SEC En Banc Case No. 03-20-473 and 02-20-469In the Matter of Non-Filing of 2018 Annual Report (SEC Form 17-A) PHILEQUITY STRATEGIC GROWTH FUND, INC.

Securities and Exchange Commission Republic of the Philippines Department ol Finance

COMMISSION EN BANC

IN THE MATTER OF NON-FILING OF 2018 AND 2019 ANNUAL REPORT(SEC FORM 17-A)

PHILEQUITY STRATEGIC GROWTH FUND,INC. Appellant,

SECEn Banc Case No.02-20-469 -versus- Promulgated:23 January 2025 SEC En Banc Case No.03-20-473

CORPORATE GOVERNANCE AND FINANCE DEPARTMENT, Appellee.

DECISION

Before this Commission are the Appeal Memorandum dated 5 February 2020 docketed as SEC En Banc Case No.02-20-469,and the Appeal Memorandum dated 5 March 2020 docketed as SEC En Banc Case No.03-20-473 collectively referred to as the Appeals).filed by Appellant Philequity Strategic Growth Fund,Inc.(Philequity)seeking the reversal of(athe Letter-Decision dated 10 January 2020,which imposed the penalty of "reprimand for its first violation of Rule 17 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code (SRC-IRR):and b) the Letter-Decision dated 21 January 2020,which imposed a monetary penalty in the amount of One Hundred Ninety-Four Thousand Five Hundred Pesos (PhP194,500.00) for its second violation of Rule 17 of the 2015 SRC-IRR,both issued by the Corporate Governance

failed to file its Quarterly and Annual Reports for the years 2017 and and Finance Department (CGFD) on the basis of a finding that Philequity 2018.

Considering that the two 2 Appeals present the same question of law, and proceed from the same or similar acts/omissions which constitute violations of Rule 17 of the 2015 SRC-IRR,the consolidation of

SEC En Banc Case Ncs 08-29-473.and 0Z-Z0-469 Phequity StrategicGrowth Fund.in . Page 2of 12 DECISION DECISION

the same is warranted pursuant to Section 1 Rule 31 of the Rules of Court, which is applicable suppletorily.

THE PARTIES

under Philippine laws,having been issued a Certificate of Incorporation incorporated is"to subscribe for,invest and reinvest insell, transfer or bonds, debentures, notes, mortgages, or other obligations, commercial papers, acceptances, scrip, investment contracts,voting trust certificates, instruments representing rights to receive, purchase,subscribe to the same, or representing any other rights or interests therein, or in any property or assets created or issued by any and all persons, firms, associations, corporations, organizations, government agencies or instrumentalities thereof to acquire, hold, invest and reinvest in, sell, transfer or otherwise of an Open-End Investment Company in all the elements and details thereof prescribed by law." with SEC Registration No.CS200805288,on 9 April 2008.As stated in its Articles of Incorporation, the primary purpose for which Philequity was otherwise dispose of securities of all kinds, including all types of stocks certificates of interest, and any receipts, warrants,certificates, or other dispose of real properties ofall kinds; and generally to carry on the business Philequity is a domestic corporation duly organized and existing

In 2011,Philequity filed with the Commission an application to act as an investment company under the Investment Company Act (ICA), together with its Registration Statement covering One Hundred Million 100,000,000)common shares with par value of One CentavoPhP0.01 per share.3

PhP0.01 per share was informed that (a) the Commission approved its application to act as an investment company under the ICA and its Implementing Rules and Regulations, and (b) its Registration Statement covering One Hundred Million (100,000,000 common shares with par value of 0ne Centavo Corporation Finance In an Order dated 9 September 20114 issued by the then Department rendered now the CGFD).Philequity effective. Consequentlythe Was

SECTION CnoltionW cton ingcmn gueti fw or e pnin the cour t my odr E-u Partf the201 u of Proedrfthe Securiti nd Excan Comisn provide thaThe pie Appea Memorondum dated 5 February Z020.Par.14 a joint heering or trial of any or all themetter in irue in theactiontit may order all the ectionscoasofidatrd ndmoymake provision of che Rule oCouremayin the interest of expedtiou dispmation of jice and whenever procticablebe apped y Camment to the Appeal Memorandemsee AnnexA ch dr concig ocighr amy d vid unnsa cois ordey alogy or in e ppletor cheracter andeffece

