Securities and Exchange Commission vs. Price Richardson Corporation, et al.

The determination of probable cause for purposes of filing an information is an executive function lodged with the public prosecutor, and courts may not interfere with or review this determination unless it is attended by grave abuse of discretion amounting to lack or excess of jurisdiction. Grave abuse of discretion exists when the prosecutor disregards or overlooks evidence sufficient to form a reasonable ground to believe that a crime was committed and that the respondent was its author.

The Securities and Exchange Commission (petitioner) is the government agency tasked with regulating securities transactions in the Philippines. Price Richardson Corporation (Price Richardson) is a Philippine corporation duly incorporated on December 7, 2000, with the primary purpose of providing administrative services including clerical, bookkeeping, mailing, and billing services. The case involves allegations that Price Richardson operated as a "boiler room" operation, selling non-existent stocks to foreign investors through high-pressure sales tactics, without the requisite license or registration from the Securities and Exchange Commission. The dispute centers on whether probable cause existed to indict the corporation and its individual officers for violations of the Securities Regulation Code and the Revised Penal Code.

Price Richardson Corporation (Price Richardson) is a Philippine corporation incorporated on December 7, 2000, with the primary purpose of providing administrative services including clerical, bookkeeping, mailing, and billing services. On October 17, 2001, its former employee, Michelle S. Avelino, executed a sworn affidavit at the National Bureau of Investigation's Interpol Division, alleging that Price Richardson was engaged in "boiler room operations," wherein the company sells non-existent stocks to investors using high-pressure sales tactics, and that whenever this activity was discovered, the company would close and emerge under a new company name. Avelino, who worked as a telemarketer from September 3, 2001 to October 15, 2001, described how telemarketers would call prospective investors using prepared scripts, qualify them, and forward their information to supervisors, after which salesmen would use high-pressure tactics to sell non-existent stocks. She stated that no hard copies of stocks or certificates were issued because there was no actual sale or transfer of stocks, and that the salesmen were not licensed by the Securities and Exchange Commission.

Janet C. Rillo, a former employee of Capital International Consultants, Inc. (Capital International), a corporation that allegedly merged with Price Richardson, corroborated Avelino's claims. She stated that they were instructed to use Price Richardson's name in their calls starting September 2001, and that qualified clients would be sold non-existent stocks by foreign salesmen. Upon application of the National Bureau of Investigation Interpol Division and the Securities and Exchange Commission, Branch 143 of the Regional Trial Court of Makati City issued three search warrants against Capital International and Price Richardson for violation of Section 28 of the Securities Regulation Code. The search warrants were served on November 16, 2001, and Price Richardson's office equipment and documents were seized.

On December 4, 2001, the Securities and Exchange Commission filed a complaint before the Department of Justice against Price Richardson, its incorporators and directors (Clara Arlene Baybay, Armina A. La Torre, Manuel Luis Limpin, Editha C. Rupido, and Jose C. Taopo), Consuelo Velarde-Albert (Director for Operations), and Gordon Resnick (Associated Person) for violation of Article 315(1)(b) of the Revised Penal Code and Sections 26.3 and 28 of the Securities Regulation Code. The Securities and Exchange Commission alleged that Price Richardson was neither licensed nor registered to engage in the business of buying and selling securities, and that Velarde-Albert and Resnick should be liable for acting as brokers or salesmen despite not being registered. The incorporators and directors denied knowing or agreeing to the offenses charged, claiming they had already transferred their shares in December 2000. Velarde-Albert denied the allegations, while Resnick did not submit any evidence refuting the charges.

State Prosecutor Aristotle M. Reyes issued a Resolution on March 13, 2002, dismissing the complaint for lack of probable cause. He found that the Securities and Exchange Commission failed to adduce evidence showing Price Richardson's alleged unauthorized trading, and that the confirmation of trade receipts could very well mean that Price Richardson was merely providing administrative services pursuant to its primary purpose. He also absolved the incorporators and directors, found Velarde-Albert and Resnick not liable for lack of sufficient proof, and ruled that there was no sufficient evidence to show deception constituting estafa. In the meantime, individuals claiming to have been defrauded by Price Richardson surfaced and executed sworn statements against it, filing complaints before the Department of Justice.

