In the Matter of Shema United Development Int'l. Foundation, Inc., et al.

October 4, 2012 SEC ADMINISTRATIVE CASE NO. 08-11-131 IN THE MATTER OF SHEMA UNITED DEVELOPMENT INT'L. FOUNDATION, INC. AND SHEMA UNITED HARVESTERS FOUNDATION, INC., ENFORCEMENT AND PROSECUTION DEPARTMENT , petitioner . FOR : Revocation of Certificate of Incorporation with Prayer for Issuance of a Cease and Desist Order RESOLUTION For consideration is the Motion for Reconsideration dated 14 November 2011 filed by respondents Shema United Development Int'l. Foundation ("SUDIFI"), Shema United Harvesters Foundation, Inc. ("SUHFI") and Charles D. Cabagnan Sr. assailing the Decision of the Commission dated 20 October 2011 revoking their respective Certificates of Registration. Background As a brief background, both SUDIFI and SUHFI are registered with the Commission as non-stock and non-profit associations, the purposes of which are as follows: (1) to receive grants, donations, gifts and conduct fund raising from local and foreign sources; (2) to provide benefits to the members who are considered qualified and recognized beneficiaries nationwide; and (3) to conduct spiritual enhancement, health, livelihood and other humanitarian missions in any areas nationwide and globally. On 23 August 2010, a certain Jeffrey E. Ayangco sent an electronic mail ("email") 1 to the Commission requesting the verification of the validity of SUDIFI because of its promises to its investors. On 22 October 2010, an EPD investigation team went to SUDIFI's purported principal address at 1007-B New York Mansions, 84 Montreal St., Cubao, Quezon City, 2 wherein it appears that the subject foundation was affiliated with Shema United Business Innovative Concept Corporation (SUBICC). The EPD investigating team, thereafter, verified and compared the corporate filings of SUDIFI and SUBICC. DIETcC Meanwhile, on 9 September 2010, SUHFI was incorporated as a non-stock non-profit corporation with office address at G/F New York Mansions Condominium No. 84 Montreal Street, Cubao, Quezon City. 3 Subpoenae duces tecum and ad testificandum 4 dated 04 November 2010 were sent to officers of SUDIFI requiring them to appear before the SEC. On 17 November 2010, all the officers of SUDIFI, except for Emiliano P. Murillo, who has allegedly resigned from the company, appeared before the SEC assisted by their counsel. In said conference, 5 the officers of SUDIFI confirmed that SUDIFI is engaged in marketing activities for SUBICC and further stated that respondent SUDIFI derives funds out of donations and proceeds of the wellness products that members are selling. They also confirmed that before one can become a member of SUDIFI, he/she has to purchase the products being offered by SUBICC for twelve (12) months and it is only then that the member is entitled to certain incentives. They further explained that all of them including the officers and members of the Board of Directors purchased SUBICC's wellness products for twelve months and are now enjoying the benefits called cash harvests and are receiving free wellness products. On 13 April 2011, another conference was held involving the officers of SUHFI, who are also officers of SUDIFI. In said conference, it was explained to EPD that SUHFI was incorporated merely to exclude two (2) incorporators of SUDIFI. 6 On 6 May 2011, an audit was conducted on the books of SUDIFI in its office premises and the company was directed to submit its 2009 List of Donors, 7 2009 List of Beneficiaries 8 and Bank Reconciliation 9 as of 31 December 2009. The investigation also yielded that SUDIFI failed to include in its Audited Annual Financial Statement for 2009 the related Sworn Statement of its President and Treasurer on the (a) Source and Amounts of Funds; (b) Program/Activity planned, ongoing and accomplished; and (c) Application of Funds as well as the required Certification from the Office of the Mayor, or the Office of the Barangay Captain, or the Head of either the Department of Social Welfare and Development or Department of Health on the existence of its Program/Activity, as further required under Sections 4 and 5 of Memorandum Circular No. 8, Series of 2006. 10 On the basis of its findings, EPD filed with the Commission En Banc, through the Office of the General Counsel, a Petition for Revocation of the Certificates of Registration of SUDIFI and SUHFI on the ground of serious misrepresentation as to what the corporation can do or is doing to the prejudice of or damage to the general public under Sec. 6 par. (I) (2) of P.D. No. 902-A, with a prayer for issuance of a Cease and Desist Order from further engaging in business activities for profit. Instead of filing an Answer within the prescribed period of fifteen (15) days from notice, respondents filed on 23 September 2011, by registered mail, a Motion for Extension of Time and an Entry of Appearance. There being no Answer filed, the Commission En Banc issued a Decision