SEC vs PROSPERITY.COM, INC.

FACTS:
This case involves the application of the Howey test in order to determine if a particular transaction is an
investment contract.
Prosperity.Com, Inc. (PCI) sold computer software and hosted websites without providing internet
service.
To make a profit, PCI devised a scheme in which, for the price of US$234.00 (subsequently increased to
US$294), a buyer could acquire from it an internet website of a 15-Mega Byte (MB) capacity.
At the same time, by referring to PCI his own down-line buyers, a first-time buyer could earn commissions,
interest in real estate in the Philippines and in the United States, and insurance coverage worth
P50,000.00.
To benefit from this scheme, a PCI buyer must enlist and sponsor at least two other buyers as his own
down-lines.
These second tier of buyers could in turn build up their own down-lines. For each pair of down-lines, the
buyer-sponsor received a US$92.00 commission.
But referrals in a day by the buyer-sponsor should not exceed 16 since the commissions due from excess
referrals inure to PCI, not to the buyer-sponsor.
Apparently, PCI patterned its scheme from that of Golconda Ventures, Inc. (GVI), which company
stopped operations after the Securities and Exchange Commission (SEC) issued a cease and desist order
(CDO) against it.
As it later on turned out, the same persons who ran the affairs of GVI directed PCIs actual operations.
In 2001, disgruntled elements of GVI filed a complaint with the SEC against PCI, alleging that the latter
had taken over GVIs operations.
After hearing, the SEC, through its Compliance and Enforcement unit, issued a CDO against PCI. The
SEC ruled that PCIs scheme constitutes an Investment contract and, following the Securities Regulations
Code, it should have first registered such contract or securities with the SEC.
The CA ruled that, following the Howey test, PCIs scheme did not constitute an investment contract that
needs registration pursuant to R.A. 8799, hence, this petition.
ISSUE:
WON PCIs scheme constitutes an investment contract that requires registration under R.A. 8799.

RULING:
NO.
The Securities Regulation Code treats investment contracts as securities that have to be registered with the SEC
before they can be distributed and sold.
An investment contract is a contract, transaction, or scheme where a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others.
The United States Supreme Court held in Securities and Exchange Commission v. W.J. Howey Co. that, for an
investment contract to exist, the following elements, referred to as the Howey test must concur:
(1) a contract, transaction, or scheme;
(2) an investment of money;
(3) investment is made in a common enterprise;
(4) expectation of profits; and
(5) profits arising primarily from the efforts of others.
Thus, to sustain the SEC position in this case, PCIs scheme or contract with its buyers must have all these
elements.
An example that comes to mind would be the long-term commercial papers that large companies, like San
Miguel Corporation (SMC), offer to the public for raising funds that it needs for expansion. When an investor
buys these papers or securities, he invests his money, together with others, in SMC with an expectation of profits
arising from the efforts of those who manage and operate that company. SMC has to register these commercial
papers with the SEC before offering them to investors.
Here, PCIs clients do not make such investments.
They buy a product of some value to them: an Internet website of a 15-MB capacity.
The client can use this website to enable people to have internet access to what he has to offer to them, say,
some skin cream.
The buyers of the website do not invest money in PCI that it could use for running some business that
would generate profits for the investors.
The price of US$234.00 is what the buyer pays for the use of the website, a tangible asset that PCI creates,
using its computer facilities and technical skills.
Actually, PCI appears to be engaged in network marketing, a scheme adopted by companies for getting
people to buy their products outside the usual retail system where products are bought from the stores

shelf.
Under this scheme, adopted by most health product distributors, the buyer can become a down-line seller.
The latter earns commissions from purchases made by new buyers whom he refers to the person who sold
the product to him. The network goes down the line where the orders to buy come.
The commissions, interest in real estate, and insurance coverage worth P50,000.00 are incentives to downline sellers to bring in other customers.
These can hardly be regarded as profits from investment of money under the Howey test.
The CA is right in ruling that the last requisite in the Howey test is lacking in the marketing scheme that
PCI has adopted. Evidently, it is PCI that expects profit from the network marketing of its products. PCI
is correct in saying that the US$234 it gets from its clients is merely a consideration for the sale of the
websites that it provides.