The Securities and Exchange Commission's Motion for Reconsideration was denied, and its Petition for Review before the Department of Justice was denied by Secretary Raul M. Gonzalez in an April 12, 2005 Resolution, which was affirmed in a July 5, 2006 Resolution denying reconsideration. The Securities and Exchange Commission then filed a Petition for Certiorari before the Court of Appeals, which affirmed the assailed Resolutions on May 26, 2011, finding no grave abuse of discretion. The Court of Appeals found that the affidavits executed by Price Richardson's employees were merely surmises, that the alleged investors' affidavits were not sufficient to find probable cause because the transactions transpired over the phone while the investors were not in the Philippines, and that there was no basis for the complaints against Velarde-Albert and Resnick because they were neither board members nor stockholders.

• Grave Abuse of Discretion: Petitioner claimed that Secretary Gonzalez committed grave abuse of discretion in not finding probable cause to indict respondents, as the complainants who claimed to have been defrauded and the documents and equipment seized show that Price Richardson was engaged in buying and selling securities without license or authority.
• Liability of Individual Respondents: Petitioner asserted that the seized documents sufficiently show that Velarde-Albert and Resnick acted as salesmen or associated persons under Section 28 of the Securities Regulation Code.
• Exception to Rule 45: Petitioner posited that direct invocation of this Court's original jurisdiction is allowed as its petition is an exception to the rule that only questions of law may be raised in a Rule 45 petition, alleging that the Court of Appeals' grave abuse of discretion and its Decision, which was based on a misapprehension of facts and was contradicted by evidence on record, make its Petition an exception to the rule.

• Executive Function: Respondent Price Richardson argued that the determination of probable cause is an executive function and is reviewable by courts only upon showing of grave abuse of discretion, and that the Department of Justice did not gravely abuse its discretion when it found no probable cause.
• Lack of Personal Knowledge: Respondent Price Richardson insisted that its former employees' sworn statements contained factual claims that were outside their personal knowledge or conclusions of law beyond their capacity to make.
• Territorial Jurisdiction: Respondent Price Richardson argued that Section 28 of the Securities Regulation Code prohibits anyone from engaging in the business of buying and selling securities without registration if those transactions are offered "to the public within the Philippines," and that this provision does not apply because the alleged buyers were not citizens of or resided in the Philippines, and the allegedly sold or offered securities were registered outside the Philippines.
• No Direct Participation: Respondents Velarde-Albert and Resnick argued that the complaints did not allege any act attributable to them or related to the alleged transactions involved, and that there was no question of law raised in the Petition.

• Reviewability of Probable Cause Determination: Whether courts may pass upon the prosecutor's determination of probable cause.
• Probable Cause Against Price Richardson: Whether there is probable cause to indict respondent Price Richardson for violation of Sections 26.3 and 28 of the Securities Regulation Code.
• Probable Cause Against Individual Respondents: Whether there is probable cause to indict respondents Velarde-Albert and Resnick for violation of Sections 26.3 and 28 of the Securities Regulation Code and Article 315(1)(b) of the Revised Penal Code.

• Reviewability of Probable Cause Determination: Yes, but only upon a showing of grave abuse of discretion. The determination of probable cause for purposes of filing an information is an executive function lodged with the public prosecutor, and courts may not interfere with or review this determination unless it is attended by grave abuse of discretion amounting to lack or excess of jurisdiction.
• Probable Cause Against Price Richardson: Yes. Grave abuse of discretion exists, which warrants this Court's interference in the conduct of the executive determination of probable cause. The evidence gathered by petitioner and the statement of respondent Price Richardson are facts sufficient enough to support a reasonable belief that respondent is probably guilty of the offense charged.
• Probable Cause Against Individual Respondents: No. Petitioner failed to allege the specific acts of respondents Velarde-Albert and Resnick that could be interpreted as participation in the alleged violations, and there was no showing that they were deemed responsible for Price Richardson's violations.

