Power Homes Unlimited vs SEC (SECURITIES)

G.R. No. 164182

FIRST DIVISION

POWER HOMES UNLIMITED G.R. No. 164182

CORPORATION,

Petitioner,

Present:

PUNO, C.J., Chairperson,

SANDOVAL-GUTIERREZ,

- versus - CORONA,

AZCUNA, and

LEONARDO-DE CASTRO, JJ.

SECURITIES AND EXCHANGE

COMMISSION AND NOEL Promulgated:

MANERO,

Respondents. February 26, 2008

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PUNO, C.J.:

FACTS:

Petitioner is a domestic corporation duly registered with public respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its primary purpose is:

To engage in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing.[4]

On October 27, 2000, respondent Noel Manero requested public respondent SEC to investigate petitioners business. He claimed that he attended a seminar conducted by petitioner where the latter claimed to sell properties that were inexistent and without any brokers license.

On November 21, 2000, one Romulo E. Munsayac, Jr. inquired from public respondent SEC whether petitioners business involves legitimate network marketing.

On the bases of the letters of respondent Manero and Munsayac, public respondent SEC held a conference on December 13, 2000 that was attended by petitioners incorporators John Lim, Paul Nicolas and Leonito Nicolas. The attendees were requested to submit copies of petitioners marketing scheme and list of its members with addresses.

The following day or on December 14, 2000, petitioner submitted to public respondent SEC copies of its marketing course module and letters of accreditation/authority or confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty Corporation.

On January 26, 2001, public respondent SEC visited the business premises of petitioner wherein it gathered documents such as certificates of accreditation to several real estate companies, list of members with web sites, sample of member mail box, webpages of two (2) members, and lists of Business Center Owners who are qualified to acquire real estate properties and materials on computer tutorials.

On the same day, after finding petitioner to be engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code),[5] but failed to register them in violation of Sec. 8.1 of the same Act,[6] public respondent SEC issued a CDO .

ISSUE:

The issues for determination are: (1) whether public respondent SEC followed due process in the issuance of the assailed CDO; and (2) whether petitioners business constitutes an investment contract which should be registered with public respondent SEC before its sale or offer for sale or distribution to the public.

RULING:

On the first issue, Sec. 64 of R.A. No. 8799 provides:

Sec. 64. Cease and Desist Order. 64.1. The Commission, after proper investigation or verification, motu proprio or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public.

We hold that petitioner was not denied due process. The records reveal that public respondent SEC properly examined petitioners business operations when it (1) called into conference three of petitioners incorporators, (2) requested information from the incorporators regarding the nature of petitioners business operations, (3) asked them to submit documents pertinent thereto, and (4) visited petitioners business premises and gathered information thereat. All these were done before the CDO was issued by the public respondent SEC. Trite to state, a formal trial or hearing is not necessary to comply with the requirements of due process. Its essence is simply the opportunity to explain ones position. Public respondent SEC abundantly allowed petitioner to prove its side.

The second issue is whether the business of petitioner involves an investment contract that is considered security[11] and thus, must be registered prior to sale or offer for sale or distribution to the public pursuant to Section 8.1 of R.A. No. 8799, viz:

Section 8. Requirement of Registration of Securities. 8.1. 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. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.

Public respondent SEC found the petitioner as a marketing company that promotes and facilitates sales of real properties and other related products of real estate developers through effective leverage marketing.

We therefore rule that the business operation or the scheme of petitioner constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with public respondent SEC before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its offering to the public was rightfully enjoined by public respondent SEC. The CDO was proper even without a finding of fraud. As an investment contract that is security under R.A. No. 8799, it must be registered with public respondent SEC, otherwise the SEC cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital markets depend on the investing publics level of confidence in the system.