SECURITIES AND EXCHANGE COMMISSION vs. SANTOS

FACTS:
Sometime in 2007, yet another investment scam was exposed with the disappearance of its primary perpetrator,
Michael H.K. Liew (Liew), a selfstyled financial guru and Chairman of the Board of Directors of
Performance Investment Products Corporation (PIPCBVI), a foreign corporation registered in the
British Virgin Islands.
To do business in the Philippines, PIPCBVI 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 thirtyone (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.
The common recital in the 31 complaints is that:chanRoblesvirtualLawlibrary
x x x [D]ue to the inducements and solicitations of the PIPC corporations directors, officers and
employees/agents/brokers, the former were enticed to invest their hardearned money, the minimum amount
of which must be US$40,000.00, with PIPCBVI, with a promise of higher income potential of an interest
of 12 to 18 percentum (%) per annum at relatively lowrisk investment program.
The private complainants also claimed that they were made to believe that PIPC Corporation refers to
Performance Investment Product Corporation, the Philippine office or branch of PIPCBVI, which is an entity
engaged in foreign currency trading, and not Philippine International Planning Center Corporation.
Soon thereafter, the SEC, through its Compliance and Endorsement Division, filed a complaintaffidavit for
violation of Sections 8, 26 and 28 of the Securities Regulation Code before the Department of Justice.
Among the respondents in the complaintaffidavit were the principal officers of PIPC.
Private complainants, Lorenzo and Sy, in their affidavits annexed to SECs complaintaffidavit, respectively
narrated Santos participation in how they came to invest their monies in PIPC
Corporation.chanRoblesvirtualLawlibrary
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 Corporations employee, acted as PIPC Corporations agent
and made representations regarding its investment products and that of the supposed global corporation
PIPCBVI. Facilitating Lorenzos and Sys investment with PIPC Corporation, Santos represented to the
two that investing with PIPC Corporation, an affiliate of PIPCBVI, would be safe and fullproof.
In SECs complaintaffidavit, it charged the following:chanRoblesvirtualLawlibrary
x

This case stems from the act of fraud and chicanery masterfully orchestrated and executed by the officers and
agents of PIPC Corp. against their unsuspecting investors. The deception is founded on the basic fact that
neither PIPC Corp. nor its officers, employees and agents are registered brokers/dealers, making their
numerous transactions of buying and selling securities to the public a blatant violation of the provisions of
the SRC, specifically Sections 8 and 28 thereof.
Their illegal offer/sale of securities in the form of the Performance Management Partnership Agreement
to the public was perpetrated for about nine (9) years and would have continued were it not for the
alleged, and most probably, contrived and deliberate withdrawal of the entire funds of the corporation by
Michael H.K. Liew. The [scam] was masked by a supposed offshore foreign currency trading scheme
promising that the principal or capital infused will be guaranteed or fully protected. Coupled with this
[full] guarantee for the principal is the prospect of profits at an annual rate of 12 to 18%.
One of the other enticements provided by the subject company were free use of its business either for
personal or business purposes, free subscription of imported magazines, [trips] abroad, and insurance
coverage, just to name a few.
Fully convinced and enamored [by the] thought of earning higher rates of interest along with the promise
of a guaranteed [capital] the investors placed and entrusted their money to PIPC Corp., only to find out
later [that they] had been deceived and taken for a ride.
x

Sometime in 2006, an investigation was undertaken by the [Compliance and Enforcement Division of the SEC]
on the [account] of PIPC Corp. Per its Articles of Incorporation, PIPC Corp. was authorized to engage [in
the] dissemination of information on the current flow of foreign exchange (forex) as x x x precious metals
such as gold, silver, and oil, and items traded in stock and securities/commodities exchanges around the world.
To be more specific, PIPC Corp. [was] authorized to act only as a research arm of their foreign clients.
xxxx
23. A careful perusal of the complaintaffidavits revealed that for every completed investment transaction, a
company brochure, depending on the type of investment portfolio chosen, was provided to each investor
containing the following information on Performance BVI and its investment product called Performance
Managed Portfolio or PMP, the points of which are as follows:
a. 8 calendar week maturity period[,]

