Minutes of the Discussion

Topic Assigned: Investigation, Offenses and Penalties

27 April 2019

Chair: Errol John Ramos

Secretary: Rose Ann Bonaobra
Members: Natalia Valerie Ouano, Allana Nacino, Carl Valera

1. Preliminaries

In relation to the topic assigned, the Chair explained that there are two questions
which the group needs to discuss namely:

a. May the SEC impose the fines provided under Sections 159-170 of the Revised
Corporation Code (RCC)?
b. May a preliminary investigation or criminal prosecution for the violation for the
Code be conducted without a prior investigation and finding of the violation by
the SEC?

2. Discussion of Question A

Ms. Nacino raised the point that under Section 5 par. (5) of the Securities
Regulations Code, Republic Act 8799, the commission shall impose sanctions for
the violation of laws and the rules, regulations and orders issued pursuant thereto.
By imposing the sanctions and fines under Secs. 159-170, the SEC is only acting
within the powers vested to it by its charter. Hence, SEC can impose the fines.

This was seconded by Mr. Valera who emphasized that under Sec. 179 (c), the
Commission shall have the power to impose sanctions for the violations of this
Code, its implementing rules and orders of the Commission. Provided further, that
by imposing penalties and additional monitoring and supervision requirements, the
Commission shall take into consideration the size, nature of the business, and
capacity of the corporation.

It was therefore the consensus of the group that indeed the SEC has the power to
impose fines as this is expressly granted under Sec. 158 (a), Secs. 159-170 of
RCC, Sec. 179 (c), and Section 5 par. (5) of the Securities Regulations Code.

3. Discussion of Question B

Ms. Ouano pointed out that there must be a prior investigation and finding of the
violation by the SEC before a preliminary investigation or criminal prosecution can
be conducted by the Department of Justice. There must be a prior investigation
and findings of the violation by the SEC following the principle of exhaustion of
administrative remedies as it is the Commission which has the specialization,
personnel, experience, and expertise to sort and decide on matters in relation to
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such violations of the Revised Corporation Code. Further, as provided under SEC.
2-8 the 2016 Rules of Procedure of SEC: in the case of a criminal complaint for
violation of the laws, rule, regulations, circulars and orders being implemented by
the Commission, such complaint must first be filed with the Operating Department
that has authority over the subject matter. After investigation, the Operating
Department shall present its complete findings with its recommendations to the
Commission en Banc, who will decide if there is basis to file a criminal action. If
there is basis to file a criminal action. the Commission en Banc shall refer the case
to the EIPD for the preparation of the necessary criminal complaint and filing with
the Department of Justice.

Mr. Valera, however, made a contrary view. He mentioned that the use of the word
“may” in Sec. 156 paragraph 3 of the RCC meant that it is not SEC alone which
can conduct an investigation prior to preliminary investigation by the Department
of Justice. Sec 156 (3) RCC states that: The Commission may proceed
administratively against such person in accordance with Section 158 of this Code,
and/or transmit evidence to the Department of Justice for preliminary investigation
or criminal prosecution and/or initiate criminal prosecution for any violation of this
Code, rule, or regulation.

Meanwhile, Ms. Oauno shared the information that under Section 5.2 of the
Securities Regulation Code, the Commission’s jurisdiction over all cases
enumerated under Section 5 of PD 902-A has been transferred to the Courts of
general jurisdiction or the appropriate Regional Trial Court. The Commission shall
retain jurisdiction over pending cases involving intra-corporate disputes submitted
for final resolution which should be resolved within one (1) year from the enactment
of the Code. The Commission shall retain jurisdiction over pending suspension of
payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

On the other hand, Ms. Nacino explained that while the doctrine of administrative
remedies is a cornerstone of our juridical system, it is not an iron clad rule and has
several exceptions, most importantly: (a) where the challenged administrative act
is patently illegal, amounting to lack of jurisdiction; and (b) where the question
involved is purely legal and will ultimately have to be decided by the courts of
justice.

In conclusion, the Chair emphasized that while it is true that SEC has the power to
investigate, as part of their administrative and quasi-judicial function, it is not their
exclusive province either. In other words, the Department of Justice (DoJ) or the
prosecutorial arm of the government can initiate the investigation and if there is
probable cause, file the necessary information to the court. Again, under Sec. 156
(3), the SEC, after imposing administrative sanctions to the erring corporation has
the power to either transmit the evidence to the DoJ or not. Hence, the DoJ, when
this happens, can conduct its own preliminary investigation or criminal prosecution
if it believes that one should be conducted. Meaning, the criminal prosecution will
not depend on the evidence gathered by SEC.

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 4. Adjournment

There being no other matters to discuss, the meeting was adjourned at 4:00 PM.

Sgd.

Rose Ann Bonaobra

Secretary