LECTURES NOTES ON HIGHLIGHTS FOR already expired.
Premier
PD-902-A AS AMENDED BY RA 8799
(JURISDICTION OF SEC) and REVISED
SECURITIES ACT (RA 8799)
PD 902-A, AS AMENDED
The SEC‟s quasi-judicial functions under Sec. 5
of PD 902-A, as amended were transferred to
the Special Commercial Courts by RA 8799.
General rule: The Special Commercial Courts
shall have exclusively and originally jurisdiction
over cases falling under Sec. 5 of PD 902-A.
Exception: The SEC shall retain
jurisdiction over cases involving suspension of
payments and corporate rehabilitation filed on
or before June 30, 2000.
Distribution of Special Commercial
Courts:
1. Two in Makati City;
2. Two in Quezon City;
3. One in each in other cities in Metro
Manila; and 4. One per region.
DEVICES OR SCHEMES AMOUNTING TO
FRAUD AND MISREPRESENTATION (Sec. 5
[a])
General rule: The Special Commercial
Courts shall have original and exclusive
jurisdiction to hear and decide cases involving
devices or schemes employed by or any acts of
the board of directors, business associates, its
officers or partners, amounting to fraud and
misrepresentation which may be detrimental to
the interest of the public and/or of the
stockholder, partners, members of associations
or organizations registered with the SEC.
Exception: The complaint is based on
the violation of the Revised Penal Code (Ex.
Syndicated Estafa)
Even if the action is for recovery of sums
of money paid or given to the corporation
through devices and schemes amounting to
fraud or misrepresentation detrimental to the
investing public, the same must be filed, heard
and tried by the Special Commercial Courts.
Examples of acts amount to fraud or
misrepresentation within the original and
exclusive jurisdiction of the Special Commercial
Courts:
1. Fraud committed by a corporation in
failing to pay individual money market
placements. (Orosa, Jr. vs. CA)
2. Corporations act of duping persons into
investing money when such corporations
authority to issue commercial papers has
(Mangalad vs.
Corporation)
3. Corporate officer‟s act of diverting
corporate funds and assets for his personal use.
(Alleje vs. CA)
4. Pyramiding schemes.
The allegation of fraud must be stated
with particularity to place the case with the
jurisdiction of the Special Commercial Courts.
INTRA-CORPORATE CONTROVERSIES (Sec.
5 [b])
 Intra-corporate controversies include
those of corporations, partnerships and
associations.
 Elements of intra-corporate
controversies:
1. An intra-corporate relationship:
a. Between and among the stockholders,
members, associates of a corporation,
partnership or association;
b. Between them and the corporation,
partnership or association; or
c. Between the corporation, partnership or
association and the State.
2. The controversy must arise out of said
relationship.
 The dispute among the parties must be
intrinsically connected with the regulation of
the corporation. If the nature of the
controversy involves matters that are purely
civil in character necessarily the case does not
involve an intra-corporate controversy. (Speed
Distributing Corp. vs. CA)
 The fact that shares of stock were issued
to be used as part payment for lease rentals
does not convert it into a intra-corporate
controversy. (DMRC Enterprises vs. Este del Sol
Mountain
Reserve, Inc.)
 Recovery of the control and
management of a corporation in the guise of a
complaint for rescission of a memorandum of
agreement which vested such control and
management is an intra-corporate controversy.
(DPB vs. Ilustre, Jr.)
 If all of the requirements for a valid
transfer have been complied the dispute is
intra-corporate and is within the jurisdiction of
the Special Commercial Court. (Abejo vs. de la
Cruz; Rural Bank of Salinas, Inc. vs. CA)
 If the petitioner does not have a “prima
facie” title to the share sought to be recorded in
his name the dispute is not intra-corporate and
the ordinary or regular court can assume
jurisdiction over the case. (Rivera vs. Florendo;
Tay vs. CA)
 A dispute regarding the automatic
rescission clause of a Memorandum of
Agreement regarding the sale of shares of a
group of stockholders to another group of
stockholders is intra-corporate. (Saavedra vs.
SEC)
 Where the conflict involves the
enforcement of rights and obligations under the
Corporation Code or the inter and intra-
corporate affairs of the corporation, jurisdiction
would fall with the Special Commercial Courts.
But if it requires a mere determination of the
contractual rights of the parties under an
ordinary agreement, the ordinary/regular
courts can acquire jurisdiction thereto.
 The factor which decides whether the
action is within the jurisdiction of the Special
Commercial Courts is that the controversy
arose out of an intra-corporate relation
between and among the parties. (SEC vs. CA)
 The filing of the civil/intra-corporate
case before the SEC does not preclude the
simultaneous and concomitant filing of a
criminal action before the regular courts; such
that, a fraudulent act may give rise to liability
