Prof. Lim - PROBLEM EXERCISES On RSC

PROBLEM EXERCISES on Revised Securities Code
based on decided cases of the Supreme Court:
Prepared by: Dr. Jeannie P. Lim
1. Laws being administered by the SEC:
1. Securities Regulation Code;

2. PD No. 902-A, as amended by PD 1653, 1758, 1799 and the Code;
3. Corporation Code (BP Blg. 68);
4. The New Corporation Code (RA 11232)
5. Financing Company Act of 1998 (RA 8556);
6. Investment Company Act (RA 2692);
7. Investment Houses Law (PD 129, amended by RA 8366);
8. Foreign Investment Act of 1991 (RA 7042)
9. Executive Order No. 708.
2. Why is the Securities Regulation Code called the “Truth in Securities Law”?
Because the Code requires the issuer to make full and fait disclosure of information about securities
being sold or offered to be sold within the Philippines, and penalizes manipulative and fraudulent acts,
devices and schemed.
3. What is the regulatory jurisdiction of the SEC:
A fraudulent act may give rise to liability for violation of the rules and regulations of the SEC itself,
as well as criminal liability for violation of the Revised Penal Code cognizable by the regular courts. Both
charges may be filed and proceed independently and simultaneously with each other. [Mobilia Products,
Inc. vs. Umezawa, 452 SCRA 736 (2005)]
The power of the SEC to revoke registration of securities and permit to sell them to the public is
NOT an exercise of its quasi-judicial power, but of its regulatory power.
4. What is the extent of the regulatory power of the SEC in relation to securities? (SEC vs. Subic
Bay Golf & Country Club, Inc., 752 SCRA 481, 2015)
The regulatory power of the SEC in relation to securities includes the approval and rejection, and
suspension or revocation of applications for registration of securities for, among others, violation of the
law, fraud and misrepresentations.
• SEC has the regulatory power to revoke the corporate franchise from which a
corporation owes its legal existence.
An issue involving determination whether or not parties (investors and stock broker) fulfilled their
respective obligation is within the jurisdiction of the SEC because it has authority to determine willful
violation of the SRC and it can impose appropriate sanctions to violators. [Abacus Securities vs. Ampil
483 SCRA 315 (2006)]
5. Doctrine of Primary Jurisdiction of the SEC:
All complaints for any violation of the SRC and its implementing rules and regulations should be
filed with the SEC. Where the complaint is criminal in nature, the SEC shall indorse the complaint to the
DOJ for preliminary investigation and prosecution. If there is failure to comply with this procedural
requirement, the dismissal of the DOJ of a criminal case filed before it is valid. [Baviera vs. Standard
Chartered Bank, et. al., 515 SCRA 170 (2007)]
6. May the SEC hear cases involving issues cognizable by the RTC special commercial court?
Roman, Jr. vs. SEC, 791 SCRA 638, 2016)
Yes, provided that the SEC could only act upon those which are merely administrative and
regulatory in character. As a regulator, it has broad discretion to act on matters that relate to its express
power of supervision over all corporations, partnerships or associations who are the grantees of primary
franchise and/or license or permit issued by the government.
7. Does the SEC have jurisdiction over corporations created by “special laws” which are not
registered with it?
The primarily jurisdiction of the SEC which is that of supervision and control of corporations,
emanates from its authority to enforce and implement the Corporation Code. The Commission has no
jurisdiction over corporations created by “special laws” which are not registered with it. If a corporation is
operating under a special law or charter, it need not register with the Commission in order to acquire a
legal personality since the grantee of such special law or charter draws its life not from compliance with
a general law (Corporation Code) but from the law creating it. Sec. 4 of the Corporation Code expressly
provides that corporations created by special laws or charters shall be governed primarily by the
provisions thereof and only supplemented by the Corporation Code.
8. The jurisdiction of the SEC DOES NOT extend to the liquidation of a corporation – while it has
jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of a corporation
belongs to the RTC (Special Commercial Court) because liquidation requires the settlement of claims
for and against the corporation, which clearly falls under the jurisdiction of the regular court, It is in a
better position to convene all the creditors of the corporation to ascertain their claims and determine
their preferences. (BPI vs. Eduardo Hong, February 15, 2012)
9. Can the SEC prevent the use of corporate name? (GSIS Family Bank-Thrift Bank vs. BPI
Family Bank, 771 SCRA 284, 2015)
Yes, it is the duty of SEC to prevent confusion in the use of corporate names not only for the
protection of the corporation involved, but more so for the protection of the public.
10. Has the effectivity of the Securities and Regulation Code affected the jurisdiction of the
SEC to take cognizance of petitions for suspension of payments or rehabilitations, as the
case may be?
No. Sec. 5.2 of the Securities Regulation Code merely transferred to the courts of general
jurisdiction or the appropriate RTC the cases enumerated under Sec. 5 of PD 902-A. The latter
provision covers only intra-corporate controversies and such other matters enumerated thereunder.
Said Sec. 5 did not include the SEC’s regulatory functions over corporations.
11. What is the SEC’s (Now RTC) jurisdiction with respect to termination of corporate officers?
The following are considered corporate position and it is the SEC, (NOW RTC) not the NLRC, that
has jurisdiction on any dispute arising therefrom, same being intra-corporate in nature.
 A position created by the Board of Directors

 If the position is mentioned in the by-laws of the corporation;
 Where the power to appoint is vested in the Board of Directors, and
 Where the election or non-election is determined by the Board of Directors.
12. If an action is filed by a stockholder against the Corporation claiming damages, is the case
still within the jurisdiction of the SEC?
Yes. While it may be said that the same corporate acts also gives rise to civil liability for damages, it
does not necessarily follow that the case is taken out of the jurisdiction of the SEC as it may award
damages which can be considered consequential in the exercise of its adjudicative powers. (Garcia vs.
CA, et. al., June 10, 1997)
13. Are transactions involving commodity futures within the jurisdiction of the SEC?
Yes, the SEC in the exercise of its supervisory powers over the conduct of the business of commodity
futures has jurisdiction over cases arising therefrom.
14. What are the effects of registration/non-registration of a religious group with the SEC?
Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 2

