SEC MSRD CASE NO/ MSRD-MID-2020-1R&L INVESTMENT, INC ET. AL.,R&L INVESTMENT Inc., JOSEPH LEE (President), LUCY LINDA LEE(Nominee), JONATHAN LEE(Associated Person)
Securities and Exchange Commission 2
MARKETS AND SECURITIES REGULATION DEPARTMENT SPECIAL HEARING PANEL
IN THE MATTER OF:
R&L INVESTMENT, INC.. ET. AL X
SEC MSRD CASE NO. MSRD-MID-2020-1
R&L INVESTMENT, INC., JOSEPH LEE (President) LUCY LINDA LEE (Nominee) JONATHAN LEE (Associated Person)
Respondents
June 11, 2021
To:
Securities andExchange Commission Secretariat Building, PICC Complex, Roxas Boulevard, Pasay City. Markets and\gecurities Regulation Department ASSISTANT\DIRECTOR ADAN EVAN O.PASCUA
No. 671 Lee Street, Addition Hills, Mandaluyong City R&L INVESTMENT, INC.,
No. 671 Lee Street, Addition Hills, Mandaluyong City JOSEPH LEE UV &G
No. 671 Lee Street, Addition Hills, Mandaluyong City. LUCY LINDA LEE (Nominee}
No. 671 Lee Street, Addition Hills, Mandaluyong City JONATHAN LEE (Associated Person)
Pasig City, 1605 SANTIAGO CRUZ AND ASSOCIATES LAW OFFICES Counsel for Respondents Unit 1702, East Tower Philippine Stock Exchange Exchange Road, Ortigas Center SANTIAGO CRUZ AND ASSOCIATES LAW OFFICES JUN 14 2021
GREETINGS: Time: _M : 15 pm By: 1
issued in the above-entitled case, the original of which is now on file with the Commission. Please take notice that on June 11, 2021, a Decision, copy hereto attached, was
SHP Chairman RLONG.FACUN
Exchange Commission Securities and
SECURITIES AND EXCHANGE COMMISSION REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE PASAY CITY
MARKETS AND SECURITIES REGULATION DEPARTMENT
SPECIAL HEARING PANEL
IN THE MATTER OF
R & L INVESTMENTS, INC. X- SEC MSRD CASE NO. MSRD-MID-2020-1
JONATHAN LEE (Associated Person) R & L INVESTMENTS, INC. JOSEPH LEE (President) LUCY LINDA LEE (Nominee and Salesman)
Respondents. X
DECISION
of the following provisions of the Securities Regulation Code ("SRC") and the 2015 Joseph Lee, Lucy Linda Lee2 and Jonathan Lee specifically charging Respondents for violation Implementing Rules and Regulations of the SRC ("2015 SRC Rules" or "IRR"), as follows: and Review Committee ("IRC")1 against R&L Investments, Inc. ("R&L"), a corporation duly registered under the laws of the Philippines, a licensed Broker Dealer, with business address at No. 671 Lee Street, Addition Hills, Mandaluyong City and its officers and employees, namely. Before the Hearing Panel is the Formal Charge, dated September 2020, issued by Investigation
Charges against R&L Investments, Inc.
1 Rule 28.1.5. Registration of Salesmen and Associated Persons of Brokers Dealers M Rule 30.2.1. Ethical Standards Rules
2 Passed away on December 14, 2020 as per Death Certificate (Annex A of Respondents' Position Paper) 1 composed of officers and personnel of the Markets and Securities Regulation Department ("MSRD") of the Securities and Exchange Commission
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3. Rule 30.2.1.2.3. Capabilities
5. 8. 9. 4. 7 6 Rule 52.1 Accounts and Records, Reports, Examination of Exchanges, Members, and Rule 52.1.6. Customer Account Information Rule Rule 52.1.10. Monthly Securities Counts by Brokers Dealers Rule 30.2.6. Supervision Rule 34 Segregation and Limitation of Functions of Members, Brokers and Dealers Rule 30.2.1.2.4. Information About Clients Others
Charges against Mr. Joseph Lee (R&L's President)
1 SRC Sec. 26. Fraudulent Transactions 2 Rule 28.1.5. Registration of Salesmen and Associated Persons of Brokers Dealers 3 Rule 30.2.1. Ethical Standards Rules 4 6 L Rule 30.2.1.2.4. Information About Clients Rule 30.2.6. Supervision Rule 30.2.1.2.3. Capabilities
8. 9 7 Rule 52.1 - Accounts and Records, Reports, Examination of Exchanges, Members, and Rule 52.1.6. Customer Account Information Rule Rule 34 - Segregation and Limitation of Functions of Members, Brokers and Dealers Others
10. Rule 52.1.10. Monthly Securities Counts by Brokers Dealers
Charges against Mr. Jonathan Lee (R&L's Associated Person)
1 SRC Sec. 26. Fraudulent Transactions
2 Rule 28.1.5. Registration of Salesmen and Associated Persons of Brokers Dealers SRC Sec. 54. Investigative Sanctions
3 Rule 30.2.1. Ethical Standards Rules 4 Rule 30.2.1.2.3. Capabilities 5 Rule 30.2.1.2.4. Information About Clients
6. Rule 30.2.6. Supervision Sec. 30.2.1.2.4. Information About Clients
I Rule 34 - Segregation and Limitation of Functions of Members, Brokers and Dealers 8. 9. Rule 52.1.1. Books and Records Rule Rule 52.1.6. Customer Account Information Rule 10. Rufe 52.1.10. Monthly Securities Counts by Brokers Dealers
Charges against Ms. Lucy Linda Lee3 (R&L's Nominee Salesman)
1) SRC Sec. 26. Fraudulent Transactions
3 Passed away on December 14, 2020 as per Death Certificate (Annex A of Respondents' Position Paper)
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7) Rule 34 - Segregation and Limitation of Functions of Members, Brokers and Dealers 8) Rule 52.1.1. Books and Records Rule 9) Rule 52.1.6.Customer Account Information Rule 10) Rule 52.1.10. Monthly Securities Counts by Brokers Dealers 2) Rule 28.1.5. Registration of Salesmen and Associated Persons of Brokers Dealers 3) Rule 30.2.1. Ethical Standards Rules 4) Rule 30.2.1.2.3. Capabilities 5) Rule 30:2.1.2.4. Information About Clients 6) Rule 30.2.6. Supervision Sec. 30:2.1.2.4. Information About Clients SRC Sec. 54. Administrative Sanctions
Antecedent Facts and Proceedings
SEC En Banc Case No. MP-2019-001 ordered the Capital Markets Integrity Corporation ("CMIC') to take over the operations of R&L Investments, Inc. ("R&L"), pursuant to Section 33.1 (d) of the SRC and Rule 33.1.1.26.3 of the SRC-IRR. On 14 November 2019, the Securities and Exchange Commission ("SEC" or "Commission") in
rendering it incapable of meeting the demands of its client security holders and the payment of their share proceeds. The Take Over Order was issued due to the deterioration of the financial condition of R&
institute, among others, the appropriate administrative charges against all the responsible persons, including R&L, its officers and employees. Consequently, the Commission directed the MSRD to conduct a thorough investigation of the incident to determine the various violations of the securities laws possibly committed and to
Linda Lee on December 9 and 12, 2019. Pursuant to the'direction, MSRD created the IRC. Hence, subpoenas were issued by IRC separately to Venture Securities, Inc. ("Venture Securities" or "VSI"), R&L, Marfo Moron and Julieto Sulapas, and the investigative proceedings were conducted on 9 December to 12 December 2019. The IRC conducted a conference with R&L, Joseph Lee, Jonathan Lee and Lucy
On 5 February 2020, the SHP composed of the undersigned was created to hear, resolve and decide matters relative to the case.
After conducting the investigation, the IRC formally instituted the Formal Charge dated September 2020 against the Respondents. The Formal Charge was received by the respondents on 7 September 2020.
FORMAL CHARGE
Briefly, the Formal Charge alleges that:
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1) Marlo Moron transferred the shares belonging to R&L's clients to another broker dealer via EQ trade. EQ trade happens when shares are transferred from one broker dealer to another broker dealer without change in beneficial ownership 4.
2) in order to complete the transfer, the PDC system requires two credentials from the (b) the Checker who would validate the transfers. sending and receiving broker: (a) the Maker who would input the order to transfer, and
3) As revealed during the investigative proceedings, Lucy admitted that she gave Moron admitted during the investigative proceedings that he has no knowledge of the daily Lucy to Moron. On the other hand, Joseph Lee, the President of R&L since 20187, operations of the company8. the necessary maker and checker credentials for the PCD system. Likewise, Jonathan, admitted that he knew this but he did not take any action on such authority given by
4) In addition to the having the maker checker credentials, Moron was also given viewing access to the back-office system of R&L. As a result, he was able to access and acquire information pertaining to the shareholdings of all the R&L clients and to tamper the BP portfolio reports to match the back-office records to hide his fraudulent schemes
5) These acts pave the way for Moron to employ the fraudulent schemes that resulted in the loss of client shares of R&L10.
6) Based on the documents submitted by R&L and Venture Securities ("Venture"), a total of Php1,130,508,721.09 worth of shares in R&L were transferred to the "Julieto Sulapas account" account in Ventures through EQ trade transactions executed by Moron for the period of 2012 to 201911
7) However, a comparison of the Julieto Sulapas ledger in R&L with that of Venture revealed that the shares transferred to the "Julieto Sulapas account" in Venture do not exist or were not recorded in the "Julieto Sulapas account" in R&L. Therefore, the shares transferred to the "Julieto Sulapas account" in Venture came from the accounts of the other clients of R&L12
ANSWER
The Respondents filed their Answer with Entry of Appearance13 ("Answer") to the Formal Charge and, on one hand, admitted the following allegations in the Formal Charge:
12 Paragraph 17, Formal Charge 9 Paragraph 7, Formal Charge 13 Attached are copies of the following documents: 6 Paragraph 5, Formal Charge 8 Paragraph 13, Formal Charge 20 Paragraph 6, Formal Charge 11 Paragraph 16, Formai Charge 7 Paragraph 12, Formal Charge 4 Paragraph 4, Formal Charge 5 Paragraph 4, Formal Charge
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Investigation was commenced by the Securities and Exchange Commission in light financial condition of R&L Investments, Inc. [sic] render it incapable of meeting the demands of the latter's client security holders and payment of their share of the Take Over Order, dated 14 November 2019, due to the deterioration of the proceeds14
The deterioration was brought about by the fraudulent schemes allegedly committed by one Marlo Moron that resulted to the ioss of allegedly Php700 million worth of client shares of R&L Investments, Inc15.
