SEC vs. Oudine Santos

An individual who solicits investments by providing information, making presentations, and inducing potential investors to purchase unregistered securities acts as an agent or salesman under Section 28 of the Securities Regulation Code, even if the actual contracts are signed directly between the investor and the issuer, and even if the solicitor claims to be merely an "information provider." Solicitation is defined as the act of seeking or asking for business with the end view of closing a sale, and constitutes prima facie evidence of participation in the unregistered sale of securities.

The case arose from an investment scam involving Performance Investment Products Corporation (PIPC-BVI), a foreign corporation registered in the British Virgin Islands, and its Philippine arm, Philippine International Planning Center Corporation (PIPC Corporation). PIPC Corporation was registered with the Securities and Exchange Commission (SEC) only as a financial research facility, but it solicited investments in a product called "Performance Managed Portfolio" (PMP), promising high returns of 12-18% per annum with guaranteed principal protection. Michael H.K. Liew, chairman of PIPC-BVI, disappeared with investors' funds, exposing the scam. The SEC filed complaints against officers and agents, including respondent Santos who acted as an investment consultant, for selling unregistered securities without the necessary licenses.

• Performance Investment Products Corporation (PIPC-BVI) was a foreign corporation registered in the British Virgin Islands, which incorporated in the Philippines as Philippine International Planning Center Corporation (PIPC Corporation) authorized only to act as a financial research facility.
• PIPC Corporation solicited investments in a product called "Performance Managed Portfolio" (PMP), promising returns of 12-18% per annum with guaranteed principal protection and full confidentiality, despite not being registered to sell securities with the SEC.
• Respondent Oudine Santos was employed by PIPC Corporation as an Investment Consultant and later claimed to be an independent information provider under an "Information Dissemination Agreement" that allegedly prohibited her from soliciting investments.
• Private complainant Luisa Mercedes P. Lorenzo was introduced to Santos in April 2006. Santos conducted a presentation on the PMP product, assured Lorenzo of the investment's safety mentioning "big people" backing them up, and instructed her to remit $40,000 initially (later increased to $500,000 total) to PIPC-BVI's offshore accounts at ABN-AMRO Hong Kong and RZB Austria, Singapore Branch.
• Private complainant Ricky Albino P. Sy met Santos at a Bank of the Philippine Islands branch in late 2006, where Santos invited him to discuss investment products. Santos enticed Sy to invest $40,000 in PMP I, assuring him of capital security and professional foreign currency trading, after which Sy remitted funds directly to PIPC-BVI's Hong Kong account.
• Both Lorenzo and Sy signed Portfolio Management Partnership Agreements directly with PIPC-BVI (not PIPC Corporation), received acknowledgement receipts from PIPC-BVI, and dealt with Michael Liew as president of PIPC-BVI, though their initial contact and inducement came through Santos.
• Michael H.K. Liew, chairman of PIPC-BVI, subsequently disappeared with investors' funds, exposing the investment scam and prompting the SEC to file complaints against officers and agents including Santos.
• Santos defended that she never received money from investors, did not sign the investment contracts, and merely provided information as requested under her limited authority as an information provider.

• The SEC argued that Santos acted as an agent and salesman for PIPC Corporation/PIPC-BVI by actively soliciting and inducing Lorenzo and Sy to invest in the unregistered securities (Performance Managed Portfolio).
• The SEC contended that Santos made material representations regarding the safety, profitability, and confidentiality of the investments, facilitated the investors' connection to PIPC, and thereby procured the sale of securities.
• The SEC maintained that under Section 28 of the SRC, no person shall engage in the business of buying or selling securities as a broker or dealer, or act as a salesman or associated person unless registered with the Commission.
• The SEC argued that the Secretary of Justice and Court of Appeals committed grave abuse of discretion in excluding Santos from prosecution, as the DOJ panel had correctly found probable cause based on evidence of solicitation, agency, and the unregistered status of the securities.

• Santos denied being an agent or salesman, claiming she was merely a clerical employee or independent information provider with no decision-making power in the management of PIPC Corporation or PIPC-BVI.
• She argued that she never received money from investors; funds were remitted directly by Lorenzo and Sy to PIPC-BVI's offshore accounts, and contracts were signed directly between investors and PIPC-BVI, not with her.
• She asserted that she had no criminal intent or malice, believing PIPC to be a legitimate business, and that criminal liability under the SRC requires intent (except for fraud provisions under Section 26).
• She claimed that under the "Information Dissemination Agreement," she was expressly prohibited from soliciting investments and was limited only to providing necessary information on how to communicate directly with PIPC.
• She argued that investors were sophisticated businessmen who exercised independent judgment, and that she could not be held liable for the acts of PIPC-BVI or its officers, particularly since she was never a stockholder, director, or officer of either entity.

• Procedural Issues:
  • Whether the Secretary of Justice and the Court of Appeals committed grave abuse of discretion amounting to lack or excess of jurisdiction in reversing the DOJ panel's finding of probable cause and excluding Santos from prosecution despite substantial evidence of solicitation.
• Substantive Issues:
  • Whether respondent Santos may be held liable under Section 28 of the Securities Regulation Code for violation of registration requirements as an unregistered salesman or agent, notwithstanding that she did not sign the investment contracts or handle investor funds, and despite her claim of being merely an information provider.