SECEn8ancCa5eM08.08-20-473ann0Z-20.46 Phileqity Strategic Growthun Fage 3 of 12 DECISION DECISION CGF

Commission issued in favor of Philequity a Certificate of Permit to Offer Securities for Sale.s

Philequity thereafter filed a Notification of Suspension of Duty to File Reports(SEC Form 17-EXunder Section17 of the SRC for each of the years 2012 to 2017,where it disclosed the number of shareholders and the peso value held by the registrant for each relevant year

Investment Company Act,Philequity filed on 9 September 2013 a where it disclosed that it sold one (1 share in August 2013.7 notarized Sales Report for the Month of August 2013(theSales Report) In compliance with Rule 35-1 of the implementing rules of the

Philequity to explain why it should not be held liable for violation of Rules 17.1.1 and 17.1.1.1.2 of the 2015 SRC-IRR,consequent to its non-filing of In June 2019,the CGFD issued show cause letters which required

the required Quarterly Reports for the year2018,to wit

@ Show-Cause Letter dated 7 June 2019 ReNon-filing of (b Show-Cause Letter dated 10 June 2019 Re Non-filing of Show-Cause Letter dated 11 June 2019 Re Non-filing of September2018collectivelytheJuneShow-Cause Quarterly Report (SEC Form 17-Q) for the period ended 31 Quarterly Report (SEC Form 17-Q for the period ended 30 June 20189: and Letters".1 March 2018 Quarterly Report (SEC Form 17-Q for the period ended 30

In its letter dated 28 August 2019(the First Letter-Reply) which addressed the June Show-Cause Letters of the CGFD,Philequity denied

public or a reporting company,it is not required to file the reports mentioned in Rule 17 of the 2015 SRC-IRR.11 having violated Rule 17 of the 2015 SRC-IRR It argued that not being a

5d. Soe Annex d. AnneC- 10bad AnnG-2 11 (bd AnnexH a.sre AnnexesC-1-C-2C-3C-4C-5andC-6 I Id par. 12 (see Annex *D. Appted 5Feruary 2020.See Anni-

SEC En Banc Cise Ncs8-20-+73 and 02-20-469 Phileauitv Strategic Growth Fand.Ine.v.CGF Page 4 of 12 DECISION DECISION

which required Philequity to explain why it should not be held liable for In September 2019,the CGFD again issued show-cause letters

violation of Rules 17.1.1 and 17.1.1.1.2 of the 2015 SRC-IRR,consequent to the non-filing of its Annual Reports and Quarterly Reports for the years 2017,2018,and 201912,to wit:

a Show-Cause Letter dated 12 September 2019 Re:Non-filing of

(b Show-Cause Letter dated 10 September 2019 ReNon-filing of 2018 Annual ReportSEC Form 17-A)14 2017 Annual Report(SEC Form 17-A)13

a Show-Cause dated 11 September 2019 Letter Re:Non-filing of

(b Show-Cause Letter dated 10 September2019 Re:Non-filing of June 201916 collectively the September Show Cause Quarterly Report (SEC Form 17-Q) for the period ended 31 March 201915:and Quarterly Report (SEC Form 17-Q) for the period ended 30 Letters".

Rule 17.1.1 in relation to Rule 3 of the 2015 SRC-IRR,maintained that a which addressed the September Show-Cause Letters,Philequity, citing In its letter dated 7 November 2019 the"Second Letter-Reply)

pursuant to its Permit to Offer Securities;orb it is not a public company it is not a reporting company as it had not sold any of its securities as its assets and holders of securities with more than 100 shares each,did not exceed PhP50,000,000 and 200,respectively.17Thus,Philequity is not under obligation to file Form 17-EX or any of the reports required under Rule17 of the 2015SRC-IRR

The CGFD found the arguments of Philequity in its Second Letter Reply to be without merit,and reiterated its finding that Philequity is a

theFirst CGFD Decision),the CGFD reprimanded Philequity for its first reporting company.18 Thus,in its Letter-Decision dated 10 January 2020 violation of Rule 17 of the 2015 SRC-IRR,and directed it to submit the required reports,including its 2017 Annual Report.19