Subpoenas were issued to R&L Investment, Inc., Venture Securities, Inc., Marlo December to 12 December 201916 Moron and Julieto Sulapas, and investigative proceedings were conducted on 9
On the other hand, Respondents categorically denied the other allegations in the Formal Charge for lack of knowledge or information sufficient to form a belief as to the truth or falsity of the same and/or for the following special and affirmative defenses:
1. Lack of authority over respondents R&L Investments, Inc. and Joseph Lee
2. (mproper charge of fraud
3. Improper charges of violating rules on control measures, supervision duties, segregation of duties, ethical standards, books and records, customer information, and independent audit
passed away on December 14, 2020), together with counsel, appeared during the conference. In view of Respondents foregoing answer to the formal charge, a clarificatory conference was held on February.24, 2021. Both Petitioner and Respondents (except of Lucy Linda Lee who
During the conference, the parties were directed to submit their respective position papers within ten (10) days from February 24, 2021 and to furnish each other with copies thereof.
without the position paper or comments/replies, the case was deemed submitted for Both were likewise given a period of five (5) days from receipt of the respective position paper of the other party to file their comments/replies thereto. After the lapse of said date, with or resolution.
respective position papers both substantially reiterating their arguments in their previous Complainant and Respondents in compliance with the aforementioned order, submitted their
14 Paragraph 1, Answer (with Entry of Appearance) 15 jbid 16 ibid (1) Inquest Resolution dated 7 November 2019, (2) Investigation Data Form dated 6 November 2019, (3) Letter dated 6 November 2019 from the Philippine National Police Anti-Cybercrime Group, (4) Joint Affidavit of Arrest dated 6 November 2919 (5) Supplemental Complaint Affidavit dated 18 November 2019, and (6) Reply dated 18 December 2019, in connection with the case filed by respondents against Moron before the Office of Prosecutor -- Mandaluyong City.
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filed their comments/reply against each other's position paper. submissions and submitted additional documents to support their allegations. Both parties also
PETITIONER'S POSITION PAPER
In its Position Paper, Petitioner alleged and maintained the following:
1) Respondents cannot claim lack of knowiedge or information as the basis for the charges are all documents readily available or coming from the respondents themselves17
2) Respondents did not identify the specific paragraphs in the Formal Charge to which Rules of Court. each Special and Affirmative Defenses apply as required under Section 10 Rule 8 of the
2.1 According to the Petitioner, out of the twelve provisions of the SRC and Charge that were violated by the Respondents, only three Special and Affirmative Defenses were cited in the Answer. The Respondents did not identify the specific paragraphs in the Formal Charge to which each Special and Affirmative Defenses apply18 corresponding Sections in the Implementing Rules and Regulations cited in the Formal
3) Markets and Securities Regulation Department ("MSRD") has authority to examine, investigate and file appropriate legal actions against R&L19 and Joseph Lee20.
authority to initiate administrative action against R&L and Joseph Lee. 3.1 Petitioner disagrees with the Respondents argument that the MSRD has no
Petitioner cited Rule 39.1.1.7.4 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code21 as the basis for MSRD to initiate the administrative case against R&L -
39.1.1.7 Investigations
investigation ahead of, parallel to or following an investigation conducted by an information related to the case that it may hare earlier gather or are available in its database and which it may readily procure. 39.1.1.7.4 The Commission shall not be precluded from initiating its own SRO. In such an event, the SRO shall coordinate, cooperate, and provide a copy to the Commission, upon notice or order, documents, pieces of evidence or other
17 Paragraph 4.7, Petitioner's Position Paper 20 Paragraph 5.9, Respondents Position Paper 21 Paragraph 5.5, Petitioner's Position Paper 13 Paragraph 4.8, Petitioner's Position Paper 19 Paragraph 5.6, Respondents Position Paper
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Petitioner quoted a portion of the Order22, dated November 14, 2019, issued by the Commission en banc as MSRD's basis -- With regard to MSRD's authority to file an administrative case against Joseph Lee.
Inc., its officers and employees and to submit its report and recommendations to the Markets and Securities Regulation Department for purposes of instituting administrative or criminal action against the responsible persons, without filing of any action against R&L and its responsible officers and employees23. CMIC to determine the various violations possibly committed by R&L Investments, precluding the Commission from conducting its own examination, investigation, or
4) Petitioner argued that Respondents' defense of improper charges of fraud is unmeritorious24.
SRC and its implementing Rules and Regulations is untrue and have been refuted by documents and own admissions of the Respondents25. The statement that the Respondents have observed the guidelines imposed by the
5) Petitioner contended that Respondents' argument that the internal and external auditors and regulators for the past years did not raise findings or recommendation is immateria126.
Petitioner cited Rule 39.1.1.7.4 of the 2015 SRC IRR -
Sec. [sic] 39.1.1.7.4 -- The Commission shall not be precluded from initiating its own investigation ahead of, parallel to or following an investigation conducted by and SRO. Xxx. In case of conflict between the findings of the Commission and the Exchange, the former's decision shall prevail27.
6) Petitioner emphasized that the findings of fraud is brought about by Respondents gross and inexcusable negligence28
intentionally, with a conscious indifference to consequences insofar as other persons may be affected. It evinces a thoughtless disregard of consequences without exerting any effort to avoid them. This type of negligence is so inexcusable; it is tantamount to bad faith. the Philippines29 as pronounced by the Supreme Court in said case, gross negligence characterized by want of even slight care, acting or omitting to act in situation where there is duty to act, not inadvertently but willfully and Petitioner cited the case of Joseph Harry Walter Poole-Blunden vs. Union Bank of negligence connotes want of care in the performance of one's duties; it is a
24 Paragraph 6.1, Petitioner's Position Paper 25 Paragraph 6.2, Petitioner's Position Paper 26 Paragraph 6.9, Petitioner's Position Paper 27 Paragraph 6.11, Petitioner's Position Paper 29 GR No. 205838, November 29, 2017 23 Paragraph 5.7, Petitioner's Position Paper 28 Paragraph 6.13, Petitioner's Position Paper 22 Attached as Annex B, Petitioner's Position Paper
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higher than that of a good father of a family, because their business is imbued with the accounts of its clients "meticulously and with the highest degree of care." The failure of the bank, in the instant case, to ascertain the status or conditions of the negligence palpable enough to equate to bad faith. The Court in the case stated that banks assume a degree of prudence and diligence public interest and is inherently fiduciary. Thus, banks have the obligation to treat property being foreclosed was found to be equivalent to gross inexcusable
In the same way, the business of R&L Investments, Inc as broker dealer is not just an ordinary business but one imbued with public interest and highly based on trust and confidence. The broker dealer has the fiduciary duty to its clients and is required to exercise a high level of diligence.
Respondents during the investigative proceedings or stated in the officiat documents. Petitioner narrated the allegations in the Formal Charge and the admission of the
REPLY TO PETITIONER'S POSITION PAPER
On March 51, 2021, Respondents filed their Reply to Petitioner's Postion Paper
ISSUES
V. I. I Whether or not Respondents'right to due process was violated; Securities and Exchange Commission has authority over (i) R&L and (ii) Joseph Whether or not Respondents violated the SRC and 2015 SRC IRR; Whether or not Respondents Joseph Lee, Jonathan Lee and Lucy Linda Lee violated Section 26 in relation to Section 54 of the SRC. Whether or not the Formal Charge failed to state ultimate facts: Whether or not the Markets and Securities Regulation Department of the Lee;
THE RULING
due process was violated and (ii) whether the Formal Charges failed to state ultimate facts. Before resolving the main issue, it is important to determine (i) whether Respondents' right td
right to due process was violated Whether or not Respondents
Prosecutors Office of Madaluyong City. Thereafter, Petitioner attached the foilowing documents in his Position Paper. Records show that the only attachment to Petitioner's Formal Charge was Marlo Moron's Counter Affidavit relative to the criminal case filed against him by herein Respondents in the
1) Formal Charge; 2) SEC Take Over Order (SEC En Banc Case No. MP-2019-001); and
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3) Sinumpaang Salaysay of Julieto Sulapas.
Julieto Sulapas, (ii) text messages, and (ili) supposed admission made by respondents30) not allude or attached the alleged evidence in its Formal Charge such as the (i) affidavit of Respondents argued that their right to due process was clearly violated when Petitioner did
We disagree with the Respondents.
Failure to allude or attach Affidavit of Julieto Sulapas and text messages
06876676 from Australia, Addressed to Mrs. Maria Coronel (A.M No 93-9-249-CA December 5, Court in an en Banc case entitled In the Matter of the Loss of Registered Foreign Letter No. 1994) - It is emphasized that the present case is an administrative proceeding. In administrative case, due process simply means the opportunity to explain one's side as stressed by the Supreme
technicalities. (emphasis supplied) administrative proceedings, we are not bound by rigid rules of procedure or that he was not afforded an opportunity to submit evidence of lack of formal charges against him and formal investigation thereon. We reiterate: In his defense which he actually availed of. This was his opportunity to present evidence in his favor, knowing fully well that he was already under investigation and was being charged with gross negligence in a show cause-letter dated June 18 simply an opportunity to be heard or as applied to administrative proceedings, that he was given ample opportunity to file his comment and memorandum for 1993 signed by the Court of Appeals Clerk of Court. Movant cannot now complaint It has been repeatedly held in many instances that the essence of due process is an opportunity to explain one's side. In the present case, movant cannot deny
subject of this Panel's ruling. It cannot be said that Respondents were denied due process just because said documents were Julieto Sulapas and text messages were attached to Petitioner's Position Paper. Respondents were given the opportunity to comment thereon by filing their Reply31 and, which is now the not alluded to or attached in the Formal Charge. In the present case, the subject affidavit of
ruled as follows: demand deprived him of opportunity to gather evidence in his behalf. In said case the Court violated due to the inordinate and oppressive delay of cOA in confronting him about his accountabilities. According to Endriga, the long delay of more than 17 years from the time of In the case of Victor B. Endriga vs. Court of Appeals and Civil Service Commission,32 the Court resolved to deny Victor B. Endriga's appeal on the ground that his right to due process was
to administrative proceedings, the opportunity to explain one's side or the The essence of due process is simply the opportunity to be heard, or, as applied We agree with the CA that the petitioner's right to due process was not violated.
32 GR No. 230386, June 7, 2017 30 Paragraph 1, Respondent Reply to Petitioner's Position Paper 31 Filed on March 15, 2021
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opportunity to seek a reconsideration of the adverse action or ruling complained Of
I Failure to attach Respondents' admission in the Formal Charge
is a denial of their right to due process, We are not swayed. On the issue of Petitioner's failure to attach the Respondents admission to the Formal Charge
reduced in writing33. Records show that Respondents' admissions were made orally during the investigation herein Petitioner, were present. Consequently, Petitioner, having heard of said oral admission of the Respondents, may introduce the said admissions. Moreover, the subject oral admissions of the Respondents, testified upon by the Petitioner, are admissible in evidence, though not proceedings wherein members of the Investigation and Review Committee, which includes
following paragraphs of the Formal Charge: The Respondents' oral admissions during the investigation proceeding are found in the
Jonathan admitted that he knew this but he did not take any action on such authority given by Lucy to Moron." "5. As revealed during the investigative proceedings, Lucy admitted that she gave Moron the necessary maker and checker credentials for the PCD system.