for violation of the rules and regulations of the
SEC cognizable by the SEC itself, as well as
criminal liability for violation of the Revised
Penal Code cognizable by the regular courts,
both charges to be filed and proceeded
independently, and may be simultaneously,
with the other. (Fabia vs. CA)
CONTROVERSIES IN THE APPOINTMENT,
ELECTION AND REMOVAL OF DIRECTORS
AND OFFICERS (Sec. 5 [c])
 The Special Commercial Courts have
original and exclusive jurisdiction to hear and
decide cases involving controversies in the
election or appointment of directors, trustees,
officers or managers of corporations,
partnerships or associations.
 General rule: A corporate officer’s
election, appointment or termination by the
board of directors is always a corporate act,
and the fact that the officer asks for backwages
does not alter the picture. The original and
exclusive jurisdiction rests with the Special
Commercial Courts.
 Exception: The main cause of action is
for the recovery of unpaid wages and
separation pay. (Midland Construction Co., Inc.
vs. Movilla)
 The main aspect to be considered is
whether the corporate officer asserts his rights
as such officer or questions his removal or
ouster. If so, the case would fall within the
ambit of the jurisdiction of the Special
Commercial Courts and not the NLRC.
RECEIVERSHIP AND SUSPENSION (Sec. 5
[d] and 6[c, d])
 Petitions for suspension of payments of
corporations, partnerships or associations, and
appointment of receivership, management
committee, board or body are lodged within the
jurisdiction of the Special Commercial Courts.
 A corporation, partnership or
association, whether or not insolvent, can file a
petition for suspension of payments provided it
is placed under a rehabilitation receiver or
management committee or rehabilitation
receiver.
 Three types of suspension of payments:
1. Simple suspension of payments – mere
deferment of payment of debts and it refers to
a petition which is filed by a corporation which
possesses sufficient assets to cover its liabilities
but foresees the possibility of meeting them
when they respectively fall due owing to
temporary liquidity problems.
2. Suspension of payments with the
appointment of a receiver with or without a
rehabilitation plan. The rehabilitation plan is a
plan under which the corporation will
reschedule the payment of its debts and
liabilities. Either the petitioner corporation will
propose the plan or ask for the appointment of
a receiver who will study and make the plan.
3. Suspension of payments where the
corporation has no sufficient assets to cover its
debts and liabilities with or without the
appointment of a management committee with
or without a rehabilitation plan.
EFFECTS OF SUSPENSION OF PAYMENTS
 The proper court may issue an order
suspending payments of claims due from a
distress corporation.
 Upon the appointment of a management
committee, rehabilitation receiver, board or
body all actions for claims against the
corporation, partnership or association under
management or receivership pending before
any court, tribunal, board or body shall be
suspended accordingly.
 The reason for suspension of payments
for claims against a distressed corporation is to
enable the management committee to
effectively exercise its powers free from judicial
or extrajudicial interference that might unduly
hinder or prevent the „rescue‟ of the debtor
company. (PAL vs. Sps. Sadic and Kurangking)
 The suspension of all actions for claims
against a corporation embraces all phases of
the suit, be it before the trial court or any
tribunal or before this Court. No other action
may be taken, including the rendition of
judgment during the state of suspension. It
must be stressed that what are automatically
stayed or suspended are the proceedings of a
suit and not just the payment of claims during
the execution stage after the case had become
final and executory. Once the process of
rehabilitation, however, is completed, this
Court will proceed to complete the proceedings
on the suspended actions. Furthermore, the
actions that are suspended cover all claims
against the corporation whether for damages
founded on a breach of contract of carriage,
labor cases, collection suits or any other claims
of a pecuniary nature. No exception in favor of
labor claims is mentioned in the law. (PAL vs.
Zamora)
 Claims – refers to debts or demands of
pecuniary nature; the assertion of right to have
money paid.
 Suspended proceedings include extra
judicial foreclosures. You cannot even
consolidate. All proceedings at whatever stage
are suspended.
 Even if the suspension order is issued
after a creditor’s action in court has already
become final but pending execution, the
execution of the decision is likewise suspended.
(Filinvest vs. Ejercito)
 Note the words “against the
corporation.”
 If a corporation secures a loan, and one
of its key officers uses his private properties to
guarantee the loan, corporation files for
suspension, the bank want to foreclose on the
