information, and lapse of reasonable time for the market to absorb such information.
Q: Who is an insider?
A: A person in possession of corporate
information not generally available to the public. Q: Who may be an insider? A: 1. The issuer
2. A director or officers of or a person controlling the issuer
3. A person whose relationship or former relationship to the issuer gives 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. Constructive Insider – A person who learns such information by a communication from any of the foregoing insiders. (Sec. 3.8) (1995 Bar
Question)
Q: What are the other prohibited acts in an insider trading?
A: It shall be unlawful:
1. For an insider to communicate material non‐public information about the issuer or the security to any person who thereby becomes an insider, where original insider communicating knows or has reason to believe that such person will likely buy or sell on the basis of such information
2. For any person, other than the tender offeror, who is in possession of material non‐public information relating to such tender offer to transact securities covered by the tender offer
3. For the tender offeror, or those acting in his behalf, the issuer of securities covered by the tender offer, and any insider, to communicate material non‐ public information relating to the tender offer which would likely result in violation of prohibition of the insider from trading.
Q: When is information “material non‐public”?
A: If:
1. Information about the issuer or the security which has not been generally disclosed to the public and 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 (Sec. 27.2). (1995 Bar Question)
Q: What are the possible defenses against insider trading?
A:
1. That the information was acquired not on account of his relationship with the issuer; or
2. That the other party knew or can be presumed to know the material information.
VI. PROTECTION OF INVESTORS
Q: What are the provisions in the SRC intended to protect the investors? A: 1. Tender Offer Rule 2. Rules on proxy solicitation 3. Disclosure rule A. TENDER OFFER RULE Q: What is a tender offer? A: Publicly declared intention to buy securities of public companies given to all stockholders by: 1. Filing with the SEC a declaration to that effect, and paying the filing fee. 2. Furnishing the issuer a statement
containing the information required of the issuers as SEC may prescribe, including subsequent or additional materials.
3. Publishing all requests or invitations for tender, or materials making a tender offer or requesting or inviting letters of such security.
Note: It is also defined as an offer by the acquiring
to tender their shares on the terms specified in the offer. Q: What is the purpose of tender offer? A: Tender offer is in place to protect the interest
of minority stockholders of a target company against any scheme that dilutes the share value of the investments. It affords such minority shareholders the opportunity to withdraw or exit from the company under reasonable terms, a chance to sell their shares at the same price as those of the majority stockholders. Q: In what instances is a tender offer required to be made? A: The SRC provides:
1. The person intends to acquire 15% or more of the equity share of a public company pursuant to an agreement made between or among the person and one or more sellers.
2. The person intends to acquire 30% or more of the equity shares of a public company within a period of 12 months. 3. The person intends to acquire equity
shares of a public company that would result in ownership of more than 50% of the said shares.
However, the IRR of the SRC provides: 1. The person intends to acquire 35% or
more of the equity share of a public company pursuant to an agreement made between or among the person and one or more sellers.
2. The person intends to acquire 35% or more of the equity shares of a public company within a period of 12 months. 3. The person intends to acquire equity
shares of a public company that would result in ownership of more than 51% of the said shares.
Note: Tender offer applies to both direct and
indirect acquisition.
Q: What may be considered as a public company? A: 1. Those listed on an exchange; or 2. Those with assets of at least 50M pesos and having 200 shareholders owning at least 100 shares each. Q: What are the unlawful and prohibited acts relating to tender offers? A: It shall be unlawful for any person to:
1. Make any untrue statement of a material fact or omit to state any material fact necessary in order to make statements made not misleading, and
2. Engage in any fraudulent, deceptive, or manipulative acts or practices in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation.
B. RULES ON PROXY SOLICITATION
Q: What are the requisite for valid proxy solicitation? A: 1. It must be in writing 2. It must be signed by the stockholder or his duly authorized representative 3. It must be filed before the scheduled meeting with the corporate secretary (Sec. 20)
Note: The proxy shall be valid only for the meeting
for which it is intended. No proxy shall be valid and effective for a period longer than 5 years at one time.
Q: What are the rules on proxy solicitation with regard to broker or dealer?
1. 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.
2. A broker or dealer who holds or acquires the proxy for at 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. (Sec. 20)
C. DISCLOSURE RULE
Q: When does disclosure begin?
A: It begins at registration and continues
periodically thru periodic report.
Q: May it be suspended?
A: Yes. It may be suspended when on the first day
of the fiscal year if it has less than 100 shareholders (Rule 17.1, SRC IRR).