"6. It was also admitted by Lucy that she gave her own admin access pass to the PCD system to Moron and allowed the latter to change the admin passwords and effectively have sole access herein."
has no knowledge of the daily operations of the company, only proves he failed and deliberately refuse to perform his duty. Xxx xxx xxx" president, he has the duty to oversee the day-to-day operations of the company -- a duty that cannot be delegated to another person. 13. Apparently, his open admission during the investigative proceedings that he "12. Joseph Lee has been the President of R&L Investments since 2018. As
"20. During the investigative proceedings, Lucy admitted that Moron was given access to the trading floor and that he also executes trades."
R&L officers repose on Moron." "35. Lucy admitted that she gave her admin access to the PDTC system to Marlo Moron for his daily transactions, allegedly due to the trust and confidence the
functioning as salesman and settlement office at the same time, which are incompatible functions under the SRC." "37. Lucy admitted during the investigative proceedings of R&L that Moron was
"41. During the investigative proceedings, Lucy Linda Lee admitted that she never their iate father knew Julieto Sulapas." met Julieto Sulapas personally and merely relied on Moron's representation that
33 See The People of the Philppine Islands vs. Martin Bantagan (GR No. 33045, August 15, 1930)
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named Julieto Sulapas until the latter incurred material debit balances in his "42. In addition, Jonathan Lee also admitted that he was never aware of a client account with R&L."
to do the following: 55. Jonathan Lee admitted during the investigation proceedings that he allows Moron to do the above acts. This is a willful disregard of his duties as an associated person." "54. It was noted during the administrative proceedings that Moron was allowed 54.2 Continuous access on the credentials for both maker and checker 54.3 Admin access on PDTC web-based account. 54.1 Execute trades despite not being a licnesesd salesman; accounts in PDTC; and
met Julieto Sulapas personally and merely relied on Moron's representation that their late father knew Julieto Sulapas." "62. During the investigative proceedings, Lucy Linda Lee admitted that she never
name Julieto Sulapas until Sulapas incurred material debit balances in his account "63. In addition, Jonathan Lee also admitted that he was never aware of a client With R&L."
Peitioner argued that the foregoing admissions are deemed admitted because Respondents failed to specifically deny the same.
In its Answer to the Formal Charge, Respondents stated that the allegations in paragraphs 4 to 75, which includes the above-quoted admissions, are categorically denied for lack of knowledge or information sufficient to form a belief as to the truth or falsity of the same.
We agree with the Petitioner.
I Contrary to human experience
We find Respondents' denial of lack of knowledge or information to be contrary to human experience.
he/she indeed gave said statement. More so in this case, as the particular acts allegedly by Respondents in the present case, as would be presented in the discussions that would It is only logical to expect a person, alleged to have admitted a particular statement, to know if admitted by each of the respondents were also mentioned in the pleadings and annexes filed follow.
I Lack of sincerity and good faith
In addition, Respondents' denial of lack of knowledge or information should be made with L-21840, March 19, 1970) the Supreme Court decreed that: sincerity and good faith. In the case of Capital Motors Corporation vs. Nemesio I. Yabut (GR No.
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knowledge or information sufficient to form a belief as to the truth of an averment defendant's knowledge that his averment is pallably untrue. This form of denial must be availed of with sincerity and good faith, not for the purpose of confusing the other party; nor for purposes of delay. and giving such answer the effect of a denial, does not apply where the fact as to which want of knowledge is asserted, is so plainly and necessarily within the The rule allowing an answer to contain the allegation that the defendant has no
Respondents alleged lack of knowledge or information that they admitted that Marlo Moron was given the maker checker credentials to the PCD system and that Moron was allowed to change the admin password. However, it can be established from pleadings and annexes of the Respondents that there is As pronounced by the Court, the denial must be availed of with sincerity and good faith clearly lack of sincerity and of good faith.
paragraphs 18 and 19 of Respondents Position Paper would confirm that they are aware that Marlo Moron has the maker checker credentials for the PCD system and he could change the Contrary to Respondents allegation, a perusal of (i.) paragraph 21 of the Supplemental Complaint-Affidavit executed by Lucy Linda Lee (Annex H of Respondents Answer) and (ii) admin passwords.
following: To recall, Peitioner, in the Formal Charge, alleged that Lucy and Jonathan Lee admitted the
by Lucy to Moron." Moron the necessary maker and checker credentials for the PCD system. Jonathan admitted that he knew this but he did not take any action on such authority given "5. As revealed during the investigative proceedings, Lucy admitted that she gave
"6. It was also admitted by Lucy that she gave her own admin access pass to the PCD system to Moron and allowed the latter to change the admin passwords and effectively have sole access herein."
folows: The foregoing admission of Lucy Linda Lee are found in the Supplemental Complaint-Affidavit (Annex "H" of Respondents Answer) Respondents filed in connection with the criminal case against Marlo Moron. In said Supplemental Complaint-Affidavit, Lucy Linda Lee stated as
Moron to change the password regularly: every (30) days." based system of PDTC for R&t Investments, Inc., including the nomination and change of passwords. It is worth-pointing that the system requires Marlo N. confidence reposed to Mario, he was granted complete access to the on-line web- "21. Inasmuch as Marlo was appointed as settlement clerk, and due to the trust and
to R&L's online web-based system. In Respondents' Position Paper, they declared as follows: On the other hand, Joseph Lee and Jonathan Lee were also aware that Marlo Moron has access
POSITION PAPER
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Respondents, R&L Investment, Joseph Lee, and Jonathan Lee, through undersigned counsel, unto this Honorable Commission, respectfully submit their Position Paper, in compliance with the Order of the SEC Special Panel last 24 February 2021, and respectfully alleged that:
STATEMENT OF FACTS
Xxx xxx xxx
Investments Inc.'s online web-based system. The system requires him to log-in in the system using the assigned username and password. It is worth-pointing that the system requires Marlo N. Moron to change the password regularly or 18. Inasmuch as Marlo was appointed as settlement clerk, he has access to R & L very sixty (60) days.
19. Due to the trust and confidence repose to Marlo, he has complete access to the on-line web-base system of PDTC including the nomination and change of passwords.
Respondents alleged lack of knowledge or information, yet they are aware that Marlo Moron was given the maker checker credentials to the PDTC system and that Moron was allowed to change the admin password.
In addition to the foregoing, Respondents also denied that they admitted that Marlo Moror Complaint-Affidavit and Position Paper would confirm otherwise. was functioning as a salesman. However, their respective statements in the Supplemental
Peitioner alleged in the Formal Charge that Respondents admitted the following:
access to the trading floor and that he also executes trades." "20. During the investigative proceedings, Lucy admitted that Moron was given
functioning as salesman and settlement office at the same time, which are incompatible functions under the SRC." "37. Lucy admitted during the investigative proceedings of R&L that Moron was
salesman: Respondents Answer), that Lucy Linda Lee was aware that Moron was functioning as a Respondents denied, for lack of knowledge or information, that they admitted the foregoing. However, it can be established in the Supplemental Complaint-Affidavit (Annex "H" of
download the 'BP Portfolio Report' ("BP" meaning Business Partner) from the on-line system of PDTC." "22. Aside from trading, selling and purchasing the stock securities, Marlo is tasked to
In the case of Joseph Lee and Jonathan Lee, they were also aware that Marlo Moron buys and sells securities for R&L clients. Said Respondents, in their Positon Paper, stated as follows:
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POSITION PAPER
Respondents, R&t Investment, Joseph Lee, and Jonathan Lee, through undersigned counsel, unto this Honorable Commission, respectfully submit their Position Paper, in compliance with the Order of the SEC Special Panel last 24 February 2021, and respectfully alleged that:
STATEMENT OF FACTS
Xx xxx xxx
Investments, Inc. His functions include placing orders for our clients either to sel! or buy and to access the shares of stock stored in the corporation's account in the PDTC system. 17. Thereafter, Marlo Moron was appointed as settlement cferk of R&L
part of the Respondents. Based on the foregoing, it can be deduced that there is lack of good faith and sincerity on the
I The acts of Marlo Moron are plainly and necessarily within Respondents' knowledge
However, the aforementioned pleadings and annexes of the Respondents proved that said actions of Marlo Moron are plainly within their knowledge. It is worthwhile to emphasize the case of Aquintey vs. Timbong34 wherein the Court declared that: Respondents denied having knowledge that they admitted the actions of Marlo Moron.
material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not specifically denied (emphasis supplied) considered as a specific denial. Section 11, Rule 8 of the Rules also provides that When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information will not be
deemed admitted. Consistent with the above Supreme Court decisions, the Panel finds Respondents' admissions
failed to state ultimate facts Whether or not Formal Charge
Section 1, Rule 8 of the Rules of Court provides that:
34 GR No. 16674, December 20, 2006
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evidentiary facts. (emphasis supplied) claim or defenses, as the case may be, omitting the statement of mere Every pleading shall contain in a methodical and logical form, a plain, concise and direct statement of the ultimate facts on which the party pleading relies for his
the staterment of the cause of action insufficient. the Philippines Presidential Commission on Good Government (GR No. 89114, December 2, 1991), mean essential facts constituting plaintiffs cause of action. In the same case, the Court went on further and explained that a fact is essential if it cannot be stricken out without leaving Ultimate facts, as defined by the Court in the case of Francisco S. Tantuico, Jr. vs. Republic of
breached the norms or standards35. A cause of action is essential in civil cases. However, such is not the case in administrative proceedings. It is well settled that in administrative cases the issue is not whether the complainant has a cause of action against the respondents, but whether an individual
present case are (i) the norms and standards and (ii) the breach of the norms and standards. Given the administrative nature of the present case, what then needs to be established in the
Would reveal that these citations of the SRC and the 2015 SRC IRR are the norms and standards citations of the Securities Regulation Code [sic]36. However, a carelful reading of said citations which herein Respondents are accused to have violated. The Panel noted Respondents' argument that pages 1 up to 15 of the Formal Charge are simply
To enumerate a few of the citations, the following are quoted as follows -
Charges against R&L
1. Rule 28.1.5 Registration of Salesmen and Associated Persons of Broker Dealers
28.1.5 Registration of Salesmen and Associated Persons of Brokers Dealers
28.1.5.1 A person may not be employed as a salesman or associated person registered as salesman or Associated Person under this Rule37 of a Broker Dealer or Issuer of proprietary or non-proprietary securities unless
2. Rule 30.2.1 Ethical Standards Rules
Broker Dealer (herein after referred to as a "Registered Person"), in honor, and just and equitable principles of trade38. Rule 30.2.1.1 Every Broker Dealer, Associated Person and salesman of a connection of his business, shall observe high standards of commercial
Xxx xxx xxx
36 Paragraph 3, Respondents' Reply to Petitioner's Position Paper 37 Page 1 to 2, Formal Charge 38 Page 2, Formal Charge 35 See Rey C. Mutia vs. Lucila C. Pacariem (A.M. P-06-2170 July 11, 2006)
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Charges against Mr. Joseph Lee (R&L's President)
1. (SRC) Sec. 26. Fraudulent Transactions
Sec. 26. Fraudulent Transactions. -- It shall be unlawful for any person. directly or indirectly in connection with the purchase or sale of any securities to:
26.1 Employ any device, scheme, or artifice to defraud;
Xxx xxx xxx
26.3 Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person.
