: (a)
There is a violation of this Code, its rules, or its orders; (b) Any The SEC made an investigation and found out that SBGCII failed to
registered broker or dealer, associated person thereof has failed substantially comply with their obligation. In effect, it ordered SBGCII
reasonably to supervise, with a view to preventing violations, another to make the necessary refund. The Corporation Finance Department
person subject to supervision who commits any such violation; ( c) Any found that Filart and Villareal invested in the golf course because of
registrant or other person has, in a registration statement or in other SBGCCI and UIGDC's representation that a 27-hole, world-class golf
reports, applications, accounts, records or documents required by law course would be developed. It also found that SBGCCI and UIGDC
or rules to be filed with the Commission, made any untrue statement failed to comply with their commitments and representations as stated
of a material fact, or omitted to state any material fact required to be in their prospectus.
stated therein or necessary to make the statements therein not
misleading; or, in the case of an underwriter, has failed to conduct an The CA said that the SEC acted in excess of its jurisdiction because the
inquiry with reasonable diligence to insure that a registration case was that of an intra corporate dispute.
statement is accurate and complete in all material respects; or ( d) Any
person has refused to permit any lawful examinations into its affairs, it The SEC contends that it acted within its jurisdiction because it was
shall, in its discretion, and subject only to the limitations hereinafter done pursuant to its rule making power.
prescribed, impose any or all of the following sanctions as may be
appropriate in light of the facts and circumstances: ISSUE: Whether the SEC did not have any jurisdiction to rule on the
case?
(i) Suspension, or revocation of any registration for the offering of
securities; HELD: The SEC had jurisdiction.

