SEC En Banc Case No. 04-12-255 In the matter of San Miguel Corporation, Appellant, versus Corporate Governance and Finance Department, formerly the Corporation Finance Department, Appellee.

Securities and Exchange Commission Republic of the Philippines Department of Finance Pasay City, Philippines

SAN MIGUEL CORPORATION IN THE MATTER OF: Appellant, SEC EN BANC Case No. 04-12-255

the Corporation Finance Depart- ment, FINANCE DEPARTMENT, formerly CORPORATE GOVERNANCE AND versus of SRC Rule 23 (Filing of SEC Forms 23-A and 23-B) sition of Fine/Penalty for violation For: Appeal from SEC-CFD's Letter dated 20 March 2012 on the impo-

Appellee.

DECISION

Corporate Governance and Finance Department (CGFD). The pertinent portions of the Assailed Order of the CFD read as follows: dum on Appeali filed by appellant San Miguel Corporation (SMC) on 17 April 2012 assailing the Letter-Order dated 20 March 2012 (Assailed Or- der) issued by the then Corporation Finance Department (CFD), now the Code and its Implementing Rules and Regulations particu- without merit. Reporting persons are strictly mandated to comply with the requirements of the Securities Regulation larly SRC Rule 23. For the consideration of the Commission En Banc is the Memoran "Please be informed that the reasons cited therein are

Ninety Three Thousand Nine Hundred Sixty Eight Pesos and 1/100 (P769,293,968.10), in accordance with the Con- solidated Scales of Fines (SEC Memorandum Circular No. of Seven Hundred Sixty Nine Million Two Hundred 6, Series of 2005) x x x In view thereof, the company is hereby assessed a penalty.

sessed penalty by way of cash, Manager or Cashier's Check five (5) days from receipt of this letter." payable to the Securities and Exchange Commission within San Miguel Corporation is hereby directed to pay the as.

: Memorandum on Appealdated 17 April 2012

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tries such as power, energy, telecommunications, mining and infrastruc- from its traditional core businesses and has made investments in indus- ture.3 on 21 August 1926 with SEC Registration No. PW 00000277.2 Following the shareholders' approval in 2007, SMC diversified Appellant SMC is a company duly registered with the Commission

stock dividends in favor of SMC. The payment of stock dividends in favor En Banc, SMC was imposed another penalty in the amount of Php 2,544,474.60 for its second violation of SRC Rule 23 due its late filing of SEC Form 23-B (Statement of Changes in Beneficial Ownership of Securi- ties) when San Miguel Pure Foods Company, Inc. (SMPFC) issued 18% Statement of Beneficial Ownership of Securities) and SEC Form 23-B to its acquisition of 817,189,000 shares in San Miguel Brewery, Inc. to enter into said SPA with the GSIS was disclosed to the Philippine Stock Exchange (PSE) on, as well as the CFD through SEC Form 17-C.5 reprimand by the CFD for its failure to submit SEC Form 23-A (Initial (Statement of Changes in Beneficial Ownership of Securities), in relation (SMB). Such failure is in violation of SRC Rule 23.6 lion Six Hundred Eighty-Seven Thousand Ten Pesos (Php 27,086,687,010.00), which was payable in three (3) years.4 Moreover, the approval of the board of directors of SMC authorizing its management] which the former acquired the latter's Twenty-Seven Percent (27%) stake in Manila Electric Company (Meralco), or around Three Hundred Million Nine Hundred Sixty-Three Thousand One Hundred Eighty-Nine (300,963,189) common shares in Meralco (Meralco Shares) at Ninety Pe- sos (Php 90.00) per share or around Twenty-Seven Billion Eighty-Six Mil- Agreement (SPA) with Government Service Insurance System (GSIS) in Thereafter, in an Order dated 9 December 2010 of the Commission In the meantime, on 11 May 2009, SMC was imposed a penalty of On 27 October 2008, SMC alleges that it executed a Share Purchase

5 Id., pars. 12 . 1 and 12.2, Annexes "D" (SMC's Letter to PSE dated 27 October 2008) and 6 Reply Memorandum, par. 2, Annex " 1" (Letter-Order of CFD dated I ! May 2009). 4 Memorandum on Appeal, par. 1 0. 2 Reply Memorandum dated 7 May 2012 of the CFD, par. i. 3 Memorandum on Appeal, par. 9. 'E" (SEC Form !7-C filed on 29 October 2008}

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of SMC resulted in a change of beneficial ownership.7 On 20 January 2011, SMC paid the assessed penalty.8

mentioned SPA executed on 27 October 2008. The completion of the pay- ment of the Meralco shares was disclosed to the PSE and to the CFD shares upon full payment of the purchase price pursuant to the above- through the SEC Form 17-C.9 On 5 August 2011, SMC completed the purchase of the Meralco

tween them. The execution of the SPA between SMC and SMPFC was ownership in Meralco, and the subsequent change in beneficial owner- mon shares in Meralco at Two Hundred Twenty (Php 220.00) per share, Hundred Ninety-Nine Thousand Nine Hundred Eighty Pesos (Php again disclosed to the PSE, and the CFD through the SEC Form 17-C.10 (Statement of Changes in Beneficial Ownership of Securities) which pro- vided the initial acquisition of more than ten percent (10%) beneficial ship.11 rectors had approved the sale to its subsidiary, SMPFC, Fifty-Nine Million Ninety Thousand Nine Hundred Nine Hundred Nine (59,090,909) com- or for around Twelve Billion Nine Hundred Ninety-Nine Million Nine 12,999,999,980.00) which was evidenced by the execution of a SPA be- tial Statement of Beneficial Ownership of Securities) and SEC Form 23-B On 22 February 2012, SMC filed with the CFD SEC Form 23-A (Ini- On 12 August 2011, SMC reported to the PSE that its board of di-

not be held liable for violation of SRC Rule 23(1)(A).12 acquisition of more than ten percent (10%) beneficial ownership in Meralco. The CFD stated that said belated filing is in violation of SRC Rule show cause, within five (5) days from receipt of such letter, why it should the former that it belatedly filed its SEC Form 23-A relative to its initial 23(1)(A) which provides that SEC Form 23-A must be filed within ten (10) days after it becomes a beneficial owner. Thus, SMC was directed to On 14 March 2012, SMC received a Letter from the CFD informing

9 Memorandum on Appeal, par. 13. Annexes "L" (SMC's Letter to PSE dated 12 August 1: /d., par. 1 7, Annexes "P" (Initial Statement of Beneficial Ownership of Securities - SEC I2 Id. par. 18, and Annex "R" (Letterdated 7 March 20! 2 regarding SMC's belated filing 7 /d., par. 7. Annex "3" (Decision of the Commission En Banc dated 9 December 20:0). 10 /d. pars."15 to 15.4, Annexes "L" (SMC's Letter to PSE'dated 12 August 20!1). "N" 8 id.. par. 8. Form 23-A) and "Q" (Statement of Changes in Beneficial Ownership of Securities - SEC Form 23-B}: of SEC Form 23-A 201I} and "M" (SEC Form i 7-C filed on 15 August 201 1) (SMC's Letter to PSE dated ! 6 August 201 1) and "O" (SEC Form 17-C filed on 17 August 20