prop, may the bank foreclose? Yes. It is not an
action for ac claim against the corporation.
Union bank case.
 Properties of an individual stockholder,
director or officer, as surety of corporate
liabilities, are not, and will not be covered by
the suspension of payments order issued by the
court pursuant to PD 902-A.
 Same with regard to criminal
proceedings, personal to corporate officer
concerned.
 Despite the appointment of a receiver
for a corporation under PD 902-A, an action
against a corporation seeking the nullification of
corporate documents cannot be suspended by
reason thereof, since the civil action does not
present a monetary claim against the
corporation. (Finasia Investment and Finance
Corporation vs. CA)
 The SEC does not have jurisdiction to
entertain petitions for suspension of payments
filed by parties other than corporations,
partnerships or associations. (Union Bank vs.
CA)
 Equality is Equity – during suspension
the assets are held in trust for the equal benefit
of all creditors to preclude one from obtaining
an advantage or preference over another by
the expediency of an attachment, execution or
otherwise. The creditors should stand on equal
footing. Not anyone of them should be given
any preference by paying one of them ahead of
the others. (Alemars Sibal and Son, Inc. vs.
Elibenas)
 The issue of whether or not preferred
creditors of distressed corporations stand on
equal footing with all other creditors gains
relevance and materiality only upon the
appointment of a management committee,
rehabilitation receiver, board or body.
Suspension of claims against the corporation
under rehabilitation is counted or figured up
only upon the appointment of a management
committee or a rehabilitation receiver. (RCBC
vs. IAC)
 VERY IMPORTANT!!!
1. All claims against corporations,
partnerships or associations that are
pending before any court, tribunal or
board, without distinction as to whether or
not a creditor is secured or unsecured,
shall be suspended effective upon the
appointment of a management committee,
rehabilitation receiver, board or body in
accordance with the provisions of PD 902-
A.
2. Secured creditors retain their
preference over unsecured creditors, but
enforcement of such preferences is equally
suspended upon the appointment of a
management committee, rehabilitation
receiver, board or body. In the event that
the assets of the corporation, partnership
or association are finally liquidated,
however, secured or preferred credits
under the applicable provisions of the Civil
Code will definitely have preference over
unsecured ones.
 If the rehabilitation of the
corporation is not feasible, the court muto
propio or the management committee may
petition the lifting and the preferences will
be there again.
APPOINTMENT OF MANAGEMENT
COMMITTEE, BOARD OR BODY (Sec. 6 [d])
 Special Commercial Courts may create
or appoint a management committee, board or
body upon petition or muto propio to undertake
the management of corporations, partnerships
or association not supervised or regulated by
other government agencies in appropriate
cases where there is imminent danger of
dissipation, loss or wastage or destruction of
assets or other properties or paralyzation of
business operations of such corporation or
entities which may be prejudicial to the interest
of minority stockholders, parties-litigant or the
general public.
 It may also create or appoint a
management committee, board or body to
undertake the management of corporations,
partnerships or other associations supervised or
regulated by other government agencies such
as banks and insurance companies, upon the
request of the government agency concerned.
 Requisites before a management
committee, board or body may be appointed or
created:
1. Dissipation, loss, wastage or destruction
of assets or other properties; and
2. Paralyzation of its business operations
which may be prejudicial to the interest of the
minority stockholders, parties-litigants or the
general public. (Sy Chim vs. Sy Siy Ho &
Sons, Inc.)
 Danger – a general term, including peril,
jeopardy, hazard and risk; refers to exposure
or liability to injury.
 Imminent – something which is
threatening to happen at once, something close
at hand, something to happen upon the instant,
close although not yet happening, and on the
verge of happening.
 In the absence of a strong showing of an
imminent danger of dissipation, loss, wastage
or destruction of assets or other properties of a
corporation and paralysis of its business
operations, the mere apprehension of future
misconduct based upon prior mismanagement
will not authorize the appointment of a
management committee/receiver. (Sy Chim vs.
Sy Siy Ho & Sons, Inc.)
 Mere disagreement among stockholder
as to the fairness of the corporation would not
in itself suffice as a ground for the appointment
of a management committee. However, where
the dissention among the stockholders is such
that the corporation cannot successfully carry