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and 2015 SRC IRR will be addressed in the succeeding discussion. The particular acts of the Respondents, which breached the standards provided under the SRC
Securities and Exchange Commission has authority over (i) R&L and (ii) Joseph Lee. Securities Regulation Department ("MSRD") of the Whether or not the Markets and
the PSE and CMIC has yet to conclude their investigation and (ii) that MSRD has no authority over administrative actions involving respondent Joseph Lee as president of R&L. Respondents argued that (i) MSRD, at the moment, has no authority over R&L considering that
We disagree with the Respondents.
I MSRD's authority to initiate administrative action against R&L
In support of their argument that MSRD has no authority to initiate administrative action against R&L, Respondents cited Section 2-2 (e)(2), Part 139 of the 2016 Rules of Procedures of the Securities and Exchange Commission ("2016 SEC Rules of Procedure").
39 "Sec. 2-2. Authority of Operating Departments over cases filed before the Commission
e. Markets and Securities Regulation Department ("MSRD"} shall have exercise authority over the following actions and matters committed in the regular course of operations: XXx XXX
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R&L because it is subject to the authority of the self-regulatory organization, such as the Philippine Stock Exchange ("PSE") and Capital Markets Integrity Corporation ("CMIC"). According to Respondents, the MSRD has no authority over administrative actions involving
violations of the securities law. Respondents further argued that CMIC shall have the authority to investigate and resolve'all
Commission has the power to impose sanctions for violation of law and the rules, regulations and orders issued pursuant thereto. Section 5(a) of the SRC states that the Commission has jurisdiction and supervision over all corporations, partnerships or association who are grantees of primary franchises and/or licenses or permit by the Government. In addition, Section 5(f) of the SRC also states that the It is emphasized that the Commission's jurisdiction over R&L, as well as CMIC, is based on law.
It is well settled that jurisdiction is conferred by law and it is not subject to stipulations of the parties. Thus, Respondents could not argue that the 2016 SEC Rules of Procedure divested the Commission of its jurisdiction over R&L.
above its sources of power4o, the Commission. Furthermore, it should be noted that the authority granted to CMIC under the 2016 SEC Rules of Procedure and the CMIC Rules by Trading Participants are mere recognition of the authority of the Commission over CMIC. In cannot be denied that said rules were subject to the Commission's approval. Thus, said authority of CMIC over R&L, like spring water, could not rise
the audit, surveillance and compliance monitoring of the activities of market participants41 However, it is important to note that the authority of CMIC to administer the market is not absolute as the same is at the discretion of the Commission. A reading of Section 32.2 (b) of the SRC would show the that authority to determine whether a market would be administered In addition, as explained by the Respondents, CMIC is a self-regulatory organization which acts as the independent regulatory arm of the Philippine Stock Exchange (PSE) tasked to perform by an SRO rests upon the sole discretion of the Commission
Section 32. Prohibition on the Use of Unregistered; Regulation of Over-the- Counter Markets -
be administered by a self-regulatory organization determined by the Commission as capable of insuring the protection of investors comparable to that provided in the case of a registered Exchange. (emphasis supplied) 32.2 (b) The Commission may promulgate rules and regulations governing transactions by brokers, dealers, salesmen or associated persons of a broker dealer, over any facilities of such trading market and may require such market to
2. Administrative and adjudicative actions involving intermediaries and market professionals such S
(b) Xx* (a) Brokers/Dealers, unless subject to the authority of the Self-Regulatory Organization
4o See Hon. Jose D. Lina, Jr., Sangguniang Panlalawigan of Laguna and Hon. Calisto Cataquiz vs. Hon. Francisco 41 Paragraph 41, Respondents' Position Paper Dizon Pano and Tony Calvento (GR No. 129093, August 30, 2001)
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cited by the Petitioner, Rule 39.1.1.7.4 of the 2015 SRC IRR42 provides - that the PSE and CMIC has yet to conclude their investigation is without legal basis. As aptly Also, Respondents' argument that the issuance of the Formal Charge is premature considering
39.1.1.7 Investigations
investigation ahead of, parallel to or following an investigation conducted by an SRO. in such an event, the SRO shall coordinate, cooperate, and provide a copy to the Commission, upon notice or order, documents, pieces of evidence or other information related to the case that it may hare earlier gather or are available in its database and which it may readily procure. 39.1.1.7.4 The Commission shall not be precluded from initiating its own
MSRD's authority to initiate administrative action against Joseph Lee, as President of R&L
directors and officers with relation thereto and among themselves in relation to it. case of China Banking Corporation vs. Court of Appeals and Valley Golf and Country Club, Inc.43, are the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and The president of a company manages the day-to-day affairs of the corporation. This obligation originates from the company's by-laws. A company's by-laws, as defined by the Court in the
over them is evident in Section 5, Article IV (Officers) of R&L's by-laws provides: Records of the case show that Respondents attached R&L's Certificate of Incorporation (Annex B of the Answer). An examination of the corresponding by-law of R&L, on file with the Commission, would establish the fact that Joseph Lee, as the president of R&L, is required to exercise supervision, direction and control over the corporation and its employees. His authority
ARTICLE IV OFFICERS
XXX
general supervision and direction of all of the other officers of the corporation and shall see that their respective duties are properly performed. xxx He shall preside at all meetings of the Board of Directors and stockholders and accordingly authenticate all minutes thereof in conjunction with the Secretary. that all orders and resolutions of the Board are carried into effect. He shall have of the corporation and, subject to the control of the Board of Directors, shall in general, supervise and control all of the business and affairs of the corporation. He shall suggest, for and guide policies to be adopted by the Board and shall see Section 5. PRESIDENT -- The President shall be the chief executive officer
42 Paragraph 5.5, Petitioner's Position Paper 43 GR No. 117604, March 26, 1997
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controlling person, as defined under Section 51 of the SRC: To emphasize, Joseph Lee has the power of supervision, direction over the Associated Person and Salesman of R&L, Jonathan Lee and Lucy Lee, respectively. Furthermore, Joseph Lee is compelled by the company's by-laws to see that respective duties of Jonathan Lee and Lucy Lee are properly performed. Consequently, Joseph Lee, as president of R&L, is considered as a
controlled person is alleged to exist. rules or regulations of the Commission thereunder, shall also be liable jointly and severally with and to the same extent as such controlled persons to any person to whom such controlled person is liable, unless the controlling person knowledge of the existence of the facts by reason of which the liability of the one or more other persons, controls any person liable under this Code or the proves that, despite the exercise of due diligence on his part, he has no Secondary Liability. 51.1. Every person who, by or through stock ownership agency, or otherwise, or in connection with an agreement or understanding with Section 51. Liabilities of Controlling Persons, Aider and Abettor and Other
initiate administrative action against Joseph Lee. As such, Section 51.1 of the SRC makes controlling person jointly and severally liable for any violation of the SRC and its IRR by the controlled person. Therefore, MSRD has authority to
Whether or not Respondents violated the SRC and 2015 SRC] IR
following standards under the SRC and the 2015 SRC IRR. As discussed above, in an administrative case the issue is not whether the compiainant has a cause of action against the respondents, but whether an individual breached the norms or standards. Petitioner, in its Formal Charge, alleged that the Respondents breached the
EMPLOYMENT OF UNREGISTERED SALESMAN
Petitioner alleged that R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee violated Rule 28.1.5 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code (2015 SRC IRR) which prohibits the employment of unregistered salesman. Petitioner alleged the foflowing:
20 It was also revealed in the official documents that R&L has two (2) trading terminals located in the PSE Trading Floor from 2011 to 2019 and one (1) offsite trading terminal from May 1, 2016 to July 31, 2018. Beyond July 31, 2018, R&L has no offsite trading terminals; hence, all client transactions beyond said date can be executed only in the PSE Trading Floor.
21 Further, a perusal of the documents received from PSE show that during the period of August 1, 2018 to 2019, Lucy did not log in the PSE Trading Floor in comparison to the 223 days Marlo Moron logged in.
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22 It is also significant to note that out of this 223 log-ins, 56 coincides with the execution of the Julieto Sulapas transactions, while Lucy Linda Lee is not present.
attached a letter from the President and CEO of the Philippine Stock Exchange, Mr. Ramon S. Monzon. Attached to said letter is a List of TP personel who were given access to the PSE perusal of the list shows that Marlo Moron was indeed given access to the trading floor. To substantiate the allegation that Moron was given access to the trading floor, Petitioner Trading Floor from 2011 to 2018 (February 12, 2018) and from 2018 (February 19) - 2019. A
Respondents, on the other hand, argued in its Reply to Petitioner's Position Paper that:
expound and clarify her statements. to the trading floor as settlement clerk, she did not categorically admit that Moron was allowed to trade in her absence. Unfortunately, she can [sic] longer 17. While respondent Lucy Lee might had admitted that Moron was given access
instant controversy. 18. However, it is clear from the records that respondent Lucy Lee did not authorize Marlo Moron to trade the shares that are the subject matter of the
We find Respondents' argument without merit.
