G.R. No. 210316 - Securities and Exchange Commission vs. CJH Development Corp.

CJH Development Corporation (CJHDC) is a domestic corporation engaged in real estate development, sale, lease, and management.
CJH Suites Corporation (CJHSC), a wholly-owned subsidiary of CJHDC, manages hotel-related businesses.

On October 19, 1996, CJHDC entered into a 50-year lease contract with the Bases Conversion and Development Authority (BCDA) for a 247-hectare property in the John Hay Special Economic Zone, Baguio City.
The lease involved fixed annual rentals pegged to gross revenues, and CJHDC was authorized to sublease and develop the property, which would revert to BCDA with all improvements upon expiration.
CJHDC implemented a development plan that included constructing two condominium hotels (“The Manor” and “The Suites”).

Two schemes were offered to buyers: a straight purchase and sale; and a purchase with an option of “leaseback” or “money-back” arrangement.
Under the “leaseback” scheme, buyers purchase units but surrender possession to management. Units are pooled and rented out under hotel operations for fifteen years, renewable until 2046. Buyers receive either 70% of annual income from pooled rooms or a guaranteed 8% return.
Under the “money-back” scheme, buyers are entitled to a return of their purchase price by the lease expiration in 2046.
Buyers who chose these schemes have usage rights of 30 days per year and are exempted from dues and fees.

In May 2010, CJHDC and BCDA restructured financial obligations; CJHDC transferred ownership of certain units to BCDA through dacion en pago with leaseback terms.

BCDA requested the SEC to investigate CJHDC and CJHSC’s sale of condotel units, suspecting the “leaseback” and “money-back” arrangements as investment contracts under the Securities Regulation Code (SRC).
The SEC Enforcement and Prosecution Department (EPD) conducted an investigation, interviewing buyers and reviewing contracts.
SEC’s Corporation Finance Department opined that the “leaseback” arrangements constituted investment contracts (securities).
On May 16, 2012, the EPD moved the SEC En Banc for a Cease and Desist Order to stop CJHDC and CJHSC from selling unregistered securities.
On June 7, 2012, the SEC En Banc issued the CDO ordering respondents to cease selling such investment contracts without proper registration.

CJHDC and CJHSC petitioned the Court of Appeals (CA) to annul and set aside the CDO and were granted a temporary restraining order (September 25, 2012) and writ of preliminary injunction (November 8, 2012).
The CA, in a decision dated June 7, 2013, annulled and set aside the CDO and dismissed the SEC case. The CA’s resolution denying the SEC’s motion for reconsideration followed on November 28, 2013.
The SEC petitioned the Supreme Court for review on certiorari seeking reinstatement of the CDO.

Whether the Court of Appeals erred in entertaining the appeal against the SEC’s Cease and Desist Order, which is interlocutory in nature and not appealable.
Whether the respondents were required to exhaust administrative remedies before seeking judicial intervention.
Whether the sale of condotel units under “leaseback” or “money-back” arrangements constitute investment contracts (securities) under the SRC, a matter within the SEC’s primary jurisdiction.
Whether the issuance of the CDO without prior hearing violated the respondents’ right to due process.
Whether selling units without SEC registration constitutes fraud on investors, justifying the issuance of the CDO.