Title
Securities and Exchange Commission vs. Santos
Case
G.R. No. 195542
Decision Date
Mar 19, 2014
Investment consultant Santos facilitated unregistered securities sales for PIPC Corporation, violating the Securities Regulation Code, leading to Supreme Court indictment.
securities regulation code
securities and exchange commission
violation
A

Case Summary (G.R. No. 79255)

Procedural Posture

The SEC filed a complaint-affidavit with the DOJ alleging violations of Sections 8, 26 and 28 of the SRC by PIPC‑BVI/PIPC Corporation officers, employees and agents. A DOJ panel (18 April 2008) found probable cause to charge various respondents, including Santos, for violation of Section 28; the panel’s 2 September 2008 resolution modified certain inclusions but maintained probable cause as to Santos. The Secretary of Justice (1 October 2009) later excluded Santos from prosecution for Section 28; the SEC petitioned the Court of Appeals, which affirmed the Secretary’s exclusion. The Supreme Court reviewed the CA decision by certiorari and reversed, reinstating the DOJ panel resolutions and directing inclusion of Santos in the Information for violation of Section 28.

Statutory Definitions and Legal Framework

The SRC’s definitions and the Implementing Rules are central: “broker” is one engaged in the business of buying and selling securities for the account of others; “dealer” buys and sells for his/her own account; an “associated person of a broker or dealer” is an employee who directly exercises control or supervisory authority (excluding clerical or ministerial functions); “salesman” is a natural person employed as such or as an agent by a dealer, issuer or broker to buy and sell securities. The Implementing Rules define an “investment contract” as a contract whereby a person invests money in a common enterprise and expects profits primarily from the efforts of others; an investment contract is presumed when pooled funds are used on a promise of profits. Section 28 makes it unlawful to engage in the business of buying or selling securities in the Philippines as a broker or dealer, or to act as a salesman or associated person of any broker/dealer, unless registered with the SEC.

Factual Background — The Scheme and Its Collapse

PIPC‑BVI (an offshore entity) operated an investment product called the Performance Managed Portfolio (PMP). PIPC‑BVI did business in the Philippines through PIPC Corporation. PIPC promised short‑term (eight calendar weeks) trading of major currencies by purported professional traders, security and liquidity, tax‑exempt offshore status, and principal protection, with advertised returns of 12–18% per annum or other profit‑sharing arrangements. Michael Liew, the PIPC head, absconded in 2007, leaving significant investor losses and prompting numerous complaints (31 individuals) to the SEC.

Affidavits and Transactions Involving Lorenzo and Sy

Lorenzo’s affidavit recounts introduction to Santos in early April 2006, Santos’s presentation of PMP, instructions on placing funds, the signing of a Partnership Agreement, and remittances to ABN‑AMRO Hong Kong, Standard Chartered Bank and later RZB Austria totaling substantial sums (initial US$40,000, later additions leading to an account of US$500,000 as reflected in the record). Lorenzo received “Welcome” letters signed by Liew. She attempted withdrawal in May 2007 but did not recover principal. Sy’s affidavit describes an introduction to Santos at a BPI branch, meetings at PIPC’s Citibank Tower lounge, explanations of PMP I and PMP II (including profit sharing and guarantees), a US$40,000 investment via telegraphic transfer to ABN‑AMRO Hong Kong, invitations to meet Liew, and some receipts of profit distributions prior to the collapse.

SEC’s Complaint and Allegations

The SEC’s complaint described PIPC’s operations as unregistered offers/sales of securities in the form of PMPs, pooling of investor funds, use of promotional materials and amenities to induce investment, and representation that PIPC Corporation was the Philippine arm of an international group (including PIPC‑BVI). The SEC asserted that PIPC Corporation’s actual corporate purpose was limited to financial research and that its officers, agents and brokers lacked proper licensing to solicit or sell securities, thus violating Sections 8 and 28 and engaging in fraudulent practices under Section 26. The complaint included brochures, procedural descriptions of the investment flow, remittance records, partnership agreements and other documentary exhibits.

Santos’s Denials and Defense

Santos denied participation in a conspiracy or criminal intent and maintained she was a mere employee or independent information provider, not a director, officer or stockholder of PIPC Corporation or PIPC‑BVI. She asserted that investors dealt directly with PIPC‑BVI, remitting funds offshore, and that she never received investors’ funds or signed the investment documents for Lorenzo or Sy. Santos emphasized that criminal liability under the RPC requires intent, argued that agency or conspiracy were not proven by positive, conclusive evidence, and pointed to documentary items (e.g., Partnership Agreements and receipts) showing direct dealings between complainants and PIPC‑BVI.

