SEC Adm. Case No. 09-09-178 IGC Securities, Inc. vs. The Market Integrity Board of the Philippine Stock Exchange

Securities and Exchange Commission SEC Bidg. EDSA, Greenhills, Mandaluyong City Repubiic of the Philippines

IGC SECURITIES, INC..

Appellant,

-versus-

SEC En Banc Case No. 09-09-178

THE PHILIPPINE STOCK EXCHANGE, THE MARKET INTEGRITY BOARD OF

Appellee.

DECISION

Exchange - Market Integrity Board's Resolution No. 19 (Series of 2009) dated 14 August 2009, imposing monetary sanctions against appellant for violation of SRC Amended Market Reguiation: Rues, Article III, Section 6, from the Philippine Stock Rule 49.3.1 This..refers to the Appea! to the Commission En Banc, pursuant to the

registered with the Commission, and authorized to deai in securities listed in the Philippine Stock Exchange ("PSE," for brevity), which is a registered Exchange and Self Regulating Organization under the Securities Reguiation Code ("SRC," for brevity). Appeiiant IGC Securities, Inc. ("IGC," for brevity) i a securities firm duly

Cruz, IGC's president, voted the respective shares of James Arnel B. Santos and purportedly executed by Santos and Avecilla in favor of Cruz in his personal capacity. Serafin Paulo V. Avecilla by virtue of individual proxies dated 02 May 2008 During the PSE's annual stockholders' meeting on 17 May 2008, Ismael G.

("TPRD," for brevity) audited IGC as part of the regular auditing procedures for all Division ("PSE-MRD," for brevity) and Trading Participants Regulation Department From 02 February 2009 to 05 March 2009, the PSE's Market Regulation

: AMENDED IMPLEMENTING RULES AND REGULATIONS OF THE SECURITIES REGULATION CODE {2003)

http://www.sec.gov.ph (632) 726-09-31 to 39

Decision Page 2 of 6 SEC En Banc Case No. 09-09-!78 IGC SECURITIES, INC.. V. PSE - MARKET INTEGRITY BOARD.

PSE trading participants for purposes of determining compliance with the exchange's appeared different from their signatures in their respective Customer Account Information Form on file with the PSE. PSE-MRD then concluded that the means IGC vioiated SRC Rule 49.3, which provides: rules and the iaws on securities. As a result of the audit, the PSE-MRD found that Santos and Avecilla's respective signatures on the proxy forms dated 02 May 2008 discrepancies in the signatures indicate that Santos and Avecilla did not give their written consent for Cruz to vote their shares, and the absence of written consent

"(Lending and Voting Customers Securities)

the written consent of the customer, lend the latter's securities to itself or to anyone else, or vote them as if they were its owin ." A Broker Dealer which extends credit to a customer shall not without

to Cruz to vote their respective shares in the 2008 PSE annual stockholders to submit written confirmations from Avecilla and Santos of their grant of authority meeting, as provided in the subject proxy forms. Subsequently, PSE-MRD conducted an audit exit meeting where IGC agreed

the specimen signatures of Santos and Avecilla to the PSE-MRD. The letters advised Avecilla and Santos'of TPRD's finding of discrepancy in the signatures, and requested them to affix their specimen signature in the space provided in the letter. To illustrate, we quote IGC's letter addressed to Avecilla: On 12 May 2009, IGC submitted two (2) letters dated 23 April 2009, showing

"Apri! 23, 2009

San Juan City Serafin Paulo V. Avecilla #79 Illinois St., Northeast Greenhills

Dear Mr. Avecilla,

noted a discrepancy between your signatures in the Customer Account Information Form (CAIF) and the Proxy form for the PSE Annual Stockholders Meeting held on 17 May 2008. The Philippine Stock Exchange, Inc. (PSE), in their annual audit

We are being asked to certify the authenticity of your signatures

signatures below: In this regard, may we request you to provide your specimen

Thank you,

Foithfuliy yours,

Decision Page 3 of 6 SEC En Banc`Case No. 09-09-i78 IGC SECURITIES. INC.. v. PSE - MARKET INTEGRITY BOARD.