on its corporate functions, the appointment of a
management committee becomes imperative.
(Jacinto vs. First Women‟s Credit Corporation)
 A management committee shall have
the power to take custody of and control all
assets and properties owned and possessed by
the entity under management. It shall take the
place of the management and board of
directors of the entity under management,
assume their rights and responsibilities, and
preserve the entity‟s assets and properties in
its possession.
 The rehabilitation receiver shall not take
over the management and control of the debtor
but shall closely oversee and monitor the
operations of the debtor during the pendency of
the proceedings. He shall be primarily tasked to
study the best way to rehabilitate the debtor
and to ensure that the value of the debtor‟s
property is reasonably maintained pending the
determination of whether or not the debtor
should be rehabilitated, as well as implement
the rehabilitation plan after its approval.
 Venue of actions in intra-corporate
controversies – Special Commercial Court which
has jurisdiction over the principal office of the
corporation, partnership or association.
 Nature of proceedings is in rem.
Jurisdiction acquired upon publication of the
proceeding.
 Creditors have the personality (at least
25% of the total outstanding liablitities) may
file, ex. Bayantel.
 Their compensation is subject to
agreement of the parties.
 Actuations of the board, body,
committee subject to….
 Service of pleadings . Sec. 6 rule 1. may
be by fax or email. When authorized by the
court.
 Service of summons. Sec. 5 rule 2.
made upon any of the statutory or corporate
officers or their respective secretaries. vs. Eb
Villarosa case. (Rule of Court)
HIGHLIGHT SSECURITIES REGULATION
CODE (SRC) RA 8799
 Full disclosure rule – as long as there is
full and complete disclosure relative to the
issue of securities the investing public should
determine for themselves whether or not to
invest.
 Doctrine of primary jurisdiction – courts
will not determine a controversy involving a
question within the jurisdiction of the
administrative tribunal, where the question
demands the exercise of sound administrative
discretion requiring the specialized knowledge
and expertise of said administrative tribunal to
determine technical and intricate matters of
fact.
 A criminal charge for violation of the
SRC is a specialized dispute. Hence, it must
first be referred to an administrative agency of
special competence, i.e., the SEC… The SRC is
a special law. Its enforcement is particularly
vested in the SEC. Hence, all complaints for any
violation of the Code and its implementing rules
and regulations should be filed with the SEC.
Where the complaint is criminal in nature, the
SEC shall indorse the complaint to the DOJ for
preliminary investigation and prosecution as
provided in Section 53.1. (Baviera vs.
Paglinawan)
Securities
 Securities – are shares, participation or
interests in a corporation or in a commercial
enterprise or profit-making venture and
evidenced by a certificate, contract, instrument,
whether written or electronic in character. It
includes:
1. Shares of stock, bonds, debentures,
notes, evidences of indebtedness, asset-backed
securities;
2. Investment contracts, certificates of
interest or participation in a profit sharing
agreement, certificates of deposit for a future
subscription;
3. Fractional undivided interests in oil, gas
or other mineral rights;
4. Derivatives like option and warrants;
5. Certificates of assignments, certificates
of participation, trust certificates, voting trust
certificates or similar instruments;
6. Proprietary or non-proprietary
membership certificates incorporations; and
7. Other instruments as may in the future
be determined by the Commission.
 The definition of securities is extra-
ordinarily broad. It is a catch all phrase meant
to include all novel devices which are of the
same nature. Investment contracts and golf
club shares are included in the definition of
securities.
General rule: Securities cannot be sold or
offered for sale or distribution to more than 19
persons without a Registration Statement duly
filed and approved by the SEC. Once the
securities are sold or offered to more than 19
persons, it becomes a public offering requiring
prior registration with the SEC. Violation
thereof renders the person administratively,
civilly and criminally liable.
Exception: The securities involved are covered
by Sec. 9 (exempt securities) and Sec. 10
(exempt transactions).
 Persons engaging in the business of
buying or selling securities in the Philippines as
a broker or dealer, or acting as a salesman for
such entities must be registered and authorized
as such by the SEC.
 Investment contract – a contract or
scheme whereby a person invests his money in
a common venture premised on a reasonable
expectation of profits to be derived from the
entrepreneurial or managerial efforts of others.
 Issuance of certificates of participation
in a multi-level marketing scheme, solely on
