a. YES, because under the SRC securities shall not be sold or offered to be sold to the public within the Philippines unless the securities are registered with and approved by the Securities and Exchange Commission. Public means 20 or more inventors. The fact that the securities were sold during a 15-month period is immaterial. However, the sale of securities to less than 20 investors if done during a 12-month period is an exempt transaction under the Securities Regulation Code.
b. The rationale for the exemption is that the public is amply protected even without the registration of the securities to be issued by the government since the government is presumed to be always solvent.
Under Sec. 9 of the SRC, the so-called exempt securities are:
a. Those issued or guaranteed by the government of the Philippines or any of its political subdivisions or agencies;
b. Those issued or guaranteed by the government of any foreign country with which the Philippines has diplomatic relations, or any other state on the basis of reciprocity, although the SEC may require compliance with the form and content of disclosures;
c. Those issued by the receiver or by the trustee in a bankruptcy duly approved by the proper adjudicatory board;
d. Those involving the sale or transfer which is by law, under the regulation of the OIC, HLURB, BIR; and
a. NO, the arrangement is not lawful. It is an artificial manipulation of the price of securities. This is prohibited by the Securities Regulation Code.
b. If the sale materializes, it is called a wash sale or simulated sale.
Under the Margin Trading Rule, no registered broker or dealer, or member of an exchange shall extend credit on any security an amount greater than whichever is higher of:
a. 65% of the current market price of the security;
b. 100% of the lowest market price of the security during the preceding 36 calendar months, but not more than 75% of the current market price.
The purpose of the Margin Trading Rule is to prevent excessive use of credit for the purchase of securities it is a counter to broker’s desire to generate more sales by encouraging clients to buy securities on credit.
OB is an insider (as defined in Subsection 3.8(3) of the SRC) since she is an employee of the Bank, the financial adviser of DOP, and this relationship gives her access to material information about the issuer (DOP) and the latter’s securities (shares), which information is not generally available to the public. Accordingly, OB is guilty of insider trading under Section 27 of the SRC, which requires disclosure when trading in securities.
OB is also liable for damages to sellers or buyers with whom she traded. Under Subsection 63.1 of the SRC, the damages awarded could be an amount not exceeding triple the amount of the transaction plus actual damages. Exemplary damages may also be awarded in case of bad faith, fraud, malevolence or wantonness in the violation of the SRC or its implementing rules. The court is also authorized to award attorney’s fees not exceeding 30% of the award.
a. “Insider” means (1) the issuer, (2) a director or officer of or a person controlling, controlled by, or under common control with, the issuer, (3) a person whose relationship or former relationship to the issuer gives or gave him access to a fact of special significance about the issuer or the security that is not generally available, or (4) a person who learns such a fact from any of the foregoing insiders with knowledge that the person from whom he learns the facts is such an insider.
b. It is one which, in addition to being material, would be likely to affect the market price of a security to a significant extent on being made generally available, or one which a reasonable person would consider especially important under the circumstances in determining his course of action in the light of such factors as the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability.
c. The person may be liable to (1) a fine of not less than P5,000 nor more than P500,000, or (2) imprisonment of not less than 7 years nor more than 21 years, (3) or both such fine and imprisonment in the discretion of the court.
If the offender is a corporation, partnership, association or other juridical entity, the penalty shall be imposed upon the officers of the corporation, etc. responsible for the violation. And if such an officer is an alien, he shall, in addition to the penalties prescribed, be deported without further proceedings after service of sentence.
It is in addition to being material, such fact as would likely, on being made generally available, to affect the market price of a security to a significant extent, or which a reasonable person would consider as especially important under the circumstances in determining his course of action in the light of such factors as the degree of its specificity, the extent of its difference from information generally available previously, and its nature and reliability. (Sec. 30 (c), Revised Securities Act)
a. The directors and officers of the corporation violated Sec. 27 of the SRC on the prohibition on insider’s trading. Sec. 27.1 of the SRC provides that it shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material information with respect to the issuer or the security that is not generally available to the public. In this case, the directors and officers falls squarely into the definition of an insider under Sec. 3.8 of the SRC. Thus, the directors and officers are liable for violating the prohibition on Insider trading.
b. The said employees will be also liable for engaging in insider trading. Sec. 3.8 of the SRC, an insider is also a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or security that is not generally available to the public. The said employees because of their relationship with the issuer, Grand Gas Corporation as their printer, where able to obtain material information. They too became liable for insider trading when they bought the shares in the company and at the same time possessing undisclosed material information.
The sale of the shares does not constitute insider trading. Although Atty. Buenexito, as corporate secretary of Coco Products, Inc., was an insider, it did not obtain the information regarding the planned corporate rehabilitation by communication from him. He just accidentally gave the wrong file (Section 3.8 of SRC). It would be unethical to sell the shares. Rule 1.01 of the Code of Professional Responsibility provides, “A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct.”
A lawyer should not only refrain from performing unlawful acts. He should also desist from engaging in unfair deceitful conduct to conceal form the buyer of the shares of the planned corporate rehabilitation.