Unit 911-C P. Paredes Street, Sampaloc, Manila (Beside UST near Morayta Street)
* www.villasislawcenter.com / www.facebook.com/villasislawcenter / www.remediallawdoctrines.blogspot.com /
villasislawcenter@gmail.com / mvplawoffice@gmail.com
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
The Corporation Code does not require any religious group to be registered as a corporation, but it
may do so in order to acquire a “legal personality” for the administration of its temporalities or properties. It
is only through incorporation or registration under the Corporation Code that it can acquire a juridical
personality to enable it to exercise corporate powers, rights, privileges expressly granted under the law to
registered corporations.
15. Is the approval of the SEC necessary in case of increase of paid-up capital thru payment of
unpaid subscription?
In case of increase of paid-up capital thru payment of unpaid subscription, prior approval of the SEC
is not necessary, provided that the additional payment consists of CASH. Where the payment is in the
form of property other than cash, approval of the Commission is required pursuant to the provision of Sec.
62 of the NCC.
Where the increase in the paid-up capital is by way of issuance of unissued shares of the authorized
capital stock, the corporation whose shares of stocks are not registered under the Revised Securities Act
must secure from the Commission prior exemption from the registration requirements under said Act.
Where the increase of paid-up capital is in connection with an increase of authorized capital stock, the
corporation must comply with the requirements laid down under Sec. 38 of the NCC of the Philippines.
(SEC Opinion, March 18, 1993)
16. Can the SEC be allowed to collect documentary stamp taxes based on the value of the
minimum initial subscribed capital stock upon the filing of an application for incorporation
of a new company?
It is not legally feasible for the SEC to collect DST inasmuch as Sec. 200(C) of RA 8424 explicitly
prescribes where the documentary stamp tax shall be filed. Can the SEC require proposed corporation
to secure proof of payment thereof prior to incorporation? The SEC cannot require proposed
corporation to present proof of payment thereof prior to incorporation. Sec. 19 of the NCC expressly
provides that a private corporation commences to have a corporate existence and juridical personality
only from the date the SEC issues a certificate of incorporation/registration. Thus, prior to incorporation, it
would be legally impossible for a proposed corporation to file the required DST returns or secure proof of
payment thereof as it still has no personality to file the same. Perhaps what the SEC can do is to furnish
regularly the BIR a list of newly registered corporations. (SEC Opinion, August 3, 1998)
17. Is the SEC authorized to grant tax exemption privilege to donors for their donations to non-
stock/non-profit voluntarily organized and committed to supporting, developing and
strengthening health population and development programs?
No. The SEC is not authorized to grant tax exemptions to donors for their donations to non-stock/non-
profit voluntary organizations. This power is vested with the Congress and implemented by the BIR.
18. In cases of unregistered professionals partnerships (unrecorded with the SEC and with no
formal articles of partnership), where one of the partners is seeking dissolution of the
same, is it the SEC or the RTC which has jurisdiction to hear the petition?
Even if not registered with the SEC, a partnership having a capital of Php 3,000.00 or more may be
considered a valid one (Sec.3 and 5 of PD 902-A). A partnership agreement, even in the absence of
formal Articles of Partnerships, is still considered a “contract” and any transaction undertaken or property
acquired pursuant to the agreement are covered by the law on contracts and/or co-ownership under the
Civil Code. Consequently, settlement of any controversy relating to unregistered partnerships is within the
jurisdiction of the regular courts.
19. Can the SEC order the Association to suspend the forthcoming election of the Board of
Directions in order to promote fairness in the protection and enhancement of the interest of
all the members of the Association?
The general rule is that when the by-laws provide for the time of holding an annual meeting for the
election of directors, the same should be held of the regular appointed time, unless the meeting cannot be
held for some valid and meritorious reasons. The above-mentioned ground should not justify a suspension
or postponement of the annual meeting of the Association.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
It has to be emphasized that the by-laws are the private laws of the corporation. They are in effect
written into the charter and in this sense, they become part of the fundamental law of the corporation, and
the corporation, its directors, officers and members are bound by and must comply with them.
20. Can the SEC order the dissolution of the debtor corporation?
If it appears that the continuance in business of the debtor is no longer feasible of profitable, or no
longer works to the best interests of the stockholders, party-litigants, creditors, or the general public, the
SEC may order the dissolution and liquidation of the remaining assets of the debtor and appoint a
liquidator for the purpose.
Upon issuance of the dissolution order. All the business operations of the debtor should cease and
payments on all its obligations shall be withheld subject to certain exceptions.
21. Is the SEC empowered to order dissolution of a corporation?
Yes. The SEC has jurisdiction to order dissolution of a corporation. While jurisdiction over the
liquidation or settlement of claims of corporation belongs to the regular court (RTC)
22. When is a SEC license issued to foreign corporation?
A SEC license is issued upon compliance with the following requirements -
a. Proof of compliance with Principle of Reciprocity

b. BOI certificate
c. applicant for license gives required information such as: Articles of incorporation, by-laws, names
and addresses of resident agents and principal place of business in the Philippines)
d. Proof of solvency
e. Deposit acceptable securities to protect future creditor.
23. Can the SEC pass upon the validity of proxies in relation to election controversies in a
corporation?
No. The power belongs to the RTC (Special Commercial Court) but, 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. (GSIS vs. CA, April 16, 2009)
24. Does the Sandiganbayan have jurisdiction over election contest between government
sequestered corporations? (Abad vs. Phil. Satellite Corporation, G. R. No. 200620, March 18,
2015)
Election contests in corporations are intra-corporate dispute within the jurisdiction of RTC Special
Commercial Courts. The Sandiganbayan has no jurisdiction over such controversies even if the
corporations involved are sequestered corporations. Sec. 2 of E.O. No. 14 expressly mandates PCGG to
file all cases, whether civil or criminal with the Sandiganbayan which shall have exclusive and original
jurisdiction involving a sequestered-related incident and not election cases of a corporation.
25. What is the SEC policy regarding payment in the increase of capital stock by way of stock
dividend declaration?
While under Sec. 38 of the Corporation Code, it is not a requirement that the minimum subscription to
the increase of capital stock shall be fully paid, in cases where the subscription to the increase in capital
stock is “entirely paid” by way of stock dividend, the SEC requires such subscription to be fully paid. This
is because a dividend is profit of the investment of the stockholder, not an obligation. Hence, the
corporation cannot use its unrestricted retained earnings as partial payment for the stocks to be declared
as dividend and obliged the stockholders to pay the balance thereof without their consent. There is no law
that authorizes a private entity to impose an obligation on another without their consent. However, the
corporation may opt to have two sets of subscriptions: first by way of stock dividend declaration to the
extent fully paid by the available unrestricted earnings; and second, by separate voluntary subscription
contracts for the balance of the minimum subscription required under the law.
26. Is there a need to file with the SEC an amendment of the “AI” to reflect an increase in the
contributed capital of “non-stock/non-profit corporations?
In the increase of the contributed capital of a “non-stock/non-profit”, it is not required that an