on 20 October 2011 revoking the Certificates of Registration of SUDIFI and SUHFI, the dispositive portion of which states "WHEREFORE, foregoing premises considered, the instant Petition is GRANTED. Accordingly, the Certificates of Registration of SHEMA UNITED DEVELOPMENT INTERNATIONAL FOUNDATION, INC. and SHEMA UNITED HARVESTERS FOUNDATION, INC. are hereby REVOKED. . . ." Hence, this Motion for Reconsideration assailing the subject 20 October 2011 Decision of the Commission. Ruling At the outset, a Motion for Reconsideration is a prohibited pleading under Sections 3-6 of the 2006 Rules of Procedure of this Commission, which reads: IaCHTS "Secs. 3-6. Prohibited Pleading. The following pleadings or any submission that is filed or made under a similar guise or title shall not be allowed: . . . c) Motion for New Trial, Reconsideration of Judgment or Order, or Reopening of Trial; . . ." (Underscoring supplied) On this point alone, the instant Motion for Reconsideration should not be given due course. Furthermore, the fact remains that SUDIFI and SUHFI did not file an Answer within the prescribed period of fifteen (15) days from notice. Instead, they filed on 23 September 2011, by registered mail, an Entry of Appearance and a Motion for Extension of Time, which is also a prohibited pleading under Sections 3-6 of the 2006 Rules of Procedure of the SEC. Granting for the sake of argument that the Motion for Reconsideration could be taken cognizance of by the Commission, we still see no cogent reason to disturb the challenged Decision as the same Motion is devoid of merit. Firstly, contrary to SUDIFI and SUHFI's argument that the Commission En Banc has no jurisdiction over the case, Section 5 of the Securities Regulation Code (SRC), in relation to Section 6 of Presidential Decree No. 902-A (PD 902-A), clothes it with the power to suspend or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations on the ground of serious misrepresentation as to what the corporation can do or is doing, to the great prejudice of or damage to the general public. Clearly, it is still the Commission En Banc that has the power to revoke the franchise or certificate of registration of corporations. While it is true that the Commission may, for purposes of efficiency, delegate any of its functions to any of its department, office, employee or official, 11 such function of any department, office, employee or official is a mere delegated authority, which the Commission En Banc can itself exercise. 12 Thus, the Commission En Banc may direct the Office of the General Counsel (OGC) to issue the Summons on its behalf. Secondly, the argument that the EPD has no capacity or personality to sue is untenable. Pursuant to the provisions of law cited above, the Commission, through the EPD (formerly known as the Compliance and Enforcement Department) and other Operating Departments, has the power to regulate, investigate or supervise the activities of persons to ensure compliance with existing laws being implemented by it 13 as well as the power to issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns as may be necessary for the proper disposition of the cases before it. 14 By conducting an investigation, determining the propriety of filing a Petition for Revocation of a Certificate of Registration and actually filing the same, EPD is merely enforcing the mandate of the Commission under the SRC, the Corporation Code and other applicable existing laws. Thus, the EPD, acting by authority of the Commission, has capacity and personality to sue. Thirdly, SUDIFI and SUHFI further argue that the investigation conducted by EPD was misleading and improper because notwithstanding their Motion to be Informed and Clarified of the Purpose of the Investigation, the EPD investigators did not inform them of the complaint of one Jeffrey Ayangco. It was also argued that the invitees were not informed of their right to remain silent and that anything that they say can be taken against them or the institution that they represent. Thus, they conclude that any documents taken and statements obtained during those proceedings are inadmissible. These arguments are seriously flawed. IHCacT First of all, the Entry of Appearance with Motion to be informed and clarified of the purpose of the Investigation attached in the instant Motion 15 is one filed with EPD not by SUDIFI or SUHFI but by SUBICC, which is not a party to this case. The same document was likewise filed only on 27 October 2011, which is subsequent to the challenged Decision. Hence, the said pleading bears no relevance to the instant case. Second, SUDIFI and SUHFI, being corporations, are creatures of the State whose powers and rights are limited by law and as such, there is a right reserved in the legislature (in this case, the SEC, as delegated under Section 5 (d) of the SRC) to investigate its franchise and find out whether it has exceeded its powers. 