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violation of SRC Rule 23(1)(B).13 Meralco. Lastly, the CFD stated that SMC must file the SEC Form 23-B SRC Rule 23(1)(B). Thus, the CFD directed SMC to show cause, within five Hundred Thousand Six Hundred Thirty Six (54,168,636) shares of (5) days from receipt of such letter, why it should not be held liable for from CFD informing the former that it belatedly filed its SEC Form 23-B relative to its change in beneficial ownership in Meralco. The Letter of CFD stated that SMC was One Hundred Sixty Five (165) days late in re- porting its disposition of the shares in Meralco to SMPFC. The said Letter likewise stated that SMC was One Hundred Sixty Five (165) days late in reporting its indirect acquisition of the Fifty-Four Million One Sixty Eight within ten (10) days after the close of each calendar month pursuant to On the same day, SMC received another Letter dated 7 March 2012

MC No. 6-05), computed as follows: 23-B due to inadvertence. However, SMC claims that it made various dis- stock in Meralco albeit not through the SEC Form 23-A and SEC Form 23- B. Thus, SMC requested for the utmost consideration and indulgence of the Commission in not imposing any sanction on it.14 19 March 2012, is without merit since reporting persons are strictly re- Code (SRC)16 and its implementing rules and regulations (IRR), particu- larly SRC Rule 23 of the IRR. As a consequence, SMC was assessed a pen- alty of Seven Hundred Sixty Nine Million Two Hundred Ninety Three Thousand Nine Hundred Sixty Eight Pesos and 1/100 Fines under SEC Memorandum Circular No. 6, Series of 2005 (SEc- Letter stating that it did not timely file its SEC Form 23-A and SEC Form closures to the Commission regarding its transactions of the shares of (P769,293,968.10), in accordance with the Consolidated Scales of that the reasons cited by SMC, in its Letter filed with the Commission on quired to comply with the requirements of the Securities and Regulation In response, SMC filed on 19 March 2012 with the Commission a The CFD issued the Assailed Orderi5 dated 20 March 2012 stating

visions SRC/IR R Pro. scrip tion De. Second Offense on SEC Form 23-A Second Offense on SEC Form 23-B Amount Total

14 Id., par. 20. and Annex "T" {Letterdated 19 March 2012 of SMC}. 13 Id., par. 19 and Annex "S" (Letter dated 7 March 2012 regarding SMC's belated fling) 15 Id., Annex "A" (Letterdated 19 March 2012 of SMC}. 16 Republic Act No. 8799 (2000). of SEC Form 23-A)

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Section SRC Rule 23 23: ing of SEC Form 23 A/B Late Fi higher plus Php of delay position, or Php transaction, whichever 100.00 per day 1% amount 10,000.00 purchase or dis- of of each per the is higher plus Php 200.00 per day purchase or dis- position, or Php transaction, whichever of delay 2% amount of each 20,000.00 of per the IS

from GSIS: (i) August guisition of the Meralco shares BASIC: 2011 direct ac- 5 Meralco_shares to its subsidiary (ii) August 24 SMPFC: 2011 direct dis- position of

300,963,189 BASIC:

share common shares @ Php 90.00 per Php mon shares @ 59.090.909 com Php 220.00 per share 27,086,687,010. 00 1% Y X 00 12,999,999,980. Php 2%

Php 270,866,870.10 259.999,999.60 Php

DAILY: PHP 100.00 DAILY: PHP 200.00 x 191 davs17 Php 19,100.00 x 165 days18 Php 33,000.00

[iii) Auqust 24 2011 indirect acquisition of

17 Due date 15 August 2011 and filed on:22 February 2012, which is 191 days late. 18 Due date 10 September 201 1 and filed on 22 February 2012, which is i 65 days late.

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since 91.67% of SMPFC is oWned Meralco shares by the SMC: BASIC: 54,168,636 com- Php 220.00 per mon shares @ share Php 00 11,917,099,920.

N 2%

238,341,998.40 DAILY: Php

PHP 200.00 x 165 days19 Php 33,000.00

270,885,970.10 TOTAL: Php Php 498,407,998.00 TOTAL: 769,293,968. TAL: 10 GRAND Php TO-

Hence, this appeal.

tion of the second and subsequent violations were not committed within lation), in assessing it the penalty or administrative fine; (ii) the CFD in- correctly applied SEC-MC No. 6-05 when it characterized the belated fil- ing of the SEC Form 23-A and SEC Form 23-B as the "second offense" and "third offense" instead of just "first offense" considering that the imposi- act in accordance with the limitations on the amount of imposable fines prescribed under Section 54.1(ii) of the SRC (i.e., not more than Php 1,000,000 plus an additional Php 2000.00 for each day of continuing vio- In its Memorandum on Appeal, SMC argues that: (1) the CFD did not

i9 Due date 10 September 201 I and fied on 22 February 2012, which is 165 days late.

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belated reporting of just one transaction; (iv) the CFD is guilty of viola- proportionate to the offense committed (i.e. belated filings of the SEC Form 23-A and SEC Form 23-B); (v) it substantially complied with the actions covering its purchase of the Meralco shares from GSIS and its transfer to SMPFC; and (vi) that justice and equity warrant the substan- tial mitigation or even outright elimination of the penalty or administra- a twelve (12) month period counted from the first offense as required Memorandum Circular No. 02-03 (SEC-MC No. 02-03); (iii) the CFD erred in calculating twice the imposable penalty for the "third offense" of SRC Rule 23.1(B) since there should have just one imposable penalty for the tion of SMC's right to substantive due process when it assessed the pen- alty or administrative fine of Php 769,293,968.10, which is grossly dis- spirit of SRC Rule 23 by disclosing to the PSE and Commission the trans- under SEC Memorandum Circular No. 01-01 (SEC-MC No. 01-01) and SEC tive fine.20

to recommend a reduction or outright elimination of the assessed pen- month period for the offenses committed; (3) that there were two trans- actions entered into by SMC when it disposed its shares to SMPFC (i.e. tion of the Meralco shares as a consequence); and (4) that it has no basis aty 2012 claims that: (1) the Commission has the authority to impose sanc- tions for violations of the laws and rules under Section 5(f) of the SRC; (2) SEC-MC No. 01-01 and SEC-MC 02-03 were repealed by SEC-MC No. 6-05 and that there is no need to consider the counting of the twelve (12) direct disposition of the Meralco shares to SMPFC and indirect acquisi- In response, the CFD in its Reply Memorandum21 filed on 7 May

ment)22 praying that the Commission grant it leave to file a Comment on Appellee's Reply Memorandum. Comment on Appellee's Reply Memorandum (Motion for Time to File Com- On 21 May 2012, SMC filed a Motion for Leave and for Time to File

2: Reply Memorandum dated i May 202. 22 Motion to File Comment dated 2'1 May 20 1 2. 20 Memorandum on Appeal, pp. I 6-1 8.