amendment of the “AI”. Neither does it require prior approval by the commission. Sec. 38 of the
Corporation Code, which provides for the requirements for an increase in the authorized capital stock, is
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
applicable only to stock corporations. It is sufficient for purposes of updating the SEC records on the
matter, that it is reflected in the financial statements, an annual reportorial requirement required under
existing SEC rules and regulations to be submitted to the Commission.
27. Union Bank questioned the authority of the SEC to require compliance with its reportorial
requirements: (Union Bank vs. SEC, June 6, 2001)
Although the shares of stock of banking institutions are exempt from the registration requirements
under Sec. 5(a)(3) of the RSA, a bank whose shares are listed in the stock market is covered by RSA and
implementing Rules on the reportorial requirements of listed companies. Sec. 5(a)(3) exempts from
registration the securities issued by banking or financial institutions, but nowhere does it state or even
imply that a bank as a listed corporation is exempt from complying with the reports required by RSA’s
Implementing Rules and Regulations (IRR).
28. May SEC order the reversal of the decision of PSE Board denying listing of shares of
applicant issuer on the ground that there were questions of proper ownership over bulk of
real estate assets of said applicant? [PSE vs. CA, 88 SCAD 589 (1997)]
SEC has no power to overturn the decision of PSE Board to deny listing of the securities. It is true that
SEC is the agency with primary say as to whether or not securities including shares of stock of a
corporation may be traded or not in the stock exchange, in line with SEC’s mission to ensure proper
compliance with the laws, such as RSA and to regulate sale and disposition of securities in the country.
Nevertheless, questions of policy and of management are left to the honest decision of officers and
directors of a corporation, and courts are without authority to substitute their judgment for judgment of the
BOD. The Board is the business manager of the corporation, and so long as it acts in good faith, its orders
are not reviewable by the courts.
In reaching the decision to deny the application of listing, PSE considered important facts, which, in
the general scheme, bring to serious question the qualification of applicant to sell its shares to the public
through the stock exchange.
Also, as the primary market for securities, the PSE has established its name and goodwill, and it has
the right to protect such goodwill by maintaining a reasonable standard of propriety in the entities who
choose to transact through its facilities. It was reasonable for PSE, therefore, to exercise its judgment in
the manner it deems appropriate for its business identity, as long as no rights are trampled upon, and
public welfare is safeguarded.
29. In the case of Baviera vs. Paglinawan, 515 SCRA – The Supreme Court ruled that complaints for
violation of the Securities Regulation Code are specialized disputes which are not intra-corporate. Hence,
it must first be referred to an administrative agency or specialized body with knowledge and expertise
(SEC), following the Doctrine of Primary Jurisdiction. The SRC (RA 8799) is a special law that requires the
registration of securities/agents/brokers dealing in securities. The Bank violated SRC rules by engaging in
the sale of securities without registration of the foreign securities and stock brokers - a criminal offense
(syndicated estafa). Where the complaint is criminal in nature, SEC shall indorse the complaint to the DOJ
for preliminary investigation.
30. Who authorizes the “cease and desist order of the SEC?
The collegial body of the SEC composed of a chairperson and four (4) Commissioners. In order to
constitute quorum to conduct business, the presence of three (3) Commissioners is required. This power
is non-delegable. Thus, the “CDO” issued by a SEC Commissioner alone is void.
31. Under what conditions may the SEC issue a cease and desists order in dealing of
securities?
It must first conduct proper investigation or verification, and second, there must be a finding that the
act or practice, unless restrained, will operate as (a) fraud on investors or is otherwise likely (b) to cause
grave or irreparable injury, or (c) prejudice to the investing public.
32. Three (3) instances when SEC may issue cease and desist order (CDO):
a) To prevent fraud or injury to the investing public. (Sec. 5(i), SRC.)
b) In case of finding of “any person has engaged or is about to engage in any act or practice
constituting a violation of any provision of the SRC, any rule, regulation or order thereunder, or any

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
rule of the Exchange, registered securities association, clearing agency or other self-regulatory
organization. Sec. 53.3, SRC. (Max. duration 10 days, it may be issued ex-parte)
c) In case of a finding of an act or practice, which unless restrained, will operate as a fraud on
investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing
public. Sec. 64, SRC. It may be issued ex-parte.
NOTE: CDO cannot be issued by only one of the SEC commissioners but it must be issued by a
collegial body composed of a Chairperson and 4 Commissioners of the SEC. [GSIS vs. CA, 585
SCRA 679 (2009)]
33. When is a SEC license issued to a foreign corporation?
A SEC license is issued upon compliance with the following requirements -
a) Proof of compliance with Principle of Reciprocity

b) BOI certificate
c) applicant for license gives required information such as: Articles of incorporation, by-laws, names
and addresses of resident agents and principal place of business in the Philippines.
d) Proof of solvency
e) Deposit acceptable securities to protect future creditor.
34. Define “Securities” – Are shares, participation or interests in a corporation or in a commercial enterprise
or profit-making venture evidenced by a certificate, contract, instrument, whether written or electronic in
character.
• All securities for sale must be registered with the SEC.

• SEC prohibits the sale or distribution of unregistered securities.
• The issuance of post-dated checks instead of stocks or traditional securities to evidence the
investments of its patrons as a scheme to avoid registration of securities is illegal and void.
[Gabioza vs. CA, 565 SCRA 38 (2008)]
NOTE: SRC exempts banks from the registration of their securities. But, they are not exempt from the
filing of reports required under the implementing rules of the RS Code if they are publicly listed. [Union
Bank of the Phils. vs. SEC, 358 SCRA 479 (2001)]
35. X has a certificate of membership in an exclusive club that gives all members therein the
right to use club facilities. The certificate is transferable but it does not give X any right to
the income or assets of the club. Is the certificate a security?
Yes, the certificate is a security. Proprietary and non-proprietary membership certificates are
securities and such cannot be sold without registration with the SEC.
36. Requisites on registration of securities under the Revised Securities Code: (Sec. 8)
a) The issuer must submit a registration statement with the SEC for approval of the Commission,
and
b) It must provide purchasers before the sale with information on the securities in such form and
substance as SEC may prescribe.
NOTE:
(1) Exempt securities (Sec. 9) and exempt transactions (Sec. 10) need not register with the
SEC.
(2) Sale, offer or distribution of securities within the Philippines have to be registered WON
the offeror is a foreigner or a citizen.
37. What are the legal consequences of failure to register securities with the SEC before they
are offered for sale or distribution to the public?
(a) The seller and/or issuer shall be criminally liable. Upon conviction a fine of Php 50K to 5M is
imposable and/or imprisonment of 7 to 21 years. (b) the purchaser can recover from the seller the
amount paid with interest thereon, less the amount of any income received on the purchased securities,
or (c) damages if the purchaser no longer owns the securities and (d) the SEC may issue a cease and
desist order.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
38. WOW Corporation sold securities to 21 non-qualified buyers during a 15-month period
without registering the securities the SEC. Did WOW violate the SRC? Explain.
Yes. As provided by law, securities shall not be sold or offered to be sold to the public within the
Philippines unless the securities are registered with and approved by the SEC. Public means 20 or more
investors. The fact that the securities were sold during a 15 month period is immaterial. However, the sale
of securities to less than 20 investors if done during a 12 month period is an exempt transaction in the
SRC.
39. X Corporation is a trading company engaged in the selling of electronic gadgets like
cellphone, laptops, and other accessories. In order to expand its business operation and
activities it attracted investors to invest at least Php 100K with it which was covered by a
“promissory note”. The offer includes a promise of at least 50% return of investment within
a period of one month. Due to the very attractive offer, many individuals invested with X
but after the first profit was released, it stops and no one of the investors received anything
thereafter. Has X violated any law under this scheme?
Yes, X violated the provisions of the SRC that prohibits sale of securities to the public, like promissory
notes without registration statement filed with and approved by the SEC.
40. What are the exempt securities?
a) Any security issued or guaranteed by the Government of the Philippine, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as an
instrumentality of the government.
b) Any security issued or guaranteed by the government of any country with which the Philippines
maintains diplomatic relations, or by any state, province or political subdivision thereof on the
basis of reciprocity; Provided, that the Commission may require compliance with the form and
content for disclosures the Commission may prescribe.
c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper

