I. SHORT TITLE: SEC v.

SANTOS
II. FULL TITLE: SECURITIES AND EXCHANGE
COMMISSION, Petitioner, v. OUDINE SANTOS, Respondent. - G.R. No. 195542,
March 19, 2014, Perez, J.
III. TOPIC: Securities Regulation Code
IV. STATEMENT OF FACTS

Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary
perpetrator, Michael H.K. Liew (Liew), a self–styled financial guru and Chairman of the Board of
Directors of Performance Investment Products Corporation (PIPC–BVI), a foreign corporation
registered in the British Virgin Islands.

To do business in the Philippines, PIPC–BVI incorporated herein as Philippine International

Planning Center Corporation (PIPC Corporation).

Because the head of PIPC Corporation had gone missing and with it the monies and investment of
a significant number of investors, the SEC was flooded with complaints from thirty–one (31)
individuals against PIPC Corporation, its directors, officers, employees, agents and brokers for
alleged violation of certain provisions of the Securities Regulation Code, including Section 28
thereof. Santos was charged in the complaints in her capacity as investment consultant of PIPC
Corporation, who supposedly induced private complainants Luisa Mercedes P. Lorenzo (Lorenzo)
and Ricky Albino P. Sy (Sy), to invest their monies in PIPC Corporation.

Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a complaint–
affidavit for violation of Sections 8, 26 and 28 of the Securities Regulation Code before the
Department of Justice which was docketed as I.S. No. 2007–1054. Among the respondents in the
complaint–affidavit were the principal officers of PIPC: Liew, Chairman and President; Cristina
Gonzalez–Tuason, Director and General Manager; Ma. Cristina Bautista–Jurado, Director; and
Santos.

Private complainants, Lorenzo and Sy, in their affidavits annexed to SEC’s complaint–affidavit,
respectively narrated Santos’ participation in how they came to invest their monies in PIPC
Corporation.

On the whole, Lorenzo and Sy charge Santos in her capacity as investment consultant of PIPC
Corporation who actively engaged in the solicitation and recruitment of investors. Private
complainants maintain that Santos, apart from being PIPC Corporation’s employee, acted as PIPC
Corporation’s agent and made representations regarding its investment products and that of the
supposed global corporation PIPC–BVI. Facilitating Lorenzo’s and Sy’s investment with PIPC
Corporation, Santos represented to the two that investing with PIPC Corporation, an affiliate of
PIPC–BVI, would be safe and full–proof.
In refutation, Santos denied intentionally defrauding complainants Lorenzo and Sy. He stated that
“I had no participation whatsoever in its creation or formation, as I was not even connected with
PIPC Corp. at the time of its incorporation. In fact, I have never been a stockholder, director,
general manager or officer of PIPC Corp.”

The DOJ issued a resolution and based its finding of probable cause on the collective acts of the
majority of the respondents therein, including herein respondent Santos, which consisted in their
acting as employees–agent and/or investor–agents of PIPC Corporation and/or PIPC–
BVI. Specifically alluding to Santos as Investment Consultant of PIPC Corporation, the DOJ
found probable cause to indict her for violation of Section 28 of the Securities Regulation Code for
engaging in the business of selling or offering for sale securities, on behalf of PIPC Corporation
and/or PIPC–BVI (which were found to be an issuer of securities without the necessary registration
from the SEC) without Santos being registered as a broker, dealer, salesman or an associated
person.
On separate motions for reconsideration of the respondents therein, including herein respondent
Santos, the DOJ panel issued a Resolution dated 2 September 2008 modifying its previous ruling
and excluding respondent Victor Jose Vergel de Dios from prosecution for violation of Section 28
of the Securities Regulation Code.

Respondent Santos filed a petition for review before the Office of the Secretary of the DOJ
assailing the Resolutions dated 18 April 2008 and 2 September 2008 and claiming that she was a
mere clerical employee/information provider who never solicited nor recruited investors, in
particular complainants Sy and Lorenzo, for PIPC Corporation or PIPC–BVI. Santos also
claimed dearth of evidence indicating she was a salesman/agent or an associated person of a broker
or dealer, as defined under the Securities Regulation Code.

The SEC filed its Comment opposing Santos’ petition for review. Thereafter, the Office of the
Secretary of the DOJ, through its then Undersecretary Ricardo R. Blancaflor, issued a Resolution
which excluded respondent Santos from prosecution for violation of Section 28 of the Securities
Regulation Code.

V. STATEMENT OF THE CASE

This petition for review on certiorari under Rule 45 of the Rules of Court assails the Decision1 of
the Court of Appeals in CA–G.R. SP No. 112781 affirming the Resolutions2 of the Secretary of
Justice in I.S. No. 2007–1054 which, among others, dismissed the criminal complaint for violation
of Section 28 of Republic Act No. 8799, the Securities Regulation Code, filed by petitioner
Securities and Exchange Commission (SEC) against respondent Oudine Santos (Santos).

VI. ISSUE:
The sole issue in this case is whether or not respondent Santos acted as agent of PIPC Corp. or
had enticed Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPC–BVI’s
investment products.

VII. RULING:
The Supreme Court ruled in the negative. It based its ruling on Sec. 28 of the SRC.
Jurisprudence defines an “agent” as a “business representative, whose function is to bring about,
modify, affect, accept performance of, or terminate contractual obligations between principal and
third persons.” x x x On the other hand, the Implementing Rules of the SRC simply provides that
an agent or a “salesman” is a person employed as such or as an agent, by the dealer, issuer or
broker to buy and sell securities x x x.

A judicious examination of the records indicates the lack of evidence that respondent Santos
violated Section 28 of the SRC, or that she had acted as an agent for PIPC Corp. or enticed Luisa
Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC Corp. or PIPC–BVI’s investment
products.