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sought denial thereof claiming, among others, that such motion is a pro- hibited pleading under the 2006 Rules of Procedure of the Commission (Rules).23 In response to the Motion for Time to File Comment, the CFD

Memorandum, SMC reiterates its arguments stated in its Memorandum the Reply Memorandum filed by and praying that the Commission admit its Comment to the Reply Memorandum.25 In the Comment on the Reply likewise filed on 11 June 2012 by SMC attaching therein its Comment on on Appeal. A Motion To Admit Attached Comment on Reply-Memorandum24 was

on Appellee's Reply Memorandum and Motion To Admit Attached Comment on Reply-Memorandum are not prohibited pleadings under Section 3-6 of the Rules, the said motions are admitted. Considering that the Motion for Leave and for Time to File Comment

The issues to be resolved are the following: (i) whether the administrative fine is in excess of the limita- tions prescribed in Section 54.1(ii) of the SRC; (ii) whether the belated filing of SEC Form 23-A and SEC (iii) whether SMC should be assessed twice a penalty for belatedly reporting its sale of Meralco shares to its subsid- iary, SMPFC; and Form 23-B should be characterized as a "first offense"

(iv) whether the fine imposed on SMC by CGFD is grossly (v)whether SMC complied with the spirit of SRC Rule 23; and (vi)whether SMC acted in good faith. disproportionate to the administrative offense;

ISTRATIVE OFFENSE COMMITTED ITATIONS PROVIDED FOR UNDER PROPORTIONATE TO THE ADMIN- FINE IS NOT IN EXCESS OF THE LIM- THE SRC AND IS NOT GROSSLY DIS-

ance with the limitations on the amount of imposable fines prescribed under Section 54.1(ii) of the SRC (i.e., not more than Php 1,000,000.00 As to the first issue, SMC argues that the CFD did not act in accord-

25 Comment to the Reply Memorandum dated I ! June 201 2. 23 Comment/Opposition on Motion for Leave and for Time to File Comment on Appel 24 Dated 11 June 2012. lee's Reply Memorandum dated 22 May 201 2 of the CFD and filed on 24 May 20 1 2.

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is supreme in matters falling within its own constitutionally allocated principle of non-delegation of powers, as expressed in the Latin maxim potestas delegata non delegari potest (what has been delegated cannot be delegated). This is based on the ethical principle that such delegated power constitutes not only a right but a duty to be performed by the del- invalid exercise of legislative power if the CFD were to impose a penalty or administrative fine of Php 769,293,968.10 which would exceed the cap or limitation of Php 1,000,000.00 provided under Section 54.1 (ii).26 ment of Energy, et al.",27 had the occasion to discuss the principle of non- delegation of powers. The principle of separation of powers ordains that each of the three branches of government has exclusive cognizance of and sphere. A logical corollary to the doctrine of separation of powers is the egate through the instrumentality of his own judgment and not through the intervening mind of another. plus an additional Php 2000.00 for each day of continuing violation), in (ii) should be considered written in SEC-MC No. 6-05. Otherwise, the ap- plication of SEC-MC No. 6-05 would become illegal and will constitute an assessing it the penalty or administrative fine. SMC claims that the stat. utory cap or limitation of Php 1,000,000.00 provided under Section 54.1 The Supreme Court, in the case entitled "Gerochi, et al. v. Depart-

mandates adequate guidelines or limitations in the law to determine the be not in contradiction to, but in conformity with, the standards pre- ness test and the sufficient standard test. delegate, the only thing he will have to do is to enforce it. The second test lowed as an exception to this principle. Given the volume and variety of interactions in today's society, it is doubtful if the legislature can promul- gate laws that will deal adequately with and respond promptly to the mi- bodies - the principal agencies tasked to execute laws in their specialized fields - the authority to promulgate rules and regulations to implement a given statute and effectuate its policies. All that is required for the valid exercise of this power of subordinate legislation is that the regulation be germane to the objects and purposes of the law and that the regulation scribed by the law. These requirements are denominated as the complete- conditions when it leaves the legislature such that when it reaches the of legislative power to various specialized administrative agencies is al- nutiae of everyday life. Hence, the need to delegate to administrative Under the first test, the law must be complete in all its terms and In the face of the increasing complexity of modern life, delegation

26 Memorandum on Appeal, par. 47. 27 G.R. No. 159796, 17 July 2007.

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boundaries of the delegate's authority and prevent the delegation from running riot.

mission to impose fines and penalties is found in Section 5.1 thereof which provides the following: Here, the SRC is complete in itself since the authority of the Com-

lowing powers and functions: "x x x [T]he Commission shall have, among others, the fol-

X X X

sons to ensure compliance; x x x (d) Regulate, investigate or supervise the activities of per-

supervise compliance with such rules, regulation and orders; X X X regulations and orders, and issued pursuant thereto; and orders, and issue opinions and provide guidance on and (f) Impose sanctions for the violation of laws and rules, (g) Prepare, approve, amend or repeal rules, regulations

purposes of these laws.;" essary or incidental to the carrying out of, the express pow- ers granted the Commission to achieve the objectives and as well as those which may be implied from, or which are nec. (n) Exercise such other powers as may be provided by law

penalties is likewise found in Section 54.1 of the SRC which provides the following: Additionally, the power of the Commission to impose fines and

hereinafter prescribed, impose ANY or ALL of the follow- ing sanctions as may be appropriate in light of the facts and circumstances: notice and hearing the Commission finds that: (a) There is a violation of this Code, its Rules, or its orders; x x x it shall, in its discretion, and subject only to the limitations "Section 54. Administrative Sanctions. - 54.1. If, after due

fering of securities; (i) Suspension, or revocation of any registration for the of-

continuing violation; nor more than One million pesos (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day of (ii) A fine of no less than Ten thousand pesos (P10,000.00)

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Board of Directors, or person performing 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 and 27, disqualification from being an officer, member of the Commission; (ii) In the case of a violation of Sections 19.2, 20, 24, 26

more than three (3) times the profit gained or loss avoided as result of the purchase, sale or communication proscribed by such Section, and (iv) In the case of a violation of Section 34, a fine of no

sion to impose." (Emphasis ours) Lastly, Section 72.1 of the SRC provides: (y) Other penalties within the power of the Commis-

Code, the Commission may issue, amend, and rescind such rules and regulations and orders necessary or ap propriate x x x" "x x x To effect the provisions and purposes of this

tion of legislative power. Thus, the law is complete and passes the first test for valid delega-

icta29 and in De la Llana vs. Alba30 the Court held: "The standard may be stated that the required "standard" need not be expressed. In Edu vs. Er- either express or implied. If the former, the non-delegated objection is easily met. The standard though does not have to be spelled out specifi- cally. It could be implied from the policy and purpose of the act con- sidered as a whole.' As to the second test, the Supreme Court in Maceda v. Macaraig28

and so was "protection of fish fry or fish eggs.34 in Cervantes vs. Auditor General,33 it was the purpose of promotion of "simplicity, economy and efficiency." And, implied from the purpose of the law as a whole, "national security" was considered sufficient standard deemed sufficient. In Calalang vs. Williams,32 it was "public welfare" and In People vs. Rosenthal31 the broad standard of "public interest" was

