SEC En Banc Case No. 12-13-312 HERNANDO VITAS and JACQUES FILIBA DE ROMI Complainants-Appellants, -versus- PAPA SECURITIES CORPORATION AND IGNACIO JOSE SORIANO Respondents-Appellees.

Securities and Exchange Commission Republic of the Philippines Department of finance

COMMISSION EN BANC

HERNANDO VITAS and JACOUES FILIBA DE ROMI, Complainants-Appellants,

-versus- SEC En Banc Case No. 12-13-312

PAPA SECURITIES CORPORATION AND IGNACIO JOSE SORIANO,

Respondents-Appellees X

DECISION

Partial Appeal' filed by Hernando Vitas (Vitas) and Jacques Filiba de Romi Before the Commission En Banc (Commission) is the Memorandum on

Decision2 of the Capital Markets Integrity Corporation Board (CMIC Board) (De Romi), collectively referred to as complainants-appellants, appealing the

Arce). which affirmed the Decision3 rendered by officer-in-charge Daisy Arce (OIC

THE PARTIES

Vitas is of legal age and a Filipino citizen while De Romi is of legal age and a Spanish national. De Romi is being represented by his attorney-in-fact, Vitas, evidenced by Special Power of Attorney.4

Respondent-Appellee Papa Securities Corporation (Papa Securities) is a corporation registered with the SEC with SEC Registration Number 0000087873 and with a secondary license to act as broker/dealer of securities. dealers in securities and in all activities directly or indirectly connected therewith or incidental therein. Its primary purpose is to engage in the business of stock and bond brokers and

Research Department and a registered salesman of Papa Securities. Respondent-Appellee Ignacio Jose Soriano (Soriano) is the head of the

' Filed on 19 December 2013. 3 Dated 20 A 5 01-2004-00100 Dated 12 November 2013. 2013 Appe:

SECE.BECALT Papa Ser Vitas and I

RELEVANT FACTS

According to complainants-appellants, sometime in September 2011. Soriano offered to them four million shares of East Asia Power (PWR shares) at one peso (P1.00) per share. At that time, the shares were being traded at the Philippine Stock Exchange (PSE) for two pesos and seventy-three centavos (f2.73)

Complainants-appellants agreed to purchase two million (2,000,000)

in the name of "Papa Securities Inc., by respondent Soriano". (P4,000,000) payable to Papa Securities. The receipt for the checks is signed shares each, for which they issued RCBC checks totaling four million pesos

Securities' account and despite the provision in the receipt? that Papa Complainants-appellants claim that the checks were deposited to Papa

Securities will issue an invoice pertaining to the transaction, no invoice was delivered to them.8 Complainants-appellants demanded for the immediate issuance of the shares so that they can sell it at the going price. Papa Securities offered to sell the shares at more than two pesos (P2.00) per share on or before 26 September 2011. Of the proceeds, P2.00 per share will be paid to complainants-appellants while Papa Securities will keep the excess aside from its commission. Complainants-appellants agreed to the proposal because they had trust and confidence in Papa Securities.

notice or acknowledgment that Papa Securities were holding the shares for According to complainants-appellants, they were neither issued any

and in their behalf nor did Papa Securities give any notice about the shares. They were informed later on that the shares were sold at Two Million One Hundred Sixty-Three Thousand One Hundred Eighty pesos (P2,163,180) which was deposited to their respective accounts.

Six Hundred Seventy-Three Thousand Six Hundred Forty pesos (P3,673,640) Complainants-appellants sent several demand letters to Papa Securities demanding for the payment of the balance. since the transaction should have yielded Eight Million Pesos (P8,000,000)] Complainants-appellants are claiming for a deficiency of Three Million

Papa Securities responded through a letter' stating that complainants. appellants dealt with Soriano in his personal capacity. Further, Papa

Paragr X "D" of the Complaint which is Annex hs 3.1 and 3.2 of the Mem orandum on Partiat Ar .*nfth Partial Appeal " Dated 23 July 2012 mation Letter dated 15 August 2012

SEC En Banc Case No. 12-13-312 Papa Securities Corp. and Soriano Vitas andLe Komi -versu. Page 3 of 12

Securities claims that it is not a party to the transaction made by complainants- appellants and Soriano.