It is important to note that in the “Request Form,” one of the documents being distributed by
respondent Santos x x x, it is categorically stated therein that said request “shall not be taken as an
investment solicitation x x x, but is mainly for the purpose of providing me with
information.” Clearly, this document proves that respondent Santos did not or was not involved in
the solicitation of investments but merely shows that she is an employee of PIPC Corp. In
addition, the “Information Dissemination Agreement” between her employer PIPC Corp. and
PIPC–BVI readably and understandably provides that she is prohibited from soliciting investments
in behalf of PIPC–BVI and her authority is limited only to providing interested persons with
the “necessary information regarding how to communicate directly with PIPC.” Parenthetically, the
decision to sign the partnership Agreement with PIPC–BVI to invest and repeatedly reinvest their
monies with PIPC–BVI were made by Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy
themselves without any inducement or undue influence from respondent Santos.

Prescinding from the foregoing, a person must first and foremost be engaged in the business of
buying and selling securities in the Philippines before he can be considered as a broker, a dealer or
salesman within the coverage of the Securities Regulation Code. The record in this case however is
bereft of any showing that [Santos] was engaged in the business of buying and selling securities in
the Philippines, whether for herself or in behalf of another person or entity. Apart from [SEC’s]
sweeping allegation that [Santos] enticed Sy and Lorenzo and solicited from them investments for
PIPC–BVI without first being registered as broker, dealer or salesman with SEC, no evidence had
been adduced that shows [Santos’] actual participation in the alleged offer and sale of securities to
the public, particularly to Sy and Lorenzo, within the Philippines. There was likewise no exchange
of funds between Sy and Lorenzo, on one hand, and [Santos], on the other hand, as the price of
certain securities offered by PIPC–BVI. There was even no specific proof that [Santos]
misrepresented to Sy and Lorenzo that she was a licensed broker, dealer or salesperson of
securities, thereby inducing them to invest and deliver their hard–earned money with PIPC–BVI.
In fact, the Information Dissemination Agreement between PIPC Corporation, [Santos’
employer], and PIPC–BVI clearly provides that [Santos] was prohibited from soliciting
investments in behalf of PIPC–BVI and that her authority is limited only to providing prospective
client with the “necessary information on how to communicate directly with PIPC.” Thus, it is
obvious that the final decision of investing and reinvesting their money with PIPC–BVI was made
solely by Sy and Lorenzo themselves.

Hence, this appeal by certiorari raising the sole error of Santos’ exclusion from the Information for
violation of Section 28 of the Securities Regulation Code.

In excluding Santos from the prosecution of the supposed violation of Section 28 of the Securities
Regulation Code, the Secretary of the DOJ, as affirmed by the appellate court, debunked the DOJ
panel’s finding that Santos was prima facie liable for either: (1) selling securities in the Philippines
as a broker or dealer, or (2) acting as a salesman, or an associated person of any broker or dealer
on behalf of PIPC Corporation and/or PIPC–BVI without being registered as such with the SEC.

To get to that conclusion, the Secretary of the DOJ and the appellate court ruled that no evidence
was adduced showing Santos’ actual participation in the final sale by PIPC Corporation and/or
PIPC–BVI of unregistered securities since the very affidavits of complainants Lorenzo and Sy
proved that Santos had never signed, neither was she mentioned in, any of the investment
documents between Lorenzo and Sy, on one hand, and PIPC Corporation and/or PIPC–BVI, on
the other hand.

The conclusions made by the Secretary of the DOJ and the appellate court are a myopic view of
the investment solicitations made by Santos on behalf of PIPC Corporation and/or PIPC–BVI
while she was not licensed as a broker or dealer, or registered as a salesman, or an associated
person of a broker or dealer.

The Court sustained the DOJ panel’s findings which were not overruled by the Secretary of the
DOJ and the appellate court, that PIPC Corporation and/or PIPC–BVI was: (1) an issuer of
securities without the necessary registration or license from the SEC, and (2) engaged in the
business of buying and selling securities. In connection therewith, we look to Section 3 of the
Securities Regulation Code for pertinent definitions of terms.
3.3. “Broker” is a person engaged in the business of buying and selling securities for the account of
others.

3.4. “Dealer” means [any] person who buys [and] sells securities for his/her own account in the
ordinary course of business.

3.5. “Associated person of a broker or dealer” is an employee thereof whom, directly exercises
control of supervisory authority, but does not include a salesman, or an agent or a person whose
functions are solely clerical or ministerial.

3.13. “Salesman” is a natural person, employed as such [or] as an agent, by a dealer, issuer or
broker to buy and sell securities.

To determine whether the DOJ Secretary’s Resolution was tainted with grave abuse of discretion,
th court provided the elements for violation of Section 28 of the Securities Regulation Code: (a)
engaging in the business of buying or selling securities in the Philippines as a broker or dealer; or
(b) acting as a salesman; or (c) acting as an associated person of any broker or dealer, unless
registered as such with the SEC.

Tying it all in, there is no quarrel that Santos was in the employ of PIPC Corporation and/or
PIPC–BVI, a corporation which sold or offered for sale unregistered securities in the
Philippines. To escape probable culpability, Santos claims that she was a mere clerical employee
of PIPC Corporation and/or PIPC–BVI and was never an agent or salesman who actually solicited
the sale of or sold unregistered securities issued by PIPC Corporation and/or PIPC–BVI.

Solicitation is the act of seeking or asking for business or information; it is not a commitment to an
agreement.