DOJ Panel’s Probable Cause Finding (18 April 2008)

The DOJ preliminary investigators concluded there was probable cause to charge several respondents under Section 28. The panel (i) concluded PMPA is an investment contract and thus a “security” under the SRC and its IRR (investment of money in a common enterprise with expectation of profit from others’ efforts); (ii) reasoned that agency may be inferred from conduct and that no formal written agency agreement is necessary where actions demonstrate principal‑agent relations; (iii) found that many respondents acted as agents, investors or employees who made representations, facilitated investments, and in some instances signed acknowledgement receipts on behalf of PIPC‑BVI; and (iv) stressed that SRC violations under Section 28 do not always require proof of criminal intent. The panel recommended information for Section 8 and 26 against Liew and Tuason and Section 28 against Santos and others.

DOJ Reconsideration (2 September 2008)

On reconsideration the DOJ panel modified its earlier resolution by dismissing one respondent (Victor Jose Vergel De Dios) from Section 28 prosecution but affirmed probable cause against Santos. The panel reiterated that PMPA was a security and that failure to present available evidence at the preliminary investigation was tantamount to waiver. The panel further held that respondent conduct supported an inference of agency and that many respondents had acted as solicitors/agents of PIPC Corporation/PIPC‑BVI.

Secretary of Justice’s Resolution Excluding Santos (1 October 2009)

The Secretary of Justice reversed the panel vis‑à‑vis Santos and excluded her from prosecution for Section 28. The Secretary’s reasoning: the documentary record (letters, fixed deposit advices, portfolio agreements, official receipts and deposit confirmations) showed the complainants dealt directly with PIPC‑BVI and remitted funds to offshore accounts without intermediary handling by Santos; printed brochures and procedural handouts supported that the materials were prepared for interested persons; the “Request Form” distributed by Santos stated it was not an investment solicitation but for information; an “Information Dissemination Agreement” limited Santos’s authority to providing contact information and expressly prohibited solicitation on behalf of PIPC‑BVI; and there was no evidence that Santos received funds or signatures on receipts for these complainants. On that basis the Secretary concluded the elements of Section 28 were not established as to Santos.

Court of Appeals Decision Affirming the Secretary

The Court of Appeals denied the SEC’s petition for certiorari and affirmed the Secretary’s exclusion of Santos. The CA emphasized that a person must be engaged in the business of buying or selling securities in the Philippines before being characterized as a broker/dealer/salesman under the SRC. The CA found no evidence showing Santos engaged in that business, no proof of exchange of funds between Santos and the two complainants, no representation by Santos that she was a licensed broker or dealer, and documentation (the Information Dissemination Agreement) demonstrating that Santos’s authority was limited to providing information and facilitating direct communication with PIPC‑BVI. The CA concluded the decision to invest and to reinvest was made by the investors independently.

Supreme Court’s Standard of Review for Preliminary Investigation

The Supreme Court reiterated that determination of probable cause in a preliminary investigation is primarily an executive function and that prosecutors are afforded wide latitude. That discretion, however, is not absolute: courts may intervene by certiorari where there is grave abuse of discretion, gross misapprehension of facts, persecution, prejudicial multiplicity of suits, lack of prima facie case, or other exceptional circumstances. The Court noted the limited nature of interference but identified that clear absence of prima facie evidence or gross factual misapprehension may justify judicial correction.

Supreme Court’s Analysis and Reversal of the Secretary and CA as to Santos

The Supreme Court reversed the Secretary of Justice and the Court of Appeals with respect to Santos and reinstated the DOJ panel’s probable‑cause findings. Key points in the Court’s analysis include:

  • Acceptance of the DOJ panel’s findings that PIPC Corporation and/or PIPC‑BVI were issuers of securities without required SEC registration and were engaged in the business of buying and selling securities.
  • Application of SRC definitions: solicitation and agency can be proved by conduct; a formal written agency contract is not necessary where actions reasonably infer an agency relationship and representation of the principal creates estoppel.
  • Rejection of the Secretary/CA focus on absence of Santos’s signature on investment contracts or the fact that investor funds were remitted directly to offshore accounts. The Court emphasized that solicitation consists of seeking business or customers and

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