Securities, they decided to file a Complaintl with the SEC-IPSD which the latter referred to the Capital Markets Integrity Corporation (CMIC). Since complainants-appellants' demands were not heeded by Papa

that the subject transaction did not involve PSC (Papa Securities).12 Decision,11 OIC Arce ruled that complainants-appellants dealt with Soriano held that " ...the declarations expressed in the receipt itself attest to the finding in his personal capacity, as such, they did not deal with Papa Securities. It The CMIC dismissed complainants-appellants' Complaint. In the

The CMIC also held that Papa Securities and Soriano did not unlawfully obtain money from complainants-appellants. It held that Papa Securities and Soriano "... have substantially proven the absence of fraud, or

a dishonest purpose or moral obliquity, in the subject transaction."13 Further, bad faith implying a conscious and intentional design to do a wrongful act for

the absence "of any express provision in the receipt as to the exact amount to

transaction, the allegation of fraud must inevitably fail.14 be realized by the Complainants and the distinctively speculative nature of the

Lastly, the CMIC held that Papa Securities did not violate the Ethical Standards Rule and the rules on confirmation of customer orders and client

Securities Regulation Code (SRC IRR). However, it found Soriano liable for agreement provided in the Implementing Rules and Regulations of the

violating the SRC IRR.

Unsatisfied with the Decision of OIC Arce, complainants-appellants

Arce's Decision. Hence, the present appeal. moved for a reconsideration to the CMIC Board. The CMIC Board in a Resolution15 denied the same after finding no sufficient reason to reverse OIC

and Papa Securities with Soriano as the latter's agent. The receipt expressly issued in the name of the latter. Had the transaction been in the personal provided that the amount was payable to Papa Securities and the checks were Complainants-appellants argue that the transaction was between them

capacity of Soriano, complainants-appellants would have not issued the checks payable to Papa Securities. According to them, since Soriano is a

Is Dated 12 November 2013. age 1& of Annex "B ge 22 of Annex "B" Memorandu cision dated 20 August 2013 Annex "B" of the Memorandum on Partial Appeal her20 morandum on Partial Appe morandum on Partial Appeal um on Partial Appeal

Vitas and De Rorni -versus SEC En Banc Case No. 12-13-312 Pana Securities o.and Soriand Page 4 of 12

salesman and employee of Papa Securities, Papa Securities is bound by the acts and omissions of Soriano for which it must be held liable.

Papa Securities, in their Reply Memorandum,1 reiterated that it had no knowledge and was not a privy to the private placement transaction between complainants-appellants and Soriano. According to Papa Securities, it did not give Soriano the authority to deal in private placements and complainants-

informed complainants-appellants that the private placement is in the nature receipt indicated that complainants-appellants were aware that they were not dealing with Papa Securities. 18 appellants knew that it does not engage in private placements. In fact, Soriano stocks.17 For Papa Securities, the fact that they never asked for an official of speculative stocks and Papa Securities does not recommend speculative

De Romi to him at the RCBC, Carlos Palanca Branch for the possible opening involved in speculative stock trading but complainants-appellants still of a trading account. Soriano explained to complainants-appellants the risks Soriano, in his Reply Memorandum,19 recounted that Vitas introduced

signified their interest to the transaction.

Soriano then offered to complainants-appellants a private placement opportunity involving PWR shares which was offered to him by an RCBC Securities trader, Mary Grace Valbuena (Valbuena). Soriano told complainants-appellants that the deal will be through him and not through Papa Securities.20 Receipt, he immediately deposited the funds to a bridge account to facilitate After Soriano received the checks and executed the

the transfer of funds to RCBC Securities.

He then observed the trading and was in constant communication with Vitas. After a few weeks, he observed that the shares were not being traded as planned; hence, he demanded for the return of the investment. Thereafter. RCBC issued checks in favor of complainants-appellants in the amounts of P691,500 on 4 October 2011 and P1,471,680 on 24 November 2011 each was able to gain P163,180 from the transaction.