Santos, by the very nature of her function as what she now unaffectedly calls an information
provider, brought about the sale of securities made by PIPC Corporation and/or PIPC–BVI to
certain individuals, specifically private complainants Sy and Lorenzo by providing information on
the investment products of PIPC Corporation and/or PIPC–BVI with the end in view of PIPC
Corporation closing a sale.

While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s investments, Santos
procured the sale of these unregistered securities to the two (2) complainants by providing
information on the investment products being offered for sale by PIPC Corporation and/or PIPC–
BVI and convincing them to invest therein.

No matter Santos’ strenuous objections, it is apparent that she connected the probable investors,
Sy and Lorenzo, to PIPC Corporation and/or PIPC–BVI, acting as an ostensible agent of the latter
on the viability of PIPC Corporation as an investment company. At each point of Sy’s and
Lorenzo’s investment, Santos’ participation thereon, even if not shown strictly on paper, was prima
facie established.

In all of the documents presented by Santos, she never alleged or pointed out that she did not
receive extra consideration for her simply providing information to Sy and Lorenzo about PIPC
Corporation and/or PIPC–BVI. Santos only claims that the monies invested by Sy and Lorenzo
did not pass through her hands. In short, Santos did not present in evidence her salaries as a
supposed “mere clerical employee or information provider” of PIPC–BVI. Such presentation
would have foreclosed all questions on her status within PIPC Corporation and/or PIPC–BVI at
the lowest rung of the ladder who only provided information and who did not use her discretion in
any any capacity.

The Court held that it cannot overemphasize that the very information provided by Santos locked
the deal on unregistered securities with Sy and Lorenzo.

In fact, Sy alleged in his affidavit, which allegation was not refuted by Santos, that he was
introduced to Santos while he performed routine transactions at his bank. Sy and Lorenzo did not
go directly to Liew or any of PIPC Corporation’s and/or PIPC–BVI’s principal officers before
making their investment or renewing their prior investment. However, undeniably, Santos actively
recruited and referred possible investors to PIPC Corporation and/or PIPC–BVI and acted as the
go–between on behalf of PIPC Corporation and/or PIPC–BVI.

The DOJ’s and Court of Appeals’ reasoning that Santos did not sign the investment contracts of Sy
and Lorenzo is specious. The contracts merely document the act performed by Santos.

Individual complainants and the SEC have categorically alleged that Liew and PIPC Corporation
and/or PIPC–BVI is not a legitimate investment company but a company which perpetrated a
scam on 31 individuals where the president, a foreign national, Liew, ran away with their money.
Liew’s absconding with the monies of 31 individuals and that PIPC Corporation and/or PIPC–
BVI were not licensed by the SEC to sell securities are uncontroverted facts.

The transaction initiated by Santos with Sy and Lorenzo, respectively, is an investment contract or
participation in a profit sharing agreement that falls within the definition of the law. When the
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 to be an investment contract.23 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.24

At bottom, the exculpation of Santos cannot be preliminarily established simply by asserting that
she did not sign the investment contracts, as the facts alleged in this case constitute fraud
perpetrated on the public. Specially so because the absence of Santos’ signature in the contract is,
likewise, indicative of a scheme to circumvent and evade liability should the pyramid fall apart.

Lastly, the Court clarified that they are only dealing herein with the preliminary investigation aspect
of this case. They did not adjudge respondents’ guilt or the lack thereof. Santos’ defense of being
a mere employee or simply an information provider is best raised and threshed out during trial of
the case.

VIII. DISPOSITIVE PORTION

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA–G.R.
No. SP No. 112781 and the Resolutions of the Department of Justice dated 1 October 2009 and
23 November 2009 are ANNULLED and SET ASIDE. The Resolution of the Department of
Justice dated 18 April 2008 and 2 September 2008 are REINSTATED. The Department of
Justice is directed to include respondent Oudine Santos in the Information for violation of Section
28 of the Securities and Regulation Code.
 I. SHORT TITLE: BENEDICTO-MUNOZ v. CACHO-OLIVARES
II. FULL TITLE: MARGARITA M. BENEDICTO-MUÑOZ, Petitioner, v. MARIA
ANGELES CACHO-OLIVARES, EDGARDO P. OLIVARES, PETER C.
OLIVARES, CARMELA Q. OLIVARES, MICHAEL C. OLIVARES,
ALEXANDRA B. OLIVARES, AND MELISSA C. OLIVARES, Respondents.

ABACUS SECURITIES CORPORATION AND JOEL CHUA CHIU, Petitioners, v. MARIA

ANGELES CACHO-OLIVARES, PETER C. OLIVARES, CARMELA Q. OLIVARES,
MICHAEL Q. OLIVARES, ALEXANDRA B. OLIVARES, [and] MELISSA C.
OLIVARES, Respondents.

SAPPHIRE SECURITIES, INC., Petitioner, v. MARIA ANGELES CACHO-OLIVARES,

EDGARDO P. OLIVARES, PETER C. OLIVARES, CARMELA Q. OLIVARES, MICHAEL
C. OLIVARES, ALEXANDRA B. OLIVARES, MELISSA C. OLIVARES, AND THE HON.
COURT OF APPEALS, NINTH DIVISION, Respondents. G.R. No. 179121, November 09,
2015, JARDELEZA, J.

III. TOPIC: Securities Regulation Code

IV. STATEMENT OF FACTS

The controversy arose from the Complaint for Damages and Revocation of Registration and
License of Broker, Dealer and Salesman filed by respondents with the SEC. Respondents filed the
Original Complaint against Abacus Securities Corporation ("Abacus"), Sapphire Securities, Inc.
("Sapphire"), Margarita Benedicto, Joel Chua, Jose Maximo Cuaycong III, Mark Angelo Cuaycong,
Dharmala Securities Philippines, Inc., Lippo Securities, Inc., Jeannette Que, and Christine Litton.