inconsistent with the Supplemental Complaint-Affidavit, which Lucy Linda Lee herself executed (attached as Annex H of Respondents Answer), the pertinent paragraphs are quoted With regard to Respondent Lucy Linda Lee, the above arguments of Respondents are as folows:
from the on-line system of PDTC. "22. Aside from trading, selling and purchasing the stock securities, Marlo is tasked to download the "BP Portfolio Report" ("BP" meaning Business Partner)
issued by the SEC and duly certified by the PSE are allowed to trade. trades, sells and purchases stock securities. It is important to note that Lucy Linda Lee is the to use the PAM44, a management tool provided by the Exchange used by Trading Participants for executing trades, among others45. Otherwise stated, only salesperson with valid license It can be inferred from the above statement that Lucy Linda Lee was aware that Marlo Moron only registered salesperson in R&L. Under the relevant provisions of the PSE Rules, only traders with valid license issued by the SEC and who have been duly certified by the PSE are allowed
trading platform. Access to the PSE trading platform "effectively" allowed Marlo Moron to act as a salesman of R&L, in violation of Rule 28.1.5 of the 2015 SRC IRR. Given the aforementioned PSE Rule, the trading activities of Marlo Moron, a settlement clerk, would not have been possible unless Lucy Linda Lee provided her credientiats to access the PSE
4 the Exchange will only grant terminal account IDs to Trading participants and their Trader with valid Jicenses issued by the SEC and who have been duly certified by the PSE to use the PAM
Exchange used by the Trading Participants for executing trades and accessing market data. +5 PAM (Poste D' Access Aux Marche) shall mean the order and tracie management tool provided by the
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statements in the Position Paper, the pertinent portions of which are herein quoted as follows: With regard to Respondents R&L, Joseph Lee and Jonathan Lee, the Panel noted the following
POSITION PAPER
Respondents, R&l Investment, Joseph Lee, and Jonathan Lee, through Position Paper, in compliance with the Order of the SEC Special Panel last 24 February 2021, and respectfully alleged that: undersigned counsel, unto this Honorable Commission, respectfully submit their
STATEMENT OF FACTS
XXXXXXXX
sometime 2003. At the same time, his wife, Edna Moron, was also working with us as Office Clerk as evidenced by our letter dated 8 July 2003 addressed to the 15. For the record, Marlo Moron was initially hired by R&L as Office Clerk Philippine Stock Exchange, Inc., a copy of which was attached as Annex "D" of the Answer.
personnel submitted to PSE, a copy of which was attached as Annex "E" of the Answer. 16. Sometime in 2018, Marlo was promoted as Office/Trading Floor Assistant as evidenced by the updated list of directors, officers and office and trading floor
17. Thereafter, Marlo Moron was appointed as settlement clerk of R&L Investments, Inc. His functions inctude placing orders for our clients either to sell or buy and to access the shares of stock stored in the corporation's account in the PDTC system.
Xxx xxx xxx
Iine system of PDTC." 20. Aside from trading, selling and purchasing the stock securities, Marlo is tasked to download "BP Portfolio Report" ("BP" meaning Business Partner) from the on-
to effectively act as a salesman without the proper license. clerk, is placing buy and sell orders for R&L clients. The placing of buy and sell order is a function of a salesman as defined under Rule 28.1.5.2.1 of the 2015 SRC IRR. Notwithstanding the lack of license to act as salesman, R&L, Joseph Lee and Jonathan Lee allowed Marlo Moron also aware that, among the functions of Marlo Moron, upon his appointment as settlement It can be verified from the foregoing statements that R&L, Joseph Lee and Jonathan Lee were
In view of the foregoing, we find that Respondents violated Rule Rule 28.1.5 of the 2015 SRC IRR.
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ETHICAL STANDARDS
Petitioner alleged that Respondents R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee violated Rule 30.2.1.1 of the 2015 SRC IRR -
30.2.1 Ethical Standards Rule
shall observe standards of commercial honor, and just and equitable principles of trade 30.2.1.1 Every Broker Dealer, Associated Person and salesman of a Broker Dealer (herein after referred to as "registered person"), in the conduct of his business
As registered persons, it is the obligation of R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee to act honestly, fairly and in the best interest of their clients46 in conducting their business.
As discussed above, Lucy Linda Lee admitted the following during the investigation proceeding. which Petitioner cited as violation of the Ethical Standards Rule:
met Julieto Sulapas personally and merely relied on Moron's representation that their late father knew Julieto Sulapas47. "62. During the investigative proceedings, Lucy Linda Lee admitted that she never
"5. As revealed during the investigative proceedings, Lucy admitted that she gave Jonathan admitted that he knew this but he did not take any action on such Moron the necessary maker and checker credentials for the PCD system. authority given by Lucy to Moron48."
PCD system to Moron and allowed the latter to change the admin passwords and effectively have sole access herein49. "6. It was also admitted by Lucy that she gave her own admin access pass to the
paragaphs. the loss of P700 million worth of client shares, as would be discussed in the succeeding As pointed out by the Petitioner in the Formal Charge, Marlo Moron effectively had sole access to the PCD system. Moreover, Marlo Moron was allowed to change the admin password. In so doing, Marlo Moron was able to transfer R&L client shares through EQ trade which resulted to
the statements in the Position Paper, the pertinent portions of which are herein quoted as follows: With regard to Respondents R&L, Joseph Lee and Jonathan Lee, the Panel noted the following
POSITION PAPER
undersigned counsel, unto this Honorable Commission, respectfully submit their Respondents, R&L Investment, Joseph Lee, and Jonathan Lee, through
49 Paragraph 6, Formal Charge 47 Paragraph 62, Formal Charge 48 Paragraph 5, Formal Charge 46 Rule 30.2.1.2.1 2015 SRC iRR
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February 2021, and respectfully alleged that: Position Paper, in compliance with the Order of the SEC Special Panel last 24
STATEMENT OF FACTS
Xxx xxx xxx
sometime 2003. At the same time, his wife, Edna Moron, wa also working with us Philippine Stock Exchange, Inc., a copy of which was attached as Annex "D" of the 15. For the record, Marlo Moron was initially hired by R&L as Office Clerk as Office Clerk as evidence by our letter dated 8 July 2003 addressed to the Answer.
Xxx xxx xxx
17. Thereafter, Marlo Moron was appointed as settlement clerk of R&L Investments, Inc. His functions include placing orders for our clients either to sell or buy and to access the shares of stock stored in the corporation's account in the PDTC system.
Investments Inc.'s online web-based system. The system requires him to log-in in the system using the assigned username and password. It is worth-pointing that the system requires Marlo N. Moron to change the password regulariy or every sixty (60) days. 18. Inasmuch as Marlo was appointed as settlement clerk, he has access to R & L
Respondents to act honestly, fairly and in the best interest of their clients. However, client shares due to the EQ trades of Marlo Moron. the username and passwords to the system. The Ethical Standards Rule requires the Respondents' act of tolerating of Marlo Moron's actions is contrary to the interest of their clients. As would be discussed in the,succeeding paragraph, R&L lost P700 million worth of It can be established from the foregoing that Respondents, R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee were aware that Marlo Moron had access to the PDTC system and could change
In view of the foregoing, We find Respondents to have violated the Ethical Standards Rule.
CAPABILITIES
Petitioner alleged that R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee violated Rule 30.2.1.2.3.2.2 of the 2015 SRC IRR -
30.2.1.2.3 Capabilities
operations, his clients and other registered persons from financial loss arising 30.2.1.2.3.2.2 Satisfactory internal control procedures and financial and operational capabilities which can be reasonably expected to protect his
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from theft, fraud and other dishonest acts, or professional misconduct or omission of all company officers, employees and authorized representative.
In his Formal Charge, Petitioner alleged that:
Moron for his daily transactions, allegedly due to the trust and confidence the R&L officers repose on Moron. 35. Lucy also admitted that she gave her admin access to PDTC system to Marlo
allowed Moron to reset the passwords at his will. 36. The access to the abovementioned passwords allowed Moron to execute the transfer of shares and to approve such transfers. The admin access also
incompatible functions 37. Lucy also admitted during the investigative proceedings of R&L that Moron was functioning as salesman and settlement officer at the same time, which are
of allowing Marlo Moron to perform said functions underscores the lack of check and balance On the other hand, as discussed earlier, Respondents R&L, Joseph Lee and Jonathan Lee are aware that Marlo Moron functions as settlement clerk and salesman. In addition, they are also aware that Marlo Moron, a settlement clerk, has access to the PDTC system. Respondents act procedure in R&L.
In view of the foregoing, We find Respondents to have violated Rule 30.2.1.2.3.2.2 of the 2015 SRC IRR.
INFORMATION ABOUT CLIENTS
Petitioner alleged that Respondents violated Rules 30.2.1.2.4.1, 30.2.1.2.4.3 and 30.2.1.2.4.6 of the 2015 SRC IRR, which states:
Rule 30.2.1.2.4. Information About Clients
the necessary estimate based on his initial evaluation of the information 30.2.1.2.4.1. A registered person should seek from his clients, information objectives regarding the services to be provided pursuant to SRC Rule 52.1.6 and other applicable laws. If a client refuses to disclose reasonabie information about his financial situation, the registered person shall make given by the client. about their financial situation, investment experience and investment
XXxXxXXx
the true and full identity of each of his clients, their financial situation, investment experience, and investment objectives. 30.2.1.2.4.3. A registered person shall take all reasonable steps to establish
XXX XXX XXX
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however, that in relation to an investment company, or discretionary account, not those who hold a beneficial interest therein. the identity, address and contact details of the person ultimately account, the person referred to above is the investment company or Sec. 30.2.1.2.4.6. A registered person should be reasonably satisfied about responsible for originating the instruction in relation to a transaction, the person who stands to gain the commercial or economic benefit of the transaction and/or bears the commercial or economic risk; Provided, X X X X
According to Petitioner's Formal Charge:
41. During the investigative proceedings, Lucy Linda Lee admitted that she never met Julieto Sulapas personally and merely relied on Moron's representation that their late father knew Julieto Sulapas.
42. In addition, Jonathan Lee also admitted that he was never aware of a client account with R&L. named Julieto Sulapas until the latter incurred material debit balances in his
On the other hand, Respondents in their Answer, argued as follows:
that Sulapas had more than 1B worth of shares with Venture Securities, the latter should be required to explain the source of such shares. R&L. The Formal Charge stated that Sulapas had more than P1B worth of shares in his account with Venture Securities. Respondents were not in the position to know the source of Sulapas's shares in his account with Venture Securities. If it is true 20. With regard to client information on Julieto Sulapsa, standard Know-Your- Customer procedures were satisfied everytime he transacts with respondent
The above argument was reiterated by the Respondents in their Position Paper.
Meanwhile, Peitioner, in his Position Paper, argued that:
Investments, Inc. as the source of the shares that were EQ Trade transferred in the name of Julieto Sulapas, has the duty to ensure that the shares transferred are actually in the name of Julieto Sulapas. This, the Respondents clearly failed to do. Hence, the claim of lack of knowledge as to the affairs of Julieto Sulapas with Venture Securities is immaterial to the Formal Charge against Respondents. the position or source of shares of Julieto Sulapas with Venture Securities, R&L 7.11. In addition, although it is true that Respondents may have no knowledge of
would be discussed in the succeeding paragraph. Petitioner's argument that it is the Respondents duty to ensure that the shares transferred are actually in the name of Julieto Sulapas would fall squarely in the Books and Records Rule, which
pertains to the Know Your Client Rule (KYC). The application of the KYC Rule is a continuing A reading of the provisions of the Information About Clients Rule would show that the same
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requirement (1.) from the time a client opens an account with a broker dealer and (2.) everytime the client would trade.