(sgd.) DOREEN G. MIJARES Vice President"

However, the PSE-MRD disagreed and ruled that these letters did not sufficiently provided in the letters sufficiently confirmed Cruz authority in the proxy forms. since the. letters did not contain an express confirmation of the authority. Thus, on 15 May 2009, the PSE-MRD issued a show cause letter requiring IGC to explain the audit findings on the violation of SRC Rule 49.3. On 17 June 2009, IGC submitted its explanation reiterating that the 23 April z009 letters sufficiently confimed the confirm the authority granted by: Avecilla and Santos to Cruz in the proxy forms authority of Cruz in the proxy forms. IGC alleged that the signatures affixed by Avecilla and Santos in the space

imposes a monetary sanction in the amount of Php 20,0o0.00 on IGc for violation of On 26 June 2009, the PSE-MRD issued its decision, which, among others

SRC.Rule 49.3:

"Gentlemen:

implementing rules and regulations (the "SRC Rules"): 22 April 2009 meeting, the Market Reguiation Division ('MRD'? has decided to impose the following sanctions on your firm for failure to comply with the examination and your tetter dated 25 May 2009 and explanations during our relevant provisions of the Securities Regulation Code ('SRC' and its Upon evalution of the audit findings based on your referenced

XXX

andVotingCustomers authorization from clients before voting their securities. xxx' e) P20,000.00 monetary penalty for violation of SRC 49.3 (Lending Securities) and directive to secure written

Board (`MIB," for brevity). On 14 August 2009, MIB issued the assailed resolution affirming PSE-MRD's imposition of sanctions against IGC for violation of SRC 49.3, On 15 July 2009, IGC appealed the decision to the PSE's Market Integrity

and directing the latter to secure the proper written authorization from Avecilla and Santos for the issuance of proxies:

"MIB Res. No. 19 (Series of 2009)

RESOLVED That, the finding by the Market Reguiation Division ('MRD") of a violation by IGC Securities Inc. of SRC Rule 49.3 (Lending and Voting Customers Securities), the imposition of the monetary penalty in the amount of Php 20,000.00 for such violation and the directive that the trading participant secure the written authorization from its clients, Serafin Paulo V.

Decis ion Page 4 of 6 IGC SECURITIES, INC.. V. PSE - MARKET INTEGRITY BOARD. SEC En Banc Case No 09-09-}78

Avecilla and James Arnel B. Santos for the issuance of proxies to vote Securities they beneficially own be, as it is affirmed.

RESOLVED Further That, in the n:ater of the authorization to be secured from the clients, neither the confirmation nor affirmation of third parties other than the clients themselves will be considered sufficient compliance.

RESOLVED Finally That, the appeal taken therefrom by the said IGC Securities Inc. be as it is hereby denied."

foliowing issues: (1) whether or not the PSE-MRD and MIB have jurisdiction over this controversy; and (2) whether or not the IGC violated SRC Rule 49.3. IGC now appeals the: resolution to the Commission En Banc, raising the

sanction upon IGC for the aileged violation of SRC Rule 49.3. IGC, for violations of the laws and rules. and regulations administered by the self-regulating organization, such as the PSE, to discipline its participants, such as Commission.3 Thus, the PSE-MRD and MIB have jurisdiction to impose monetary Jurisdiction is conferred by law. The Securities Regulation Code? authorizes a

Regarding the second issue, we reiterate that SRC Rule 49.3 provides:

"Lending and Voting Customers Securities [formeriy SRC Rule 49.3-1]

the written consent of the customer, lend the iatter's securities to itself or to anyone else, or vote them as if they were its own." A Broker Dealer which extends credit to a customer shall not without

foliowing elemerts must concur: (1) the broker dealer extends credit to a customer; (2) the broker dealer iends the customer's securities to itself or to anyone else, or vote them as if they were its own; and (3) the broker dealer committed such acts without securing the written consent from the customer. Absent any one of these elements, there is no'violation of SRC Rule 49.3. In order for a trading participant to be guilty of violating this prohibition, the

Avecilla and Santos. In fact, IGC's allegation that the shares of the customers are fully paid up remains uncontroverted. The first element is absent. Thus, the prohibition under SRC Rule 49.3 does not apply in this case. In the present case, it was never established that IGC extended credit to

credit in favor of the broker dealer. SRC Rule 49.3 is an administrative rule, the applied by analogy even to those situations where the customer has no existing We cannot countenance the MIB's argument that SRc Rule 49.3 must be

violation of which subjects the offender to administrative penatties. It is thus akin to