Shortly after Soriano's withdrawal of the investments of complainants

2012 as evidenced by the account ledgers of Vitas.21 securities entrusted to Valbuena by RCBC's clients. According to Soriano, Vitas continued transacting with Papa Securities and him until December appellants, newspapers reported about the misappropriation of funds and

21 Paragraph (5 of Soriano 's Reply Memorandum 1 Paragraph 7, of Soriano's Reply Memorandum 9 Dated 21 January 2014. Paragraph 35, page 18 of the Reply Memorandum ated 20 January 201 raraph3i.aeel4ofti AT

Vitas and De Ron

SEC En Banc Case No. 12-13-312 anaSecu and Sora Page 5 of 12

Soriano contends that complainants-appellants are well aware that the transaction was a private placement between them and did not involve Papa Securities. Further, the fact that each complainant-appellant gained P163,180 from the transaction belies their allegation that he unlawfully obtained money from them.

To aid the Commission in the disposition of this case and to render its technical expertise on the complex issues that need to be resolved, the Markets and Securities Regulation Department (MSRD) was ordered to give its comment to the Memorandum on Partial Appeal filed by complainants- appellants.22

ISSUES

The appeal has the following issues to resolve:

1. Whether or not the purchase of shares is a transaction between complainants-appellants and Soriano only or also involved

Papa Securities;

2. Whether Papa Securities and Soriano fraudulently and in bad

faith obtained money from complainants-appellants;

3. Whether Papa Securities violated the Ethical Standards Rule

and other related rules;

The Commission finds the Partial Appeal partially meritorious and resolves to partially reverse the Decision of the CMIC Board.

DISCUSSION

THE TRANSACTION BETWEEN COMPLAINANTS- APPELLANTS AND SORIANO INVOLVED PAPA SECURITIES

of the transaction. The Receipt is reproduced as follows: The Receipt dated 01 September 201 1 explicitly provided for the nature

Joey Antonio "Re: Backdoor Listing/Listed of TWR [sic] now owned by Century Properties of Mr.

22 Order dated 29 July 2019.

SEC En Banc Case No. 12-13-312 Panas Vitas and De Romi -versus cuat es Corp. and Page 6 of 12 I Soriand

Current Price now at the PSE Stock Market is: P2.73 more or less.

The above mentioned shares with a total of 4 million shares is now being offered to the undersigned, HERNANDO M. VITAS and JAQUES FILIBA DE ROMI at the price of P1.00 per share, by IGNACIO SORIANO, Head Research Dept., Papa Securities Corp.. Dela Rosa Street cor. Esteban Street Makati City. This is shares of stocks under private placement offered to IGNACIO SORIANO AND/OR MARY GRACE VALBUENA, Director RCBC Securities, Inc. RCBC Plaza, Ayala Ave., cor. Buendia Streets Makati M. VITAS and JAQUES FILIBA DE ROMI who accepted the offer by SORIANO. City, which IGNACIO SORIANO in turn offered to the aforesaid buvers, HERNANDO

In consideration of P2,000,000.00 from JAQUES FILIBA DE ROMI and P2,000,000.00

ROMI on Friday, September 2, 2011, by Papa Securities Corp./ IGNACIO SORIANO. from HERNANDO M. VITAS in cash and full payment of the 4 million shares of TWR [sic] private placement owned by Century Properties, I hereby acknowledge receipt 9f P2,000,000.00 in Manager's Check issued by RCBC C. Palanca Branch in the name of PAPA SECURITIES CORP. and another P2,000,000.00, Manager's Check, same Bank both dated September 1, 2011 in full payment of the 4 million placement shares of TWR [sic] owned by Century Properties. Invoice for this purchase shall be issued in favor of the two aforesaid buyers, HERNANDO M. VITAS.and JAQUES FILIBA DE

Received by: PAPA SECURITIES. INC.