1 Appeat cated'3 March2020. Par 14 rbid.be Ann 15 bdsee Annex Comnt to Appl Mmeandm dtd 9une 2020.See AnnG . Anx 1 Appeal dated5 March2020.Pars15 and 16 see Annex App daed 5Feruary2020.see AnnexACGFDLter dted7Ortober 2019 1m6Anx

SEC En Banc Case Nos.0B-20-473 an 02-20-469 Philequity Surategic Geowth Fund Page 5 of 12 DECISION DEGISION CGFD

Philequity eventually elevated the First CGFD Decision to this

as SEC En Banc Case No.03-20-473theFirst Appeal).where it prayed for the reversal and the setting aside thereof. Commission via the Appeal dated 5 February 2020 which was docketed

Reply to be similarly hereft of merit.Thus,on 21 January 2020,the CGFD The CGFD found the arguments of Philequity in its First Letter

issued another Letter-Decision the Second CGFD Decision where it imposed a monetary penalty in the amount of One Hundred Ninety-Four violation of Rule 17 of the 2015 SRC-IRR,consequent to its failure to file Thousand Five Hundred Pesos (PhP194,500.00) for Philequity's second its 2018 Annual Report.20

Philequity again elevated the Second CGFD Decision to this Commission via the Appeal dated 5 March 2020 which was docketed as SECEn Banc Case No.02-20-469(theSecond Appeal).Considering that the CGFD essentially adopted the same legal bases and position which it used in imposing the penalty of reprimand" in the First CGFD Decision and in imposing the monetary penalty in the Second CGFD Decision Philequity has also adopted in the Second Appeal, its arguments in support of the position that it has not violated Rule 17 of the 2015 SRC- IRR to all findings of non-filing of Annual and Quarterly Reports for 2019 Philequity now prays for the consolidation of the First and Second Appeals which present the same question of law,and for the reversal and setting-aside of the First CGFD Decision and the Second CGFD Decision (collectively theAssailed Decisions") for want of merit and basis.

CGFD reiterated its arguments in support ofits assailed Orders.The CGFD essentially maintained that Philequity is a reporting company under Rule In its Comment to the Appeal Memorandum dated 27July 2020,the

17 of the 2015 SRC-IRR,which is required to file the reports prescribed in the said rules.

ISSUE

reporting company, and in imposing the penalties prescribed under Memorandum Circular No.6,series of 2005(Consolidated Scale of Fines), for its failure to file the Quarterly Reports and Annual Reports. Whether the CGFD was correct in finding that Philequity is a

20 d ee An

SEC En Banc Case Nox 08-20-473 and 02-20-469 Phiy Stgc GrwhFund.CGFD Page 6 of 2 DECISION DECISION

RULING

The Appeals are bereft of merit.

Philequity insists that it is not areporting company"contemplated

annual reports,and in penalizing it for its failure to do so,considering that it has allegedly not sold any share.zi companyin Rule 3.1.19 of the 2015 SEC-IRR,Philequity claims that under Rule 17 of the 2015 SRC-IRR,which is required to submit,among CGFD committed reversible error in requiring it to file quarterly and others,quarterly and annual reports.Citing the definition of a"reporting

Rule 17.2 of the 2015 SRC-IRR (Subjects of the Reportorial Requirements), which essentially mirrors Sec 17.2 of theSRC

with the reportorial requirements,thus: specifically identifies the persons/entities that are required to comply

following: The reportorial requirements of Subsection 17.1 shall apply to the

such; the obligation of such issuer to file reports shall be suspended for any as the Commission shall prescribe and it notifies the Commission of registration under Section 12 of the Code:Provided, however, That fiscal year after the year such registration became effective if such issuer,as of the first day of any such fiscal year, has less than one hundred(100 holders of such class of securities or such other number 17.2.1.An issuer which has sold a class of its securities pursuant to

17.2.2.An issuer with a class of securities listed for trading on an Exchange;