Respondents claimed that Cuaycong, a salesman in securities, had engaged in fraudulent and
deceitful activities with the complicity and knowledge of the defendant stock market brokerage
firms (Abacus, Lippo, Sapphire and Dharmala), and the other individual defendants resulting in
the loss of respondents' investments. They prayed that therein defendants be held jointly and
severally liable for: actual damages in the amount of Php 7,040,645.22; moral damages of Php
33,000,000.00; exemplary damages of Php 50,000,000.00; and attorney's fees of Php
10,000,000.00.8 Upon the effectivity of Republic Act No. 8799, or the Securities and Regulation
Code, the case was raffled to the Regional Trial Court of Parañaque Branch 258 ("RTC of
Paranaque"), and docketed as Civil Case No. 01-0059.9

Respondent Ma. Angeles Cacho-Olivares ("Niñez") also furnished the Philippine Stock Exchange,
Inc. ("PSE") with copies of letter-complaints that she sent previously to Abacus, Lippo, Sapphire
and Dharmala. The letter-complaints alleged that the brokerage firms committed massive stock
market fraud on her and her family.10 The President of the PSE referred the letter-complaints to
PSE's Compliance and Regulatory Group ("PSE-CRG") for preliminary investigation. The case was
docketed as CRG-IS No. 97-01. In its Investigation Report11 dated July 8, 1997, the PSE-CRG
concluded that there was no evidence that would link any of the subject brokerage firms to any of
the possible fraudulent acts and schemes of Cuaycong, and it appears that Cuaycong acted on his
own and is solely responsible for the apparent fraud perpetrated against respondents.12 The PSE-
CRG stated though that the subject brokerage firms may have committed administrative and
procedural lapses in violation of the Revised Securities Act and/or existing SEC Rules.13
Parenthetically the Cuaycong brothers, even before respondents could file the Original Complaint,
had filed earlier on June 20, 1997, a case for Consignation and Damages14 against respondents
before the Regional Trial Court of Pasig Branch 69 ("RTC of Pasig"), docketed as Civil Case No.
66321. Cuaycong admitted that he was in possession of the funds owned by respondents in the
total amount of Php 7,040,645.2215 and offered to deposit the same with the court. In his defense,
he alleged that he acted as fund manager for the respondents, who knew that he [Cuaycong]
commingled their [respondents] funds with those of his other clients, including his brother Mark
Angelo. Mark Angelo alleged that he had no direct dealings with the respondents.16

In a Joint Manifestation with Motion, the Cuaycong brothers and the respondents manifested to
the RTC of Pasig that they had amicably settled their differences and entered into a Compromise
Agreement. Respondents agreed to drop the Cuaycong brothers as defendants in Civil Case No.
01-0059 in consideration of the payment of Php 7,040,645.22. The RTC of Pasig approved the
Compromise Agreement in its July 17, 2001 Decision.18

Respondents filed an ex parte motion to drop the Cuaycong brothers before the RTC of
Paranaque. In another turn of events, Civil Case No. 01-0059 was re-raffled and finally transferred
to the trial court, and now docketed as Civil Case No. 02-1049.19

The trial court conducted a clarificatory hearing where respondents manifested their intention to
pursue the case against the remaining defendants. The trial court ordered the parties to submit
their memoranda.20

The trial court granted respondents' ex parte motion and dropped the Cuaycong brothers from the
Original Complaint. In a later order, it directed respondents to file an amended complaint that
would clarify the "different and separable acts" committed by the remaining defendants which
respondents asserted were "independent of the liability of the Cuaycongs." Since the trial court said
that it had no jurisdiction over causes of action for revocation of registration and license of broker,
dealer and salesman, it also ordered respondents to sever these causes of action.

Respondents filed an Amended and Supplemental Complaint23 against the remaining defendants.
They deleted the prayer for actual damages and asked the trial court to adjudge the remaining
defendants, solidarity liable for moral and exemplary damages and attorney's fees.

Holding that the Cuaycong brothers were indispensable parties sued with the other defendants,
under a common cause of action, the trial court dismissed the Amended and Supplemental
Complaint in its October 22, 2003 Order. Accordingly, the Amended and Supplemental
Complaint is dismissed.

Respondents appealed to the CA. The CA, in its Decision, granted the appeal and remanded the
case to the trial court for further proceedings. The CA held that the Compromise Agreement did
not absolve the other defendants because: a) respondents' cause of action against the remaining
defendants is separate and distinct from that against the Cuaycong brothers; b) the other
defendants are not party-litigants in the case before the RTC of Pasig; c) the Compromise
Agreement does not provide expressly or impliedly that the alleged liabilities of the remaining
defendants shall likewise be extinguished; and d) only the Cuaycong brothers and the respondents
are the real parties in interest in the civil case pending with the RTC of Pasig.

Defendants filed a Motion for Reconsideration which the CA denied in its August 3, 2007
Resolution.

Some of the defendants, now petitioners, come to us seeking to reverse and nullify the CA's
Decision.
V. STATEMENT OF THE CASE
These are consolidated petitions docketed as G.R. Nos. 179121, 179128 and 179129. Petitioners
seek to nullify the June 29, 2007 Decision3 ("Decision") and August 3, 2007 Resolution4 of the
Court of Appeals ("CA") in CA GR CV No. 80641. The CA reversed the October 22, 2003
Order5 of the Regional Trial Court of Makati, Branch 142 ("trial court") in Civil Case No. 02-1049.
The trial court dismissed the case filed by respondents because by reason of the dismissal of the
complaint against one of the defendants, it had lost competency to act on the complaint for lack of
sufficient legal basis, the benefits of dismissal having been extended to the other defendants.