the management of others without goods or
services is an investment contract and thus a
security. (Justee vs. SEC)
 Pyramiding schemes partakes of a
nature of an investing contract which cannot be
sold to more than 19 persons without prior
approval of the SEC.
 When an 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 as an investment contract. 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.
(People vs. Petralba)
Exempt Securities
 Exempt Securities (Sec. 9):
1. Any security issued or guaranteed by
the Government of the Philippines, or by any
political subdivision or agency thereof, or by
any person controlled or supervised by, and
acting as an instrumentality of said
Government.
2. Any security issued or guaranteed by
the government of any country with which the
Philippines maintains diplomatic relations, or by
any state, province or political subdivision
thereof on the basis of reciprocity: Provided,
That the Commission may require compliance
with the form and content of disclosures the
Commission may prescribe.
3. Certificates issued by a receiver or by a
trustee in bankruptcy duly approved by the
proper adjudicatory body.
4. Any security or its derivatives the sale or
transfer of which, by law, is under the
supervision and regulation of the Office of the
Insurance Commission, HLURB, or BIR.
5. Any security issued by a bank except its
own shares of stock.
Exempt Transactions
 Exempt Transactions (Sec. 10):
1. Any judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
2. By or for the account of a pledge holder,
or mortgagee or any other similar lien holder
selling or offering for sale or delivery in the
ordinary course of business and not for the
purpose of avoiding the provisions the SRC, to
liquidate a bona fide debt, a security pledged in
good faith as security for such debt.
3. An isolated transaction in which any
security is sold, offered for sale, subscription or
delivery by the owner thereof, or by his
representative for the owner‟s account, such
sale or offer for sale, subscription or delivery
not being made in the course of repeated and
successive transactions of a like character by
such owner, or on his account by such
representative and such owner or
representative not being the underwriter of
such security.
4. The distribution by a corporation,
actively engaged in the business authorized by
its articles of incorporation, of securities to its
stockholders or other security holders as a
stock dividend or other distribution out of
surplus.
5. The sale of capital stock of a corporation
to its own stockholders exclusively, where no
commission or other remuneration is paid or
given directly or indirectly in connection with
the sale of such capital stock.
6. The issuance of bonds or notes secured
by mortgage upon real estate or tangible
personal property, where the entire mortgage
together with all the bonds or notes secured
thereby are sold to a single purchaser at a
single sale.
7. The issue and delivery of any security in
exchange for any other security of the same
issuer pursuant to a right of conversion
entitling the holder of the security surrendered
in exchange to make such conversion:
Provided, That the security so surrendered has
been registered under the SRC or was, when
sold, exempt from the provisions of the SRC,
and that the security issued and delivered in
exchange, if sold at the conversion price, would
at the time of such conversion fall within the
class of securities entitled to registration under
the SRC. Upon such conversion the par value of
the security surrendered in such exchange shall
be deemed the price at which the securities
issued and delivered in such exchange are sold.
8. Broker‟s transactions, executed upon
customer‟s orders, on any registered Exchange
or other trading market.
9. Subscriptions for shares of the capital
stock of a corporation prior to the incorporation
thereof or in pursuance of an increase in its
authorized capital stock under the Corporation
Code, when no expense is incurred, or no
commission, compensation or remuneration is
paid or given in connection with the sale or
disposition of such securities, and only when
the purpose for soliciting, giving or taking of
such subscriptions is to comply with the
requirements of such law as to the percentage
of the capital stock of a corporation which
should be subscribed before it can be registered
and duly incorporated, or its authorized capital
increased.
10. The exchange of securities by the issuer
with its existing security holders exclusively,
where no commission or other remuneration is
paid or given directly or indirectly for soliciting
such exchange.
11. The sale of securities by an issuer to
fewer than 20 persons in the Philippines during
any twelve-month period.
12. The sale of securities to any number of the
following qualified buyers: a. Bank;
b. Registered investment house;
c. Insurance company;
d. Pension fund or retirement plan
maintained by the Government of the
Philippines or any political subdivision thereof