17.2.3. An issuer with assets of at least Fifty million pesos Commission by the issuer that the number of its holders holding at least prescribe,and having Two hundred (200 or more holders each holding at least One hundred (100 shares of a class of its equity securities Provided, however,That the obligation of such issuer to file reports shall be terminated one hundred (100 shares is reduced to less than One hundred (100 (Emphasis supplied) (P50,000,000.00 or such other amount as the Commission shall ninety (90 days after notification to the

the 2015 SRC-IRR are technically referred to as a"public company"and The persons/entities mentioned in the afore-quoted provision of

21 Appeal Memerandum dated 5 March 2020. Par. 27()

SEC En Banc Case Nos. 8-20-473.and 02-20-469 PhilequityStrategicGrowthFndIncCGD Page 7 of 12 DECISION DECISION

reporting companydefined under Rule 3.1.16 and Rule 3.1.19 of the 2015 SRC-IRRrespectivelyto wi

equity securities. Rule 3.1.16. Public company means any corporation with a class of equity securities listed on an Exchange,or with assets in excess of Fifty Million Pesos PhP50,000,000.00) and has two hundred 200] or more holders each holding at least one hundred (100) shares of a class of its

class of its securities pursuant to a registration under Section 12 of the Code, or a public company,as defined under SRC Rule 3.1.16. Rule 3.1.19.Reporting company is a corporation that has sold a Emphasis supplied)

Rule 17.1.1.1.of the 2015 SRC-IRR expressly provides that public and reporting companies are subject of, and are required to file reports prescribed under the SRC and the 2015 SRC-IRR. These reports include among others,an annual report and the quarterly report,to wit

17.1.1.1.1, An annual report on SEC Form 17-A for the fiscal year in which the registration statement was rendered effective by the Commission, and for each fiscal year thereafter,within one hundred five105) calendar days after the end of the fiscal year

reports on SEC Form 17-Qwhichever is later calendar days after the end of the first three quarters of each fiscal year. The first quarterly report of the Issuer shall be filed within forty-five 45 calendar days after the effective date of the registration statement or, on or before the date on which such report would have been 17.1.1.1.2.A quarterly report on SEC Form 17-Q within forty-five required to be filed if the Issuer had been required previously to file

Prescinding from the afore-quoted provisions of the 2015 SRC-IRR

registration under Section 12 of the SRC, is required to file with the Similarly, a public company,which refers to corporation with a class of equity securities listed on an Exchange or with assets in excess of Fifty to a corporation that has sold a class of its securities pursuant to a Million Pesos(PhP50,000,000.00 and has two hundred (200) or more holders each holding at least one hundred (100) shares of a class of its which are clear and straightforward,a reporting company.which refers Commission an annual report and a quarterly report, among others.

equity securities,is likewise mandated an annual report and a quarterly report,among others.

does not qualify the number of securities that must be sold,which means In relation to a reporting company,the SRC and the 2015 SRC-IRR

SEC En Banc Case Nos.08-20-473 and 02-20-469 Philquity Straegic GrowthFumdIn Page 8 of 12 DECISION DECISION F

that the sale of even a single security renders the issuer duty-bound to file a quarterly and annual reports,among others. Be that as it may,Rule 17.2.1.of the 2015 SRC-IRR provides that a reporting company's obligation to file annual and quarterly reports is suspended if its holders of securities fall below one hundred(100) and it notifies the Commission of such fact.The exception under Rule 17.2.1.of the 2015 SRC-IRR is not automatic.The use of the word"and"in the said provision means that the suspension of the duty to file annual and quarterly reports is conditioned on the reporting company's act of notifying the Commission of such fact,

number of the holders of its securities.In other words,even if the number given that it is in the best position and has the information on the exact of the holders of securities falls below one hundred (100),the reporting company's obligation to file annual and quarterly reports until it formally informs the Commission of such fact.

In the instant case, the evidence on record affirms the position of

considering that none of its securities are listed on the Exchange;and its assets did not exceed Fifty Million Pesos (PhP50,000,000.00),22 and none both the CGFD and Philequity that the latter is not a public company

of the holders ofits securities which is less than two hundred (200),holds at least one hundred(100) shares.

The CGFD and Philequity however differ in their position relating

it is not a reporting company because it has not sold any class of its to the status of Philequity as a reporting company.Philequity insists that

securities from the time of the effectivity of its registration statement.23 The CGFD maintains otherwise on the basis of the Sales Report which Philequity filed with the Commission.