VI. ISSUES
WHETHER THE DISMISSAL OF THE CASE AS AGAINST THE CUAYCONG
BROTHERS BENEFITS THE OTHER DEFENDANTS IN CIVIL CASE NO. 02-1049’
WHETHER THE APPROVED COMPROMISE AGREEMENT OPERATES AS RES
JUDICATA TO CIVIL CASE NO. 02-1049.

VII. RULING
The dismissal of the case as against the Cuaycong brothers benefits the other defendants in Civil
Case No. 02-1049

The Original Complaint and the Amended and Supplemental Complaint allege the same essential
cause of action against the Cuaycong brothers and the petitioners-that is, stock market fraud
committed by Cuaycong principally through misappropriation, with the complicity and
indispensable cooperation of the defendant stock market brokerage firms and the individual
defendants. The Amended and Supplemental Complaint failed to allege "different and separable
acts" committed by the remaining defendants independent of the acts and omissions of Cuaycong.
Under both the Original Complaint and the Amended and Supplemental Complaint, Cuaycong
was the central actor in the series of wrongdoings that led to the loss of investments of the
respondents, while the defendants' alleged action or inaction made such wrongdoings possible.

The Amended and Supplemental Complaint identified the Cuaycongs as "erstwhile defendants."37
It also dropped the Cuaycongs as defendants as well as the cause of action for actual damages. It
added an enumeration of the provisions of the Securities Regulation Code upon which
respondents anchored their cause of action. But beyond these, it retained essentially the same
factual allegations and narration of the Original Complaint as to the acts and omissions of
Cuaycong, and the participation of the other defendants in the same fraud perpetrated by
Cuaycong. The following summarizes the acts of Cuaycong and the participation of Mark Angelo,
the brokerage firms and the individual defendants:
Cuaycong, as a salesman of Abacus, received from Niñez38 and her son Peter Olivares39 shares
of stocks, for deposit to their respective trading account in Abacus. He also received from Niñez
and her husband Edgardo Olivares,40 crossed checks for the purchase of shares of stock.
Cuaycong represented to Niñez, Edgardo and Peter (the "Olivareses") that their stock and money
investments were deposited to their Abacus trading accounts; when in truth, no such accounts
exist.41 Instead, Cuaycong commingled42 and diverted the shares and money he received to his
personal account in Lippo and Sapphire. In turn, Lippo through its agent Litton,43 and Sapphire
through its agent Que44 -without the authorization of the Olivareses - used the money and the
shares of the Olivareses to partially liquidate the margin liabilities of Cuaycong. Cuaycong also
transferred some of the money and shares of Niñez to the Abacus account of his brother, Mark
Angelo, who was heavily indebted with Abacus. 45 The transfer was done with the indispensable
cooperation of Abacus, through its agent Chiu, who made unauthorized purchases and sales of
shares of stock using the account of Niñez to conceal Cuaycong's misappropriation.46

At some point, Cuaycong ceased to be a salesman of Abacus, and became a salesman of

Dharmala. In Dharmala, Cuaycong continued to receive shares and money from the Olivareses,
which he continued to misappropriate. Specifically, Cuaycong represented to Niñez and Peter that
he opened stock trading accounts for them, when in fact he did not.48 Niñez49 and Peter50 issued
crossed checks in Dharmala's favor for the purchase of the initial public offering shares of certain
corporations. Niñez51 also delivered to Cuaycong shares for deposit to her Dharmala trading
account. However, unknown to Niñez and Peter, Cuaycong, with the indispensable cooperation of
Dharmala, commingled and diverted their money and shares of stock to his personal account in
Dharmala to partially liquidate his cash and/or margin liabilities.52 Cuaycong also transferred
some of the money of Niñez to the account of Mark Angelo in Lippo. Lippo, without the
authorization of Niñez, accepted for deposit to Mark Angelo's account, the crossed checks issued
by Niñez.53 Further, Cuaycong, through the indispensable participation of Benedicto, transferred
Peter's money to the account of Benedicto in Dharmala.54

Thus, as with the Original Complaint, the allegations of the Amended and Supplemental
Complaint, though they dropped the Cuaycong brothers as defendants, and refer to them now as
"erstwhile defendants," nevertheless still plead that the acts and omissions of petitioners and the
Cuaycong brothers are inextricably connected and interrelated. The allegations attribute
connivance and cooperation between Cuaycong and the remaining defendants.
The foregoing allegations plead the substantive unity in the alleged fraud and deceit that the
Cuaycong brothers and the petitioners committed against respondents, which resulted in a single
injury-the loss of investments in the amount of Php 7,040,645.22 (which is also the actual damages
claimed in the Original Complaint, and the amount subject of the Compromise Agreement in Civil
Case No. 66321). Each of the petitioners performed an indispensable act that aided and abetted
the illegal activities of the Cuaycong brothers, without which the latter would not be able to
successfully consummate their fraudulent scheme. In their Appellants' Brief, respondents
acknowledged that conspiracy existed between the Cuaycong brothers and the petitioners.56

Conversely, the indispensable parties in this case are not only the Cuaycong brothers but also the
petitioners. An indispensable party is one whose interest in the subject matter of the suit and the
relief sought are so inextricably intertwined with the other parties that his legal presence as a party
to the proceeding is an absolute necessity.57 On the contrary, a party is not indispensable to the
suit if his interest in the controversy or subject matter is distinct and divisible from the interest of
the other parties and will not necessarily be prejudiced by a judgment which does complete justice
to the parties in court.