• Reviewability of Probable Cause Determination: The Court explained that probable cause, for purposes of filing a criminal information, is defined as such facts as are sufficient to engender a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof. The determination of probable cause is an executive function that pertains to and lies within the discretion of the public prosecutor and the justice secretary. The court may not pass upon or interfere with the prosecutor's determination of the existence of probable cause to file an information regardless of its correctness, and it does not function as the prosecutor's appellate court. However, as an exception, courts may interfere with the prosecutor's determination of probable cause when there is grave abuse of discretion, which constitutes a refusal to act in contemplation of law or a gross disregard of the Constitution, law, or existing jurisprudence, accompanied by a whimsical and capricious exercise of judgment amounting to lack of jurisdiction. A prosecutor gravely abuses his or her discretion in not finding probable cause by disregarding or overlooking evidence that are sufficient to form a reasonable ground to believe that the crime was committed and that the respondent was its author.

• Probable Cause Against Price Richardson: The Court found that the evidence on record sufficiently established probable cause against Price Richardson. Based on the Certification dated October 11, 2001 issued by the Market Regulation Department of the Securities and Exchange Commission, Price Richardson "has never been issued any secondary license to act as broker/dealer in securities, investment house and dealer in government securities" and "is not, under any circumstances, authorized or licensed to engage and/or solicit investments from clients." The documents seized from Price Richardson's office showed possible sales of securities, including a company brochure declaring that it is a financial consultant, detailed quotes of OWTNF Otis-Winston Ltd. shares downloaded from the Bloomberg.com website, and multiple Confirmation of Trade receipts issued to various clients for the purchase of shares, along with telegraphic transfers and checks payable to Price Richardson. The petitioner further supported its charges by submitting complaint-affidavits and letters of individuals who transacted with Price Richardson, including Mr. Don Sextus Nilantha of Sri Lanka, Mr. Johannes Jacob Van Prooyen, and Mr. Bjorn L. Nymann of Oslo, Norway. The Court noted that respondent Price Richardson itself stated in its Memorandum that it engaged in outsourced operations wherein persons located in the Philippines called up persons located in foreign locations to inform them of certain securities available in certain locations. The Court held that this evidence was sufficient to support a reasonable belief that Price Richardson was probably guilty of the offense charged, and that the dismissal of the complaint against it was rendered with grave abuse of discretion.

• Probable Cause Against Individual Respondents: The Court held that Velarde-Albert and Resnick cannot be indicted because the petitioner failed to allege the specific acts that could be interpreted as their participation in the alleged violations. There was no showing, based on the complaints, that they were deemed responsible for Price Richardson's violations. The Court cited State Prosecutor Reyes' finding that there was no sufficient evidence to substantiate the allegation that Velarde-Albert and Resnick acted as brokers, salesmen, or associated persons without prior registration, and that the confirmation of trade receipts and documents, standing alone, could not warrant their indictment. The Court reiterated that a corporation's personality is separate and distinct from its officers, directors, and shareholders, and to be held criminally liable for the acts of a corporation, there must be a showing that its officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act.

• Probable Cause (for filing an information) — Defined as such facts as are sufficient to engender a well-founded belief that a crime has been committed and that the respondent is probably guilty thereof. It does not mean "actual or positive cause" nor import absolute certainty; it is merely based on opinion and reasonable belief. A finding of probable cause does not require an inquiry into whether there is sufficient evidence to procure a conviction. The Court applied this definition in determining whether the Department of Justice gravely abused its discretion in dismissing the complaints.

• Executive Determination of Probable Cause — The determination of probable cause to charge a person with a crime is an executive function that pertains to and lies within the discretion of the public prosecutor and the justice secretary. Courts may not pass upon or interfere with this determination regardless of its correctness, and courts do not function as the prosecutor's appellate court. The Court applied this doctrine in holding that judicial interference is warranted only upon a showing of grave abuse of discretion.

• Grave Abuse of Discretion — Constitutes a refusal to act in contemplation of law or a gross disregard of the Constitution, law, or existing jurisprudence, accompanied by a whimsical and capricious exercise of judgment amounting to lack of jurisdiction. A prosecutor gravely abuses his or her discretion in not finding probable cause by disregarding or overlooking evidence that are sufficient to form a reasonable ground to believe that the crime was committed and that the respondent was its author. The Court applied this doctrine in finding that the dismissal of the complaint against Price Richardson was rendered with grave abuse of discretion.

• Corporate Criminal Liability — A corporation's personality is separate and distinct from its officers, directors, and shareholders. To be held criminally liable for the acts of a corporation, there must be a showing that its officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act. The Court applied this doctrine in affirming the dismissal of the complaints against Velarde-Albert and Resnick.