We affirm the finding and position of the CGFD

It is undisputed that this Commission approved Philequity's application to act as an investment company under the ICA together with to Offer Securities for Sale (theCertificate.25 The CGFD submitted in its Registration Statement4,and issued in its favor a Certificate of Permit evidence the notarized Sales Report filed by Philequity filed on 9 September 2013,where it disclosed to this Commission that it sold one

24en Ap Mmn hDedoy Phiyor01nyP590.0 pp 25 ihid see Annex *B* 23Appnal Memorandom dated5 March 2020.par.271 Memorandum dated27July2020.Page 6;see alsoAppealMemiornum cated5March2020,par.272 and 3

SECEn BancCase Nos08-20-473 and 0Z-20-469 Phitoquity Stratrgic Growth Fund. P of 2 DECSIO DEOSION W.CGF

1 share in August 2013.26 Except for its bare allegation that it did not sell any security,Philequity did not submit any evidence to support the same. The Sales Report constitutes substantial evidence that Philequity sold a security after it was issued the Certificate. This rendered Philequity a reporting company under 17.2.1 of the SRC-IRR,which is required to file quarterly and annual reports.

from complying with the reportorial requirements was not triggered and Philequity filed a Notification of Suspension of Duty to File Reports (SEC Form 17-EX under Section 17 of the SRC for each of the years 2012 to 201727 which disclosed that the number of its shareholders from 2011 to 2016 (the period covered in the said notifications) was less than one hundred(100),no such notification was filed for the years 2018 and 2019 cannot not be invoked by Philequity.Verily,Philequity's failure to file its annual and quarterly reports for the years 2017 and 2018 constituted a violation of Rule 17 of the 2015 SRC-IRR covering the years 2017 and 2018.Thus,the exemption or suspension Be that as it may, the evidence on record shows that while

imposed the penalty of "reprimand"as well as the monetary penalty on the basis of its finding that Philequity failed to file its annual and quarterly reports for the years 2017 and 2018. On account thereof,We find and so hold that the CGFD correctly

Granting ex gratia, that Philequity has not sold any security after it

to file the reportorial requirements prescribed under the SRC and the was issued the Certificate,the same does not operate to remove its duty grantee of a secondary license to offer/sell securities to the public. In 2015 SRC-IRR,because such duty is anchored on its status as being a other words, it is the issuance of the Certificate which authorized Philequity to offer/sell securities to the public that gave rise to its duty to file the required reports.

offer/sell securities to the public,such authority stands until the same is When a secondary license is issued authorizing an issuer to

same. The duty of a registered issuer of securities to comply with the suspended or revoked by the Commission,and the grantee/licensee has reportorial requirements under the SRC and the 2015 SRC-IRR is not dependent on the decision of the issuer to offer/sell or not to offer/sell the discretion to use and fully enjoy the benefits thereof or not to use the

2$ bit par. 1 (see Annes *D*) 27see AnnexesC-1,C-2C-3C-4C-5andC-6

SBC E Banc Case Nos. O8-20-473 and 02-20-469 PhiequityStrategiGrowh undnCGFD Page 10 of 12 DECISION DECISION

securities. To sanction a contrary position will render nugatory the purpose and objectives of the SRC which include ensuring full and fair disclosure of securities to promote the development of the capital market, the protection of investors and elimination of fraudulent or manipulative devices and practices.

required to be filed,first and foremost, to the investing public which includes existing and potential investors who will have to make The reason for this lies in the importance of the reports that are

investment decisions on whether to buy,hold or dispose of the securities of the issuer corporation. Thus, this Commission has consistently implemented the policy that compliance with the reportorial requirements, especially for issuers that are grantees of a secondary licenses,is mandatory and absolute.In one case,We ruled as follows

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

XX XX X

among others,ensure full and fair disclosure about securities,minimize manipulative devices and practices which create distortions in the free market. Thus,Section 2 of the SRC provides that it is the policy of the State to, if not totally eliminate insider trading and other fraudulent or

XXX XX X

Thus, the requirements for timely disclosure are absolute,and do not admit of any exceptions,otherwise,the rationale for the requirements would obviously be defeated, or easily circumvented.