adjudicatory body.
d) Any security or its derivatives the sale or transfer of which, by law, is under the supervision and
regulation of the Office of the Insurance Commission, HLURB or the BIR.
e) Any security issued by a bank except its own shares of socks.
41. Why are securities issued by the Philippine government exempt from registration prior to
their sale or offering to the public?
The rationale for the exemption is that the public is amply protected even without the registration of
the securities to be issued by the government since the government is presumed to be always solvent.
42. Has the SEC the power and authority to suspend or revoke the registration of securities?
(SEC vs. Universal Rightfield Property Holdings, Inc., 763 SCRA 197, 2015)
Yes, the SEC has the power to suspend or revoke registration of securities in case the corporation
does not comply with the requirements of the SEC especially in the requirement of submission of the
mandatory annual reportorial papers and documents of the corporation involving the sale of its securities.
43. Define “Uncertificated Shares” – Those securities evidenced by electronic or similar records, instead
of being evidenced by certificates or documents. A corporation whose securities are registered pursuant to
the Code or listed with the Securities Exchanges may:
a) If so resolved by its BOD and agreed by a S/S, investor or securities intermediary, issue shares to,
or record the transfer of some or all of its shares into the name of said S/S, investor, securities
intermediary in the form of uncertificated shares,
b) The use of uncertificated shares or securities (evidence by electronic in these circumstances shall
be without prejudice to the rights of the securities intermediary subsequently to require the
corporation to issue a certificate in respect of any shares recorded in its name; and
c) If so provided in the “AI” and by-laws, issue of all the shares of a particular class in the form of
uncertificated securities and subject to a condition that investors may not required the corporation to
issue a certificate in respect of any shares recorded in their name.
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
44. When may a corporation issue uncertified security?
(a) If so resolved by the board of directors of the issuer, and agreed to by the shareholders, investors or
securities intermediary, in accordance with the rules to be promulgated by the SEC, but subject to
the right of the securities intermediary to require the corporation to issue a certificate in respect of
any shares recorded in its name.
(b) If so provided in the articles of incorporation and by-laws of the corporation, with respect to all of the
shares of a particular class, and subject to the condition that the shareholder may not require the
corporation to issue a certificate in respect of any shares recorded in their name.
45. May uncertified securities be pledge?
Yes. It may be executed over the uncertified security by the making by a clearing agency of a book-
entry that such shares are transferred to a specially designated pledge account in favor of the creditor.
This will have the effect of a delivery of a security in bearer form or and indorsement in blank of the
security. Such manner of executing a pledge over the uncertified security is considered a proper manner
of constituting a pledge of the security and the making of the book-entry shall be considered a delivery of
the instrument evidencing the right as required by Art. 2093 and 2095 of the Civil Code. (Sec. 45, SRC)
46. Are banks whose shares are traded publicly exempt from the disclosure requirements of
the “RSA” as they are already under the supervision of the Bangko Sentral ng Pilipinas
(BSP)
No. the mere fact that in regard to its banking functions, petitioner is already subject to the supervision
of the BSP does not exempt the former from reasonable disclosure regulations issued by the SEC,
imposing such regulations is a function within the jurisdiction of the SEC since the banks opted to trade its
shares in the exchange, then it must abide by the reasonable rules imposed by the SEC for the protection
of the investing public.
47. Distinguish an issuer from a broker of securities:
An issuer is an originator, maker, obligor or creator of the security, whereas, a broker is a person
engaged in the business of buying and selling securities for the account of others.
48. Distinguish derivative, options and warrants:
Derivative Options Warrants

A financial instrument, including Contracts that give the buyer the The rights to subscribe or purchase
options and warrants whose value right, but not the obligation, to buy or new shares or existing shares in a
depends on the interest in or sell any underlying security at a company, on or before a
performance of an underlying predetermined price, called the predetermined date, which can only
security, but which does not require exercise of strike price, on or before be extended in accordance with the
any investment of principal in the a predetermined date, called the Exchange rules. Warrants generally
underlying security. expiry date, which can be extended have a longer exercise period than
in accordance with Exchange rules. options.
A privilege of demanding fulfillment An instrument issued by a
of a contract on any day within a corporation giving to the holder the
specified time. right to subscribe to the capital stock
of the corporation at a fixed price
wither for a limited period or
perpetually.
49. What is the Suitability Rule?
This rule states that in recommending to a customer the purchase, sale or exchange of any security,
a broker or dealer shall have reasonable grounds to believe that the recommendation is suitable to such
customer based on the facts disclosed by the latter as to his other security holdings and his financial
situations and needs.
50. Howey Test provides the elements of an investment contract – (a) There must be a contract,
transaction or scheme, (b) there is an investment of money, (c) investment is made in a common enterprise,
(d) there is expectation of profits, and (e) the profits arises primarily from the efforts of others. If these
elements are not present the SEC has no jurisdiction over the agreement.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Example: C Corporation issues long-term commercial papers and offers it to the public to raise funds it
needed for expansion. Many investors bought the papers or securities, they invested their money with an
expectation of profits arising from the efforts of those who manage and operate that company. The
investment contract must be registered with the SEC.
51. When may “investment contracts” fall under the definition of “securities” in the Revised
Securities Act?
The touchstone is an investment in a common venture, premised on a reasonable expectation of