28 G.R. No. 88291, 31 May 1991 30 1:2 SCRA 294 (1982} 29 35 SCRA 481 (1970) 31 68 Phil. 328 (1939) 32 70 Phil. 726{1940) 33 91 Phii 359 (1952}) 34 See Note 29

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valid delegation, as they provide the limitations on the Commission's power to formulate administrative regulations. These are sufficient SRC, which states, among others, "to ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market", meets the requirements for standards. Here, the declaration of the state policy provided in Section 2 of the

joined, every particular power necessary for the exercise of the one or the performance of the other is also conferred. Moreover, when the statute ther stated that when a general grant of power is conferred or duty en- ule of penalties since Section 3(k) of the decree mandates the MTRCB "to exercise such powers and functions as may be necessary or incidental to the attainment of the purpose and objectives of [the law]." The Court fur- fense committed, charged, and proved." the Implementing Rules and Regulations of Presidential Decree No. 1986, decree, since the decree itself does not expressly prescribe the imposition of, or authorize the MTRCB to impose, penalties against violators. Supreme Court, in the case of Soriano v. Laguardia,36 explained that the surely be a meaningless grant if it did not carry with it the power to pe- nalize the supervised or the regulated as may be proportionate to the of- prescribing a schedule of penalties for violation of the provisions of the impose penalties and fines is found in Section 54.1(ii) of the SRC (i.e., a fine of no more than more than One million pesos [P1,000,000.00]). million pesos (P1,000,000.00) as found in Section 54.1 (v) of the SRC (i.e. other penalties within the power of the Commission to impose).35 The "investiture of supervisory, regulatory, and disciplinary power would evision Review and Classification Board (MTRCB) erred in promuIgating ministrative penalties and fines is found in the declaration of the state De La Llana. This is contrary to SMC's argument that the limitation to policy provided in the SRC as stated in the case of Maceda, citing Edu and The petitioner in said Soriano case argued that the Movie and Tel- The Court held that MTRCB is authorized to promulgate the sched- In fact, the Commission is authorized to impose penalties over One Clearly, the limitation in the Commission's authority to impose ad-

35 it must be pointed out that, in the case of Celebrity Sports Plaza, Inc. v. Barin, G.R. No. 36 G.R. No. 1 64785, G.R. No. 1 65636, 29 April 2009. imposing a penalty over One million pesos (P 1,000.000.00) on the company pursuant to SEC-MC No. 06-05. 2056 1 6, 1 0 December 2014, the Supreme Court affirmed the order of the Commissior

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agency has the authority to adopt any reasonable method to carry out its does not specify the particular method to be followed or used by a gov- ernment agency in the exercise of the power vested in it by law, said function.

yond Section 54.1(ii) of the SRC since the language of Section 54.1 following sanctions" enumerated under Section 54.1. In other words, the administrative penalties under Section 54.1 are cumulative, not alterna- provided under Section 54.1 (ii) of the SRC. thereof, taken as a whole, indicates that Congress conferred sufficient au- thority to the Commission to impose "other penalties" beyond the specific limits indicated under item (ii) of the provision. The same provision, in fact, confers on the Commission the authority to "impose ANY or All of the tive, in character.37 penalties to ensure full and fair disclosure about securities, and to mini- mize if not totally eliminate insider trading and other fraudulent or ma- nipulative devices and practices which create distortions in the free mar- ket, pursuant to the declaration of the state policy under Section 2 of the sion to adopt SEC-MC No. 6-05 that prescribes penalties beyond the limits SRC. Moreover, these powers provide sufficient bases for the Commis- Further, the Commission has the authority to impose a penalty be- Thus, the same reasoning applies to the Commission in imposing

and the amount of fine imposed must be regularly updated to the appro- sessment of fine as simply the costs of doing business, and thus ignore ties" recognizes the fact that the securities regulation is a dynamic field, priate magnitude so that persons regulated would not consider the as- compliance. This grant of discretion to the Commission to impose "other penal-

ent Delgado Shipping Agency was imposed a fine pursuant to Section 2523 of the Tariff and Customs Code. Section 2523 of the Tariff and Cus- toms Code provides, to wit: pursuant to SEC MC 06-05 is grossly disproportionate to the violation committed and is violation of its right to substantive due process. It must be pointed out that in the Supreme Court case, entitled "Commissioner of Customs v. Delgado Shipping Agency, et al.", the Court stated that respond- Next, as to the fourth issue, SMC argues that the penalty imposed

37 In the case Court of Appeals case entitied "Finvest Development Corporation v. Secu- mission argued that Section 54. 1 confers on the Commission the authority to "impose dismissed the petition filed by Filinvest Development Corporation. ANYor All of the following sanctions" enumerated thereunder. The Court of Appeals rities and Exchange Commission". CA-G.R. Sp No. 1 18825, 26 January 20 1 5. the Com-

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be of the opinion that such discrepancy was due to the care- lessness or incompetency of the master or pilot in command, more than fifteen (15) percentum of the value of the pack- age or article in respect to which the deficiency exists, may be imposed upon the importing vessel or aircraft." than twenty (20) percentum the gross weight as declared in the manifest or bill of lading thereof, and the Collector shall owner or employee of the vessel or aircraft, a FINE of not Weight of Manifested Article. - If the gross weight of any arti- cle or package described in the manifest exceeds by more (Emphasis Ours) "SEC. 2523. Discrepancy Between Actual and Declared

cargo. Moreover, the provision, much like in SEC MC 06-05, did not pro- vide any limitation or cap as to the monetary penalty to be imposed on (15%) of the value of the package or article may be imposed on the im- the violator except not more than fifteen percent (15%) of the value of the package or article. porting vessel or aircraft for failure to declare the correct weight of its As can be gleaned above, a fine of not more than fifteen percent

tortions in the free market. In order to ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading, the Commission, pursuant to its powers, promulgated SEC-MC No. 6-05 im- posing penalties based on the amount of the transaction involved (e.g., tioned penalty on SMC pursuant to SEC MC 06-05. The evident purpose of the Commission in imposing administrative fines on companies is in furtherance of the state policy in ensuring full and fair disclosure about securities and minimizing if not totally eliminating insider trading and other fraudulent or manipulative devices and practices which create dis- of Customs, the Commission has the power to impose the above-men- posing a minimum fine would only embolden would-be smugglers and foster gross negligence on the part of the mas- ter of the vessel in checking the true weight of the cargo." In which case, following the doctrine enunciated in Commissioner The Supreme Court stated: vessels to declare the correct weight of their cargo is to curb smuggling due to under declarations. Hence, imposing the maximum fine on vessels which grossly fail to comply with the obligation to declare the correct weight of their cargo truly promotes the spirit and purpose of the law, since im- "The evident purpose of the codal provision requiring

