B. Código del programa 62
B.1.4. main_modoGUI.m
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)
AQUILA LEGIS FRATERNITY
Corporation Law Reviewer Page 82 of 87
Darren L. Salipsip 98B & Ronald Patrick Rubin 06C
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.
AQUILA LEGIS FRATERNITY
Corporation Law Reviewer Page 83 of 87
Darren L. Salipsip 98B & Ronald Patrick Rubin 06C
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.
AQUILA LEGIS FRATERNITY
Corporation Law Reviewer Page 84 of 87
Darren L. Salipsip 98B & Ronald Patrick Rubin 06C
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.
AQUILA LEGIS FRATERNITY
Corporation Law Reviewer Page 85 of 87
Darren L. Salipsip 98B & Ronald Patrick Rubin 06C
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.
AQUILA LEGIS FRATERNITY
Corporation Law Reviewer Page 86 of 87
Darren L. Salipsip 98B & Ronald Patrick Rubin 06C
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:
1. Employing any device, scheme, or artifice to defraud;
AQUILA LEGIS FRATERNITY
Corporation Law Reviewer Page 87 of 87
Darren L. Salipsip 98B & Ronald Patrick Rubin 06C
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
The Commission may only agree to a settlement offer based on its findings that such settlement is