profits to be derived from the entrepreneurial or managerial efforts of others. (People vs. Petralba, 439
SCRA 158) Under the RSC, Investment contracts are securities that have to be registered with the SEC
before they can be distributed and sold. This investment contracts, transactions or schemes where a
person invests his money in a common enterprise and is led to expect profits primarily from the efforts of
others.
52. Are contracts entered into in a network marketing scheme or those perfected thru the web
considered investment contracts?
Network marketing is not an investment contract. Network marketing is a scheme adopted by

companies for getting people to buy products outside the retail system or stores and where the buyer can
become a down-line seller, earning commissions from purchases made by new buyers whom he refers to
the person who sold the products to him. [SEC vs. Prosperoty.Com, Inc., 664 SCRA 28 (2012)]
53. Muscle Realty, Inc., a marketing company that promotes and facilitates sale of real property
through leverage marketing, solicits investors who are required to be a Business Center
Owner (BCO) by paying an enrollment fee of Php 20,000. The BCO is then entitled to recruit
2 other investor paying also Php 20K each. The BCO received Php 7,500 from the payments
of his recruits and a certain amount of the balance is credited for payment made by
investors through the initial efforts of his BCO. Once the accumulated amount reaches Pho
250K, the same is used as down payment for the real property chosen by the BCO.
a) Does this multi-level marketing scheme constitute an “investment contract” under the
SRC?
b) What are the requirements of SRC for the sale or offer or distribution of investment
contracts to the public?
c) What are the legal consequences of failure to register the securities stated above?
a. Yes. The multi-level marketing constitutes an “investment contract under the SRC. The elements
of an investment contracts are all obtaining under the given facts: (a) There must be a contract,
transaction or scheme, (b) there is an investment of money, (c) investment is made in a common
enterprise, (d) there is expectation of profits, and (e) the profits arises primarily from the efforts of
others. (Power Homes Unlimited Corp. vs. SEC, 546 SCRA 567, 2008)
b. Before the investment contract is sold or offered for sale or distribution of the public in the
Philippines, it should be registered with the SEC.
c. The failure has criminal consequences; upon conviction, a fine of Php 50K - 5M and/or
imprisonment of 7 - 21 years). It carries also civil liabilities in that the purchaser can recover from
the seller (1) the consideration paid with interest thereon less the amount of any income received
on the purchased securities, upon the tender of such securities, or (2) damages if the purchaser
no longer owns such securities, Furthermore, the SEC may issues a cease and desist order.
54. Can a corporation issue certificates of stocks to new subscribers pending the receipt of the
certificate of SEC’s approval of an application for an increase in capital stock?
No. Sec. 38 of the Corporation Code provides that an increase in the authorized capital stock of a
corporation shall be effective only upon the approval and issuance of the certificate of filing by the
Commission. Pending approval by the SEC of the application for increase of authorized capital stock, a
corporation cannot issue certificates of stock to the subscribers of the increase.
55. What is an intra-corporate controversy? (2006 Bar)

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
An intra-corporate controversy is one which “pertains to any of the following relationships: (a) between
the corporation, partnership or association and the public, (b) between the corporation, partnership or
association and the State in so far as its franchise, permit or license to operate is concerned, (c) between
the corporation, partnership or association and its stockholders, partners, members or officers, and (d)
among the stockholders, partners or associates themselves.” (Philip L. Go, Pacifico Q. Lim et. al., vs.
Distinction Properties Dev’t. and Construction, Inc. GR No. 194024, April 25, 2012)
It is a civil case involving the following:
(a) devices or schemes employed by, or any act of, the BOD, business associates, officers or partners,
amounting to fraud or misrepresentation which may be detrimental to the interest of the public
and/or of the stockholders, partners, or members of any corporation, partnership or association,
(SEC vs. Subic Bay Golf Club, Inc., 752 SCRA 481, 2015)
(b) controversies arising out of intra-corporate, partnership, or association relations, between, any or all
of them and the corporation, partnership or association of which they are stockholders, members, or
associates, respectively;
(c) controversies in the election or appointment of directors, trustees, officers or managers of

corporations, partnerships or associations;
(d) derivative suits, and
(e) inspection of corporate books. (SC Adm. Memo. No. 01-2-04 [2001])
(f) impose fines and other penalties providing the public certain level of assurance that the securities
contain representations that are true and that misrepresentations, if later found, would be
detrimental to the erring corporation.
(g) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in
which it exercises original and exclusive jurisdiction. (Concorde Condominium, Inc. vs. Baculio, 784
SCRA 263)
56. Rule on intra-corporate disputes:
To determine whether a case involves an intra-corporate controversy, and is to be heard and decided
by the Branches of the RTC specifically designated by the Supreme Court to try and decide such cases,
two elements must concur:
a. The status or relationship of the parties – The controversy must arise out of intra-corporate or
partnership relations between any or all of the parties and the corporation, partnership, association
of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns their individual
franchises.
b. The nature of the question that is the subject of their controversy – the dispute among the parties be
intrinsically connected with the regulation of the corporation. If the nature of the controversy involves
matters that are purely civil in character, necessarily, the case does not involve an intra-corporate
controversy. The determination of whether a contract is simulated or not is an issue that could be
resolved by applying the provisions of the Civil Code. (Speed Distributing Corp. vs. CA)
57. Is the SEC the venue for actions involving intra-corporate controversies? (BAR 2006)
No. Actions involving intra-corporate controversies are cognizable by the RTC, designated by the
Supreme Court under SC Adm. Memo No. 00-11-03, which has jurisdiction over the principal office of the
corporation, partnership or association concerned. (Sec. 5, Rule 1, SC Adm. Memo No. 02-2-04)
58. A group of condominium unit owners, represented by X, filed a complaint against the
condominium corporation before the SEC for alleged illegal and unlawful assessment of
association dues. The condominium corporation denied the members the use of amenities
and even threatened to cut off their supply of electric power and water unless the group
settles their long overdue association dues. Has SEC acquire jurisdiction over the
controversy?
The controversy involves the legality of the assessment dues against the condominium owners

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
which is essentially intra-corporate in character, for being between the condominium corporation and its
members-unit owners. SEC has no jurisdiction over the controversy and must therefore dismiss the case
and had it refilled before the RTC pursuant to RA 8799. (Chateau De Baie Condominium Corporation vs.
Spouses Moreno)
59. Jennifer and Gabriel owned the controlling stock in MFF Corporation and CLO, Inc., both
family corporations. Due to serious disagreements, Jennifer assigned all her shares in MFF
Corporation to Gabriel, while Gabriel assigned all his shares in CLO, Inc. to Jennifer.
Subsequently Jennifer and CLO, Inc. filed a complaint against Gabriel and MFF Corporation
in the SEC, seeking to recover the corporate records and funds of CLO, Inc., which Gabriel
allegedly refused to turn over, and which remained in the offices of MFF Corporation.
1. Is there an intra-corporate controversy in this case? Explain.

