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

CJH Development Corporation (CJHDC) was a duly organized domestic corporation engaged in acquisition, development, sale, lease and management of real estate and improvements thereon.
CJH Suites Corporation (CJHSC) was a wholly-owned subsidiary of CJHDC formed primarily to acquire, maintain, operate and manage hotels, inns, lodging houses, restaurants and allied businesses.
Bases Conversion and Development Authority (BCDA) was the lessor under a lease with CJHDC for development of property within the John Hay Special Economic Zone in Baguio City.

On October 19, 1996, CJHDC entered into a Lease Agreement with BCDA for development of a 247-hectare property into a public tourism complex with a fifty (50) year term until 2046.
The Agreement set fixed annual rentals for the first five years at P425,001,378.00 or five percent of gross revenues, whichever was higher, and thereafter not more than P150,000,000.00 or five percent of gross revenues, whichever was higher.
The Agreement authorized CJHDC to sub-lease, develop and manage the property and provided that upon expiration the leased property and improvements would revert to BCDA.
CJHDC developed two condominium-hotels named “The Manor” and “The Suites.”

Respondents offered units for sale under two schemes: a straight purchase and sale, and a sale with an option for a leaseback or money-back arrangement.
Under the straight purchase, buyers paid in lump sum or installments and obtained ownership subject to maintenance dues and utilities.
Under the leaseback arrangement, buyers paid for the unit and surrendered possession to CJHDC/CJHSC management; respondents pooled units and offered them for hotel billeting under management of Camp John Hay Leisure, Inc. (CJHLI) for fifteen years with renewal options up to 2046.
Leaseback buyers received either a proportionate share in seventy percent (70%) of annual hotel income from pooled rooms or a guaranteed eight percent (8%) return; money-back buyers were entitled to return of purchase price by 2046; buyers retained thirty (30) days’ use annually and were exempt from monthly dues and utilities.

In May 2010, CJHDC and BCDA restructured CJHDC’s rental and financial obligations whereby CJHDC transferred ownership of certain units to BCDA via dacion en pago; the units remained subject to leaseback.
BCDA learned of respondents’ sale of condotel units under leaseback/money-back terms and, by letter dated November 18, 2011, requested the Securities and Exchange Commission (SEC) to investigate on belief that such arrangements were investment contracts constituting securities under Republic Act No. 8799, otherwise known as the Securities Regulation Code (SRC).

The SEC Enforcement and Prosecution Department (EPD) conducted an investigation and submitted a Field Investigation Report dated February 1, 2012.
The SEC’s Corporation Finance Department (CFD) issued a Memorandum on April 23, 2012 opining that respondents’ leaseback arrangements were investment contracts.
On May 16, 2012, the EPD filed a Motion for Issuance of Cease and Desist Order (CDO) in SEC En Banc, docketed as SEC-CDO Case No. 05-12-006, seeking to enjoin respondents and their agents from selling investment contracts until registration with the Commission and issuance of permit to offer/sell securities.
On June 7, 2012, the SEC En Banc issued the challenged Order finding prima facie evidence that respondents were engaged in selling securities without proper registration and ordering them to immediately CEASE and DESIST from selling securities until compliance with law and rules.

Respondents filed a Petition for Review with prayer for temporary restraining order (TRO) and/or writ of preliminary injunction before the Court of Appeals (CA) to annul the SEC CDO.
On September 25, 2012, the CA issued a TRO enjoining enforcement of th...(Subscriber-Only)

Whether the June 7, 2012 Cease and Desist Order (CDO) issued by the SEC En Banc was interlocutory and hence not appealable to the CA.

Whether respondents failed to exhaust administrative remedies by not filing a motion to lift the CDO with the SEC and thus the CA lacked jurisdiction to entertain the petition.
Whether the doctrine of *primary jurisdiction* required SEC determination before judicial intervention on whether the transactions constituted investment contracts or sales of securities under the SRC.

Whether issuance of the CDO without prior hearing violated respondents’ right to due process.
Whether the case fell within exceptions to the exhaustion doctrine, specifically as a pure question of law or due process vi...(Subscriber-Only)