16 It would be anomalous to hold that a State, having chartered a corporation to make use of certain franchises, could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the corporate books and papers for that purpose. 17 Accordingly, a corporation, vested with special privileges and franchises, may not refuse to show its hand when charged with an abuse of such privileges. 18 In the instant case, it is apparent in the subpoenae duces tecum and ad testificandum furnished to the invited members of the Board and officers of SUDIFI and SUHFI that the purpose of the investigation are the possible violations by SUDIFI and SUHFI of Section 6 (i) 2 of PD 902-A 19 and Section 45 of the Corporation Code 20 that can lead to a suspension or revocation of its franchise or registration. Clearly, those proceedings before the Commission are not a violation of rights of the members that compose the corporation or its directors and officers but a determination of whether or not the corporate medium was used as a means to defraud the public. Thus, the rights invoked by SUDIFI and SUHFI and which were allegedly ignored by EPD investigators is clearly misplaced as said rights exist only in "custodial investigations," or "in custody interrogation of accused persons," which is not the case here. Custodial interrogation means questioning initiated by law enforcement officers after a person has been taken into custody or otherwise deprived of his freedom of action in any significant way. 21 The Supreme Court, in Remolona v. Civil Service Commission , held that the rights in custodial investigation apply only in criminal investigations but not in administrative investigations, viz. Custodial investigation is the stage where the police investigation is no longer a general inquiry into an unsolved crime but has begun to focus on a particular suspect who had been taken into custody by the police to carry out a process of interrogation that lends itself to elicit incriminating statements. It is when questions are initiated by law enforcement officers after a person has been taken into custody or otherwise deprived of his freedom of action in any significant way. The right to counsel attaches only upon the start of such investigation. Therefore, the exclusionary rule under paragraph (2) (sic) [(3)], Section 12 of the Bill of Rights applies only to admissions made in a criminal investigation but not to those made in an administrative investigation . 22 Clearly, the allegations, arguments and the evidence so adduced by SUDIFI and SUHFI in the Motion for Reconsideration failed to overcome the evidence on record showing that SUDIFI and SUHFI's actual activities are inconsistent with the nature of non-stock non-profit corporations and/or foundations and the purpose/s for which such corporations were organized. The activities of SUDIFI and SUHFI constitute serious misrepresentation as to what the corporation can do or is doing to the damage and prejudice of the public, in direct violation of Section 6, paragraph (l) (2) of PD 902-A. WHEREFORE, foregoing premises considered, the instant Motion for Reconsideration is DENIED. HTCaAD Let a copy of this Resolution be furnished to the Company Registration and Monitoring Department, the Enforcement and Prosecution Department and the Investor Protection and Surveillance Department for their appropriate action. And, let this Resolution be also furnished to the Economic Research and Information Department for posting at the Commission's website for purposes of giving notice to the public. SO ORDERED. City of Mandaluyong, October 4, 2012. (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (did not participate) RAUL J. PALABRICA Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (on vacation leave) ELADIO M. JALA Commissioner Footnotes 1. Records, p. 75. 2. Id. , p. 112. 3. Id. , p. 109. 4. Id. , pp. 36-47. 5. Id. , p. 35. 6. Id. , p. 108. 7. Id. , p. 11. 8. Id. , pp. 6-10. 9. Id. , pp. 1-5. 10. Id. , p. 109; Revised Guidelines on Foundations. 11. Sec. 4.6, SRC. 12. Secs. 1-7, 2006 Rules of Procedure of the SEC; Sec. 6, 2nd par., PD 902-A. 13. Sec. 5 (d), SRC. 14. Sec. 5 (l), SRC. 15. Records, SUDIFI and SUHFI's Motion for Reconsideration, Annex 1. 16. Bataan Shipyard & Engineering Co., Inc. v. PCGG , 150 SCRA 181 [1987], citing Wilson v. United States , 55 L. Ed. 771, 780. 17. Id. 18. Id. 19. Sec. 6 (i) To suspend, or revoke , after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following: . . . 2. Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public; . . . 20. Section 45. Ultra vires acts of corporation. No corporation under this Code shall possess or exercise any corporate powers except those conferred by this Code or by its Articles of Incorporation and except such as are necessary or incidental to the exercise of the powers so conferred. 21. People v. Dela Cruz , G.R. Nos. 118866-68, September 17, 1997; People v. Ayson , G.R. No. 85215, July 7, 1989. 22. G.R. No. 137473, August 2, 2001.