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sure about securities and eliminate insider trading will be utterly de- dreds of millions of pesos, the potential financial gains from non disclo- sure of information and insider trading will be far greater than the pen- will far outweigh the penalty for violation. If this situation were sus- tained, then clearly, the objective of the SRC to ensure full and fair disclo- feated. be encouraged to comply since the gains they would potentially receive from violating the rule far outweigh the penalty imposed for the violation. 54 (ii) of the SRC, that is, Php 1,000,000.00 plus not more than Php 2,000.00 for each day of continuing violation, as argued by SMC, the pen- alty loses its deterrent effect. In a securities transaction involving hun- could easily shoulder the penalty as a business expense, and they will not alty of over Php 1,000,000.00. The potential reward for non compliance 1% of the amount of each purchase, etc.). It is necessary to base the pen alty on the amount of the transaction involved because persons regulated If the penalty were restricted to the limits prescribed under Section

commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equita- ble principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might re- lidity of SEC MC 06-05 since it paid the assessed penalty of Php 2,544,474.60 on 20 January 2011. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or Sult.38 Lastly, SMC is precluded based on estoppel from disputing the va-

when it raised this issue for the first time. Clearly, public policy and fair from arguing that the CFD did not act in accordance with the limitations on the amount of the fine prescribed under Section 54.1 (ii) of the SRC each day of continuing violation). SMC did not object to the assessed pen- had an opportunity to do so. In fact, SMC made such payment without dealing dictate that SMC cannot raise the limitation under Section 54.1 (ii) of the SRC after it has already paid more than the said limitation. (i.e., not more than Php 1,000,000.00 plus an additional Php 2000.00 for alty of Php 2,544,474.60 for its second violation of SRC Rule 23 when it any objection. It is only after SMC received the instant Assailed Order In which case, SMC is forbidden under the principal of estoppel

38 Megan Sugar Corporation, G.R. No. i 70352, 1 June 201 1.

SEC En Banc Case No. 04-! 2-255 San Miguel Corp. v. CGFD Page 16 of 27 Decision

SMC'S FIRST OFFENSE FORM 23-A AND 23-B IS NOT THE BELATED FILING OF SEC

mitted as "first offense" pursuant to SEC MC No. 01-01 and SEC MC No. 02-03. Moreover, SEC MC No. 01-01 and SEC MC No. 02-03 are not re- pealed by SEC MC No. 06-05. Form 23-A and SEC Form 23-B on 22 February 2012 should constitute a "first offense". The reason, SMC argues, is that they were committed out- side the twelve (12) month period which will consider the offenses com- As to the second issue, SMC argues that the belated filing of SEC

late or incomplete filing of Statement of Beneficial Ownership (SEC Form the circular does not mention any "12 month period" as claimed by SMC. provides that every person who is directly or indirectly the beneficial and third offenses as well as a penalty for the fourth offense. However, as a substitute; thus, it will operate to repeal the earlier law.39 be imposed for the late filing of reports, such as the Statement of Benefi- lar provides penalties for the first, second and third offenses. However, the circular provides that the "second and third offenses shall refer to subsequent violations within a 12 month period from the first offense." for the late or incomplete filing of Statement of Beneficial Ownership (SEC Form 23-A or B) pursuant to Section 23 of the SRC. The circular owner of ten percent (10%) of any class of any security shall, within ten (10) days after he becomes such a beneficial owner, file such statement with the Commission. The circular provides penalties for the first, second cial Ownership for every person who is the beneficial owner of ten per- cent (10%) or more of any class of any security of a company. The circu- substantial conflict exists between the new and the prior laws. There are two instances of implied repeal. One takes place when the provisions in the two acts on the same subject matter are irreconcilably contradictory, in which case, the later act, to the extent of the conflict, constitutes an implied repeal of the earlier one. The other occurs when the later act covers the whole subject of the earlier one and is clearly intended Next, SEC MC No. 06-05, also provides for the scale of fines for the On the other hand, SEC MC No. 02-03 provides for the scale of fines SMC's argument is misplaced. An implied repeal transpires when a In this case, SEC MC No. 01-01 provides that the scale of fines shall

39 Bank of Commerce v. Pianters Deveiopment Bank, et al. G.R. Nos. 1 54470-7 1and G.R. Nos. 154589-90. 24 September 2012.

SEC En Banc Case No. 04-12-255 San Miguel Corp. v. CGFD Page 17 of 27 Decision

the late filing of the Statement of Beneficial Ownership for every person any security of a company. The subject matter of both circulars is the scale of fines for the late filing of such Statement of Beneficial Ownership. late filing. Clearly, there was intent on the part of the Commission to sub- stitute SEC MC No. 01-01 when it was impliedly repealed by SEC MC No. 23-A or B). The filing of the Statement of Beneficial Ownership is pursu- 01 by the issuance of SEC MC No. 02-03 as to imposition of penalties for who is the beneficial owner of ten percent (10%) or more of any class of Moreover, both impose a fine for the first, second and third offenses for 02-03 since the later covers the late filing of the Statement of Beneficial Ownership. As a consequence, the "twelve month period" mentioned in SEC MC 02-03 is deleted. ant to Section 23 of the SRC and SRC Rule 23 of the IRR. Moreover, the circular likewise provides penalties for the first, second, third and fourth offenses. However, the circular does not mention any "12 month period". It would appear that there is an implied repeal of SEC MC No. 01-

No. 06-05. SEC MC No. 06-05 also does not mention any "twelve month for the late filing of Statement of Beneficial Ownership, as required by fenses for late filing of the Statement of Beneficial Ownership. Again, there was an intent on the part of the Commission to substitute the scale of fines for the belated filing of the Statement of Beneficial Ownership when it impliedly repealed SEC MC No. 02-03 by the issuance of SEC MC 06-05. The subject matter of both circulars is likewise the scale of fines Section 23 of the SRC, by every person who is the beneficial owner of ten percent (10%) or more of any class of any security of a company. More- over, both circulars impose fines for the first, second, third and fourth of- period". Next, SEC MC No. 02-03 has been impliedly repealed by SEC MC No.

by SEC MC No. 02-03, which was likewise implied by SEC MC No. 06-05, not apply and the penalties imposed for the second and third offenses for the late filing of the SEC Form 23-A and SEC Form 23-B shall be assessed the "twelve month period" as provided for under SEC MC No. 01-01 does against SMC. Hence, considering that SEC MC No. 01-01 was impliedly repealed

ONE TRANSACTION, TWO OUT- COMES

claims that there is only one (1) transaction covering the sale of a portion entered into by SMC when it sold a portion of its shares to SMFPC, SMC As to the third issue, as to whether there were two (2) transactions

SEC En Banc Case No. 04-12-255 San Miguel Corp. v. CGFD Page 18 of 27 Decision

ously. Again, SMC's argument is misplaced. of Meralco shares to SMFPC, and that the changes occurred simultane-

However, it does not detract from the fact that it resulted in two outcomes -- a change in BOTH THE DIRECT and INDIRECT ownership of SMC over the said Meralco shares. Indeed, there was only one transaction, contrary to CFD's findings.