or managed by a bank or other persons
authorized by the Bangko Sentral to engage in
trust functions;
e. Investment company; or
f. Such other person as the Commission
may by rule determine as qualified buyers, on
the basis of such factors as financial
sophistication, net worth, knowledge, and
experience in financial and business matters, or
amount of assets under management. Tender
Offer
 Tender Offers – a publicly announced
intention by the purchaser to acquire a certain
block of equities of a company through open
market purchases or private negotiations.
 A tender offer is required of any person
or group of persons acting in concert who
intend to acquire:
1. At least 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 P50M and having 200 or more
stockholders with at least 100 shares each; or
2. At least 30% of such equity over a
period of 12 months.
Proxies
 Proxies must be issued and proxy
solicitation must be made in accordance with
rules and regulations to be issued by the
Commission.
 Requisites for proxies:
1. In writing;
2. Signed by the stockholder or his duly
authorized representative; and
3. Filed before the scheduled meeting with
the corporate secretary.
 General rule: A proxy shall be valid only
for the meeting for which it is intended.
 Exception: It is otherwise provided in
the proxy.
 No proxy shall be valid and effective for
a period longer than 5 years at one time.
 No broker or dealer shall give any proxy,
consent or authorization, in respect of any
security carried for the account of a customer,
to a person other than the customer, without
the express written authorization of such
customer.
 A broker or dealer who holds or acquires
the proxy for at least 10% or such percentage
as the Commission may prescribe of the
outstanding share of the issuer, shall submit a
report identifying the beneficial owner within 10
days after such acquisition, for its own account
or customer, to the issuer of the security, to
the Exchange where the security is traded and
to the Commission.
Independent Director
 Any corporation with a class of equity
securities listed for trading on an Exchange or
with assets in excess of P50M and having 200
or more holders, at least of 200 of which are
holding at least 100 shares of a class of its
equity securities or which has sold a class of
equity securities to the public pursuant to an
effective registration statement shall have at
least 2 independent directors or such
independent directors shall constitute at least
20% of the members of such board, whichever
is the lesser.
 Independent director – a person other
than an officer or employee of the corporation,
its parent or subsidiaries, or any other
individual having a relationship with the
corporation, which would interfere with the
exercise of independent judgment in carrying
out the responsibilities of a director.
 The SEC may exempt corporations from
the required independent directors as it did in
the rehabilitation of Victorias Milling Co. Inc..
Insider Trading
 Insider:
1. The issuer;
2. A director or officer (or person
performing similar functions) of, or a person
controlling the issuer;
3. A person whose relationship or former
relationship to the issuer gives or gave him
access to material information about the issuer
or the security that is not generally available to
the public;
4. A government employee, or director, or
officer of an exchange, clearing agency and/or
self-regulatory organization who has access to
material information about an issuer or a
security that is not generally available to the
public; or
5. A person who learns such information by
a communication from any of the foregoing
insiders.
 General rule: An insider may not sell or
buy a security of the issuer while in possession
of material information with respect to the
issuer or the security that is not generally
available to the public.
 Exceptions:
1. The insider proves that the information
was not gained from such relationship; or
2. The insider disclosed the information to
a party reasonably believed by the insider to
possess the information.
 Material non-public information – has
not been generally disclosed to the public and:
1. would likely affect the market price of
the security after being disseminated to the
public and the lapse of a reasonable time for
the market to absorb the information; or
2. would be considered by a reasonable
person important under the circumstances in
determining his course of action whether to
buy, sell or hold a security.
 An insider may not communicate
material non-public information to any person
who will likely buy or sell a security of the
issuer while in possession of such information.
 Trading by persons who have material
non-public information about a tender offer is
prohibited.
Registration of Brokers, Dealers, Salesmen
and Associated Persons
 Persons engaging in the business of
buying or selling securities in the Philippines as
a broker or dealer, or acting as a salesman for
such entities must be registered and authorized