• Procedural:
  • The Supreme Court held that while the determination of probable cause is an executive function, certiorari lies when the findings of the Secretary of Justice constitute a gross misapprehension of facts amounting to grave abuse of discretion.
  • The Court found that the Secretary of Justice and the Court of Appeals took a myopic view of the evidence by focusing solely on the fact that Santos did not sign the contracts or handle the money, ignoring the substantial evidence of her solicitation activities and inducements.
  • The Court annulled the resolutions of the Court of Appeals and the Secretary of Justice dated October 1, 2009 and November 23, 2009, and reinstated the DOJ panel's resolutions dated April 18, 2008 and September 2, 2008 finding probable cause against Santos.
• Substantive:
  • The Court ruled that the Performance Managed Portfolio (PMP) constitutes an "investment contract" and therefore a "security" under Section 3 of the SRC and Rule 3 of its Implementing Rules, defined as a contract whereby a person invests money in a common enterprise and is led to expect profits primarily from the efforts of others.
  • The Court held that solicitation is the act of seeking or asking for business with the end view of closing a sale, and constitutes participation in the selling of securities under Section 28 of the SRC.
  • The Court found that Santos, by providing information, making presentations, assuring investors of safety, and inducing Lorenzo and Sy to invest, acted as an agent/salesman who procured the sale of unregistered securities, regardless of whether she signed the contracts or handled the funds.
  • The Court emphasized that the absence of Santos' signature in the contracts is indicative of a scheme to circumvent liability, and that her defense of being a mere employee is best threshed out during trial, not preliminary investigation.

• Definition of Investment Contract/Securities — Under Rule 3 of the SRC Implementing Rules and Regulations, an investment contract is defined as a contract, transaction, or scheme whereby a person invests money in a common enterprise and is led to expect profits primarily from the efforts of others. The Court applied this definition to the PMP scheme where investors pooled funds and expected profits from professional traders' efforts, noting that the "touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others."
• Solicitation as Part of Selling Securities — Solicitation is defined as the act of seeking or asking for business or information; it is not a commitment to an agreement but is an indispensable element in the selling of securities. One who solicits investments acts as an agent or salesman under Section 28 of the SRC, and the contracts merely document the act performed by the solicitor.
• Agency by Estoppel — One who professes to act as an agent for another is estopped to deny her agency both as against the asserted principal and third persons interested in the transaction.
• Strict Liability for Registration Violations — Violations of Section 28 of the SRC (registration of brokers, dealers, salesmen) are malum prohibitum where criminal intent is not an essential element; mere violation is punishable, unlike fraud-based provisions under Section 26.
• Determination of Probable Cause — While the DOJ has wide discretion in determining probable cause, certiorari will lie to correct errors when there is a gross misapprehension of facts or when the acts of the officer are without or in excess of authority.

• "Solicitation is the act of seeking or asking for business or information; it is not a commitment to an agreement."
• "Santos, by the very nature of her function as what she now unaffectedly calls an information provider, brought about the sale of securities made by PIPC Corporation and/or PIPC-BVI to certain individuals... by providing information on the investment products... with the end in view of PIPC Corporation closing a sale."
• "The touchstone is the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others."
• "The DOJ's and Court of Appeals' reasoning that Santos did not sign the investment contracts of Sy and Lorenzo is specious. The contracts merely document the act performed by Santos."
• "At bottom, the exculpation of Santos cannot be preliminarily established simply by asserting that she did not sign the investment contracts, as the facts alleged in this case constitute fraud perpetrated on the public."

• People v. Petralba (482 Phil. 362) — Cited for the definition of investment contract/securities requiring an investment in a common venture with expectation of profits from the efforts of others.
• Po v. Department of Justice (G.R. Nos. 195198 and 197098, 690 SCRA 214) — Cited for the principle that determination of probable cause is an executive function.
• First Women's Credit Corporation v. Hon. Perez (524 Phil. 305) — Cited for the rule that certiorari lies to correct gross misapprehension of facts by the DOJ.
• Filadas Pharma, Inc. v. Court of Appeals (G.R. No. 132422, 426 SCRA 460) — Cited for the exceptions allowing judicial interference in preliminary investigations.

• Section 28, Republic Act No. 8799 (Securities Regulation Code) — Prohibits any person from engaging in the business of buying or selling securities in the Philippines as a broker or dealer, or acting as a salesman or an associated person of any broker or dealer, unless registered as such with the Commission.
• Section 3, Republic Act No. 8799 — Defines broker, dealer, salesman, associated person, and issuer.
• Section 8, Republic Act No. 8799 — Requires registration of securities before sale or offer within the Philippines.
• Rule 3, Implementing Rules and Regulations of the SRC — Defines investment contract as a contract where a person invests money in a common enterprise and expects profits primarily from the efforts of others.
• Rule 45, Rules of Court — Governs petitions for review on certiorari to the Supreme Court.