SEC Adm. Case No. 10-10-217 Architectural Centre Club, Inc.

Securities and Exchange Commission SEC Bidg. EDSA, Greenhills, Mandaluyong City Department of Trade and Industry Kepupiic ot tne Pnilippines

IN THE MATTER OF: SEC En Banc Case No. 10-10-217

For: Review of Imposition by CFD of Penaity

INC. ARCHITECTURAL CENTRE CLUB,

DECISION

For.consideration is the Appeal dated 8 October 2010 filed on 11 October

of the Commission's Corporation Finance Department ("CFD") dated 25 January 2007 imposing the penalty of Four Hundred Seventy-Three Thousand Pesos Regulation Code (SRC"2 1010 by Architectural Centre Club, Inc. C`ACCI", for brevity) from the Letter-Ruling (Php473,000.00) on ACCI for violation of Sections 8 and 12 of the Securities

This case stemmed from the endorsement by the Company Registration and

that was fiied by the company with CRMD.on 23 October 2006.2 Monitoring Department ('CRMD"?) to the CFD of ACCI's proposed amended By-Laws

Upon evaluation, ACCI was found to have issued securities in the form of

therefrom, from the Commission, in violation of Sections 8 and 10.1 of the SRC. membership certificates without prior: registration/permit .to :seil or exemption

why it should not'be held liable for the said violation of the SRC. On 27 October 2006, the CFD sent a letter to ACCI directing it to show cause

prior registration as well as the valuation thereof.5 Two (2) days after, ACCI with the year 1963, and a Secretary's Certificate stating that the said list was in to determine the number of shares offered for sale or sold by the company without submitted, among others, a list of its members (individual and corporate) starting On 6 November 2006, the CFD held a conference with ACCI's representatives

accordance with the available and authentic records of the company.

The CFD's 'Securities Specialists then went to ACCI's principal office to conduct a spot examination of the corporation's books and records; however, AccI

submitted to the CFD on 11 December 2006. failed to produce its records on the same day. The said documents were only

"See the list and Secretary's Certificate, as attached to ACCI's letter to CFD dated '8 November 2006. 'Republic Act No. 8799 (2000). 2CFD's Memorandum to the Office of the General Counsel (OGC) dated 3 December 2009, p. 1 3Ibid 4CFD's Letter to ACCI dated 27 October 2006 Supra, Note 2 'Supra, Note 2.

In the Matter of: Architectural Centre Club, Inc. SEC En Banc Case No. 10-10-217 Page 2 of 7

certificates, as follows: Based on the foregoing, the CFD found ACCI to have issued 162 membership

Year Issued 1963-1979 1980-1994 2001-2005 Total 1996-2000 1995 No. of Membership Certificates Amount per Share 162 30 67 46 10 9 P85,000.00 P60,000.00 P85,000.00 P50,000.00 P60,000.00 p._850,000.00 P10,820,000.00 P 540,000:00 P1,500,000.00 P4,020,000.00 P3,910,000.00 Total Sales

Php473,820.009, broken down as follows1 Hence, on 14 December 2006, the CFD assessed ACCI a penalty of

1980-1994(67.membership[P4,020,000.00 certificates x P50,000.00) certificates x P60,000.00) certificates x P60.000.00) 1996-2000 (10 membership 1963-1979 1995 (9 membership (30 membership{P1,500,000.00 p Total Sales 540,000.00 850,000.00 Imposable Penalty P4,020,000.0012 P1,500,000.0011 2/10 of 1% of P540,000.0013 2/10 of 1% of 2/10 of 1% of 2/10 of 1% of P Total Penalty 3,000.00 8,040.00 1,700.00 1,080.00

certificates x P85,000.00) certificates x P85,000.00) 2001-2005 (46 membership) TP3,910,000.00 P10,000.00 x 4615 P850,000.0014 p460,000.00

Total P473,820.00

2006 letter assessing and directing the company to pay the penalty of Php473,820.00, on-the following grounds: (1) it was not aware that it had to register members for 2001-2005 were those who have supplied labor, construction materials, the said membership certificates prior to issuance to members; (2) most of its On 20 December 2006, ACCI sought reconsideration of the 14 December

12/10 of 1% of the aggregate par or issue value of the securities issued but in no case to be less than P200.00. pursuant to SEC Rules and Reguiations Prescribing Penalties for Issuance of Shares without Prior Permit, issued pursuant to the Rules Amendinig the Rules and Regulations Prescribing Penalties for Issuance of Shares without Isp10,000.00 per transaction or 1/10 of 1% of the aggregate issuance, whichever is higher, pursuant to SEC Memorandum'Circular No. 2, Series of 2003 (Revised Scale of Fines). "Supra, Note 2, pp.I-2. !Supra, Note 2, p. 2. Prior Permit, issued on 24 March 1995. CFD's Letter-Directive dated 14 December 2006. In this Letter-Directive, the total penalty was erroneously stated as Php473,000.00. I21bid Ibid Y 42/10 of 1% of the aggregate par or issue value of the securities issued but in no case to be less than P1,000.00. 17 October 1978.