Since the Cuaycong brothers and the petitioners, as indispensable parties, had played various
interconnected roles that led to the singular injury and loss of the respondents, their liabilities
cannot be separately determined.
The inseparability of the liabilities of the Cuaycong brothers and the petitioners finds further
support in law. Section 5863 of the Securities Regulation Code ("SRC") punishes persons primarily
liable for fraudulent transactions. Section 26 of the SRC enumerates the fraudulent transactions
penalized under Section 58. the "fraud" referred to in Section 26.3 pertains to fraud which is akin
to bad faith implying a conscious design to do a wrongful act for a dishonest purpose or moral
obliquity.65 Section 51.4 of the SRC makes it "unlawful for any person to aid, abet, counsel,
command, induce or procure any violation of the Code." The SRC then punishes the persons
primarily liable for fraudulent transactions under Section 58 and their aiders or abettors under
Section 51.5,66 by making their liability for damages joint and solidary.

Here, the allegations of both the Original Complaint and the Amended and Supplemental
Complaint show that Cuaycong is the main actor in the misappropriation of the money and shares
of stock of the respondents. He is the person primarily liable under Section 58, while petitioners
who substantially assisted and indispensably cooperated in the conduct of his wrongful acts are the
aiders or abettors under Sections 51.4 and 51.5. Cuaycong and the petitioners engaged in a
"transaction, practice or course of business which operates or would operate as a fraud or deceit"
upon the respondents."67 Thus, Cuaycong and the petitioners should be held solidarity liable for
the resulting damage to the respondents. Respondents cannot condone Cuaycong's liability and
proceed only against his aiders or abettors because the liability of the latter are tied up with the
former. Liability attaches to the aider or abettor precisely because of the existence of the liability of
the person primarily liable.

The approved Compromise Agreement between the respondents and the Cuaycong brothers
operates as res judicata to Civil Case No. 02-1049.

The Court also agreed with the respondents that the protection of the investing public against
fraudulent practices and machinations is a well-entrenched policy in our jurisdiction. The law
provides three remedies to victims of securities fraud namely: civil, criminal and administrative
actions. Respondents chose to pursue a civil complaint against the petitioners. Under the SRC,
respondents may recover damages not exceeding triple the amount of the transaction plus actual
damages. Exemplary damages and attorney's fees may also be awarded.

VIII. DISPOSITIVE PORTION

WHEREFORE, the consolidated petitions are GRANTED. The assailed Decision and
Resolution of the Court of Appeals dated June 29, 2007 and August 3, 2007, respectively, are
hereby SET ASIDE.

The Order of the trial court dated October 22, 2003 dismissing Civil Case No. 02-1049 is
REINSTATED. No costs.
 I. SHORT TITLE: GSIS v. CA

II. FULL TITLE: GOVERNMENT SERVICE, INSURANCE SYSTEM, Petitioner, vs.

THE HON. COURT OF APPEALS, (8TH DIVISION), ANTHONY V. ROSETE,
MANUEL M. LOPEZ, FELIPE B. ALFONSO, JESUS F. FRANCISCO,
CHRISTIAN S. MONSOD, ELPIDIO L. IBAÑEZ, and FRANCIS GILES PUNO,
Respondents, G.R. No. 183905, April 16, 2009

III. TOPIC: Securities Regulation Code

IV. STATEMENT OF FACTS

The annual stockholders’ meeting (annual meeting) of the Manila Electric Company (Meralco) was
scheduled on 27 May 2008.1 In connection with the annual meeting, proxies2 were required to be
submitted on or before 17 May 2008, and the proxy validation was slated for five days later, or 22
May.

In view of the resignation of Camilo Quiason, the position of corporate secretary of Meralco
became vacant.5 On 15 May 2008, the board of directors of Meralco designated Jose Vitug6 to act
as corporate secretary for the annual meeting. However, when the proxy validation began on 22
May, the proceedings were presided over by respondent Anthony Rosete (Rosete), assistant
corporate secretary and in-house chief legal counsel of Meralco.8 Private respondents nonetheless
argue that Rosete was the acting corporate secretary of Meralco.9 Petitioner Government Service
Insurance System (GSIS), a major shareholder in Meralco, was distressed over the proxy validation
proceedings, and the resulting certification of proxies in favor of the Meralco management.

On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City,
docketed as R-PSY-08-05777-C4 seeking the declaration of certain proxies as invalid.11 Three
days later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the
complaint.12 On the same day, GSIS filed an Urgent Petition13 with the Securities and Exchange
Commission (SEC) seeking to restrain Rosete from "recognizing, counting and tabulating, directly
or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise
honoring the shares covered by" the proxies in favor of respondents Manuel Lopez,14 Felipe
Alfonso,15 Jesus Francisco,16 Oscar Lopez, Christian Monsod,17 Elpidio Ibañez,18 Francisco
Giles-Puno19 "or any officer representing MERALCO Management," and to annul and declare
invalid said proxies.20 GSIS also prayed for the issuance of a Cease and Desist Order (CDO) to
restrain the use of said proxies during the annual meeting scheduled for the following day.21 A
CDO22 to that effect signed by SEC Commissioner Jesus Martinez was issued on 26 May 2008,
the same day the complaint was filed. During the annual meeting held on the following day, Rosete
announced that the meeting would push through, expressing the opinion that the CDO is null and
void.23