BY: IGNACIO SORIANO sgd

JAQUES FILIBA DE ROMI Sgd Buyer

HERNANDO M. VITAS sgd Buyer

City of MAKATI, SEPTEMBER 1, 2011" (emphasis, underscoring supplied)

involvement to the transaction, the evidence on record substantially leads to Contrary to the allegations of Papa Securities that it does not have any

the conclusion that the transaction involved Papa Securities.

First, the receipt containing the agreement of the parties is direct! categorical and explicit in saying that the checks paid for the transaction were issued in favor of Papa Securities. Second, the invoice for the transaction

the Receipt was received by Papa Securities through and by its salesman. will be issued in favor of complainants-appellants by Papa Securities. Third. Soriano. Fourth, the money was channeled through the facilities and account of Papa Securities.

Complainants-appellants argue that they will not issue checks in favor of Papa Securities if the latter was not involved in the transaction. This argument is consistent with common human experience. The presumption

SEC En Banc Case No. 12-13-312 Papa Secu Vitas and De Romi -versus Page 7 of 12 nd Soriani

"that money paid by one to another was due to the latter23 applies in this case. Complainants-appellants would have not issued the receipts in favor of Papa Securities if the money was not due to the latter. Checks of huge amount as in this case would not be made payable to party if that party was not privy to the transaction.

act24 complainants-appellants issued the checks payable to Papa Securities because they intended that the checks be delivered to Papa Securities as Further, "a person intends the ordinary consequences of his voluntary

payment for the transaction. If at all, that the transaction did not involve Papa Securities, then complainants-appellants could have easily issued the checks in the name of Soriano.

Soriano's explanation25 that the amount was deposited in a bridge account, under Rosamarie Javier (Javier), who is also a client of Papa Securities and whose account ledger reflects the transaction cannot be given credence as the ledgers were in the possession of Papa Securities.

As between the ledgers and assertions of Soriano and Papa Securities regarding the transfer of funds through a bridge account and the statements made in the receipt and the checks, the latter must be given more evidentiary weight and credence. The money was transferred through the facilities of Papa Securities. While Javier's ledger reflects the same, no written document was presented by Papa Securities to prove that it was Javier who ordered the transfer of funds. Furthermore, commingling of transaction and account is prohibited under Article V, Section 6 of the CMIC Rules.

The receipt was executed voluntarily by both parties, as such, the agreements written thereon are what the parties agreed to; otherwise, they would have not signed the document nor issued the checks in favor of another. Parol Evidence Rule dictates that:

terms other than the contents of the written agreement"2 "when the terms of an agreement have been reduced to writing, it is between the parties and their successors in interest, no evidence of such considered as containing all the terms agreed upon and there can be 26 (emphasis and underscoring supplied)

None of the excepting circumstances is present in this case; hence, more evidentiary weight is being given to the Receipt which indicates the involvement of Papa Securities to the transaction.

23 Rule 131, Section 3(f) of the Rules of Cour 25 Affidavit of Soriano, Annex "1 Papa Securities' Reply Memorandum 26 Rule 130, B (3), Section 9 of the Rules of Court 4 Rule 131, Section 3(c) of the Rules of Cour

Vitas ndDeRoni.var

SEC En Banc Case No. 12-13-312 Page 8 of 1?

Soriano as a salesman of Papa Securities is an agent of the latter. The contract of agency is based on representation. Papa Securities as the principal of Soriano is bound by the latter's acts and/or omissions in buying and selling of securities; the ruling of the CMIC Board that "owing to the discrete personalities and obligations of the trading participant and its officers and/or employees, it cannot be automatically presumed that acts made by a trader or salesman are tantamount to acts of the trading participant" is erroneous and inconsistent with the Sections 51 and 28 of the Securities Regulation Code

Therefore, the transaction between complainants-appellants and Soriano also involved Papa Securities because of this, Papa Securities should also be held liable for the acts and omissions made by its salesman, Soriano.

PAPA SECURITIES AND SORIANO DID NOT UNLAWFULLY OBTAIN MONEY FROM COMPLAINANTS-APPELLANTS

Proceeding from the finding that the transaction involved Papa Securities, the next question is, whether or not Papa Securities through Soriano unlawfully and fraudulently obtained money from complainants- appellants.