Sulapas' CAIF (Annex F) attached to Respondents' Answer to the Formal Charge. Lee admitted that she never met Julieto Sulapas and she relied on Marlo Moron's representation that their father knew Sulapas. However, this Panel noted a copy of Julieto In the present case, Petitioner argued that there was breach in the KYC Rule because Lucy Linda
Sulaspas opened his account would have been done during the life time of her late father. his account with R&L. However, her statement that she relied on Mario Moron's representation that her late father knew Sulapas would show that the KYC procedure at the time Julieto Given said information, Lucy Linda Lee may not have met Julieto Sulapas at the time he opened
operations50, which includes account opening, among others. With regard to Jonathan Lee, as an Associated Person, he is expected to know the general operations of R&L without necessarily engaging or actively participating in its day-to-day
In view of the foregoing, We find Petitioner's argument insufficient to hold Respondents liable for violation of the Client Information Rule.
SUPERVISION
Petitioner alleged that Respondents, Joseph Lee, Jonathan Lee and Lucy Linda Lee violated Rule 30.2.6.1 of the 2015 SRC IRR -
the firm enabling them to effectively execute their duties. independent of all operational and business functions. The compliance functions Commission and required to report directly to the board of directors and the company President. The management shall ensure that the Associated Person/s performing the compliance function possesses sufficient training and experience in securities regulation matters and an understanding of the securities activities of 30.2.6.1. The management of every Broker Dealer shall establish and maintain an appropriate and effective compliance function within the firm which is shall be performed by an Associated Person who shall be registered with the
In support of the allegation that Respondents violated the above-quoted provision, Petitioner argued that:
46. It was established in the investigative proceedings that notwithstanding the fact that Lucy was the designated administrator (admin) of the PDTC account Moron was able to gain access to it.
monthly basis so that he can have continuous access to the PDTC system. 47. In addition, Moron, in several years, was able to reset the password on a
50 See Rule 28.1.5.7.2 of the 2015 SRC IRR
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pass to the PCD system to Moron and allowed the latter to change the admin passwords and effectively have sole access herein52 " As discussed earlier, Lucy Linda Lee admitted she gave Moron the necessary maker and checker credentials for the PCD system51. She further admitted that she gave her own admin access
statements in the Position Paper, the pertinent portions of which are herein quoted as follows: With regard to Respondents R&L, Joseph Lee and Jonathan Lee, the Panel noted the following
POSITION PAPER
February 2021, and respectfully alleged that: Respondents, R&l Investment, Joseph Lee, and Jonathan Lee, through Position Paper, in compliance with the Order of the SEC Special Panel last 24 undersigned counsel, unto this Honorable Commission, respectfully submit their
STATEMENT OF FACTS
Xxx xxx xxx
Answer. sometime 2003. At the same time, his wife, Edna Moron, wa also working with us Philippine Stock Exchange, Inc., a copy of which was attached as Annex "D" of the 15. For the record, Marlo Moron was initially hired by R&L as Office Clerk as Office Clerk as evidence by our letter dated 8 July 2003 addressed to the
Xxx xxx xxx
Xxx xxx xxx
every sixty (60) days. 18. Inasmuch as Marlo was appointed as settlement clerk, he has access to R & L Investments inc.'s online web-based system. The system requires him to log-in in the system using the assigned username and password. it is worth-pointing that the system requires Marlo N. Moron to change the password regularly or
Petitioner contended that there were no internal controls on checks and balances in R&L. Said lack of internal control on check and balances can be inferred from the following: 1. Marlo Moron has access to the PDTC system. 2. Marlo Moron functions as settlement clerk and salesman
Marlo Moron can perform the above-mentioned functions oniy highlights Jonathan Lee's failure to supervise the activities of the company. Under the Rule on Supervision, R&L is required to ensure that Jonathan Lee possesses sufficient training and experience in securities regulation matters and an understanding of the securities activities of the firm enabling them to effectively execute their duties. The fact that
52 Paragraph 6, Formal Charge 51 Paragraph 5, Formal Charge
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In view of the foregoing, We find the Respondents to have violated Rule 30.2.6.1 of the 2015 SRC IRR
SEGREGATION AND LIMITATION OF FUNCTIONS OF MEMBERS, BROKERS AND DEALERS
Petitioner alleged that Respondents, Joseph Lee, Jonathan Lee and Lucy Linda Lee violated the following Rules of the 2015 SRC IRR:
Rule 34.8 A Broker Dealer shall adopt proper internal controls to prevent the are intact and are properly accounted for by the segregating trading, settlement accounting and back-office functions including their respective physical facilities. commission of fraud and ensure that the customers'cash and securities positions
appropriate security measures shall be adopted. Rule 34.9 Access to computer files should be limited to authorized users and the
that may have potential conflict of interest. Rule 34.11.1 Any Broker Dealer that assumes more than one function whether as dealer, adviser, or that engages in market making transactions, shall maintain information between the different units of the company that performs functions proper segregation of those functions within the company to prevent flow of
back-office settlement functions and physical setup are properly segregated and shall establish written procedures to ensure compliance with this rule Rule 34.11.3 A Broker Dealer shall at all times ensure that its trading functions and
Petitioner, in its Formal Charge, alleged that
50. Proper internal controls which include the segregation of trading and settlement functions are designed to prevent fraud.
51. It was revealed during the investigative proceedings that Moron was appropriate security measures to the computer systems of R&.. of proper internal controls in the access to the computer files and lack of provided the system admin access of Lucy including the password change to ensure his continuous access as system admin. This cleariy shows a lack
52. It was also noted during the investigative proceedings that Moron was allowed by R&L to perform the functions of settlement clerk and salesman concurrently, which are conflicting functions in accordance with the Chinese Wall doctrine.
breach of Rule 34.8 of the 2015 SRC IRR which requires the segregation of trading and settlement, among others. As discussed earlier, Respondents Joseph Lee, Jonathan Lee and Lucy Linda Lee were all aware that Marlo Moron holds the position of settlement clerk. Notwithstanding Moron's position as settlement clerk, Respondents also allows him to act as a salesman. Respondents' action is a
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of Broker Dealers Given the foregoing, We find Respondents to have violated the Rule on Segregation of Functions
Rule 34.10 2015 SRC IRR
Petitioner alleged that Respondent, Jonathan Lee, violated Rule 34.10 of the 2015 SRC IRR
Petitioner, in his Formal Charge, alleged that: of the employees and check all executed trades and other transactions of the Rule 34.10 The Associated Person of a Broker Dealer shall supervise the functions company.
54. It was noted during the administrative proceedings that Moron was allowed to do the following:
54.2.Continuous access on the credentials for both maker and checker 54.3.Admin access on PDTC web-based account. 54.1.Execute trades despite not being a licensed salesman; accounts in PDTC; and
55. Jonathan Lee admitted during the investigative proceedings that he allows Moron to do the above acts. This act is a willful disregard of his duties as an associated person.
56. Likewise, Jonathan Lee's tolerance towards Moron is a clear violation of his check all executed trades and other transactions in maintaining proper duties as associated person - to supervise the functions of the employees and segregation of functions in the company.
breach of his duty to supervise the function of Marlo Moron as settlement clerk. As argued by the Petitioner, Jonathan Lee, as R&L's Associated Person, disregarded his duty supervise the functions of R&L's employees. As established in the earlier discussions, Jonathan Lee is aware that Marlo Moron is a settlement clerk and, yet, he was allowed to trade. This is a
In view of the foregoing, We find substantial basis to hold Jonathan Lee to have violated Rule 34.10 of the 2015 SRC IRR
BOOKS AND RECORDS RULE
Petitioner alleged that Respondent, Jonathan Lee, violated Rule 52.1.1.1 of the 2015 SRC IRR
Rule 52.1.1.1 A Broker Dealer shall make, keep current and maintain in its principal office the following books and records relating to its business:
52.1.1.1.2 Purchase and Sale Blotter - xxx 52.1.1.1.1 Blotter and Similar Records - xxx
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52.1.1.1.5 Cash Receipts/Disbursment Book 52.1.1.1.4 Stock Debit Memo (SDM)/ Stock Credit Memo (SCM) - xxx 52.1.1.1.3 In/Out Receipts Book - xxx
violated the above rule, as follows: Petitioner, in its Formal Charge, alleged R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee
58. Based on the PDTC reports, there are several transfers between R&L and transferred from R&L to Venture under the Julieto Sulapas account; Venture. Upon tracing the transactions, it was noted that shares were
59. However, a review of books and records of R&L as requested by the Department revealed that the following are incomplete:
59.6.Securities record/ledger; 59.3.Customer ledger; 59.4.Securities in transfer ledger; 59.5.Detailed Collateral Valuation; and, 59.1.Stock debit/credit memo; 59.2.In/out receipts book;
60. Thus, the incomplete books and records shows the failure of the Broker Regulation Code and its Implementing Rules and Regulations; Dealer R&L Investments to make, keep current and maintain their books and records related to the business as required under the Securities
Complaint Affidavit (Annex H of Respondents Answer) - This Panel noted Respondents' allegation that there were several transactions between R&L and Venture. We relate said allegation to Respondents' explanation in their Supplemental
any change of ownership of said stocks. of the written order, we can execute the transfer of our clients' shares of stock to another brokerage firm using the PDTC system. When using the PDTC system for such transfer, it should be noted that the regulating authorities strictly prohibits 16. Our clients may also instruct us to transfer their shares of stock to the custody of another brokerage firm. In order to facilitate such transfer, our clients will inform us in writing or electronic mail their instruction to transfer. Upon receipt
The "writing or electronic mail" would allude to the "transfer out" instruction from Julieto Sulapas or clients which would be reflected in the In/Out Receipts Book of R&L. Rule 52.1.1.1.1.2 of the 2015 SRC tRR explains an In/Out Receipts Book, as follows:
lodgment or upliftment of shares, transfer request by a customer). If the receipt and delivery of shares refer to a transfer of shares by a customer from/to his securities to or from Broker Dealers, the In/Out Receipt number, name of security, number of shares, and description of such receipt and delivery of securities (e.g. from other Broker Dealers and securities depository in case of stock dividend distribution, including information on the date of receipt or delivery of the An In/Out Receipts Book setting forth the receipts and delivery of securities to and
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account with the Broker Dealer to/from his other account with another Broker Dealer, the Broker Dealer should obtain a written transfer request from the customer prior to executing the transfer and keep the document on file.
brought about by the unauthorized EQ trade transactions. clients, then there would have been no loss of Php700 Million worth of R&L client shares Had the Respondents' In/Out Receipt Books accurately reflected the request transfer from R&L
In view of the foregoing, We find Respondents to have violated the Books and Records Rules
52.1.6.16 of the 2015 SRC Rules 52.1.6.8, 52.1.6.15 and IRR
Rules 52.1.6.8, 52.1.6.15 and 52.1.6.16 of the 2015 SRC IRR Petitioner alleged that Respondents, R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee, violated
Will be recorded. procedures. Furthermore, it shall adopt adequate internal control measures for verifying the true and full identity of their customers. it shall require customers to produce original documents of identiy issued by an official authority, preferably bearing a photograph of the customer and where practicable, maintain file copies of documents of identity; otherwise, relevant details on the identity documents 52.1.6.8 The Broker Dealer shall develop clear customer acceptance policies and procedures when conducting business relations or accommodating specific transactions and shall exercise due diligence in implementing its policies and
52.1.6.15 it is the Broker Dealer's duty to know its clients well and, accordingly, it shall be primarily responsible in keeping current all material information contained in the CAIF.