Many developments involving the Court of Appeals’ handling of CA-G.R. SP No. 103692 and the
conduct of several of its individual justices are recounted in our Resolution dated 9 September
2008 in A.M. No. 08-8-11-CA (Re: Letter Of Presiding Justice Conrado M. Vasquez, Jr. On CA-
G.R. SP No. 103692).26 On 23 July 2008, the Court of Appeals Eighth Division promulgated a
decision in the case: The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from
being considered.
The two remaining cases before us are docketed as G.R. No. 183905 and 184275. G.R. No.
183905 pertains to a petition for certiorari and prohibition filed by GSIS, against the Court of
Appeals, and respondents Rosete, Lopez, Alfonso, Francisco, Monsod, Ibañez and Puno, all of
whom serve in different corporate capacities with Meralco or First Philippines Holdings
Corporation, a major stockholder of Meralco and an affiliate of the Lopez Group of Companies.
This petition seeks of the Court to declare the 23 July 2008 decision of the Court of Appeals null
and void, affirm the SEC’s jurisdiction over the petition filed before it by GSIS, and pronounce
that the CDO and the SCO orders are valid. This petition was filed in behalf of GSIS by the "GSIS
Law Office;" it was signed by the Chief Legal Counsel and Assistant Legal Counsel of GSIS, and
three self-identified "Attorney[s]," presumably holding lawyer positions in GSIS.30

The OSG also filed the other petition, docketed as G.R. No. 184275. It identifies as its petitioners
the SEC, Commissioner Martinez in his capacity as OIC of the SEC, and Hubert Guevarra in his
capacity as Director of the Compliance and Enforcement Department of the SEC – the same
petitioners in the aborted petition for review initially docketed as G.R. No. 183933. Unlike what
was adverted to in the motion for extension filed by the same petitioners in G.R. No. 183933, the
petition in G.R. No. 184275 is one for certiorari under Rule 65 as indicated on page 3 thereof,31
and not a petition for review. Interestingly, save for the first page which leaves the docket number
blank, all 86 pages of this petition for certiorari carry a header wrongly identifying the pleading as
the non-existent petition for review under G.R. No. 183933. This petition seeks the "reversal" of
the assailed decision of the Court of Appeals, the recognition of the jurisdiction of the SEC over
the petition of GSIS, and the affirmation of the CDO and SCO.

V. STATEMENT OF THE CASE

On 23 May 2008, GSIS filed a complaint with the Regional Trial Court (RTC) of Pasay City,
docketed as R-PSY-08-05777-C4 seeking the declaration of certain proxies as invalid.11 Three
days later, on 26 May, GSIS filed a Notice with the RTC manifesting the dismissal of the
complaint.12 On the same day, GSIS filed an Urgent Petition13 with the Securities and Exchange
Commission (SEC) seeking to restrain Rosete from "recognizing, counting and tabulating, directly
or indirectly, notionally or actually or in whatever way, form, manner or means, or otherwise
honoring the shares covered by" the proxies in favor of respondents.

VI. ISSUE
Whether the petitioner abused his discretion in nullifying the deeds of sale and in proceeding with
the expropriation proceeding, that question is eclipsed by the concern of whether Judge Pedro T.
Santiago may file this petition at all.
Whether private respondents are correct that the petition filed by the SEC in G.R. No. 184275
should be expunged
Whether the SEC has jurisdiction over the petition filed by GSIS. To recall, SEC has sought to
enjoin the use and annul the validation, of the proxies issued in favor of several of the private
respondents, particularly in connection with the annual meeting.

VII. RULING
The May 26, 2008 complaint filed by GSIS in the SEC is hereby barred from being considered,
out of equitable considerations, as an election contest in the RTC, because the prescriptive period
of 15 days from the May 27, 2008 Meralco election to file an election contest in the RTC had
already run its course, pursuant to Sec. 3, Rule 6 of the interim Rules of Procedure Governing
Intra-Corporate Controversies under R.A. No. 8799, due to deliberate act of GSIS in filing a
complaint in the SEC instead of the RTC.
With respect to the second issue, petitioners are not real parties-in-interest to the dispute and thus
bereft of capacity to file the petition. By way of simple illustration, to argue otherwise is to say that
the trial court judge, the National Labor Relations Commission, or any quasi-judicial agency has
the right to seek the review of an appellate court decision reversing any of their rulings. That
prospect, as any serious student of remedial law knows, is zero.

The Court, through the Resolution of the Third Division dated 2 September 2008, had resolved to
treat the petition in G.R. No. 184275 as a petition for review on certiorari, but withheld giving due
course to it.32 Under Section 1 of Rule 45, which governs appeals by certiorari, the right to file the
appeal is restricted to "a party," meaning that only the real parties-in-interest who litigated the
petition for certiorari before the Court of Appeals are entitled to appeal the same under Rule 45.
The SEC and its two officers may have been designated as respondents in the petition for certiorari
filed with the Court of Appeals, but under Section 5 of Rule 65 they are not entitled to be classified
as real parties-in-interest. Under the provision, the judge, court, quasi-judicial agency, tribunal,
corporation, board, officer or person to whom grave abuse of discretion is imputed (the SEC and
its two officers in this case) are denominated only as public respondents.
Rule 65 does recognize that the SEC and its officers should have been designated as public
respondents in the petition for certiorari filed with the Court of Appeals. Yet their involvement in
the instant petition is not as original party-litigants, but as the quasi-judicial agency and officers
exercising the adjudicative functions over the dispute between the two contending factions within
Meralco. From the onset, neither the SEC nor Martinez or Guevarra has been considered as a real
party-in-interest.

Under Section 20.1, the solicitation of proxies must be in accordance with rules and regulations
issued by the SEC, such as AIRR-SRC Rule 4. And by virtue of Section 53.1, the SEC has the
discretion "to make such investigations as it deems necessary to determine whether any person has
violated" any rule issued by it, such as AIRR-SRC Rule 4. The investigatory power of the SEC
established by Section 53.1 is central to its regulatory authority, most crucial to the public interest
especially as it may pertain to corporations with publicly traded shares. For that reason, we are not
keen on pursuing private respondents’ insistence that the GSIS complaint be viewed as rooted in
an intra-corporate controversy solely within the jurisdiction of the trial courts to decide. It is
possible that an intra-corporate controversy may animate a disgruntled shareholder to complain to
the SEC a corporation’s violations of SEC rules and regulations, but that motive alone should not
be sufficient to deprive the SEC of its investigatory and regulatory powers, especially so since such
powers are exercisable on a motu proprio basis.