2. Who has jurisdiction over the case?
1. Yes. There is an intra-corporate controversy in this case. The fact that, when the complaint against
Gabriel and MFF Corporation was filed with the SEC, Jennifer and CLO, Inc. were no longer
stockholders of MFF Corporation did not divest the SEC of its jurisdiction over the case inasmuch as
Jennifer was a former stockholder of MFF Corporation and the controversy arose out of this relation.
(SEC vs. CA, 201 SCRA 124)
2. The RTC has jurisdiction over intra-corporate controversies as now provided under RA 8799 or the
SRC.
60. What is a “Public Company”?
It is not limited to a company whose shares of stock are publicly listed; it includes those corporations
whose shares are offered only to a specific group of people, provided they meet the requirements of Sec.
17.2 of the SRC, such as: (a) it has a class of equity securities listed in the Exchange or with assets on
excess of Php 50M and having more than 200 shareholders, at least 200 of which are holding at least 100
shares of a class of its equity securities. (Phil. Veterans Bank vs. Callangan, et. al., August 3, 2011)
61. (a) What is mandatory tender offer? (b) Under what instance does it apply?
Publicly announced intention by a person or group of persons of their intention to acquire shares of a
public corporation, resulting to a holding of more than 15% of the corporate equity or who within 12
months shall acquire at least 30% (now 35%) of the shares of the corporation. Said person must tender
offer by writing all stockholders of such intention.
This Tender Offer Rule applies to all kinds of acquisition of shares (direct or indirect purchase, or to
any type of acquisition. [Cemco Holdings vs. National Life Ins. Co., 529 SCRA 355 (2007)]
(a) It is an offer by the acquiring person to stockholders of a public company for them to tender their
shares therein on the terms specified in the offer. The tender Offer Rule applies also in an indirect
acquisition arising from the purchase of shares of a holding company of the listed firm. Tender offer
is in place to protect minority shareholders against any scheme that dilutes the share value of their
investments. It gives them the chance to exit from the company under reasonable terms, giving
them the opportunity to sell their shares at the same price as those of the majority shareholders.
(b) Under existing SEC Rules, the 15% and 30% threshold acquisition of shares under the foregoing
provision was increased to 35%. It is further provided therein that mandatory tender offer is still
applicable even if the acquisition is less than 35% when the purchase would result in ownership of
over 51% of the total outstanding equity securities of the public company. Whatever may be the
method by which control of a public company is obtained, either through the direct purchase of its
stocks or an indirect means, mandatory tender offer applies.
Limits of 15% for a single purchase/acquisition and 30% for a creeping acquisition are provided in
the SRC. The 51% requirement is not in the SRC.
62. Why are tender offers regulated?
To prevent the stockholders of the target company from being misled by the offeror or the target’s
management. Thus, a principal requirement of the SEC rules on tender offers is the disclosure by the
offeror of certain information about the offer, with a copy of such information being given or sent to the
stockholders.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
63. X Corporation is a public company having more than Php 50M total assets, more than 200
stockholders hold at least 100 shares each. X has 2 principal stockholders. YY that owns
60% of the shares of X and WW that owns 17% shares of X. On the other hand, YY is owned
by A Corp with a holding of 20%, by G Corporation with a holding of 30% and WW with 9%
share holding thereof. The rests by individual stockholders. A, G and WW are not public
companies.
WW now proposes to buy A and G’s shares in YY Corporation which would give it
direct control of YY and indirect control of X Corporation. Is WW proposed acquisition
subject to mandatory tender offer? Why or Why not?
Yes, the proposed acquisition is subject to mandatory tender offer rule. While WW’s acquisition of
A’s share (20%) and G’s shares (30%), taken separately does not reach 35% threshold each but if
taken collectively, the 2 acquisition totals 50%. If added to WW’s existing shares (17%) in X
Corporation, they meet the more than 51% threshold for mandatory tender rule.
64. What is creeping acquisition?
When a person seeks to acquire 35% or more of equity shares in a public company in one or more
transactions within a period of 12 months.
65. What is margin trading (Sec. 48)?
It is a kind of trading in securities that allows a broker to advance for the customer or investor part of
the purchase price of a security and to keep it as collateral for such money advance. The credit extended
must be for an amount not greater that whichever is higher of (a) 65% of the current market price of the
security, or (b) 100% of the lowest market price of security during the preceding 36 calendar months, but
not greater than 75% of the current market price.
Margin - Sum of money or its equivalent, placed in the hands of a broker by principal or person on
whose account the purchase is to be made as a security to the former against losses to which he may
be exposed by a subsequent depression in the market value of the stock.
66. What is the purpose of the Margin Trading Rule?
To prevent excessive use of credit for the purchase of securities. It is to counter the broker’s desire to
generate more sales by encouraging clients to buy securities on credit. [Carolina Industries, Inc. vs. CMS
Stock Brokerage, Inc. 97 SCRA 734, (1980)]
67. Briefly explain the Mandatory Close-Out Rule.
The rule vests upon a broker or dealer the obligation, not just the right, to cancel or otherwise liquidate
a customer’s order, if payment is not received within three (3) days from the date of purchase. The word
“shall” as opposed to the word “may” is imperative and operates a duty which may be legally enforced.
68. What is a Pre-need Plan?
It is a contract which provides for the performance of future services or the payment of future
monetary consideration at the time of actual need for which plan holders pay in cash or installment at
stated prices, with or without interest or insurance coverage and includes life, pension, education,
interment and other plans which the SEC may from time to time approve.
These are contracts which provide for the performance of future services or the payment of future
monetary considerations at the time of actual need, for which plan holders pay in cash or installment at
stated prices, with or without interest or insurance coverage and includes life, pension, education,
interment and other plans with the SEC may from to time approve.
Requisites:
a) Pre-need plan must be registered with the SEC

b) Seller must be licensed
c) Disclosure to prospective plan holders
d) Provide them with accounting system, reports and records
e) Bonds
f) Trust funds for the payment of benefits to plan holders.
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
69. What is an insider trading?
The act of an insider of selling or buying the security of an issuer, if he knows material information
about the issuer or the security that is not generally available to the public.
It is the act whereby, an insider sells or purchases a security while in possession of material
information with respect to the issuer or the security not generally known to the public. [SEC vs. Interport
Resources Corp., 567 SCRA 354 (2008)]
70. Who is an Insider?
A person whose position or relationship gives him access to material information which is not
generally available to the public. Such as:
a) The issuer,
b) A director or officer (or person performing similar functions) of, or a person controlling the issuer;
c) A person whose relationship or former relationship to the issuer gives or gave him access to
material information about the issuer or the security that is not generally available to the public;
d) A government employee, or director or officer of an exchange, clearing agency and/or self