The importance and mandatory nature of complying with the reportorial requirements were emphasized in SEC v.Universal Rightfield

Securities and Permit to Sell Securities to the Public for its repeated Property Holdings, Inc.29 where the Supreme Court sustained the Commission's revocation of Universal Rightfield's Registration of

2iion td Oc 2017.Si Mainng PhippiHoCooCorporai in 2G.RNo.181381.uly20,2015 Department SECEB CaseNo.07-11-241)

SEC E Banc Case Nos.06-20-473 and 02-20-469 Philequity Strategic Growth Fund, IneV CGFD Page 11 of 12 DECISION DECISION

failure to timely file its annual and quarterly reports.The Supreme Court ruled that the filing of reports is essential in the realization of state policies declared in Section 2 of the SRC, where investor protection stands at the center 30 to wit:

Therefore,notwithstanding the belated filing of the said reports,as well as the claim that public interest would be better served if the SEC will merely impose penalties and allow it to continue in order to become profitable again,the SEC cannot be faulted for revoking once again URPHI's registration of securities and permit to sell them to the public due to its repeated failure to timely submit such reports. Needless to state, such continuing reportorial requirements are pursuant to the state policies declared in Section 2 of the SRC of protecting investors and ensuring full and fair disclosure of information about securities and their issuer.(Emphasis supplied)

Moreover,from a regulatory perspective,the filing of reports is essential regardless of whether an issuer has actually offered/sold securities because it is intended as a tool or effective mechanism to promptly inform the Commission about the operations of the grantee or if it is in fact operational,how it is using the license granted to it,or how it is dealing with the securities covered by the license. This is consistent with the grant to,and exercise by the Commission of absolute jurisdiction over corporations with the intent,among other of ensuring compliance with the SRC and the 2015 SRC-IRR.31 Significantly,the Supreme Court has held that:

[the Securities and Exchange Commission is organized in line with the

control over all corporations, partnerships' or associations.32 policy of encouraging and protecting investments.It also administers the Securities Regulation Code, which was enacted to promote the development of the capital market, protect investors,ensure full and fair disclosure about securities,[and] minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. Pursuant to these policies, the Securities and Exchange Commission is given regulatory powers and absolute jurisdiction, supervision and (Emphasis supplied)

3d ad nm leriu regulationencouragement of the widest participstion of ownership in enterpriseenhancement of the democratiation or 3Sc.5aanddfte SRC 3ngay d GN.790a1.2015 wealth prometion of capital market development protection of investors, ensuring fullaod fair discloure ahout securties and whole ofthe SRCandassuchny doubor confict n the inerprationofthe SCandtmplementingrulesmust beolved ig paicular nti o th prinple of full dcur imso miimiionif not toa eliminionof indtrding nd hefadulnt ormanipulati devic and prat thaeae distortinns in the free market with the unifying principle being the protection of investor.These core principles animate the in a manner that will carry out the foregoing principles We therefone resohve the issaea before Us with these principies in mind hanipolative dvie and praccesPaanca Vvs RCBCSecuritIncGR.N24190S[March 11,2020 peotecti ind the elimination of fraudulent or

SEC En Banc Cae No 08-20-473 and 02-20-469 PhiequitySrategicGrowth FunInc.CGFD Page12o12 DECISION DECISION

On account thereof, We find no cogent reason to disturb the Assailed Decisions of the CGFD

dated 5 February 2020 in SEC En Banc Case No.02-20-469,and the WHEREFORE, premises considered, the Appeal Memorandum

Appeal Memorandum dated 5 March 2020 in SEC En Banc Case No.03- 20-473 are hereby DENIED for lack of merit.The Assailed Decisions of the Corporate Governance and Finance Department are hereby AFFIRMED

SO ORDERED

Makati City,Philippines.

EMILIOB. AQUINO

Chairperso

JAVEYPAULD.FRANCISCO KARLO S.BELLO*

Commissioner Commissioner

MCJILL BRYANTT.FERNANDEZ ROGELIO V.QUEVEDO OF

Commissioner Commissioner

*On Official Business