as such by the SEC.
 Broker – a person engaged in the
business of buying and selling securities for the
account of others.
 Dealer – any person who buys and sells
securities for his/her own account in the
ordinary course of business.
 Salesman - a natural person, employed
as such or as an agent, by a dealer, issuer or
broker to buy and sell securities.
 A stockbrokerage firm can have no other
business than that.
 Purchase of shares should be coursed
through a broker. However a private
transaction can be made.
Fraudulent Transactions and Other Market
Manipulations
 Fraudulent and manipulative
devices:
1. Wash sale – any transaction in a
security which involves no change in the
beneficial ownership thereof.
2. Matched order – an order or orders for
the purchase or sale of security with the
knowledge that a simultaneous order or orders
of substantially the same size, time and price
for the sale or purchase of such security has, or
will be entered by or for the same or different
parties.
3. Marking the close – place of purchase or
sale order, at or near the close of the trading
period.
4. Painting the tape – the activity is made
during normal trading hours. It involves buying
activity among nominee accounts at
increasingly higher or lower prices or causing
fictitious reports to appear on the “ticker tape.”
5. Squeezing the float – the part or portion
of the issue/security which is outstanding but
intentionally held by dealers or other persons
with a view of reselling them later for profit.
6. Hype and dump – the act employed by a
person or group of persons of purchasing the
outstanding capital stock of a dormant public
shell company for a nominal amount and merge
it with their privately held company. They
would then gain control of the majority of the
stocks of the merged entity. The shares of the
Shell Company are often reverse-split four to
one or more to reduce the number of shares.
Stock certificates are often re-issued in the
name of the merged entity to relatives and
associates who act as nominees of the person
or group of persons employing the device. They
would then look for a broker-dealer who would
be willing to make a market relative to the
stocks of the newly merged company; then hire
a promoter who would “hype” the virtues of the
company, its products and stocks. The broker-
dealer then generates volume and advance bid
price. When the market reaches a high price,
they would “dump” their shareholdings and bail
out.
7. Boiler room operations – involves an
intensive selling campaign through numerous
salesmen by telephone or through direct mail
offerings for securities of either a certain type
or from a specific issuer. Investors are induced
to purchase through hard-sell techniques based
on unfounded predictions and mailing of
misleading market letters.
8. Circulating or dissemination information
that the price of any security listed in the
Exchange will or is like to rise or fall (illegal)
9. Making false or misleading statements
with respect to any material fact, which he
knew or had reasonable ground to believe was
so false or misleading for the purpose of
inducing the purchase or sale of any security
(illegal).
10. Pegging or fixing or stabilizing the price
of security effected either alone or with others
through any series of transactions for the
purchase or sale thereof (illegal)
11. Short sale – sale of securities which the
vendor does not own (illegal unless done in
accordance with the rules and regulations of
the SEC) (T3 rule).
12. Insider trading – the act of an insider of
buying or selling securities of the issuer while in
possession of material information with respect
thereto that is not generally available to the
public (illegal unless exempted).
 Wash sale and matched order is illegal
when used as a means to create a false or
misleading appearance of active trading in the
security concerned.
 Marking the close, painting the tape,
squeezing the float, hype and dump, and boiler
room operations are illegal when they are
effected to:
1. Raise the price or induce the purchase of
a security or of a controlling, controlled or
commonly controlled company by others;
2. Depress their price to induce the sale of
a security, whether of the same or of a different
class, of the same issuer or of a controlling,
controlled company, or common controlled
company of others; and
3. Creates active trading to induce such
purchase or sale through said devices or
schemes.
 Other fraudulent transactions: False registration statement - liable civilly
- sec. 56
1. Employing any device, scheme, or
artifice to defraud; Ceiling as to amount of damages - triple of the
amount involved limitation of actions - not later
than 5 years after the cause of action accrues
2. Obtaining money or property by means
of any untrue statement of a material fact of
any omission to state a material fact necessary
in order to make the statements made, in the
light of the circumstances under which they
were made, not misleading; or