At the same time, Meralco raises the substantial point that nothing in the SRC empowers the SEC
to annul or invalidate improper proxies issued in contravention of Section 20. It cites that the
penalties defined by the SEC itself for violation of Section 20 or AIRR-SRC Rule 20 are limited to
a reprimand/warning for the first offense, and pecuniary fines for succeeding offenses.43 Indeed, if
the SEC does not have the power to invalidate proxies solicited in violation of its promulgated
rules, serious questions may be raised whether it has the power to adjudicate claims of violation in
the first place, since the relief it may extend does not directly redress the cause of action of the
complainant seeking the exclusion of the proxies.
As promulgated then, the provision would confer on the SEC the power to adjudicate
controversies relating not only to proxy solicitation, but also to proxy validation. Should the
proposition hold true up to the present, the position of GSIS would have merit, especially since
Section 6 of Presidential Decree No. 902-A was not expressly repealed or abrogated by the
SRC.44

Yet a closer reading of the provision indicates that such power of the SEC then was incidental or
ancillary to the "exercise of such jurisdiction." Note that Section 6 is immediately preceded by
Section 5, which originally conferred on the SEC "original and exclusive jurisdiction to hear and
decide cases" involving "controversies in the election or appointments of directors, trustees, officers
or managers of such corporations, partnerships or associations." The cases referred to in Section 5
were transferred from the jurisdiction of the SEC to the regular courts with the passage of the SRC,
specifically Section 5.2. Thus, the SEC’s power to pass upon the validity of proxies in relation to
election controversies has effectively been withdrawn, tied as it is to its abrogated jurisdictional
powers.

Based on the foregoing, it is evident that the linchpin in deciding the question is whether or not the
cause of action of GSIS before the SEC is intimately tied to an election controversy, as defined
under Section 5(c) of Presidential Decree No. 902-A. To answer that, we need to properly
ascertain the scope of the power of trial courts to resolve controversies in corporate elections.
The conferment of original and exclusive jurisdiction on the regular courts over such controversies
in the election of corporate directors must be seen as intended to confine to one body the
adjudication of all related claims and controversy arising from the election of such directors. For
that reason, the aforequoted Section 2, Rule 6 of the Interim Rules broadly defines the term
"election contest" as encompassing all plausible incidents arising from the election of corporate
directors, including: (1) any controversy or dispute involving title or claim to any elective office in a
stock or nonstock corporation, (2) the validation of proxies, (3) the manner and validity of
elections and (4) the qualifications of candidates, including the proclamation of winners. If all
matters anteceding the holding of such election which affect its manner and conduct, such as the
proxy solicitation process, are deemed within the original and exclusive jurisdiction of the SEC,
then the prospect of overlapping and competing jurisdictions between that body and the regular
courts becomes frighteningly real. From the language of Section 5(c) of Presidential Decree No.
902-A, it is indubitable that controversies as to the qualification of voting shares, or the validity of
votes cast in favor of a candidate for election to the board of directors are properly cognizable and
adjudicable by the regular courts exercising original and exclusive jurisdiction over election cases.
Questions relating to the proper solicitation of proxies used in such election are indisputably
related to such issues, yet if the position of GSIS were to be upheld, they would be resolved by the
SEC and not the regular courts, even if they fall within "controversies in the election" of directors.

Unlike either Section 20.1 or Section 53.1, which merely alludes to the rule-making or
investigatory power of the SEC, Section 5 of Pres. Decree No. 902-A sets forth a definitive rule on
jurisdiction, expressly granting as it does "original and exclusive jurisdiction" first to the SEC, and
now to the regular courts. The fact that the jurisdiction of the regular courts under Section 5(c) is
confined to the voting on election of officers, and not on all matters which may be voted upon by
stockholders, elucidates that the power of the SEC to regulate proxies remains extant and could
very well be exercised when stockholders vote on matters other than the election of directors.
That the proxy challenge raised by GSIS relates to the election of the directors of Meralco is
undisputed. The controversy was engendered by the looming annual meeting, during which the
stockholders of Meralco were to elect the directors of the corporation.
The lack of jurisdiction of the SEC over the subject matter of GSIS’s petition necessarily
invalidates the CDO and SDO issued by that body. However, especially with respect to the CDO,
there is need for this Court to squarely rule on the question pertaining to its validity, if only for
jurisprudential value and for the guidance of the SEC.

To recount the facts surrounding the issuance of the CDO, GSIS filed its petition with the SEC on
26 May 2008. The CDO, six (6) pages in all with three (3) pages devoted to the tenability of
granting the injunctive relief, was issued on the very same day, 26 May 2008, without notice or
hearing. The CDO bore the signature of Commissioner Jesus Martinez, identified therein as
"Officer-in-Charge," and nobody else’s.

VIII. DISPOSITIVE PORTION

WHEREFORE, the petition in G.R. No. 184275 is EXPUNGED for lack of capacity of the
petitioner to bring forth the suit.

The petition in G.R. No. 183905 is DISMISSED for lack of merit except that the second and third
paragraphs of the fallo of the assailed decision dated 23 July 2008 of the Court of Appeals,
including subparagraphs (1), (2), 2(a), 2(b), 2(c) and 2(d) under the second paragraph, are hereby
DELETED.