The Court has consistently held that the essence of due process is Under Presidential Decree No. 902-A, the Securities and Exchange
simply an opportunity to be heard, or as applied to administrative Commission has jurisdiction over acts amounting to fraud and
proceedings, an opportunity to explain one's side or an opportunity to misrepresentation by a corporation's board of directors, business
seek a reconsideration of the action or ruling complained of. Any associates, and officers. It also provides that it has jurisdiction over
seeming defect in its observance is cured by the filing of a motion for intra-corporate disputes.
reconsideration, and denial of due process cannot be successfully
invoked by a party who has had the opportunity to be heard on such For a dispute to be "intra-corporate," it must satisfy the relationship
motion. What the law prohibits is not the absence of previous notice, and nature of controversy tests.
but the absolute absence thereof and the lack of opportunity to be
heard. The relationship test requires that the dispute be between a
corporation/partnership/association and the public; a
2. SEC vs Subic Bay Golf and Country Club Inc. corporation/partnership/association and the state regarding the entity's
franchise, permit, or license to operate; a
Intra-corporate controversies, previously under the Securities and corporation/partnership/association and its stockholders, partners,
Exchange Commission's jurisdiction, are now under the jurisdiction of members, or officers; and among stockholders, partners, or associates
Regional Trial Courts designated as commercial courts. However, the of the entity.
transfer of jurisdiction to the trial courts does not oust the Securities
and Exchange Commission of its jurisdiction to determine if The nature of the controversy test requires that the action involves the
administrative rules and regulations were violated. enforcement of corporate rights and obligations.
Villareal and Filart's right to a refund of the value of their shares was Has failed to comply with any requirement that the Commission may
based on SBGCCI and UIGDC's alleged failure to abide by their impose as a condition for registration of the security for which the
representations in their prospectus. Specifically, Villareal and Filart registration statement has been filed; or
alleged in their letter-complaint that the world-class golf course that
was promised to them when they purchased shares did not The registration statement is on its face incomplete or inaccurate in
materialize. This is an intra-corporate matter that is under the any material respect or includes any untrue statement of a material
designated Regional Trial Court's jurisdiction. It involves the fact or omits to state a material fact required to be stated therein or
determination of a shareholder's rights under the Corporation Code or necessary to make the statements therein not misleading; or
other intra-corporate rules when the corporation or association fails to
fulfill its obligations. The issuer, any officer, director or controlling person of the issuer, or
person performing similar functions, or any underwriter has been
However, even though the Complaint filed before the Securities and convicted, by a competent judicial or administrative body, upon plea of
Exchange Commission contains allegations that are intra-corporate in guilty, or otherwise, of an offense involving moral turpitude and/or
nature, it does not necessarily oust the Securities and Exchange fraud or is enjoined or restrained by the Commission or other
Commission of its regulatory and administrative jurisdiction to competent judicial or administrative body for violations of securities,
determine and act if there were administrative violations committed. commodities, and other related laws.
....
Any fraud or misrepresentation in the issuance of securities injures the
public. The Securities and Exchange Commission's power to suspend 13.4. If the Commission deems it necessary, it may issue an order
or revoke registrations and to impose fines and other penalties suspending the offer and sale of the securities pending any
provides the public with a certain level of assurance that the securities investigation. The order shall state the grounds for taking such action,
contain representations that are true, and that misrepresentations if but such order of suspension although binding upon the persons
later found, would be detrimental to the erring corporation. It creates notified thereof, shall be deemed confidential, and shall not be
risks to corporations that issue securities and adds cost to errors, published. Upon the issuance of the suspension order, no further offer
misrepresentations, and violations related to the issuance of those or sale of such security shall be made until the same is lifted or set
securities. This protects the public who will rely on representations of aside by the Commission. Otherwise, such sale shall be void.
corporations and partnerships regarding financial instruments that they
issue. The Securities and Exchange Commission's regulatory power ....
over securities-related activities is tied to the government's duty to
protect the investing public from illegal and fraudulent instruments. SEC. 15. Suspension of Registration. - 15.1. If, at any time, the
information contained in the registration statement filed is or has
Thus, when Villareal and Filart alleged in their letter-complaint that become misleading, incorrect, inadequate or incomplete in any
SBGCCI and UIGDC committed misrepresentations in the sale of their material respect, or the sale or offering for sale of the security
shares, nothing prevented the Securities and Exchange Commission registered thereunder may work or tend to work a fraud, the
from taking cognizance of it to determine if SBGCCI and UIGDC Commission may require from the issuer such further information as
committed administrative violations and were liable under the may In its judgment be necessary to enable the Commission to
Securities Regulation Code. The Securities and Exchange Commission ascertain whether the registration of such security should be revoked
may investigate activities of corporations under its jurisdiction to on any ground specified in this Code. The Commission may also
ensure compliance with the law. suspend the right to sell and offer for sale such security pending
further investigation, by entering an order specifying the grounds for
However, the Securities and Exchange Commission's regulatory power such action, and by notifying the issuer, underwriter, dealer or broker
does not include the authority to order the refund of the purchase known as participating in such offering.80
price of Villareal's and Filart's shares in the golf club. The issue of To ensure compliance with the law and the rules, the Securities and
refund is intra-corporate or civil in nature. Similar to issues such as the Exchange Commission is also given the power to impose fines and
existence or inexistence of appraisal rights, pre-emptive rights, and the penalties. It may also investigate motu proprio whether corporations
right to inspect books and corporate records, the issue of refund is an comply with the Corporation Code, Securities Regulation Code, and
intra-corporate dispute that requires the court to determine and rules implemented by the Securities and Exchange Commission.
adjudicate the parties' rights based on law or contract. Injuries, rights,
and obligations involved in intra-corporate disputes are specific to the SEC. 5. Powers and Functions of the Commission. - 5.1. The
parties involved. They do not affect the Securities and Exchange Commission shall act with transparency and shall have the powers and
Commission or the public directly. functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing
Provisions of the SRC: Company Act and other existing laws. Pursuant thereto the
Commission shall have, among others, the following powers and
SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. functions:
The Commission may reject a registration statement and refuse
registration of the security thereunder, or revoke the effectivity of a ...
registration statement and the registration of the security thereunder d. Regulate, investigate or supervise the activities of persons to ensure
after due notice and hearing by issuing an order to such effect, setting compliance;
forth its findings in respect thereto, if it finds that: ...