In the Matter of: Architectural Centre Club, Inc. SEC En Banc Case No. 10-10-217 Page 3 of 7

to.16 financially distressed and not capable to settle the amount inasmuch as it wanted furniture and fixtures for the renovation of its office, and that no cash was involved in those transactions, there being a mere offsetting of accounts through membership shares in exchange for the labor and materiais supplied to ACCI; and (3) it is

unmeritorious, reiterated its directive for the company to pay the above-said penalty.17 On 25 January 2007, the CFD, finding ACCI's request for reconsideration

exemption stated in Subsection 10.1(k) of the SRC.18" This was supplemented "by had a positive net income as of December 2006, it was saddled with liquidity only, payable in six (6) months immediately upon approval of the request.20 problem.19 It then proposed to pay twenty-five percent (25%) of the total penalty the' assessment in view of its findings that the securities issued fall under the another letter dated dated 31 January 2007, wherein ACCI pointed out that while it On 30 January 2007, ACCI filed another letter requesting the CFD to set aside

January 2007.21 General Counsel ('OGC'? these letters of ACCI dated 30 January 2007 and 31 The CFD then endorsed to the Commission En Banc through the Office of the

Commission's rules and pay the docket fees therefor? 2010. ACCI was then directed to file a formal appeal in accordance with the which it did on 11 October

Php473,820.00 on ACCI. The issue is whether the CFD was correct in imposing the penalty of

We rule in the affirmative.

legislation in the country, Act No. 2581. Section 4 of CA 83 provides: In 1936, Commonwealth Act No. 83.(`CA 83'23 repealed the first securities

except of a class exempt under any of the provisions of sectioni five hereof or unless sold in any transaction exempt under any of the provisions of section six hereof shall be sold within the Philippines unless "SECTION 4. Sale and Registration of. Securities. -- No securities

I ACCI's ltter for reconsideration dated 20 December 2006. + ACCI's second letter for reconsideration dated 30 January 2007. +ACCI's "Supplemental Motion for Reconsideration" dated 31 January 2007. 2'Supra, Note 2. 220rder dated 15 September 2010. 17CFD's Letter-Ruling dated 25 January 2007. 23 An Act To Regulate The Sale Of Securities, To Create A Securities And Exchange Commission To Enforce The Provisions Of The Same, And To Appro 20b id r iate Funds Therefor

In the Matter of: Architectural Centre Club, Inc. SEC En Banc Case No. 10-10-217 Page 4 of 7

such securities shall have been registered and/or licensed as hereinafter provided. xxx."

however, the said registration requirement, to wit: RSA, the prevailing law before the effectivity of the SRC on 8 August 2000, retained. In 1982, CA 83 was repealed by the Revised Securities Act (`RSA"24. The

"Sec. 4. Requirement of registration of securities. - xxx.

under any of the provisions of Section six hereof, shall be sofd or offered for sale or distribution to the public within the Philippines unless such hereinafter provided. securities shall have been registered and permitted to be sold as provisions of Section five hereof or unless sold in any transaction exempt ) No securities, except of a class exempt under any of the

XXX :* XXX XXX."

that: "Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission." :Section 4 of the RSA is reproduced in Section 8 of the SRC, which provides

the contractors, engineers, architects, building contractors, interior designers; Iandscape designers or city planners, and other professionals identified with the .the occasion of the 2006 amendment of the company's By-Laws that ACCI was construction industry, citing Subsection 10.2 of the SRC. notified of the violation; (2) the requirement of registration of securities does not apply to the sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period, pursuant to Subsection 10.1(k) of the SRC; and (3) the reguirement of registration is not necessary as the investors were ACCI anchors the:instant Appeal on the following grounds: (1) it was on!y on

IGNORANCE OF THE LAW

Laws that it was notified of the violation, is unavailing. Ignorance of the law excuses no one from compliance therewith.25 As correctly put by the CFD, out of expediency, policy and necessity, the public is always put on constructive ,notice of laws and that it was only on the occasion of the 2006 amendment of the company's By- existence and effectivity through their publication. The argument of ACCI that it was not aware of the registration requirement

.24Batas Pambansa BIg. 1 78 (1982). 2s Article 3, New Civil Code.

"In the Matter of: Architectural Centre Club, Inc. SEC En Banc Case No. 10-10-217 Page 5 of 7

SUBSECTION 10.1(K) OF THE SRC

fails to persuade. sale of securities to fewer than twenty (20) persons in the Philippines during any twe/ve-month perigd' shall not be subject to the registration requirement, likewise ACCI's invocation of Subsection 10.1(k) of the SRC, which provides that " the

same.26 Hence, this 'exemption was not yet availabie when ACCI issued the exempt transaction in that there is no provision in the RSA or CA 83 permitting the membership certificates from 1963 to 8 August 200027 Subsection 10.1(k) is peculiar to the SRC, meaning, it is a new category of

