SECURITIES REGULATION

SRC was designed not only to provide investors with adequate information, but also to protect
legitimate businesses and investors seeking to protect capital through honest presentation of
capital of securities being offered to the public.

Bonds are evidences of indebtedness.

Includes non-stock corporations

Futures contract

Shelf registration – when you have a registration approved by the SEC, you may shelve it for a
period of 3 years from the time of registration or from the time the approval has been issued.

Exempt securties
Exempt transaction

There is less risk that the government will be insolvent. Government securities are generally
safe and the public needs no protection from the government.

An investment house vs. investment company – entity that engages in the business of
reinvesting, or trading of securities.

Power Homes
- Whether petitioner’s business constitutes an investment contract which should be
registered with SEC before its sale or offer for sale or distribution to the public
- SEC found that petitioner is a marketing company that promotes and facilitates sales of
real proeprties and other related products of real estate developers through effective
leverage marketing
- The investor has to become a Business Center Owner, or an independent representative
of Power Homes. He will be enrolled in the company’s referral program, and ultimately
purchase real property from accredited real estate developers, and is entitled to a
referral bonus/commission
- He’s required to pay an enrollment fee. The enrollment fee entitles him to recruit two
investors who should each pay the same amount. Out of the amount, he’s entitled to
keep a commission.

ISSUE: is this an investment contract? YES

- An investment contract is a contract, transaction or scheme whereby a person invests
his money in a common enterprise and is led to expect profits primarily from the efforts
of others.
 - Howey Test
o Makes an investment of money
o In a common enterprise
o With the expectation of profits
o To be derived PRIMARILY (no longer “solely”) from the efforts of others
- Effect of it being an investment contract: it must be registered with SEC before its sale
or offer for sale or distribution to the public
- The strict regulation of securities is founded on the premise that the capital markets
depend on the investing public’s level of confidence in the system

SEC vs. Interport

- Insider’s duty to disclose when trading
- The insider’s misuse of nonpublic and undisclosed information is the gravament of
illegal conduct. The intent of the law is the protection of investors against fraud,
committed when an insider, using secret info, takes advantage of an uninformed
investor
- Insiders are obligated to disclose material information to the other party or abstain from
trading those shares of his corporation
- This duty to disclose or abstain is based on two factors:
o 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 benefit of
anyone
o The inherent unfairness involved when a party takes advantage of such
information knowing it is unavailable to those with whom he is dealing
- Allegedly vague terms:
o Material fact – a fact is material if it induces or tends to induce or otherwise
affect the sale or purchase of securities. If a fact affects the sale or purchase of
securities, as well as its price, then the insider would be required to disclose such
information to the othe rparty to the transaction involving the securities
o Reasonable person – someone who uses the “calculus o f common sense which
all reasoable men have in abundance”
o Nature and reliability – among the factors considered in determining whether
information is material is its reliability in light of its nature and source. The
nature and reliability of a significant fact in determining the course of action a
reasonable person takes regarding securities must be clearly viewed in
connection with the particular circumstances of a case
o Materiality concept – relevant to both a material fact that would affect the
market price of a security; or a fact a reasonable person would consider in
determining her cause of action with regard to the shares of stock
o Generally available – a defense given to an insider where an insider is in
possession of facts of special significance which are generally available to the
public
 - Beneficial ownership – obligation to submit statement indicating his or her ownership of
the issuer’s securities and such changes in his or her ownership
o A beneficial owner of more than 10% of any class of any equity security or
o A director or any officer of the issuer of such security
o Definition:
 Interest of a beneficiary in trust property
 The power of a corporate shareholder to buy or sell the shares though
the shareholder is not registered in the corporation’s books as the owner

Cemco vs. National Life

- As a result of Cemco’s acquisition of the UCHC shares, its total beenficial ownership in
UCC increased by 36%
- SEC resolved that the transaction was not covered by the tender offer rule.
- National Life Insurance Company, a minority stockholder of UCC, filed a complaint with
the SEC, asking it to reverse its resolution to declare the purchase agreement of Cemco
void, and praying that the mandatory tender offer rule be applied to the UCC shares.

WON the rule on mandatory tender offer applies to the indirect acquisition of shares in a listed
company (in this case, the indirect acquisition of UCC, a publicly listed company) through the
purchase of shares in a non-listed company (UCHC) – YES

- Tender offer is a publicly announced intention by a person acting alone or in concert

with another persons to acquire equity securities of a public company.
o Public company
 corporation listed on an exchange
 corporation with assets exceeding 50 million + 200 or more stockholders,
at least 200 of them holding not less than 100 share sof such company
- A tender 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
- To protect minority shareholders against any scheme that dilutes the share value of
their investments. It gives minority shareholders the chance to exit the company under
reasonable terms, giving them the opportunity to sell their shares at the same price as
those of mandatory shareholders
- Unde rthe existing Rules, the 15% and 30% threshold acquisition of shares was
increased to 35%.
- A mandatory tender offer is stil 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
- The coverage of the rule covers not only direct acquisition but also indirect acquisition
or any time of acquisition

WON SEC has the jurisdiction to nullify the acquisition of shares in violation of the tender offer
rule
 - YES. The SEC is acting pursuant to the IRR of the SRC which provides that upon
complaint for a violation of the tender offer rule, the SEC may nullify the acquisition of
shares and direct the holding of a tender offer

UnionBank vs. SEC

- The mere fact that Unionbank, in regard to its banking functions, is already subject to
the supervision of the BSP, does not exempt it from reasonable disclosure regulations of
the SEC
o Filing annual, quarterly, current predecessor and successor reports
o Filing proxy statements and forms of proxy
o Submission of information statements
- These regulations, imposed on Unionbank as a banking institution listed in the stock
market, are meant to assure full fair and accurate information for the protection of
investors
- What is the difference between exemption from registration and exemption from
disclosure rules?

Nicolas vs. CA
- Stock brokers are entitled to commercial fees or compensation pursuant to the Revised
Securities Act
- Petitioner traded securities for the account of others without the necessary license from
the SEC. Such ommission was in violation of the rule that no broker shall sell any
securities unless he is registered with the sec
- The prupose of the statute requiring the registration of brokers selling securities and the
filing of data regarding securities which they propose to sell is to protect the public and
strengthen the securities mechanism

Onapal vs. Court of Appeals

- Making contracts for the purchase and sale of commodities for future delivery, the
parties not intending an actual delivery, contracts of the kind commonly called as
futures, are unenforceable. This is simple speculation, gambling or wagering on prices
within a givien time. It is illegal as against public policy

PSE vs. CA
- The SEC’s power to look into the subject ruling of PSE may be implied from or be
considered as necessary or incidental to the carrying out of the SEC’s express power to
insure fair dealing in securities traded upon a stock exchange or to ensure the fair
administration of such exchange
- It was in the alleged exercise of this duty that the SEC reversed the decision of PSE to
deny the application for lsiting in the stock exchange of the private respondent PALI
- SEC can exercise jurisdiction only if there is bad faith