The issuer: f. Impose sanctions for the violation of laws and the rules, regulations
and orders issued pursuant thereto;
Has been judicially declared insolvent; ...
i. Issue cease and desist orders to prevent fraud or injury to the
Has violated any of the provisions of this Code, the rules promulgated investing public;
pursuant thereto, or any order of the Commission of which the issuer ...
has notice in connection with the offering for which a registration m. Suspend, or revoke, after proper notice and hearing the franchise
statement has been filed; or certificate of registration of corporations, partnerships or
associations, upon any of the grounds provided by law; and
Has been engaged or is about to engage in fraudulent transactions;
Has made any false or misleading representation of material facts in n. Exercise such other powers as may be provided by law as well as
any prospectus concerning the issuer or its securities; those which may be implied from, or which are necessary or incidental
to the carrying out of, the express powers granted the Commission to the efforts of those who manage and operate that company. SMC has
achieve the objectives and purposes of these laws. to register these commercial papers with the SEC before offering them
to investors.
3. SEC vs Baguio Country Club Corporation
Here, PCIs clients do not make such investments. They buy a product
Facts: Respondent in this case amended their by laws increasing the of some value to them: an Internet website of a 15-MB capacity. The
term of the BODs to 2 years. After the amendment, someone asked client can use this website to enable people to have internet access to
the SEC’s opinion on the validity of the said provision to which the SEC what he has to offer to them, say, some skin cream. The buyers of the
said that it was done contrary to law. 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
Respondent on the other hand claims that the SEC can no longer rule US$234.00 is what the buyer pays for the use of the website, a
otherwise on the amendment since it already approved of the same. tangible asset that PCI creates, using its computer facilities and
Thereafter, the complaint was formalized before the SEC where they technical skills.
asked that the SEC issue an order mandating the election of the BOD.
Actually, PCI appears to be engaged in network marketing, a scheme
BCC questioned the said order and said that Erlinda and Ramon adopted by companies for getting people to buy their products outside
Ilusorio both do not have legal standing in questioning the said order the usual retail system where products are bought from the stores
as both of them are not stockholders. Moreover, BCC claims that the shelf. Under this scheme, adopted by most health product distributors,
matter is an intra corporate dispute and therefore jurisdiction is with the buyer can become a down-line seller. The latter earns commissions
the RTC and not with the SEC. 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
Issue: Whether or not the SEC has jurisdiction over the case? the orders to buy come.

Held: 5. PHIL. VETERAN’S BANK VS CALLANGAN, GR NO.


191995
The OSG argues that the matter at hand does not involve an intra
corporate dispute as the said matter was merely seeking for an Facts: Respondent Justina F. Callangan, the Director of the
affirmative remedy. Corporation Finance Department of the Securities and Exchange
Commission (SEC), sent the Bank a letter, informing it that it qualifies
The petition must be denied. The petitions have been rendered moot as a public company under Section 17.2 of the Securities Regulation
by the 2005 amendment of the by-laws. The validity of the two (2) Code (SRC) in relation with Rule 3(1)(m) of the Amended
year term provision and the calling of meeting for the election of Implementing Rules and Regulations of the SRC. The Bank is thus
members of the board of directors to replace those holding a two (2) required to comply with the reportorial requirements set forth in
year term should no longer be in issue. Section 17.1 of the SRC.

4. SEC VS PROSPERITY COM. INC. (GR NO. 164197) The bank on the other hand claims that it is not a public company
because it is a private company whose shares of stock are available
Facts: Prosperity.Com, Inc. (PCI) sold computer software and hosted only to a limited class or sector, i.e., to World War II veterans, and not
websites without providing internet service. To make a profit, PCI to the general public.
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 Issue: Whether the bank is a public company?
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 Held: Yes.
earn commissions, interest in real estate in the Philippines and in the
United States, and insurance coverage worth P50,000.00. To determine whether the Bank is a public company burdened with the
reportorial requirements ordered by the SEC, we look to Subsections
The SEC ruled that PCIs scheme constitutes an Investment contract 17.1 and 17.2 of the SRC, which provide:
and, following the Securities Regulations Code, it should have first Section 17. Periodic and Other Reports of Issuers.
registered such contract or securities with the SEC.
17.1. Every issuer satisfying the requirements in Subsection 17.2
Issue: Whether the scheme involves an investment contract? hereof shall file with the Commission:

Held: No, the scheme is not an investment contract. a) Within one hundred thirty-five (135) days, after the end of the
issuers fiscal year, or such other time as the Commission may
The Securities Regulation Code treats investment contracts as prescribe, an annual report which shall include, among others, a
securities that have to be registered with the SEC before they can be balance sheet, profit and loss statement and statement of cash flows,
distributed and sold. An investment contract is a contract, transaction, for such last fiscal year, certified by an independent certified public
or scheme where a person invests his money in a common enterprise accountant, and a management discussion and analysis of results of
and is led to expect profits primarily from the efforts of others. operations; and

The United States Supreme Court held in Securities and Exchange b) Such other periodical reports for interim fiscal periods and current
Commission v. W.J. Howey Co. that, for an investment contract to reports on significant developments of the issuer as the Commission
exist, the following elements, referred to as the Howey test must may prescribe as necessary to keep current information on the
concur: (1) a contract, transaction, or scheme; (2) an investment of operation of the business and financial condition of the issuer.
money; (3) investment is made in a common enterprise; (4)
expectation of profits; and (5) profits arising primarily from the efforts 17.2. The reportorial requirements of Subsection 17.1 shall apply to
of others. Thus, to sustain the SEC position in this case, PCIs scheme the following:
or contract with its buyers must have all these elements.
xxxx
An example that comes to mind would be the long-term commercial
papers that large companies, like San Miguel Corporation (SMC), offer c) An issuer with assets of at least Fifty million pesos (P50,000,000.00)
to the public for raising funds that it needs for expansion. When an or such other amount as the Commission shall prescribe, and having
investor buys these papers or securities, he invests his money, two hundred (200) or more holders each holding at least one hundred
together with others, in SMC with an expectation of profits arising from (100) shares of a class of its equity securities: Provided, however, That
the obligation of such issuer to file reports shall be terminated ninety deducting the amount of US$363.20 as property fund from the gross
(90) days after notification to the Commission by the issuer that the amount of US$11,776, has now an accumulated amount of US$2,700
number of its holders holding at least one hundred (100) shares is constituting as his Property Fund placed in a Property Fund account
reduced to less than one hundred (100). 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
We also cite Rule 3(1)(m) of the Amended Implementing Rules and from any of petitioner’s accredited real estate developers.
Regulations of the SRC, which defines a public company as any
corporation with a class of equity securities listed on an Exchange or An investment contract is defined in the Amended Implementing Rules
with assets in excess of Fifty Million Pesos (P50,000,000.00) and and Regulations of R.A. No. 8799 as a contract, transaction or scheme
having two hundred (200) or more holders, at least two hundred (200) (collectively contract) whereby a person invests his money in a
of which are holding at least one hundred (100) shares of a class of its common enterprise and is led to expect profits primarily from the
equity securities. efforts of others.

From these provisions, it is clear that a public company, as In this case, an investor enrolls in petitioners program by paying
contemplated by the SRC, is not limited to a company whose shares of US$234. This entitles him to recruit two (2) investors who pay US$234
stock are publicly listed; even companies like the Bank, whose shares each and out of which amount he receives US$92. A minimum
are offered only to a specific group of people, are considered a public recruitment of four (4) investors by these two (2) recruits, who then
company, provided they meet the requirements enumerated above. recruit at least two (2) each, entitles the principal investor to US$184
and the pyramid goes on.
The records establish, and the Bank does not dispute, that the Bank
has assets exceeding P50,000,000.00 and has 395,998 shareholders. It We reject petitioners claim that the payment of US$234 is for the
is thus considered a public company that must comply with the seminars on leverage marketing and not for any product. Clearly, the
reportorial requirements set forth in Section 17.1 of the SRC. trainings or seminars are merely designed to enhance petitioners
business of teaching its investors the know-how of its multi-level
6. POWER HOMES UNLIMITED CORP. VS SEC (GR NO. marketing business. An investor enrolls under the scheme of petitioner
164182) to be entitled to recruit other investors and to receive commissions
from the investments of those directly recruited by him. Under the
Facts: Petitioner is a domestic corporation duly registered with public scheme, the accumulated amount received by the investor comes
respondent SEC. Its primary purpose is: primarily from the efforts of his recruits.