52.1.6.16 The Broker Dealer, its directors, officers, and associated persons, are required to report suspicious client transaction to the Anti-Money Laudering Council (AMLC), pursuant to the provisions of the Anti-Money Laundering Act (RA 9160, as amended)
the bringing together of all relevant factors including knowledge or the person's mistrust about the transaction considering (a) its unusual nature or circumstances, or (b) the person or group of persons with whom they are dealing, and based on or persons'business or background (as well as behavioral factors. For purposes of this section, a suspicious client transaction shall mean any transaction which causes any ordinary person to have a feeling of apprehention or
Petitioner, in its Formal Charge, alleged R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee violated the above rules, as follows:
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62. During the investigative proceedings, Lucy Linda Lee admitted that she never met Julieto Sulapas personally and merely relied on Moron's representation that their late father knew Julieto Sulapas.
63. In addition, Jonathan Lee also admitted that he was never aware of a balances in his account with R & L. client named Julieto Sulapas until Sulapas incurred material debit
XxX XXX XXX
64. In addition, under the SRC, knowing the client is an important point in transactions for proper reporting to the AMic. their client Julieto Sulapas, this will effectively remove their chance to determine whether the transactions of Julieto Sulapas are suspicious classifying suspicious transactions for purposes of reporting of suspicious client transactions to the Anti-Money Laundering Councit (AMLC). Hence, the fact that R&L and its management do not know
and 52.1.6.15 of the 2015 SRC (RR. According to Petitioner, Respondents' admission revealed the failure of R&L and its officers on their duties to know their clients wel153. Consequently, Respondents violated Rules 52.1.6.8
explain the KYC requirement at the time Sulapas opened his account with R&L. account with a broker dealer and (2.) everytime the client would trade. Lucy Linda Lee may not have met Julieto Sulapas at the time he opened his account with R&L; however, her statement that she relied on Marlo Moron's representation that her late father knew Sulapas would Petitioner is harping on the KYC rule discussed ealier under Rule 30.2.1.2.4. To recall, the application of the KYC Rule is a continuing requirement (1.) from the time a client opens an
operations54, which includes account opening and trading (buy and/or sell), among others. operations of R&L without necessarily engaging or actively participating in its day-to-day With regard to Jonathan Lee, as an Associated Person, he is expected to know the general
that Respondents did not establish a WSP. However, a reading of Rule 52.1.6.8 would show that the same pertains to the requirement for broker dealers to establish a Written Supervisory Procedure ("WSp"). Petitioner did not allege
Petitioner charged Respondents for violation of Rule 52.1.6.15 which speaks of updating the CAIF. Records of the present case reveal the existence of Julieto Sulapas' CAIF (Annex F of Respondents Answer). Petitioner did not allege that the same is not current.
to distinguish a buy or sell transaction as against an EQ trade. On the issue of the Respondents reporting suspicious transactions to the AMLC, it is worthwhile
Accordingly, the broker dealer is expected to report suspicious transactions to the AMLC. In the Under the buy or sell transaction, a client would instruct his broker dealer to buy or sell shares.
54 See Rule 28.1.5.7.2 of the 2015 SRC IRR 53 Paragraph 64, Formal Charge
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case of the EQ trade, the client shares will merely be transferred to another broker deafer were said client also has an account. There is no transfer of ownership.
In the present case, Petitioner did not allege that Julieto Sulapas was engaged in buying and selling of shares involving his R&L account, which would require the reporting of suspicious transaction to the AMLC.
We find Petitioner's argument deficient to establish that Respondents violated Rules 52.1.6.8. 52.1.6.15 and 52.1.6.16 of the 2015 SRC IRR.
Rule 52.1.10.13 of the 2015 SRC IRR
Petitioner alleged that Respondents, R&L, Joseph Lee, Jonathan Lee and Lucy Linda Lee, violated Rule 52.1.10.13 of the 2015 SRC IRR. However, a reading of the 2015 SRC IRR would reveal that there is no Rule 52.1.10.13. Consequently, Petitioner's charge has no leg to stand on.
Republic Act No. 8799 or known as The Securities Regulation Code Whether or not Respondents. Joseph Lee, Lucy Linda Lee and Jonathan Lee violated Section 26 in relation to Section 54 of
Answer of R&L), paragraphs 21 to 23 which states that - The scheme perpetrated by Marlo Moron, which led to the loss of Php700 Million worth of R&L client shares was explained in the Supplemental Complaint Affidavit (Annex H of the
21. Inasmuch as Marlo was appointed as settlement clerk, and due to the trust change the password regularly: every thirty (30) days. and confidence reposed to Marlo, he was granted complete access to the on-line web-based system of the PDTC for R&L, including the nomination and change of passwords. It is worth-pointing that the system requires Marlo N. Moron to
to download the "BP Portfolio Report" ("Bp" meaning Business Partner) from the 22. Aside from trading, selling and purchasing the stock securities, Marlo is tasked on-line system of PDTC.
23. The BP Portfolio Report indicates [sic] list the stock securities under the name beginning balance, difference, close price and market value. This report is the primary resource of the company's officers, regulators, and audit bodies to verify the company's stock position or inventory. and custody of R&l Investments, Inc., such as the name of stock security,
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described in paragraph 16 of the subject Supplemental Complaint Affidavit -- The access to the PDTC system is critical to the scheme perpetrated by Marlo Moron as
of the written order, we can execute the transfer of our clients shares of stock to another brokerage firm using the PDTC system. When using the PDTC system for such transfer, it should be noted that the regulators prohibits change of ownership of said stock. inform us in writing or electronic mail their instruction to transfer. Upon receipt 16. Our clients may also instruct us to transfer their shares to stock to the custody of another brokerage firm. In order to facilitate such transfer, our clients will
be transferred from one broker to another. However, in the present case, Marlo Moron will allegedly transfer stock securities under the custody of R&L Investment Inc. to Venture Securities, Inc. making it appear that those stock securities are owned by Julieto C. Sulapas5s. As explained above, an EQ Trade prohibits the change of ownership of the shares that would
To summarize the foregoing statements:
(i)The transfers of R&L's client shares were executed through the PDTC system; (ii) Marlo Moron was granted complete access to the on-line web-based system of the (iii) Marlo Moron was also tasked to download the BP Portfolio Report from the on-line system of PDTC containing the following information: PDTC;
5. Close price; and 6. Market Value 4. Differences; 1. Name of stock security; 3. Ending balance; 2. Beginning balance;
system. As narrated by the Respondents, Moron has limited viewing access to the back-office Report will be manipulated to match the stock position of R&L reflected in its back-office system56 As to how the alleged scheme evaded detection, we note Respondents' statement in paragraph 39 of the Supplementai Complaint-Affidavit, Marlo Moron has been manipulating the pdf file of the BP Portfolio Report. The ending balance in the downloaded BP Portfolio
Lee, Jonathan Lee and Lucy Linda Lee with violation of Sec. 26 of the SRC - Given the foregoing alleged scheme of Marlo Moron, Petitioner charged Respondents, Joseph
indirectly, in connection with the purchase or sale of any securities to: Sec. 26. Fraudulent Transactions. It shall be unlawful for any person, directly or
26.1 Employ any device, scheme or artifice to defraud
Xxx xxx xxx
55 Paragraph 29, Respondents Position Paper. 56 Paragraph 18, Respondents Answer
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26.3 Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person.
including all acts, omission, and concealment involving a breach of legal or equitable duty, trust, or confidence justly repose, resulting in damage to another, or by which an undue and unconscientious advantage is taken of another57. Fraud has been defined, in its general sense, to comprise anything calculated to deceive,
This act tolerance on the part of the Respondents gave Mario Moron undue and unconscientious advantage over the unsuspecting clients of R&L. As discussed earlier, Respondents omitted to perform their legal duties under the pertinent provision of the SRC, its implementing rules and regulations and other laws implemented by the Commission. It was established from the records of the case that Respondents were all aware and tolerated Marlo Moron's (i) complete access to the on-line web-based system of PDTC, (ii) authority to download the BP Portfolio and (iii) viewing access to the back-office.
makes them liable under Sec. 26.3 of the Securities Regulation Code. Moreover, Marlo Moron's alleged scheme, which resulted to the loss of Php700 Million worth Respondents' continuous disregard to perform their legal duty and tolerance of Marlo Moron's activity has become the business practice of R&L to the detriment of its clients, which of R&L client shares, could not have been perpetrated overnight. Thus, it could be said that
Consequently, under Section 54.1 of the SRC administratively penalize any violation of the SRC and its implementing rules and regulations --
Sec. 54.1 If, after due notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules or its order; xxx it shall, in its discretion, and subject only to the limitations hereinafter prescribed, impose any or all of the following sanctions as may be appropritate in light of the facts and circumstances:
(() {i} (iii A fine of no less thn Ten thousand pesos (P10,000.00) or more than One In case of violation of Sections 19.2, 20, 24, 26 and 27, disqualification from similar functions; of an issuer required to file reports under Section 17 of this Code or any other act, rule or regulation administered by the XxX being an officer, member of the Board of Directors, or persons performing Commission. million pesos (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day of continuing violation;
FINAL NOTE
The foregoing acts and violations committed by the Respondents indispensably contributed, if not the proximate cause of the losses incurred by the clients of R&L.
57 See People of the Philippines vs. Balasa (GR No. 108601-02, September 3, 1998)
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faith of the investors on the integrity of the capital market. We cannot tolerate and ignore any act or omission on the part of those involved in the capital market which would violate the norm set by the securities law especially on the transactions and responsibilities of Broker Dealers and that would diminish or even just tend to diminish the
their duties as officers, registered persons or employees. Likewise, the practice of installing undiscerning persons in entities involved in the capital market cannot be tolerated, let alone allowed to perpetuate. This must be curbed by holding accountable those who consciously and willfully commit wrongful acts in the performance of
development of the capital market and the protection of investors.58 The Respondents must be reminded that transactions involving securities affect the general public and the national economy. We stress that Republic Act No. 8799, otherwise known as the "The Securities Regulation Code," enunciates, inter alia, the State policy of promoting the
would be to abandon its duty of safeguarding public interest and the integrity of the capital For this Commission to cop-out and to close its eyes to these acts and deeds, while convenient, market. For this reason, it is totally unacceptable and unconscionable to place the Respondents' act and imprimatur on these issues that seriously endanger the integrity of entire securities market.