Section 23.1 of the SRC provides:

SRC Rule 23.1 of the IRR provides: ter he becomes such a beneficial owner, director, or of- ficer, a STATEMENT with the Commission and, if such se- curity is listed for trading on an exchange, also with the ex- has been a change in such ownership at the close of the calendar month and such changes in his ownership as have occurred during such calendar month." the beneficial owner of more than ten per centum (10%) of any class of any equity security which satisfies the re. quirements of subsection 17.2, or who is a director or an of- ficer of the issuer of such security, shall file, at the time ei- ther such requirement is first satisfied or after ten days af- change of the amount of all the equity security of such issuer of which he is the beneficial owner, and within ten days af- ter the close of each calendar month thereafter, if there "23.1. Every person who is DIRECTLY or INDIRECTLY

all securities of such issuer of which he is the beneficial tor or an officer of the issuer of such security, shall file: ficer, subsequent to the effective date of the registration statement, whichever is earlier, file a statement with the Commission, and with an Exchange if the security is listed on that Exchange, on Form 23-A indicating the amount of beneficial owner of ten percent (10%) or more of any class of any security of a company which satisfies the re- istration statement for that security, or within ten (10) days after he becomes such beneficial owner, director or of- owner. quirements of subsection 17.2 of the Code, or who is a direc. A. within ten (10) days after the effective date of the reg. "1. Every person who is DIRECTLY or INDIRECTLY the

month thereafter, if there has been any change in such B. within ten (10) days after the close of each calendar

SEC En Banc Case No. 04-1 2-255 San Miguel Corp. v. CGFD Page 1 9 of 27 Decision

on that Exchange, on Form 23-B indicating his ownership his ownership as have occurred during the calendar month." (Emphasis ours) ownership during the month, file a statement with the Commission, and with an Exchange if the security is listed at the close of the calendar month and such changes in

sion after there has been any change in such ownership. (10%) or more of any security, to file SEC Form 23-B with the Commis. person, who is directly or indirectly the beneficial owner of ten percent Section 23 of the SRC, in relation to SRC Rule 23, requires that every

iary, SMPFC, there was a change in beneficial ownership of the former in the following manner: (i) SMC, as the direct beneficial owner, disposed the 59,090,909 Meralco shares to its subsidiary; and (ii) SMC, as the indi- rect beneficial owner, acquired 54,168,636 Meralco shares since it is the owner of 91.67% of SMPFC. Thus, there were two (2) changes in the ben- eficial ownership, directly or indirectly, of SMC as a result of the disposi- tion of shares by SMC. In which case, when SMC disposed the Meralco shares to its subsid-

and SRC Rule 23 of the IRR to file two (2) separate SEC Forms 23-B since there were two (2) changes in its beneficial ownership. As a consequence, SMC is mandated under Section 23.1 of the SRC

NO SUBSTANTIAL COMPLIANCE WITH SRC RULE 23

the spirit of SRC Rule 23 by disclosing to the PSE and Commission, through the SEC Form 17-C, the transactions covering its purchase of the Meralco shares from GSIS and its transfer to SMPFC. Such argument is misplaced. As to the fifth issue, SMC argues that it substantially complied with

it. The steady flow of timely, comprehensive, and accurate information sions based on what they know. Thus, it is crucial that all investors, whether large institutions or private individuals, should have access to basic facts about an investment prior to buying it, and so long as they hold are able to make rational investment decisions. And, people make deci- allows investors to make sound decisions that facilitate efficient capital formation that is important to a nation's economy. Maximum efficiency in the capital markets is achieved when people

fair disclosure about securities, minimize if not totally eliminate insider Thus, as stated above, it is the policy of the State to ensure full and

SEC En Banc Case No. 04-12-255 San Miquel Corp. v. CGFD Page 20 of 27 Decision

trading and other fraudulent or manipulative devices and practices which create distortions in the free market.

To achieve this policy, SRC Rule 23 requires insiders, particularly directors, officers and principal stockholders of the issuer to file: (1) SEC Form 23-A (Initial Statement of Beneficial Ownership of Securities)

(2) SEC Form 23-B (Statement of Changes in Beneficial Ownership of Se- there is a change in beneficial ownership. within ten (10) days from the approval of the Registration Statement; and curities) within ten (10) days after the close of each calendar month if

SRC Rule 23 merely demonstrates the state's policy of insuring full and fair disclosure of securities in order to protect the investors. Such rule on disclosure is designed to assist in an informed investment deci- sion, those contemplating the purchase, holding or disposition of securi-

curities.40 Moreover, the rationale for requiring the filing of the SEC Form 23-A and SEC Form 23-B within the respective prescribed periods is to ties, thereby providing for the integrity of fair and orderly trading of se-

prevent any possibility of insider trading.41

It must be pointed out that insider trading undermines investor

beneficial owners of the securities, directors and officers of the issuer, by reason of their relationship to the issuer, have access to insider infor- mation that could be used in making short-swing profits. In order to confidence in the fairness and integrity of securities markets. Substantial

maintain fairness and stability in the securities market, such insider in- formation must be disclosed as soon as practicable to the investing pub- lic. Time is of the essence since as long as material information remains

main in an advantageous position, and there is always potential for in- undisclosed to the public, persons who are privy to the information re- sider trading.

even though, the same may have been done in small increments over a a creeping acquisition of principal stockholders and to ensure that the same are in conformity with the requirements of the Code. For instance, Section 19 of the SRC requires a tender offer for an acquisition of shares, Moreover, SEC Form 23-A and SEC Form 23-B are meant to monitor

40 See Union Bank of the Phippines v. Securities and Exchange Commission, G.R. No. 41 Securities and Exchange Commission (200 1}. History of the Securities and Regulation Disclosure Policy of the Revised Security Act (now Securities Regulation Code) See Treatment under the Security Act of I 933 and the Securities Exchange Act of 1934. 18 New Eng. L. Rev. 787(1 982-1983) also. V. Gerard Comizio, Keeping Corporate Information Secret: Confidential Code, {page 38}, Mandaluyong City, Philippines. 138949 (2001). where the Supreme Court cited the objectives of the Full Material

SEC En Banc Case No. 04-! 2-255 San Miguel Corp. v. CGFD Page 21 of 27 Decision

of equity, the Commission is on notice for possible creeping acquisition specified period. The moment a single stockholder holds 10% of any class activity, in violation of tender offer requirements.

tion by members of an inside group who might use their inside infor- mation for selfish purposes. On the other hand, Subsection 23.3 prohibits two (2) speculative transactions (i.e., short sales44 and sales against the box45) since the sellers have access to inside information, and hence, there is a potential for speculative abuse.46 lation, but should be read with the other provisions of the SRC, especially Subsections 23.242 and 23.3 thereof.43 Subsection 23.2 is intended to pre- vent any possibility of insider trading by curtailing short-term specula- Further, Subsection 23.1 of the SRC must not be considered in iso-