To engage in the transaction of promoting, acquiring, managing, 7. CEMCO HOLDINGS INC. VS NATIONAL LIFE
leasing, obtaining options on, development, and improvement of real INSURANCE COMPANY OF THE PHILIPPINES (GR NO.
estate properties for subdivision and allied purposes, and in the 171815)
purchase, sale and/or exchange of said subdivision and properties
through network marketing. Facts: Union Cement Corporation (UCC), a publicly-listed company, has
two principal stockholders UCHC, a non-listed company, with shares
SEC found out that petitioner is involved in the offering to sell and amounting to 60.51%, and petitioner Cemco with 17.03%. Majority of
distribution of investment contracts, which, as a rule should be UCHCs stocks were owned by BCI with 21.31% and ACC with 29.69%.
registered with the SEC. Cemco, on the other hand, owned 9% of UCHC stocks.

Issue: Whether the business of public respondent constitutes an In a disclosure letter BCI informed the Philippine Stock Exchange (PSE)
investment contract, which should be registered with the SEC? that it and its subsidiary ACC had passed resolutions to sell to Cemco
BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC
Held: Yes, the case at hand involves an investment contract. equivalent to 29.69%.

Section 8. Requirement of Registration of Securities. 8.1. Securities As a result of petitioner Cemcos acquisition of BCI and ACCs shares in
shall not be sold or offered for sale or distribution within the UCHC, petitioners total beneficial ownership, direct and indirect, in
Philippines, without a registration statement duly filed with and UCC has increased by 36% and amounted to at least 53% of the
approved by the Commission. Prior to such sale, information on the shares of UCC, to wit[4]:
securities, in such form and with such substance as the Commission
may prescribe, shall be made available to each prospective purchaser. Particulars Percentage

The scheme of the [petitioner] corporation requires an investor to Existing shares of Cemco in UCHC 9%
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 Acquisition by Cemco of BCIs and ACCs shares in UCHC 51%
application form indicate that the BCO shall mean an independent
representative of Power Homes, who is enrolled in the company’s Total stocks of Cemco in UCHC 60%
referral program and who will ultimately purchase real property from
any accredited real estate developers and as such he is entitled to a Percentage of UCHC ownership in UCC 60%
referral bonus/commission. Paragraph 5 of the same indicates that
there exists no employer/employee relationship between the BCO and Indirect ownership of Cemco in UCC 36%
the Power Homes Unlimited, Corp.
Direct ownership of Cemco in UCC 17%
The BCO is required to pay US$234 as his enrollment fee. His
enrollment entitles him to recruit two investors who should pay Total ownership of Cemco in UCC 53%
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) Respondent was aggrieved with the transaction saying that a
persons each recruiting two (2) persons who become his/her own mandatory tender offer should have been made.
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 Issues:
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 a) Whether the SEC has jurisdiction over the case?
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 b) Whether the mandatory tender offer is required?
Held:

Whether the SEC has jurisdiction over the case?

Yes, SEC has jurisdiction.

In taking cognizance of respondents complaint against petitioner and


eventually rendering a judgment which ordered the latter to make a
tender offer, the SEC was acting pursuant to Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities
Regulation Code, to wit:

Violation

If there shall be violation of this Rule by pursuing a purchase of equity


shares of a public company at threshold amounts without the required
tender offer, the Commission, upon complaint, may nullify the said
acquisition and direct the holding of a tender offer. This shall be
without prejudice to the imposition of other sanctions under the Code.

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

Whether the mandatory tender offer is required?

Yes, a mandatory tender offer is required even if it involves an indirect


acquisition.

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. A public company is defined as a corporation which is listed
on an exchange, or a corporation with assets exceeding
P50,000,000.00 and with 200 or more stockholders, at least 200 of
them holding not less than 100 shares of such company. 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. 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.

Under existing SEC Rules, 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.

The SEC was correct in ruling that the determination of mandatory


tender offer includes both the direct and indirect acquisitions.