Securities and Exchange Commission v. Santos
REITERATIONFacts
The Antecedents: The Securities and Exchange Commission (SEC) filed a complaint against Oudine Santos (Santos) for alleged violation of Section 28 of the Securities Regulation Code (SRC), stemming from an investment scam involving Michael H.K. Liew, Chairman of PIPC-BVI, and its Philippine incorporated entity, Philippine International Planning Center Corporation (PIPC Corporation). Thirty-one individuals, including Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy, filed complaints alleging they were induced to invest substantial amounts in PIPC-BVI through PIPC Corporation, which promised high returns with low risk. Santos was charged as an investment consultant who allegedly induced Lorenzo and Sy to invest; Lorenzo alleged that Santos presented PIPC Corporation's investment product, the "Performance Managed Portfolio" (PMP), promising 18-20% per annum returns, emphasized confidentiality, and assured Lorenzo of "big people" backing them up, leading Lorenzo to invest US$40,000.00, later adding US$60,000.00, and eventually US$400,000.00, remitting funds to offshore accounts as instructed by Santos. Sy alleged that Santos, whom he met through a bank manager, enticed him to invest in PMP, describing it as a risk-controlled program with higher returns than bank deposits and security/liquidity, assuring him of capital security and PIPC's track record, which led Sy to invest US$40,000.00 in PMP I and later invest in PMP II, remitting his initial investment to PIPC-BVI's account in Hong Kong. Procedural History: The SEC filed a complaint-affidavit with the Department of Justice (DOJ) for violations of Sections 8, 26, and 28 of the SRC, and in a Resolution dated April 18, 2008, the DOJ recommended indicting Liew and Cristina Gonzalez-Tuason for violations of Sections 8 and 26, and Santos, along with others, for violation of Section 28, finding probable cause that she acted as an agent of PIPC Corporation and/or PIPC-BVI. Although a DOJ Resolution dated September 2, 2008, modified the earlier ruling, it affirmed the inclusion of Santos in the information for violation of Section 28, prompting Santos to file a petition for review with the Secretary of Justice arguing she was a mere clerical employee and did not solicit investors. The Secretary of Justice, in a Resolution dated October 1, 2009, excluded Santos from prosecution, finding a lack of evidence that she acted as an agent or enticed Lorenzo and Sy, noting their direct dealings with PIPC-BVI as evidenced by investment documents. The SEC filed a petition for certiorari with the Court of Appeals (CA), which affirmed the Secretary of Justice's resolution, holding that there was no showing Santos was engaged in the business of buying and selling securities and that her authority was limited to providing information on how to communicate directly with PIPC. The Petition: The SEC filed a petition for review on certiorari before the Supreme Court, assailing the CA's decision and seeking to reinstate the DOJ panel's finding of probable cause against Santos for violation of Section 28 of the SRC.
Issue(s)
Whether Oudine Santos should be included in the Information for violation of Section 28 of the Securities Regulation Code, considering the actions of the Secretary of Justice and the Court of Appeals. Whether Santos's actions of providing information about PIPC Corporation and/or PIPC-BVI's investment products and facilitating communication constituted acting as an agent or salesman for the sale of unregistered securities, thereby violating Section 28 of the SRC.
Ruling
The petition is GRANTED. The Decision of the Court of Appeals and the Resolutions of the Department of Justice dated October 1, 2009, and November 23, 2009, are ANNULLED and SET ASIDE. The Resolution of the Department of Justice dated April 18, 2008, and September 2, 2008, are REINSTATED. The Department of Justice is directed to include respondent Oudine Santos in the Information for violation of Section 28 of the Securities and Regulation Code.
Ratio Decidendi
On the issue of Oudine Santos's liability under Section 28 of the Securities Regulation Code: The Supreme Court found that the Court of Appeals and the Secretary of Justice committed a grave abuse of discretion in excluding Santos from the Information. The Court held that while Santos may not have been a signatory to the investment contracts or directly handled the funds, her actions constituted solicitation and facilitation of the sale of unregistered securities. The Court emphasized that solicitation is the act of seeking or asking for business or information, and Santos, by providing information on PIPC Corporation and/or PIPC-BVI's investment products and convincing complainants to invest, effectively brought about the sale. The Court noted that Santos's role as an "information provider" was not merely clerical, as it directly led to the closing of deals involving unregistered securities. On the issue of whether Santos acted as an agent or salesman: The Court rejected the argument that Santos was merely an employee or information provider, stating that her actions connected probable investors to the entities and acted as an ostensible agent. The Court pointed out that Santos did not present evidence of her salary as a "mere clerical employee" which would have supported her claim. The Court concluded that the information provided by Santos was instrumental in securing the deals with the complainants, and her defense of not signing the contracts was specious, as it merely documented the act she performed. The Court reiterated that the touchstone for an investment contract 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, and Santos's actions facilitated such an investment. The Court clarified that this ruling pertains to the preliminary investigation stage and does not adjudge guilt, leaving the final determination to the trial court.
Main Doctrine
A person who solicits or provides information about investment products with the end in view of facilitating a sale, even without signing the contract or directly handling the funds, may be considered an agent or salesman under Section 28 of the Securities Regulation Code, especially when the transaction involves unregistered securities and potential fraud.