regulatory organization who has access to material information about the issuer or a security that is
not generally available to the public, or
e) A person who learns such information by a communication from any of the foregoing insiders.
71. What is “material non-public information”?
An information is material non-public if –
a) it has not been generally disclosed to the public and would likely affect the market price of the
security after being disseminated to the public and the lapse of a reasonable time for the market to
absorb the information, or
b) would be considered by a reasonable person important under the circumstances in determining his
course of action whether to buy, sell or hold a security.
72. X was employed by B Bank. Y, a medical drug company hired the services of B for financial
advices and feasibility studies. On one occasion Y sought the advice of B to look into the
soundness of making a tender offer for Z Company, a drug manufacturer. While at work X
overheard the full discussion between presidents of Y and B. After work X purchase huge
number of Z’s shares which was then price at Php 10.00 per share. Two weeks thereafter
Y’s tender offer was announced. Z’s stocks jumped to Php 40.00 per share. Thus X earned
a sizable profit.
Is X liable for breach and misuse of confidential or insider information gained from her
employment? Is she liable for damages to sellers and buyers with who she traded? If so,
what is the measure of such damages? Explain.
X is an insider under the given facts since she is an employee of B Bank, the financial adviser of Y.
This relation gives X access to material information about the issuer Z and its shares which information is
not generally available to the public. X is guilty of insider trading which requires disclosure when trading in
securities. X is liable for damages to sellers and buyers with whom she traded at the amount not
exceeding 3X the amount of the transaction plus actual damages. Exemplary damages may also be
awarded in case of bad faith, fraud, malevolence to wantonness in the violation of SEC regulations. The
court is also authorized to award attorney’s fees not exceeding 30% of the award.
73. What acts or transactions are prohibited under RA 8799?
a. Manipulating of security prices, such as artificial measures of price control

b. Use of manipulative and deceptive schemes to entice investors
c. Use of false activated trading
d. Failure of an insider to disclose when trading
e. False prospectuses, communications and reports, and
f. False registration statements.

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
74. Manipulation of prices of securities:
a) Wash sales
b) Matched orders
c) Market rigging/juggling (series of transactions of buying and selling simultaneously)
d) Put/Call repeatedly done
e) Spread and straddles – dividing the “sell” into many sections to show an “active” market.
75. Manipulative devices that create false activated trading:
a) Broiler room operation – well-trained salesmen operating in a room with several phones and
using high-pressure sales talk to get investors to invest in securities being offered.
b) Daisy chain – Fictitious trading activity by a group of persons who lures innocent people into their
schemes
c) Flipping – One office buys and the other sells, making it appear that shares are actively traded;
brokers then enjoy their commissions on all activities.
d) Hype and dump – buying at high prices to get high commission
e) Improper matched orders – engaging in transaction where both the buy and sell orders are
entered at the same time with the same price and quantity by different but colluding parties. (Falsely
activating the market)
f) Marking the close – buying and selling at close of market in an effort to alter closing price
g) Painting the tape – Engage in series of transactions and publicly reports the same to the media to
make it appear that the shares are actively traded.
h) Scalping – buying of shares for one’s account and convincing investors to buy same shares,
thereafter to sell the shares bought to interested investors without disclosing the source of the
shares sold.
i) Squeezing the float – taking advantage of shortage of shares in the market. (controlling the
“demand and supply” of securities)
j) Wash sales - engaging in transactions in which there is no genuine change in actual ownership of
a security (Fictitious sale)
76. Short swing profits defined (Sec. 23.2):
Any officer, director or 10% beneficial owner of any security registered with the SEC who realizes any
profit from a purchase and sale, or sale and purchase of any non-exempt equity security within a period of
less than 6 months shall be liable to the corporation for the profits made from the trading. This provision
will prevent the unfair use of information which may have obtained by such person by reason of his
relationship to the issuer.
77. What the possible remedies available to victims of securities fraud?
The law provides three (3) remedies to victims of securities fraud namely: (a) civil action, (b) criminal
action and (c) administrative actions. These may be pursed simultaneously. or successively.
78. What is the nature of the liability of person found by the SEC to be liable for fraudulent
transactions under the Securities Code? (Benedicto-Muñoz vs. Cacho-Olivares, 774 SCRA 78)
The SRC punishes the persons primarily liable for fraudulent transactions and their aiders or abettors
by making their liability for damages joint and solidary.
79. How may violation of the Securities Regulation Code be pursued?
A criminal charge for violation of the SRC is a specialized dispute and therefore must be referred to
an administrative agency of special competence, i.e., the SEC. Under the doctrine of primary jurisdiction,
courts will not determine a controversy involving a question within the jurisdiction of the administrative
tribunal, where the question demands the exercise of sound discretion requiring the specialized
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
knowledge and expertise of said administrative tribunal to determine technical and intricate matters of fact,
The SRC is a special law, its enforcement is particularly vested in the SEC. Thus, all complaints for any
violation of the Code and its implementing rules and regulations should be filed with the SEC. Where the
complaint is criminal in nature, the SEC shall indorse the complaint to the DOJ for preliminary
investigation and prosecution
80. X owns various inactive securities. To create an appearance of active trading on said
securities, X connives with B, a broker, where X will offer for sale these securities and B
who will buy them at a certain arranged price Under their agreement X will still retain
ownership thereof. What transactions was entered into between X and B?
If the sale is materialized, it is called a wash sale a simulated sale. This transaction is prohibited under
the Revised Securities Code.
81. May “mineral claims” be used as equity paid-up in a new corporation or for purposes of
shares-swapping with an existing corporation?
Sec. 62 of the NCC provides “Consideration for stocks” – x x x. Consideration for the issuance of
stock may be any or a combination of any two or more of the following: x x x x: (2) property, tangible or
intangible, actually received by the corporation and necessary or convenient for its use and lawful
purposes at a fair valuation equal to the par or issued value of the stocks issued;” Thus, inasmuch as
mining claims can be considered as property and are capable of valuation, they may be used as
consideration for the issuance of shares of stocks for as long as they are necessary and convenient for
the use by the acquiring corporation in carrying out its lawful purposes, subject, however to the
requirement that the actual value of the mining property must be appraised and determined by the Bureau
of Mines and Geo-Sciences and confirmed directly to this Commission of that office. (SEC Opinion, June
10, 1999)
82. (BAR 2001) Suppose “A” is the owner of several inactive securities. To create an
appearance of active trading for such securities “A” connives with “B” by which “A” will
offer for sale some of his securities to “B” and “B” will buy them at a certain fixed price.
With the understanding that although there would be an apparent sale, “A” will retain the
beneficial ownership thereof.
a) Is the arrangement lawful?
b) If the sale materials, what is it called?
a. No. The arrangement is not lawful. It is an artificial manipulation of the price of securities. This is
prohibited by the Securities Regulation Code.
b. If the sale materializes, it is called a wash sale or simulated sale.
83. In 2001, X joined Y Corporation as a Junior Accountant. He steadily rose from the ranks
until he became Y’s Executive Vice-President. Subsequently, however, because of his
involvement in certain anomalies, the board of directors of Y Corporation considered him
resigned from the company due to loss of confidence.
Aggrieved, X filed a complaint in the SEC, questioning the validity of his termination
and seeking reinstatement to his former position inclusive of all money claims due him,
plus moral and exemplary damages, attorney’s fees and costs. Y filed a motion to dismiss,
arguing that SEC has no jurisdiction over the case of illegal dismissal, and no power to
award damages thereto. Should the motion to dismiss be granted? Explain.
Yes. Jurisdiction properly falls with the RTC (RA 8799, SRC). Since X previously held the position of
Executive Vice President, he is considered as a corporate officer. Consequently, the dismissal of X due to
his non-reelection constitutes a corporate act, and his non-acceptance of such dismissal is an intra-
corporate controversy. Neither the SEC nor the Labor Arbiter has jurisdiction.
While the affirmative reliefs and monetary claims sought by X may, at first glance, mislead one into
placing the case under the jurisdiction of the Labor Arbiter, a closer examination reveals that they are
actually part of the perquisites of his elective position. Hence, intimately linked with his relations with the
corporation. (Espino vs. NLRC, 240 SCRA 52)
84. Joseph was a stockholder of X Corporation. He owned a total of 2000 shares evidenced by
Certificate of Stock No. SS0088. He sold the share to Alfred. After getting paid, Joseph
indorsed and delivered said Certificate of Stock No. SS0088 to Alfred. The following day
Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626
Joseph went to the offices of the corporation and claimed that his said Certificate was lost
and that despite diligent efforts, it could not be located. The formalities prescribed by law
for the replacement of the “lost” certificate were complied with. Thereafter, X Corporation
issued a replacement of the “lost” certificate now bearing No. SS1122. After Joseph got the
same he transferred it for valuable consideration to Benjie who knew nothing of the
previous sale to Alfred. Subsequently, X was confronted with the conflicting claims of
Alfred and Benjie. The Board of Directors of X invited you to enlighten them on the
following queries:
a) Is the controversy to be submitted to the SEC or the Regular Courts?
b) Between Alfred and Benjie, who should the corporation recognize as the rightful
stockholder?
a) The matter should be submitted to the SEC, as provided under RA 8799, the controversy between
Alfred and Benjie is not an intra-corporate dispute.
b) If there is no over-issuance of shares resulting from the two transactions of Alfred, X should
recognize both Alfred and Benjie as rightful stockholders. This is without prejudice to the right of X
to claim against Joseph for the value of the shares which Joseph sold to Alfred.
85. Debtor Corporation “D” and its principal stockholders filed with the RTC (Special
Commercial Court) a petition for rehabilitation and declaration of a state of suspension of
payments under RA 8799. The purpose was for the court to appoint a receiver to take
control of the corporation and all its assets and liabilities, earnings and operations, and to
determine the feasibility of continuing operations and rehabilitating the company for the
benefit of investors and creditors.
After hearing, the court directed and appointed a receiver and ordered the suspension
of all actions and claims against “D” as well as against the principal stockholders. Discuss
the validity of the order.
The suspension of payment is valid with respect to D but not with respect to the principal
stockholders. The court has jurisdiction to declare suspension of payments with respect to corporations,
partnership or associations, but not with respect to individuals.
JPL/ALL RIGHTS RESERVED.