44 Short sales occurs where the insider does not own the security but may borrow it from 45 Sales against the box is occurs when the seller anticipates the decline in the stock he 43 Subsections 23.3 provides the following: "lIt shall be unlawfui for any such beneficial 46 Economic Governance Technical Assistance. Draft Commentary on the Securities Reg 42 Subsections 23.2 provides the following: "For the purpose of preventing the unfair use a lender, when he believes the price of stock will fall. ulation Code. pp. 104-105. ery in such time, or that to do so would cause undue inconvenience or expense. owns and he will sell it to the buyer at the present market price but, delivers it later. when hopefully the market price will have fallen below the sales price, thus creating a paper profit for the seller. any transaction were such beneficial owner was not such both time of the owner or hended within the purpose of this subsection. the security, does not deliver not deliver it against such sale within 20 days thereafter. of transportation; but no person shail be deemed to have violated this subsection if he proves not withstanding the exercise of good faith he was unable to make such deliv- officer by reason of his relationship to the issuer, any profit realized by him from any or refuse to bring such suit within sixty (60) days after request or shall fail diligently to prosecute the same thereafter, but not such shali be brought more than two years after the date such profit was realized. This Subsection shall not be construed to cover the sale, or the sale of purchase, of the security involved, or any transaction or transac- tions which the Commission by rules and regulations may exempt as not compre- owner, director or officer, directly or indirectly. to sell any equity security of such issuer if the person selling the principal: (a) Does not own the security sold: or (b) if owning or does not within five days after such sale deposit in the mails or the unusual channels of information which may have been obtained by such beneficial owner, director or purchase or sale, or any sale or purchase, of any equity security of such issuer within any period of less than {6} months unless such security was acquired in good faith in connection with a debt previously contracted. shail inure to and be recoverable by the issuer, irrespective of any intention of hoiding the security purchased or of not repur- chasing the security sold for a period exceeding six (6) months. Suit to recover such profit may be instituted before the Regional Triai Court by the issuer, or by the owner of any security of the issuer in the name and in behaif of the issuer if the issuer shall fail

SEC En Banc Case No. 04-12-255 San Miguel Corp. v. CGFD Page 22 of 27 Decision

required disclosure itself is a badge of fraud and deceit.5o vantage the statutes and regulations seek to prevent, and allow monitor- ing of insiders' trading activities to ensure compliance with trading re- requirements for insiders are absolute and not dependent upon showing of actual unfair use.49 Further, courts have ruled that the omission of the always recognized the absolute nature of statutes and regulations requir- ing reports and disclosures from insiders such as major stockholders and top management personnel designed to prevent insider trading.47 The disclosure requirements are absolute because they are precisely de- signed to make it difficult for insiders to realize the type of unfair ad- strictions.48 American courts have confirmed that reportorial/disclosure sition activity in violation of tender offer requirements. and do not admit of any exemptions, otherwise, the rationale for the re- quirements would obviously be defeated, or easily circumvented. from; and (4) determining whether there is any possible creeping acqui- and relevant dates of their transactions. It is a tool by which the Commis- owner who are insiders of the issuer company, with the end view of: (1) preventing the prohibitions cited above; (2) detecting any violation thereof; (3) better enforcement of any civil (such as the civil action under Subsection 23.2), criminal, and/or administrative action arising there- reporting requirement by which the Commission and any interested party can ascertain critical information such as the identities of the per- sons who are directly or indirectly the beneficial owner of ten percent their investment therein, the changes in their ownership, and the history sion and the public can monitor the trading activities of the said beneficial (10%) or more of any class of any security of the issuer, the volume of In which case, the requirements for timely disclosure are absolute, Indeed, in other jurisdictions such as the United States, courts have It is clear from the foregoing that SEC Form 23-B is an important

sary - it is unimportant that there was no actual attempt to defraud in- vestors, and it is nevertheless a violation for as long as material infor- mation has been withheld in the face of insider trading.51 And, motive for In fact, American courts have held that actual intent is not neces-

47 69 Am. Jur. 2d Securities Regulation Federal g 527 49 69 Am. Jur. 2d Securities Regulation Federal 9 528. 51 SEC v. Texas GulfSulphur Co. (CA2 NY) 401 F2d 833. 2ALR Fed 1 90, cert den 394 US} 48 50 d 976, 22 L ed 2d 756, 89 S.Ct. 1 454.

SEC En Banc Case No. 04-1 2-255 San Miguei Corp.v.CGFD Page 23 of 27 Decision

non-disclosure or false disclosure is irrelevant in light of the possibility of its direct impact on the market.52

formation on the operation of the business and financial condition of the with the Commission current reports on significant developments of the issuer as the Commission may prescribe as necessary to keep current in- issuer. every issuer satisfying the requirements in Section 17.253 hereof shall file Next, as to SEC Form 17-C, Section 17.1 of the SRC provides that

which provides: This provision is implemented by SRC Rule 17.1(A)(iii) of the IRR

in relation to those securities. make a full, fair and accurate disclosure to the public of every material fact or event that occurs, which would reasonably be expected to affect the investors' decisions "A. Every issuer shall file with the Commission: x x x iii. a current report on SEc Form 17-C, as necessary, to

are informed by current and accurate information.54 In short, the filing construed to be part of its responsibility to keep information submitted to the Commission in current and accurate form. This requirement is es- sential to protect investors who participate in the securities market through the secondary market, to ensure that their investment decisions of SEC Form 17-C by the issuer of securities is not to inform the Commis- the issuer's obligation to continually disclose significant events may be Under Section 17.1 of the SRC and SRC Rule 17.1 (A)(iii) of the IRR,

54 Economic Governance Technical Assistance. Draft Commentary on the Securities Reg- 52 Heit v. Weitzen (CA2 NY) 402 F2d 909, 3ALR Fed 803, cert den 395 US 903, 25 L ed 53 Section 1 7.2 of the SRC provides that the reportorial requirements of Subsection 7.1 one hundred (100) share reduced to less than one hundred (i00). Ulation Code, p. 80. tion to the Commission by the issuer that the number of its holders holding at least 2d 217. 89 S. Ct. 1740 to a registration under section 2 hereof:Provided however That the obligation of the Commission shall prescribe and it notifies the Commission of such: (b) An issuer shall prescribe, and having two hundred (200) or more holder each holding at least obligation of such issuer to fie report shall be terminate ninety (90) days after notifica- shail apply to the following: (a} An issuer which has soid a ciass of its securities pursuant such issuer to file reports shall be suspended for any fiscal year after the year such registration became effective if such issuer, as of the first day of any such fiscal year, has iess than one hundred (100) holder of such class securities or such other number as with a class of securities listed for trading on an Exchange; and (c) An issuer with assets of at least Fifty million pesos (50.000.000.00) or such other amount as the Commission one hundred (100) share of a ciass of its equity securities: Provided, however, That the

SEC En Banc Case No. 04-1 2-255 San Miguel Corp. v. CGFD Page 24 of 27 Decision

vesting public in making rationale decisions in relation to those securi- sion of the former's significant developments but rather to guide the in- ties.