10.1(k) of the SRC.28' Also, the " said"exemptive relief shail 'be subject to, among partnership or any other entity, which is organized for. the specific :purpose of not engage in any form of general solicitation or advertising in connection therewith; for their own account; and (3) if the buyer of the securities. is a corporation, acquiring the securities and which is not a qualified buyer under Subsection 10.1(l) of the SRC, each beneficial owner of equity securities in that entity shall count as separate buyer.for purposes of this exemption.29 while it is true Section 10.1(k) is now available, the same must still be attended with 10-1 is 'mandatory in an offering or distribution of securities under Subsection others, the following terms and conditions: (1) the issuer claiming such relief shall (2) securities sold in any such transaction may only be soid to persons purchasing certain mandatory requirements and conditions. A notice of exemption on SEc Form As to those membership certificates issued from 8 August 2000 onwards.

accompanied' with a filing/application fee.30 The filing of the former is generally claimed exemption.31 indeed exempt under the law. The former requires no fee while the iatter must be optionai, with the exception of the transactions under Subsections 10.1(k) and (1) of the SRC, while the filing of an application for the latter is always optional. While the transaction is guaranteed by the law to be exempt, the issuer may opt to obtain confirmation of exemption to ensure that the Commission will not challenge the exemption. The former is, by its name, a mere notice to the Commission, while the latter is a confirmation or declaration by the Commission that the transaction is A notice of exemption is to be distinguished from a confirmation of

person claiming an exempt transaction has the burden, if challenged, to establish that the exemption is available. The Commission may challenge such .exemption at Unless confirmation of the availability of such exemption is applied for, any

2fRafael A. Morales, Philippine Securities Regulation Code (Annotated) 100 (2005). 28SRC Rule Y0.1(3)(A) of the SRC's Implementing Rules and Regulations (IRR). 29sRC Rule 10.1(3)(C)(iii), IRR of the SRC. 27The effectivity date of the SRC. 30SRC Rule 10.1(4)(A),IRR of the SRC: 31 Supra, Note 26.

SEC En Banc Case No. 10-10-217 In the Matter of: Architecturat Centre Club, Inc. Page 6 of 7

any time.32 A presumption that an exemption is not available may arise from the failure to file a notice of exemption, if required.33

the exemption.under Subsection 10.1(k) of the SRC is available to it, and that all the application for confirmation of exemption of the said securities and the payment of terms and conditions for its availability have been complied with. The record is bereft of any filing of the required notice of exemption under Subsection 10.1(k) for the membership certificates issued from 2000-2005. There is also no record of any filing fees therefor. In the case at bar, ACCI failed to discharge the burden of establishing that

THE SRC SUBSECTI0N 10.2 OF

Neither is ACCI's invocation of Subsection 10.2 of the SRC compelling.

transactions under Section 10 of the SRC, the same may, nonetheless, be exempt from registration by leave or permission of the Commission. The provision reads: protection of the investors such as by reason of the small amount involved or the * The Commission may exempt other transactions, if it finds that the requirements of registration under this Code is not necessary in the public interest or for the unlimited character.of the public offering. While certain securities transactions do not fall under any of the exempt

RSA. However, there is no counterpart provision under CA 83. Subsection 10.2 of the SRC is a substantial'reproduction of Section 6(b) of the

the renovation of its office, were not strangers to ACCI, and hence, the evil sought membership certificates in consideration for the iabor and materials they supplied for to be avoided by the registration reguirement does not obtain. We do not agree. The fact that these people performed services and supplied materials for the renovation of ACCI's office does not necessarily mean that they have a good deal of knowledge about the company's securities. ACCI argues :that most of the investors from 2001-200534, who were issued

Subsection 10.2 of the SRC, an application must be filed with the Commission, coupled with a filing/application fee.35 Records disclose that ACCI did not file such application. At any rate, to avail of the leave or permission of the Commission pursuant to

33SRC Rule 10.1(/)(B), IRR of the SRC. 3 Supra, Note 16. 32SRC Rule 10.1(7)(A), IRR of the SRC 35Supra, Note 26; Subsection 10.3 of the SRC; Section 6(c ) of the RSA; Letter-Directive addressed to Mr Miguel M. Gonzalez dated 2 July 1992; SEC Opinion dated 2 February 1996 addressed to Ms. Judith Philips: SEC Opinion dated 5.May 1997 addressed to Ponce Enrile Reyes& Manalastas.

In the Matter of: Architectural Centre Club, Inc. SEC En Banc Case No. 10-10-217 Page 7 of 7

DISMISSED. Architectural Centre Club, Inc. is hereby DIRECTED TO PAY, within fifteen (15) days from receipt hereof, the penalty of Four Hundred Seventy-Three and 12 of the Securities Regulation Code. Thousand Eight Hundred Twenty Pesos (Php473,820.00) for violation of Sections 8 WHEREFORE, premises considered, the instant Appeal is hereby

SO ORDERED.

Mandaluyong City, 07 April 2011.

54. #E B. BARIN Chairperson

MA.DUANITA E. COETO RAUL J. PALABRIC

Commissioner Commitsioner

0M MANUE O B.GAITE ELadIo MiJala

Commissioner gioner