Q: When does the disclosure requirement end? A:
GR: Disclosure does not end because once a
reporting company, it remains as such even when registration of securities has been revoked (Rule 13 SCR IRR).
XPN: If the primary license is revoked.
XPN to the XPN: In case of hospitals and
educational institutions if the primary license is revoked, disclosure requirement still continues because of public interest. Q: Give the reportorial requirements. A: 1. Issuers: a. Within 135 days, after the end of the issuer’s fiscal year, an annual report which shall include, a balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year, certified by an independent certified public accountant, and a management discussion and analysis of results of operations;
b. Other periodical reports for interim fiscal periods and current reports on significant developments of the issuer
(Sec. 17)
2. Persons Acquiring Securities:
If the issuer is one that has to make a report, any person who acquires directly or indirectly the beneficial ownership of more than 5% of such class, or in excess of such lesser per centum as the Commission may prescribe, shall, within 10 days after such acquisition or such reasonable time as fixed by the Commission, submit to the issuer of the security, to the Exchange where the
security is traded, and to the Commission a sworn statement containing:
a. His personal circumstances
b. The nature of such beneficial ownership
c. If the purpose was to acquire control of the business, any plans the recipient may have affecting a major change in
d. the business
e. The number of shares beneficially owned, and the number of shares for which there is a right to acquire f. granted to such person or his
associates
g. Information as to any agreement with a third person regarding the securities
(Sec. 18)
3. Persons that has beneficial ownership of 10% or more:
Every person who is directly or indirectly the beneficial owner of more than 10% of any class of any equity security, or who is director or an officer of the issuer of such security, shall file:
a. Statement with the SEC and, if such security is listed for trading on an Exchange, also with the Exchange, of the amount of all equity securities of such issuer of which he is the beneficial owner,
b. Within 10 days after the close of each calendar month, if there is a change in ownership during such month, a statement indicating his ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month. (Sec. 23) VII. CIVIL LIABILITIES
Q: What are the grounds for civil liability to arise?
A:
1. False Registration Statement. (Sec. 56) 2. Fraud with connection to prospectus,
communications and reports. (Sec. 57) 3. Fraud in connection with security
transactions. (Sec. 58)
4. Manipulation of security prices. (Sec.
60)
Q: Who are the persons that may be liable in case of false registration statement?
1. The issuer and every person who signed the registration statement
2. Every person who was a director of, or any other person performing similar functions, or a partner in, the issuer at the time of the filing of the registration statement or any part, supplement or amendment thereof with respect to which his liability is asserted
3. Every person who is named in the registration statement as being or about to become a director of, or a person performing similar functions, or a partner in, the issuer and whose written consent thereto is filed with the registration statement
4. Every auditor or auditing firm named as having certified any financial statements used in connection with the registration statement or prospectus 5. Every person who, with his written
consent, which shall be filed with the registration statement, has been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement, report, or valuation, which purports to have been prepared or certified by him
6. Every selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement, with respect to that portion of the registration statement which purports to have been contributed by him
7. Every underwriter with respect to such security
Note: If the person who acquired the security
did so after the issuer has made generally available to its security holders an income statement covering a period of at least twelve months beginning from the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement, but such reliance may be established without proof of
the reading of the registration statement by such person (Sec. 56).
Q: Who are the persons liable with regard to fraud with connection to prospectus, communications and reports?
A:
1. Any person who offers to sells or sells a. in violation any provisions on
registration of securities; and b. by the use of any means or
instruments of transportation or communication, by means of a prospectus or other written or oral communication.
Q: Who are the persons liable with regard to fraud in connection with security transactions?
A: Any person who engages in any act or
transaction in violation of Sections 19.2, 20 or 26 of SRC.
Q: Who are the persons liable for the manipulation of security prices?
A: Any person who willfully participates in any act
or transaction in violation of Section 24 shall be liable to any person who shall purchase or sell any security at a price which was affected by such act or transaction.
Q: Who are the persons liable with regard to insider trading?
A: Any person in case of legal tender who:
1. Purchases or sells a security while in possession of material information not generally available to the public. 2. Communicates material non‐public
information Q: How are the persons enumerated liable? A: Jointly and severally
Q: What is the prescriptive period for filing of action?
A: 2 years after the discovery of the facts
constituting the cause of action and within 5 years after such cause of action accrued
Q: What court has the jurisdiction over civil liabilities?
A: Regional Trial Court