The answer is in the negative.

able to recover his P2,000,000 investment, on top of this, each of them It is established and undisputed that each complainant-appellant was

received P163,180.

because the transaction should have yielded P8,000,000. The failure of Complainants-appellants are claiming the deficiency of P3,673,640

complainants-appellants to obtain the proceeds of the supposed sale of the PWR shares does not per se mean that they were defrauded. Complainants. appellants are both experienced traders engaged in trading of stocks. The very nature of the transaction implies that the gains are not definite and depends on the volatility of the market. As correctly pointed by Soriano, brokers, dealers. or salesmen are not insurers of the investments being made in the market.

The receipt itself does not provide that the shares will be sold at a specific amount by Soriano for the complainants nor does the receipt provide for the exact amount of profit to be realized from the transaction. Other than the bare assertions of complainants-appellants that the transaction should have yielded P8,000,000, they did not provide any documentary evidence to prove

Vitas and De Rc SEC En Banc Case Po. Y 3312 Page 9 of 12

that the transaction indeed yielded P8,000,000 or that this was the amount promised to them. Hence, as correctly pointed out by the CMIC,

"Firstly, the receipt dated 1 September 2011 did not "clearly" state that the subject shares were being traded at the Exchange at P2.73 per share on even date. In actuality, the receipt expressly provided: "Current Price now at the PSE Stock Market (sic) is: P2.73 more or less." (Underscoring supplied.) The receipt itself, therefore, did not establish the precise value of the PWR shares at the time of the parties' agreement and, as a necessary consequence, the exact amount to be received by the Complainants after the purchase and subsequent sale of the PWR shares.

In other words, the receipt, apart from conclusively establishing a sheer estimation of the PWR shares' value, is an attestation of the fact that the transaction itself was of an inherently speculative nature. As correctly pointed out by Mr. Soriano, citing two cases decided by the High Court. several factors which may affect the market" and "the rise and fall in the -the value of a specific share may vary from time to time depending on value of shares" is "difficult to predict with a degree of certainty.

Xxx

XxX

In sum, bearing in mind the foregoing, particularly, the want of any express

the allegation of fraud must inevitable fail." (emphasis supplied). provision in the receipt as to the exact amount to be realized by the Complainants and the distinctively speculative nature of the transaction,

In fact Vitas, in his testimony before the Metropolitan Trial Court of Makati City, Branch 66,27 stated that "nowhere in the same document (receipt) that states at what price the shares are to be sold...that nowhere in the said agreement that indicates the selling price." The court in acquitting Soriano for Other Deceits under Article 318 of the Revised Penal Code ruled that:

supplied) fraud as defined above is not existing in the case at bar. Inversely, the alleged guaranty on the part of the accused." (emphasis and underscoring forthcoming with the nature of their transactions, particularly as to the private complainants cannot barefacedly feign ignorance on how stock trading business is conducted when they parted with their money; that no risk whatsoever was involved; and that they were simply induced on an "In the case at bar, records bared that the accused has been candid and profitability of the investment of the private complainants. With that said.

also uncertain. The uncertainty of the amount of return necessarily implies Since the transaction is speculative in nature, the amount of return is

that the demand for the unrealized profits is baseless. Also, fraud cannot be ascribed to Soriano and Papa Securities since the transaction was speculative.

27 Annex " A" of the Manifestation filed by Soriano dated 28 May 2019.

Vitas and De Romi -versa SEC En Banc Case Po. 12-13-312 Page 10 of i2

Soriano and complainants-appellants freely entered into the transaction knowing the risks that come with it. As stated by Soriano, he explained to complainants-appellants that the transaction was speculative but still complainants-appellants pushed through with the transaction.

Complainants-appellants, by pushing through with the transaction

of their voluntary act.28 The consequences of their acts is the possibility of knowing its nature and the risks involved, intended the ordinary consequences not realizing any profit and losing everything they invested. Essentially, engaging in stock trading is gamble for which traders bear the risk of loss.