• "Probable cause, for purposes of filing a criminal information, has been defined as such facts as are sufficient to engender a well-founded belief that a crime has been committed and that the private respondent is probably guilty thereof. It is such a state of facts in the mind of the prosecutor as would lead a person of ordinary caution and prudence to believe or entertain an honest or strong suspicion that a thing is so." — This passage, quoted from Villanueva v. Secretary of Justice, defines the controlling standard for probable cause in the filing of criminal informations and is the foundational principle upon which the Court's analysis rests.

• "It has long been established that the determination of probable cause to charge a person of a crime is an executive function, which pertains to and lies within the discretion of the public prosecutor and the justice secretary." — This passage articulates the general rule that the determination of probable cause is an executive function, establishing the baseline for when judicial interference is permissible.

• "Grave abuse of discretion constitutes 'a refusal to act in contemplation of law or a gross disregard of the Constitution, law, or existing jurisprudence, [accompanied by] a whimsical and capricious exercise of judgment amounting to lack of jurisdiction.'" — This passage defines the standard for grave abuse of discretion, which is the exception that permits courts to interfere with the prosecutor's determination of probable cause.

• "A corporation's personality is separate and distinct from its officers, directors, and shareholders. To be held criminally liable for the acts of a corporation, there must be a showing that its officers, directors, and shareholders actively participated in or had the power to prevent the wrongful act." — This passage states the doctrine of corporate criminal liability, which the Court applied in affirming the dismissal of the complaints against the individual respondents.

• Villanueva vs. Secretary of Justice, 512 Phil. 145 (2005) — Controlling precedent cited for the definition of probable cause for purposes of filing a criminal information, which the Court applied in determining whether the Department of Justice gravely abused its discretion.
• Andres vs. Justice Secretary Cuevas, 499 Phil. 36 (2005) — Followed for the principle that preliminary investigation is not the occasion for the full and exhaustive display of evidence, and that the presence or absence of the elements of the crime is evidentiary in nature and a matter of defense that may be passed upon after a full-blown trial on the merits.
• Mendoza vs. People, et al., 733 Phil. 603 (2014) — Followed for the principles that the determination of probable cause is an executive function, that courts may not pass upon the prosecutor's determination regardless of its correctness, and that judicial determination of probable cause is for purposes of issuing a warrant of arrest.
• Unilever vs. Tan, 725 Phil. 486 (2014) — Followed for the principle that a prosecutor gravely abuses his or her discretion in not finding probable cause by disregarding or overlooking evidence sufficient to form a reasonable ground to believe that the crime was committed and that the respondent was its author.
• ABS-CBN Corporation vs. Gozon, G.R. No. 195956, March 11, 2015, 753 SCRA 1 — Followed for the doctrine that a corporation's personality is separate and distinct from its officers, directors, and shareholders, and that criminal liability requires a showing of active participation or power to prevent the wrongful act.

• Section 26.3, Securities Regulation Code — Prohibits any person from engaging in any act, transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any securities. The Court applied this provision in determining whether probable cause existed to indict Price Richardson for fraudulent transactions.
• Section 28, 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. The Court applied this provision in determining whether probable cause existed to indict Price Richardson and the individual respondents for engaging in unauthorized securities trading.
• Article 315(1)(b), Revised Penal Code — Defines the crime of Estafa committed with unfaithfulness or abuse of confidence by misappropriating or converting money, goods, or other personal property received in trust or on commission. The Court considered this provision in determining whether probable cause existed to indict the respondents for estafa.
• Rule 112, Section 1, Revised Rules of Criminal Procedure — Defines preliminary investigation as an inquiry or proceeding to determine whether there is sufficient ground to engender a well-founded belief that a crime has been committed and the respondent is probably guilty thereof. The Court cited this provision in explaining the nature and purpose of preliminary investigation.
• Article III, Section 2, 1987 Constitution — Provides that no search warrant or warrant of arrest shall issue except upon probable cause to be determined personally by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce. The Court cited this provision in explaining the judicial determination of probable cause for purposes of issuing a warrant of arrest.

• Antonio T. Carpio, Associate Justice (Chairperson)
• Diosdado M. Peralta, Associate Justice
• Jose Catral Mendoza, Associate Justice
• Samuel R. Martires, Associate Justice