b. principal investment (minimum of USD 40,000) is protected[,]

c. investments maintained in strict confidentiality[,]
d. features: security, liquidity, short term commitment,
e. taxexemption status for offshore investments.
24. The investment flow is described as follows:
a. Investors funds will be placed into a fixed deposit account with a PIPC designated bank and shall not be
exposed for trading purposes. The PIPC designated bank shall then extend a margin line request for
trading based on the deposit;

b. PIPC shall open a separate account which will contain an amount of not more than 30% of its own funds
to serve as a profit and loss account;

c. Trading will commence with PIPC designated bank closely monitoring the performance to ensure that if
losses are incurred trading will cease immediately should the 20% stop limit be hit;

d. Profits will be credited into the Profit and Loss account with PIPC designated bank account. Losses will
be debited from the same account up to the controlled 20% limit;

e. Notice of withdrawals must be submitted two weeks prior to schedule of maturity otherwise investment
is automatically rolled over to the next batch;

f. At maturity, profits accumulated in the settlement account shall be distributed and deposited into each
investors dollar bank account within fourteen (14) banking days;

g. The funds of various investors are pooled, batched and deposited with PIPC designated bank account
acting as custodian bank, to form a massive asset base. This account is separate and distinct from the
Profit and Loss Account. The line from this pooled fund is then entrusted to full time professional and
experienced foreign traders who each specialize in the following currencies: Japanes Yen, Euro, British
Pound, Swiss Francs and Australian Dollar. Profits generated from trading these major currencies is
credited into the Profit and Loss Account, which at the end of the eight calendar week lockin period,
will be distributed among the investors. Investors are informed of their account status thru trading
statements issued by PIPC every time there is a trade made in their respective accounts.
x

Furthermore, it was relayed by the officers and agents to complainantsinvestors that PIPC Corp. is the
Philippine office of the Performance Group of Companies affiliates situated in different parts of the
world, particularly China, Indonesia, Hong Kong, Japan, Korea, Singapore, and the British Virgin Islands (BVI),
even reaching Switzerland. With such basic depiction of the legitimacy and stability of PIPC Corp.,
complainantsinvestors deduced that it was clothed with the authority to solicit, offer [and] sell securities.
As regards the officers and agents of [PIPC Corp.], they secured proper individual licenses with the SEC as
brokers/dealers
of
securities
to
enable
to
solicit,
offer
and/or sell
the
same.
Official SEC documents would show that while PIPC Corp. is indeed registered with the SEC, it having
engaged in the solicitation and sale of securities was contrary to the purpose for which it was established
which is only to act as a financial research. Corollarily, PIPC Corp.s officers, agents, and brokers were
not licensed to solicit, offer and sell securities to the public, a glaring violation of Sections 8 and 28 of the
SRC.
Santos defense consisted in: (1) denying participation in the conspiracy and fraud perpetrated against the
investorcomplainants of PIPC Corporation, specifically Sy and Lorenzo; (2) claiming that she was initially and
merely an employee of, and subsequently an independent information provider for, PIPC Corporation; (3) PIPC
Corporation being a separate entity from PIPCBVI of which Santos has never been a part of in any capacity; (4)
her not having received any money from Sy and Lorenzo, the two having, in actuality, directly invested their
money in PIPCBVI; (5) Santos having dealt only with Sy and the latter, in fact, deposited money directly into
PIPCBVIs account; and (6) on the whole, PIPCBVI as the other party in the investment contracts signed by
Sy and Lorenzo, thus the only corporation liable to Sy and Lorenzo and the other complainants.
On 18 April 2008, the DOJ issued a Resolution signed by a panel of three (3) prosecutors, with
recommendation for approval of the Assistant Chief State Prosecutor, and ultimately approved by Chief
State Prosecutor Jovencito R. Zuo, indicting: (a) Liew and GonzalezTuason for violation of Sections 8
and 26 of the Securities Regulation Code; and (b) herein respondent Santos, along with Cristina
GonzalezTuason and 12 others for violation of Section 28 of the Securities Regulation Code.
In sum, the DOJ panel 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 investoragents of PIPC Corporation and/or PIPCBVI.