PAPA SECURITIES VIOLATED THE ETHICAL STANDARDS RULE and OTHER RELATED RULES

The Flow of Transactions for Buying Stocks and Memorandum dated 21 December 2011, issued by Papa Securities, are not comprehensive and not sufficient to ensure that the public and the capital market are protected from any unlawful or negligent acts and/or omissions of brokers and its salesmen The SRC IRR mandates that brokers and dealers must adhere to the prescribed Ethical Standards Rule, Confirmation of Customer Orders and Client Agreement Rule as provided in SRC IRR.

supervision of Soriano neither did it sufficiently establish any internal control procedures and financial operational capabilities that are expected of it to Papa Securities failed to observe the necessary diligence in its

protect its operations and clients. The belated issuance of the Memorandum

compliance with the Rules. Further, Papa Securities did not even impose any Sanction against Soriano despite CMIC's finding of the latter's liability. In fact, Soriano remains as a salesman of Papa Securities as of this writing. and Flow of Transactions cannot be taken as sufficient nor substantial

Having established that Soriano violated the SRC Rules, the liability of Papa Securities as the registered person is provided under Section 51 of the SRC which provides:

ownership, agency, or otherwise, or in connection with an agreement or Section 51. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability. 51.1. Every person who, by or through stock understanding with one or more other persons, controls any person liable under this Code or the rules or regulations of the Commission thereunder.

diligence on his part, he has no knowledge of the existence of the facts by such controlled persons to any person to whom such controlled person is liable, unless the controlling person proves that, despite the exercise of due shall also be liable jointly and severally with and to._the same extent as

28 Rule 131, Section 3(c) of the Rules of Cour

Vite

SEC En Banc Case No. 12-13. age 11 of 12

(emphasis and underscoring supplied) reason of which the liability of the controlled person is alleged to exist.

Papa Securities' belated issuance of the Memorandum and the Flow of

Supervising Soriano. This is indicia that Papa Securities was in remiss of its Transactions is insufficient to prove that it exercised due diligence in

mandates provided in the SRC and its IRR for which it should be penalized.

IMPOSABLE PENALTIES

Finding that the transaction involved Papa Securities through its salesman Soriano, for determination now are the imposable penalties against Papa Securities and Soriano.

The present proceeding is an appeal from the CMIC Board's Decision

Php.10,000.00 but not more than Php.30,000.00.30 The CMIC Rules classifies violation of the Ethical Standards Rule as a major which constrains the Commission to follow the prescribed penalty therein. violation29 the penalty prescribed for first violation is a "fine of at least

WRITTEN REPRIMAND and a FINE OF THIRTY THOUSAND The CMIC Board imposed upon Soriano a "PENALTY OF

PESOS (30,000.00) for violation of the Ethical Standards Rule.

WHEREFORE, premises considered, the Memorandum on Partial

shares is hereby AFFIRMED. The written reprimand and fine of thirty Papa Securities and Soriano did not unlawfully obtain money from thousand pesos(P30,000.00) imposed against Soriano is hereby AFFIRMED. complainants-appellants through fraud in connection with the purchase of the Appeal is PARTIALLY GRANTED. The Decision of the CMIC Board that

follows: The Decision of the CMIC Board is PARTIALLY MODIFIED as

A.A fine of THIRTY THOUSAND PESOS (P30,000.00) is hereby imposed to Papa Securities Corp. for violation of the Ethical

Standards Rule

29 Article XII, Section 3 (b)(ii) of the Rules of the CMIC. 30 Article XII, Section 4 (b) of the Rules of the CMIC.

SEC En Banc Case No. 12-13-312 Papa Securities Corp. and Sorian Vitas and De Romi -versus- Page 12 of 12

B. The MSRD is hereby ORDERED to conduct further investigation pertaining to this case and determine whether there are other

violations of the SRC and other laws.

SO ORDERED

Pasay City, Philippines; 26 September 2019

EMILYO. AQUINO UM Chaifperson

AWX EPHYRO LUIS B. AMATONG JAVEY PAUL D. FRANCISCO

Commissioner Commissioner

KELWNLESTER K.LEE KARLO|S. BELLO

Commissioner Commissioner