PENALTIES TO BE IMPOSED
Notwithstanding the provisions of SEC Memorandum Circular No. 6, series of 2005 (MC 6, s. 2005 or Circular), the Commission, in its discretion, has the power to impose other alternative penalties as provided for under Sec. 54.1 of the SRC.
The pertinent portion of Sec. 54.1 of the SRC is herein reproduced:
hereinafter prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and circumstances: Sec. 54.1 -- If after due notice and hearing, the Commission finds that: (a) there is a violation of this Code, its rules, or its orders (b) xxxxxxxxx (c) xxx XXX xxxxxx, it shall, in its discretion, and subject only to the limitations XXXXXX ()
(i) Suspension, or revocation of any registration for the offering of securities;
for each day of continuing violation; Million Pesos (P1,000,000.00) plus not more than Two Thousand Pesos (P2,000.00) (ii) A fine of no less than Ten Thousand pesos (P10,000.00) nor more than One
from being an officer, member of the Board of Directors, or persons performing (ili) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification
minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market.To achieve these ends, this Securities Regulation Code is hereby enacted. 5 SEC. 2. Declaration of State Policy. - The State shall establish a socilly conscious, free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities
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or any other act, rule or regulation administered by the Commission; similar functions, of an issuer required to file reports under Section 17 of this Code
proscribed by such Section; and the profit gained or loss avoided as a result of the purchase, sale or communication (iv) in the case of a violation of Section 34, a fine of no more than three (3) times
(v) Other penalties within the power of the Commission to impose. (emphasis supplied)
In the implementation of the foregoing and in order to give effect to the intent of the SRC, the Commission adopted SRC Rule 54.1 which mirrors the above-mentioned provision of law, thus:
xxxxxx, it shall, in its discretion, and subject only to the limitations hereinafter light of the facts and circumstances: violation of this Code, its rules, or its orders (b) xxxxxxxxx (c) xxxxxxxxx (d) xxx prescribed, impose any or all of the following sanctions as may be appropriate in 54.1 -- If after due notice and hearing, the Commission finds that: (a) there is a
securities; 54.1.1 Suspension, or revocation of any registration for the offering of
One Million Pesos (P1,000,000.00) plus not more than Two Thousand Pesos (P2,000.00) for each day of continuing violation; 54.2.2. A fine of no less than Ten Thousand pesos (P10,000.00) nor more than
(emphasis supplied) of this Code or any other act, rule or regulation administered by the Commission; times the profit gained or loss avoided as a result of the purchase, sale or communication proscribed by such Section; and performing similar functions, of an issuer required to file reports under Section 17 disqualification from being an officer, member of the Board of Directors, or persons 54.1.5. Other penalties within the power of the Commission to impose. 54.1.4. In the case of a violation of Section 34, a fine of no more than three (3) 54.1.3. In the case of a violation of Sections 19.2, 20, 24, 26 and 27,
case and the SEC is empowered to select the sanction appropriate to the facts and circumstances of each situation. On the basis of the above-quoted provisions, it is clear that the Code gives the SEC flexibility based on its discretion to impose various kinds of sanctions since not all sanctions apply in every
Company and any person found administratively liable for violating any provision of the SRC and its IRR. If fine alone is the penalty imposed, the maximum shall be Php1,000,000.00. The Commission may thus impose any of the above-mentioned alternative penalties against a
appropriate to the facts and circumstances of each case. Applying Section 54.1, therefore, it does not prohibit the Commission to impose sanction based on its discretion. prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and circumstances " operates to confer discretion to SEC to select the sanction To emphasize, the phrase "in its discretion, and subject only to the limitations hereinafter
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Thus, it could be said that the appropriate penalty under Sec. 54.1 of the SRC may be applied as an alternative penalty on the penalties imposed under MC 6, s.2005, which was issued purposely to rationalize the penalties to be imposed by the Commission to insure strict compliance with the Code and its IRR.
Likewise, under the same provision of the Circular it states that the imposition of the foregoing penalties shall be without prejudice to the imposition of other administrative sanctions or to the filing of criminal charges against the person/s responsible for the violation.
the penalties provided for in the SRC. The clear tenor and intention of Memorandum Circular is not to remove the application of SRC Section 54 as an alternative penalty, but to lay down a rule of preference in the application of
The pursuit of this purpose clearly does not foreclose the possibility of applying Section 54 for violators of any of the provision of the SRC. Neither does it defeat the legislative intent behind the law.
the Commission. Should the Commission decide that any of the provision under Section 54 of the SRC is the more appropriate penalty, Memorandum Circular No. 6 Series of 2005 ought not be deemed a hindrance. Hence, the Memorandum Circular establishes a rule of preference in the application of the administrative monetary penalty provision of SRC such that where the circumstances of both the offense and the offender clearly indicate good faith or a clear mistake of fact without taint of bad faith or negligence, otherwise, the imposition of a fine under the SRC should be considered as the more appropriate penalty. Needless to say, the determination of whether the circumstances warrant the imposition of a fine under the SRC provision rests solely upon
It is, therefore, understood that SEC Memorandum Circular No. 6 Series of 2005 does not remove the imposition of any of the penalty provided for under Section 54 of the SRC as an alternative penalty for violations of any of the provision of the SRC and its IRR.
Further, Section 29 of the SRC provides:
after due notice and hearing the Commission determines the application or registrant. be revoked, suspended, or limitations placed thereon, by the Commission if, Section 29. Revocation, Refusal or Suspension of Registration of Brokers, Dealers, Salesmen and Associated Persons. - 29.1. Registration under Section 28 of this Code may be refused, or any registration granted thereunder may
in the case of a registered broker, dealer or associated persons has failed to supervise, with a view to preventing such violation, another person who commits such violation; (a) Has wilfully violated any provision of this Code, any rule, regulation or order made hereunder, or any other law administered by the Commission, or
WHEREFORE, premises considered, the Panel finds that the Respondents violated the above. administrative sanctions: mentioned pertinent provisions of the SRC and the SRC IRR and hereby imposed the following
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A. R & L Investment, Inc.
1. A fine of One Million Pesos (P1,000,000.00) for violation of Rule. 28.1.5. (Registratior of Salesmen)
2. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.1. (Ethical Standards Rule)
3. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.1.2.3 (Capabilities) 4. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 52.1.1. (Books and Records Rule}
5. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 34 (Segregation and Limitation of Function of Members, Brokers and Dealers)
6. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.6. (Supervision)
7. Revocation of its license/registration as broker/dealer pursuant to Section 29 of the SRC for willfully violating all of the above-mentioned provisions of the SRC and the SRC IRR
B. Mr. Joseph Lee
1. A fine of One Million Pesos (P1,000,000.00) for violation of Sec. 51 in relation to Sec. 26 of the SRC and disqualification from being an officer, member of the Board of Directors or person performing similar functions pursuant to Sections 54.1, 28 and 29 of the SRC.
2. A fine of One Million Pesos (P1,000,000.00) for violation of Rule. 30.2.1. (Ethical Standards Rules)
3. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.1.2.3. (Capabilities)
4. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.6. (Supervision). 5. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 52.1.1. (Books and Records Rule)
6. A fine of One Million Pesos (P1,000,000.00) for violation of Rule. 28.1.5. (Registration of Salesmen)
7.Disqualification from being a registered person pursuant to Sections 28 and 29 of the SRC
C. Mr. Jonathan Lee
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1. A fine of One Million Pesos (P1,000,000.00) for violation of Sec. 26 in relation to 54 of the SRC and revocation of his license as Associated Person pursuant to Section 54.1 of the SRC.
Standards Rules) 2. A fine of One Million Pesos (P1,000,000.00) for violation of Rule. 30.2.1. (Ethical
3. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.1.2.3. (Capabilities)
4. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.6. (Supervision).
5. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 34 (Segregation and Limitation of Functions of Members, Brokers and Dealers)
6. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 52.1.1. (Books and Records Rule)
SRC 7. Disqualification from being a registered person pursuant to Sections 28 and 29 of the
performing similar functions pursuant to Section 54.1 of the SRC 8. Disqualification from being an officer, member of the Board of Directors or person
D. Ms. Lucy Linda Lee59
1. A fine of One Million Pesos (P1,000,000.00) for violation of Sec. 26 in relation to 54 of the SRC.
2. A fine of One Million Pesos (P1,000,000.00) for violation of Rule. 30.2.1. (Ethical Standards Rules)
3. A fine of One Million Pesos (P1,000,000.00) for violation of Rule 30.2.1.2.3. (Capabilities)
of Salesmen) 4. A fine of One Million Pesos (P1,000,000.00) for violation of Rule. 28.1.5. (Registration
In conformity with SRC Rule 30.2.6.3, which provides that the final responsibility for proper supervision shall rest with the Broker Dealer Company and Section 51 of the SRC, which states that the controlling person shall also be liable jointly and severally with and to the same extent as the controlled persons, R&L and Mr. Joseph Lee are held jointiy and severally liable for the monetary penalty imposed on its officers and employees. In sum, the total monetary penalties imposed upon all Respondents amount to Twenty-Two Million Pesos (Php 22,000,000.00).
hereafter secure. Finally, this Decision is without prejudice to any further action that the Investigation and Review Committee of MSRD may institute on the basis of evidence that it may, now or
59 Passed away on'December 14, 2020
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SO ORDERED."
11 June 2021
MARLON G.FACL Chairman
CAA EMMA A. VALENCIA ERWIN EDWARD P. MENDINUETO
Member Member
Copy furnished:
Roxas Boulevard, Pasay City. Secretariat Building, PICC Complex, ASSISTANT DIRECTOR ADAN EVAN O. PASCUA Markets and Securities Regulation Department Securities and Exchange Commission
671 Lee Street, Addition Hills, Mandaluyong City R&L INVESTMENT, INC.
JOSEPH LEE 671 Lee Street, Addition Hills, Mandaluyong City
671 Lee Street, Addition Hills, Mandaluyong City JONATHAN LEE
LUCY LINDA LEE58 671 Lee Street, Addition Hills, Mandaluyong City
SANTIAGO, CRUZ AND ASSOCIATES Counsel for Respondents Unit 1702, East Tower Philippine Stock Exchange Cenre Exchange Road, Ortigas Center, Pasig City 1605.
58 Passed away on December 14, 2020
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