0–0–0–0–0–0–0

Tel. No. (02) 241-4830 / Cel. Nos. (0949) 343-6092; (0922) 898-8626

Prof. Lim - PROBLEM EXERCISES On RSC

Caricato da

Informazioni sul documento

Titolo originale

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Prof. Lim - PROBLEM EXERCISES On RSC

Caricato da

Copyright:

Formati disponibili

PROBLEM EXERCISES on Revised Securities Code

based on decided cases of the Supreme Court:

Prepared by: Dr. Jeannie P. Lim

1. Laws being administered by the SEC:

1. Securities Regulation Code;

3. What is the regulatory jurisdiction of the SEC:

5. Doctrine of Primary Jurisdiction of the SEC:

 A position created by the Board of Directors

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 2

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 3

22. When is a SEC license issued to foreign corporation?

A SEC license is issued upon compliance with the following requirements -

a. Proof of compliance with Principle of Reciprocity

In the increase of the contributed capital of a “non-stock/non-profit”, it is not required that an

a) To prevent fraud or injury to the investing public. (Sec. 5(i), SRC.)

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 5

33. When is a SEC license issued to a foreign corporation?

A SEC license is issued upon compliance with the following requirements -

a) Proof of compliance with Principle of Reciprocity

• All securities for sale must be registered with the SEC.

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 6

c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper

e) Any security issued by a bank except its own shares of socks.

45. May uncertified securities be pledge?

47. Distinguish an issuer from a broker of securities:

48. Distinguish derivative, options and warrants:

Derivative Options Warrants

49. What is the Suitability Rule?

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 8

The touchstone is an investment in a common venture, premised on a reasonable expectation of

Network marketing is not an investment contract. Network marketing is a scheme adopted by

55. What is an intra-corporate controversy? (2006 Bar)

It is a civil case involving the following:

(c) controversies in the election or appointment of directors, trustees, officers or managers of

(d) derivative suits, and

56. Rule on intra-corporate disputes:

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 10

1. Is there an intra-corporate controversy in this case? Explain.

60. What is a “Public Company”?

62. Why are tender offers regulated?

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 11

64. What is creeping acquisition?

65. What is margin trading (Sec. 48)?

66. What is the purpose of the Margin Trading Rule?

67. Briefly explain the Mandatory Close-Out Rule.

68. What is a Pre-need Plan?

a) Pre-need plan must be registered with the SEC

70. Who is an Insider?

d) A government employee, or director or officer of an exchange, clearing agency and/or self

71. What is “material non-public information”?

An information is material non-public if –

73. What acts or transactions are prohibited under RA 8799?

a. Manipulating of security prices, such as artificial measures of price control

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 13

75. Manipulative devices that create false activated trading:

d) Hype and dump – buying at high prices to get high commission

76. Short swing profits defined (Sec. 23.2):

77. What the possible remedies available to victims of securities fraud?

79. How may violation of the Securities Regulation Code be pursued?

b. If the sale materializes, it is called a wash sale or simulated sale.

a) Is the controversy to be submitted to the SEC or the Regular Courts?

JPL/ALL RIGHTS RESERVED.

Address: Kapatiran Kaunlaran Foundation, Inc. (KKFI) 16