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 PIPCBVI (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.
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 PIPCBVI. 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.
Thereafter, the Office of the Secretary of the DOJ issued a Resolution which, as previously adverted to,
excluded respondent Santos from prosecution for violation of Section 28 of the Securities Regulation
Code.
Expectedly, after the denial of the SECs motion for reconsideration before the Secretary of the DOJ, the SEC
filed a petition for certiorari before the Court of Appeals seeking to annul the Resolution of the DOJ.
The Court of Appeals dismissed the SECs petition for certiorari and affirmed the Resolution of the Secretary of
the DOJ:chanRoblesvirtualLawlibrary
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 [SECs] sweeping allegation that [Santos] enticed Sy and Lorenzo and solicited from
them investments for PIPCBVI 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 PIPCBVI. 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 hardearned money with PIPCBVI. In fact, the Information Dissemination
Agreement between PIPC Corporation, [Santos employer], and PIPCBVI clearly provides that [Santos]
was prohibited from soliciting investments in behalf of PIPCBVI 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 PIPCBVI was
made solely by Sy and Lorenzo themselves.
Hence, this appeal by certiorari.
ISSUE:
WON Santos can be prosecuted for Section 28 of the Securities Regulation Code
RULING:
YES.
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 panels 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 PIPCBVI
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 PIPCBVI 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
PIPCBVI,
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 PIPCBVI while she was not licensed as a
broker or dealer, or registered as a salesman, or an associated person of a broker or dealer.
We sustain the DOJ panels findings which were not overruled by the Secretary of the DOJ and the
appellate court, that PIPC Corporation and/or PIPCBVI 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.
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 PIPCBVI, 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 PIPCBVI and was never an agent or salesman who actually solicited the sale of or sold
unregistered securities issued by PIPC Corporation and/or PIPCBVI.
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 PIPCBVI to certain individuals, specifically
private complainants Sy and Lorenzo by providing information on the investment products of PIPC Corporation
and/or PIPCBVI with the end in view of PIPC Corporation closing a sale.
While Santos was not a signatory to the contracts on Sys or Lorenzos 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 PIPCBVI 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 PIPCBVI, acting as an ostensible agent of the latter on the
viability of PIPC Corporation as an investment company. At each point of Sys and Lorenzos 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
PIPCBVI. 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 PIPCBVI. Such presentation would have foreclosed all questions on her status
within PIPC Corporation and/or PIPCBVI at the lowest rung of the ladder who only provided
information and who did not use her discretion in any capacity.
We cannot overemphasize that the very information provided by Santos locked the deal on unregistered
securities with Sy and Lorenzo.
What is palpable from the foregoing is that Sy and Lorenzo did not go directly to Liew or any of PIPC
Corporations and/or PIPCBVIs 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 PIPCBVI and acted as the gobetween on behalf of PIPC Corporation and/or PIPCBVI.
The DOJs 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. Liews absconding with the monies of 31
individuals and that PIPC Corporation and/or PIPCBVI 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.
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.
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, we clarify that we are only dealing herein with the preliminary investigation aspect of this case. We do
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.

SEC vs INTERPORT
FACTS:
This is a Petition for Review on Certiorari assailing the Decision, rendered by the Court of Appeals in enjoining
petitioner Securities and Exchange Commission (SEC) from taking cognizance of or initiating any action against
the respondent corporation Interport Resources Corporation (IRC) and members of its board of directors, with
respect to Sections 8, 30 and 36 of the Revised Securities Act.
The antecedent facts of the present case are as follows.
On 6 August 1994, the Board of Directors of IRC approved a Memorandum of Agreement with Ganda
Holdings Berhad (GHB).
Under the Memorandum of Agreement, IRC acquired 100% or the entire capital stock of Ganda Energy
Holdings, Inc. (GEHI), which would own and operate a 102 megawatt (MW) gas turbine powergenerating barge.
The agreement also stipulates that GEHI would assume a five-year power purchase contract with
National Power Corporation.
In exchange, IRC will issue to GHB 55% of the expanded capital stock of IRC amounting to 40.88
billion shares which had a total par value of P488.44 million.
On the side, IRC would acquire 67% of the entire capital stock of Philippine Racing Club, Inc. (PRCI).
PRCI owns 25.724 hectares of real estate property in Makati. Under the Agreement, GHB, a member of
the Westmont Group of Companies in Malaysia, shall extend or arrange a loan required to pay for the
proposed acquisition by IRC of PRCI.
IRC alleged that on 8 August 1994, a press release announcing the approval of the agreement was sent
through facsimile transmission to the Philippine Stock Exchange and the SEC, but that the facsimile
machine of the SEC could not receive it.
Upon the advice of the SEC, the IRC sent the press release on the morning of 9 August 1994.
The SEC averred that it received reports that IRC failed to make timely public disclosures of its
negotiations with GHB and that some of its directors, respondents herein, heavily traded IRC shares
utilizing this material insider information.
On 16 August 1994, the SEC Chairman issued a directive requiring IRC to submit to the SEC a copy of its
aforesaid Memorandum of Agreement with GHB. The SEC Chairman further directed all principal officers of
IRC to appear at a hearing before the Brokers and Exchanges Department (BED) of the SEC to explain IRCs
failure to immediately disclose the information as required by the Rules on Disclosure of Material Facts.