in the wrong form is tantamount to non-disclosure since the investors to prevent insider trading, creeping acquisition of securities, and to allow identities of persons who are beneficial owners of securities, volume of beneficial owners' investments therein, changes in ownership and the history of their transactions. On the other hand, the filing of SEC Form tended to inform the Commissiori of those events but rather to guide the investing public. Further, SEC Form 23-A and SEC Form 23-B must be Form 17-C must be filed by the issuer of securities. In fact, the disclosure will be looking for specific information from specific forms. the public and the Commission to monitor critical information such the would reasonably be expected to affect the investors' decisions in rela- tion to those securities. Moreover, the filing of SEC Form 17-C is not in- filed by the beneficial owner of securities and, on the other hand, SEC 17-C is intended to obligate the issuer of securities to disclose events that In sum, the filing of SEC Form 23-A and SEC Form 23-B are intended

sition of the Meralco shares from GSIS, states the following: Stock Exchange on August 5, 2011."55 In which case, SEC Form 17-C filed by SMC, in relation to its acqui. these shares to GSiS and have been crossed in the Philippine "x x x The Company has fully paid the purchase price of

shares, SMC states the following: In SEC Form 23-A, in relation to such acquisition of the Meralco

: Form of Ownership in shares of issuer Meralco: "Direct" 56 :27% ownership of securities of issuer Meralco; 0wned 300,963,189 shares of issuer Meralco; and

disposition of the Meralco shares to SMPFC, states the following: On the other hand, SEC Form 17-C filed by SMC, in relation to its

please be advised that the Company[SMC] and San Miguel Pure Foods Company. Inc. (SMPFC) have executed a "Further to the Company's disclosure on 12 August 2011,

55 Memorandum on Appeal. Annex "M" (SEC Form 17-C dated } 1 August 2011). 56 Id. Annex "P" (SEC Form 23-A).

SEC En Banc Case No. 04-1 2-255 San Miguel Corp. v. CGFD Page 25 of 27 Decision

hundred nine_(59,090,909)shares of stock of Manila Electric Company at Two Hundred Twenty Pesos (P220.00) pany to SMPFC of fifty nine million ninety thousand nine per share."57 share purchase agreement covering the sale by the Com-

shares, SMC states the following: In SEC Form 23-B, in relation to such disposition of the Meralco

Acquired 54,168,636 Meralco shares at Php 220.00 per share on It directly owns 241,872,280 Meralco shares, or 21.46% direct Nature of indirect beneficial ownership: SMPFC is 91.67% It indirectly owns 54,168,636 Meralco shares, or 4.80% indirect Acquired 300,963,189 Meralco shares at Php 90.00 per share on Its total beneficial ownership is 296,040,916 Meralco shares, or Disposed 59,090,909 Meralco shares at Php 220.00 per share on ownership of Meralco; 26.26% total beneficial ownership of Meralco; and 5 August 2011; 24 August 2011; 24 August 2011; ownership of Meralco; oWned by SMC.58

Meralco will be seeking specific information from specific forms. in SEC Form 17-C is tantamount to non-disclosure since the investors of Meraico shares it initially acquired, percentage of ownership of Meralco indirect beneficial ownership. Clearly, SMC did not substantially comply the above-mentioned transactions. SMC's disclosure of its transactions shares from GSIS, filed by SMC only states that it paid the purchase price and form of ownership as required under SEC Form 23-A. shares it sold to SMPFC and the price per share. SEC Form 17-C did not mention the history of the transactions of the Meraclco shares, number and percentage of Meralco shares owned by SMC and the nature of its with the spirit of SRC Rule 23 when it filed SEC Forms 17-C in relation to of the said shares to GSIS. SEC Form 17-C did not mention the number of disposition of the Meralco shares to SMPFC, only states the number of Clearly, SEC Form 17-C, in relation to its acquisition of the Meralco On the other hand, SEC Form 17-C filed by SMC, in relation to its

57 id. Annex "O" {SEC Form 17-C dated 16 August 20!1) 58 id., Annex "Q" {SEC Form 23-A}

SEC En Banc Case No. 04-} 2-255 San Migue! Corp. v. CGFD Page 26 of 27 Decision

lowed, then the whole system of reportorial requirements designed to ensure transparency and fairness in the securities market would be un- inadvertence. However, such excuse has no merit. Excuses such as in- advertence are self-serving and unverifiable. If such excuses are al- dermined. Lastly, SMC argues that its late compliance of SRC Rule 23 is due to

GOOD FAITH IS IMMATERIAL

Subsection 23.1 of the SRC and the IRR. However, whether or not SMC is law to report any change in ownership. eliminated since it acted in good faith and without wanton disregard of acted in good faith is immaterial since it had the duty to report under the As to the last issue, SMC argues that the penalty be mitigated or

ment of simple regulatory rules mandating submission of reportorial re. mentation of these rules would defeat their very purpose, as every pen- faith, or the question of motive or intent.59 quirements. To allow legal notions to intrude at every level in the imple- alty could be subject to question and every violation based on a clear-cut rule would be qualified by the presence or absence of good faith or bad Good faith or bad faith hardly comes into the picture in the enforce-

same Rule on 11 May 2009. SMC was already warned that it must take ate penalties shall be imposed based on the SEC MC No. 06-05 for a repe- already its second violation of the same Rule, which it does not dispute. SMC was meted the penalty of Reprimand for its first violation of the measures to fully comply with the SRC and its IRR, otherwise, appropri- tition of the same violation. Besides, SMC's claim of good faith is belied by the fact that this is

DENIED for lack of merit. Appellant San Miguel Corporation is ordered to settle the penalty of Seven Hundred Sixty Nine Million Two Hundred Ninety Three Thousand Nine Hundred Sixty Eight Pesos and 1/10 by Manager's or Cashier's check to this Commission within fifteen (15) (P769,293,968.10), in accordance with the Consolidated Scales of Fines (SEC Memorandum Circular No. 6, Series of 2005), to be paid in cash or days from receipt of this Decision. WHEREFORE, premises considered, the instant appeal is hereby

SO ORDERED.

Pasay City, 3 November 2017.

59 Lim v. CFD. SEC En Banc Case No. 02-10-196, 16 September 2010.

SEC En Banc Case No. 04-12-255 San Miguel Corp. v. CGFD Paqe 27 of 27 Decision

Dispositive portion as follows:

Iack of merit. Appellant San Miguel Corporation is ordered to settle the penalty of Seven Hundred Sixty Nine Million Two Hundred Ninety Three Thousand Nine Hun- dred Sixty Eight Pesos and 1/10 (P769,293,968.10), in accordance with the Consoli- dated Scales of Fines (SEC Memorandum Circular No. 6, Series of 2005), to be paid in cash or by Manager's or Cashier's check to this Commission within fifteen (15) days from receipt of this Decision. "WHEREFORE, premises considered, the instant appeal is hereby DENIED for

SO ORDERED."

Pasay City, 21 November 2017.

D TERESITA J. HERBOSA Chairperson

Cdaarmde ANTONIETA F. IBE Commissioner dbe EPHYRO LUIS B. AMATONG Commissioner

BLAS JAMES G. VITERBO Commissioner EMILIO B. AQUINO Comnfissioner

*Inhibited