3See R.A. 8799. Sections 40.6 and 40.7 ZREPUBLIC ACT NO. 8799 (2000)

IGC SECURITIES. INC.,V. PSE -MARKET INTEGRITY BOARD 5EC En Banc Case No.09-09-}78 Decis ion Page 5 of 6

a penal law, and so, it must aiso be construed strictly against the regulatory body and liberally in favor of'the a!!eged offender. This is in accordance with the Supreme

ourt's ruling that:

contradictory constructions, that which operates in favor of a party accused strictly against the State and iberally in favor of the accused. They are not to be extended or enlarged by implications, intendments, analogies or equitable considerations. They are not to be strained by construction to spell out a new offense, enlarge the field of crime or multiply felonies. Hence, in the interpretation of a penal statute, the tendency is to .subject it to careful scrutiny and to construe it with such strictness as to safeguard the rights.of the accused. If the statute is ambiguous and admits of two reasonabie but under its provisions is to be preferred. The principle is that acts in and of themselves innocent and lawful cannot be heid to be criminal uniess there is a clear and unequivocal expression of the legisiative intent to make them such. Whatever is not plainly within the. provisions of a penal statute should be regarded as without its intendment. "For, it is a well-entrenched rule that penal laws are to be construed

escape punishment through a technicality but to provide a precise definition applicability be determined by circumstances in the abstract. of forbidden acts. xxx The law does not operate in vacuo nor should its The purpose of strict construction is not to enabie a guilty person to

situations where the customer has no credit in favor of the broker dealer. The PSE. controversy despite the undisputed absence of the first.element. MRD and MIB erred in unduly expanding and appiying SRC Rule 49.3 in the present Thus, we cannot deviate from the text of the rule and unduly expand it to

Santos, IGC is still not guilty of vioiating SRC Rule 49.3 since the third element is Further, even assuming arguendo that IGc extended credit to Avecilla and

absent. In its Memorandum on Appeal, IGc submitted duly notarized certifications executed by Avecilia and Santos confirming that they indeed gave written consent to Cruz to vote their proxies in the 17 May 2008 PSE Annual Stockholders' Meeting.5 Spurious for being different from the signatures on file, turns out to be erroneous. It Santos themselves confirm that they indeed signed the proxy forms and authorized element is absent and thus, there can be no violation of SRC Rule 49.3. Consequently, the PSE-MRD's finding, that the signatures in the proxies were would be absurd to affirm the PSE-MRD's finding in light of the fact that Avecilla and Cruz to vote their shares. This means there can be no doubt that Avecilla and Santos actuaily gave written consent to Cruz to vote their shares. Clearly, the third

Since, the first and third elements are absent it is of no consequence whether or not Cruz's act of voting the shares of Avecilla and Santos through the use of the

5 Annexes J, and K of the Memorandum on Partial Appeal. Martin Centeno vs. Hon. Victoria Villalon-Pornillos, G.R. No. ! 13092, September 1. 1994.

IGC SECURITIES, INC., V. PSE - MARKET INTEGRITY BOARD. Decision Page 6 of 6 SEC En Banc Case No. 09-09-178

proxy forms constitutes the presence of the second element. Thus, we shall no longer delve on that question.

guilty of violating SRC Rule 49.3, since not ali the elements of the violation are present. It is plain enough to see that the PSE-MRD and MIB erred in finding IGC

amount of Php 20,000.00 against appellant IGC Securities, Inc. for violation of SRC Philippine Stock Exchange - Market Integrity Board's Resolution No. 19 (Series of 2009) dated 14 August 2009, in so far as it imposes the monetary sanction in the Rule 49.3, is hereby REVERSED and SET ASIDE. WHEREFORE, premises COnsidered, the Appeal is hereby GRANTED. The

SO ORDERED

Mandaluyong City, 15 April 20'i0.

#E B. 'BARIN Ah. Chairperson

MA. JUANItA E. CuetO Commissioner RAUL J. PALABRICA Commissione

MANUEL HUBERTO B. GAItE Commissioner ELADIO.M Commissioner SALA