In compliance with the SEC Chairmans directive, the IRC sent a letter dated 16 August 1994 to the SEC,
attaching thereto copies of the Memorandum of Agreement. Its directors, Manuel Recto, Rene Villarica and
Pelagio Ricalde, also appeared before the SEC on 22 August 1994 to explain IRCs alleged failure to
immediately disclose material information as required under the Rules on Disclosure of Material Facts.
On 19 September 1994, the SEC Chairman issued an Order finding that IRC violated the Rules on
Disclosure of Material Facts, in connection with the Old Securities Act of 1936, when it failed to make
timely disclosure of its negotiations with GHB. In addition, the SEC pronounced that some of the
officers and directors of IRC entered into transactions involving IRC shares in violation of Section 30, in
relation to Section 36, of the Revised Securities Act.
The respondents filed a petition before the Court of Appeals questioning the Omnibus Orders.
It determined that there were no implementing rules and regulations regarding disclosure, insider
trading, or any of the provisions of the Revised Securities Acts which the respondents allegedly violated.
The Court of Appeals likewise noted that it found no statutory authority for the SEC to initiate and file
any suit for civil liability under Sections 8, 30 and 36 of the Revised Securities Act.
ISSUE:
WON IRC violated the Revised Securities Code
RULING:
I. Sections 8, 30 and 36 of the Revised Securities Act do not require
the enactment of implementing rules to make them binding and
effective.
This Court does not discern any vagueness or ambiguity in Sections 30 and 36 of the Revised Securities
Act, such that the acts proscribed and/or required would not be understood by a person of ordinary
intelligence.
Section 30 of the Revised Securities Act
Section 30 of the Revised Securities Act reads:
Sec. 30. Insiders duty to disclose when trading. (a) It shall be unlawful for an insider to sell or buy a
security of the issuer, if he knows a fact of special significance with respect to the issuer or the security
that is not generally available, unless (1) the insider proves that the fact is generally available or (2) if the
other party to the transaction (or his agent) is identified, (a) the insider proves that the other party knows
it, or (b) that other party in fact knows it from the insider or otherwise.
(b) Insider means (1) the issuer, (2) a director or officer of, or a person controlling, controlled by, or under
common control with, the issuer, (3) a person whose relationship or former relationship to the issuer gives or
gave him access to a fact of special significance about the issuer or the security that is not generally available, or
(4) a person who learns such a fact from any of the foregoing insiders as defined in this subsection, with