3. Engaging in any act, transaction,

practice or course of business which operates
or would operate as a fraud or deceit upon any
person.

 Fraud – akin to bad faith which implies a

conscious and intentional design to do a
wrongful act for a dishonest purpose or moral
obliquity.

Settlement Offer

 At any time, during an investigation or

proceeding under this Code, parties being
investigated and/or charged may propose in
writing an offer of settlement with the
Commission.

 Upon receipt of such offer of settlement,

the Commission may consider the offer based
on timing, the nature of the investigation or
proceeding, and the public interest.

 The Commission may only agree to a

settlement offer based on its findings that such
settlement is in the public interest. Any
agreement to settle shall have no legal effect
until publicly disclosed. Such decision may be
made without a determination of guilt on the
part of the person making the offer.

Limitation of Actions

 SEC. 62. Limitation of Actions. - 62.1.

No action shall be maintained to enforce any
liability created under Section 56 or 57 of this
Code unless brought within two (2) years after
the discovery of the untrue statement or the
omission, or, if the action is to enforce a
liability created under Subsection 57.1(a),
unless brought within two (2) years after the
violation upon which it is based. In no event
shall any such action be brought to enforce a
liability created under Section 56 or Subsection
57.1 (a) more than five (5) years after the
security was bona fide offered to the public, or
under Subsection 57.1 (b) more than five (5)
years after the sale.

 62.2. No action shall be maintained to

enforce any liability created under any other
provision of this Code unless brought within two
(2) years after the discovery of the facts
constituting the cause of action and within five
(5) years after such cause of action accrued.