knowledge that the person from whom he learns the fact is such an insider.
(c) A fact is of special significance if (a) in addition to being material it would be likely, on being made
generally available, to affect the market price of a security to a significant extent, or (b) a reasonable
person would consider it especially important under the circumstances in determining his course of action
in the light of such factors as the degree of its specificity, the extent of its difference from information
generally available previously, and its nature and reliability.
(d) This section shall apply to an insider as defined in subsection (b) (3) hereof only to the extent that he knows
of a fact of special significance by virtue of his being an insider.
The provision explains in simple terms that the insider's misuse of nonpublic and undisclosed information
is the gravamen of illegal conduct.
The intent of the law is the protection of investors against fraud, committed when an insider, using secret
information, takes advantage of an uninformed investor.
Insiders are obligated to disclose material information to the other party or abstain from trading the
shares of his corporation.
This duty to disclose or abstain is based on two factors: first, the existence of a relationship giving access,
directly or indirectly, to information intended to be available only for a corporate purpose and not for the
personal benefit of anyone; and second, the inherent unfairness involved when a party takes advantage of
such information knowing it is unavailable to those with whom he is dealing.
In the United States (U.S.), the obligation to disclose or abstain has been traditionally imposed on corporate
insiders, particularly officers, directors, or controlling stockholders, but that definition has since been expanded.
The term insiders now includes persons whose relationship or former relationship to the issuer gives or gave
them access to a fact of special significance about the issuer or the security that is not generally available, and
one who learns such a fact from an insider knowing that the person from whom he learns the fact is such an
insider.
Insiders have the duty to disclose material facts which are known to them by virtue of their position but
which are not known to persons with whom they deal and which, if known, would affect their investment
judgment.
In some cases, however, there may be valid corporate reasons for the nondisclosure of material
information. Where such reasons exist, an issuers decision not to make any public disclosures is not
ordinarily considered as a violation of insider trading. At the same time, the undisclosed information
should not be improperly used for non-corporate purposes, particularly to disadvantage other persons
with whom an insider might transact, and therefore the insider must abstain from entering into
transactions involving such securities.
Sections 30 and 36 of the Revised Securities Act were enacted to promote full disclosure in the securities

market and prevent unscrupulous individuals, who by their positions obtain non-public information, from
taking advantage of an uninformed public.
No individual would invest in a market which can be manipulated by a limited number of corporate
insiders. Such reaction would stifle, if not stunt, the growth of the securities market. To avert the
occurrence of such an event, Section 30 of the Revised Securities Act prevented the unfair use of nonpublic information in securities transactions, while Section 36 allowed the SEC to monitor the
transactions entered into by corporate officers and directors as regards the securities of their companies.
Petitioners contend that the words as far as practicable, declining and stable should have been defined in R.A.
No. 8180 as they do not set determinate and determinable standards. This stubborn submission deserves scant
consideration. The dictionary meanings of these words are well settled and cannot confuse men of reasonable
intelligence. x x x. The fear of petitioners that these words will result in the exercise of executive discretion that
will run riot is thus groundless. To be sure, the Court has sustained the validity of similar, if not more general
standards in other cases.
Among the words or phrases that this Court upheld as valid standards were simplicity and dignity, public
interest, and interests of law and order.
The Revised Securities Act was approved on 23 February 1982. The fact that the Full Disclosure Rules were
promulgated by the SEC only on 24 July 1996 does not render ineffective in the meantime Section 36 of the
Revised Securities Act. It is already unequivocal that the Revised Securities Act requires full disclosure and the
Full Disclosure Rules were issued to make the enforcement of the law more consistent, efficient and effective. It
is equally reasonable to state that the disclosure forms later provided by the SEC, do not, in any way imply that
no compliance was required before the forms were provided. The effectivity of a statute which imposes
reportorial requirements cannot be suspended by the issuance of specified forms, especially where compliance
therewith may be made even without such forms. The forms merely made more efficient the processing of
requirements already identified by the statute.
For the same reason, the Court of Appeals made an evident mistake when it ruled that no civil, criminal or
administrative actions can possibly be had against the respondents in connection with Sections 8, 30 and
36 of the Revised Securities Act due to the absence of implementing rules. These provisions are sufficiently
clear and complete by themselves. Their requirements are specifically set out, and the acts which are
enjoined are determinable. In particular, Section 8 of the Revised Securities Act is a straightforward
enumeration of the procedure for the registration of securities and the particular matters which need to be
reported in the registration statement thereof. The Decision, dated 20 August 1998, provides no valid
reason to exempt the respondent IRC from such requirements. The lack of implementing rules cannot
suspend the effectivity of these provisions. Thus, this Court cannot find any cogent reason to prevent the
SEC from exercising its authority to investigate respondents for violation of Section 8 of the Revised
Securities Act.