In the Matter of Pacific Global Medical Center, Inc.

January 10, 2013 SEC CDO CASE NO. 09-12-007 IN THE MATTER OF PACIFIC GLOBAL MEDICAL CENTER, INC. , respondent-movant ENFORCEMENT AND PROSECUTION DEPARTMENT FOR : Cease and Desist Order ORDER This resolves the Omnibus Motion [To Recall and Set Aside CDO and Approve Settlement Offer], dated 15 November 2012 filed by Pacific Global Medical Center, Inc. on 16 November 2012. aAHDIc In an Order dated 21 November 2012, the Omnibus Motion filed by Respondent-Movant was set for hearing on 28 November 2012. The parties appeared at the scheduled hearing and, on the same date, the EPD filed its Opposition to the Omnibus Motion. Respondent-Movant filed its Reply to the Opposition on 7 December 2012. A clarificatory hearing was held on 07 January 2013, with the parties present. During the clarificatory hearing, Atty. Themistocles Sao, collaborating counsel for Respondent-Movant, moved for the consolidation of this CDO case (SEC CDO Case No. 09-12-007) and Respondent-Movant's appeal in SEC-EPD Case No. 12-3000, alleging that both cases involve substantially the same issues. We deny the motion. Firstly, the legal issues involved in the two cases are different: this case (SEC CDO Case No. 09-12-007) calls for the issuance of a cease and desist order. It seeks to prevent an act that violates the SRC and operates or will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. In contrast, the appeal in SEC-EPD Case No. 12-3000 seeks reconsideration of an administrative sanction imposed upon Respondent-Movant for violation of the SRC. Secondly, the procedures involved in the two cases are different. SEC CDO Case No. 09-12-007 must forthwith be decided in accordance with Section 10-3 of the 2006 Rules of Procedure of the Securities and Exchange Commission ("2006 SEC Rules of Procedure"). On the other hand, the appeal in SEC-EPD Case No. 12-3000 is for violation of Sections 8 and 12 of the Securities Regulation Code, which is governed by Rule XI of the 2006 SEC Rules of Procedure. It will necessitate the submission of various pleadings from both parties before the same may be considered for resolution. It is noted that, Respondent-Movant's appeal in SEC EPD Case No. 12-3000 was filed only on 7 January 2013 while the CDO case has been ongoing since October 2012. Considering that it is at the moment premature to rule on the merits of the appeal, the motion is hereby denied. The motion for consolidation having been addressed, we shall now resolve the Omnibus Motion. Respondent-Movant argues therein that the CDO should be set aside based on the following grounds: 1. Even prior to the issuance by this Commission of the CDO, Respondent-Movant had already ceased and desisted on its own in offering for sale or selling securities to the public when it was given notice by the Compliance and Enforcement Division that the offering made by Respondent-Movant was not in accordance with the Securities Regulation Code ("SRC"); hence, the CDO has become moot and academic; and 2. Respondent-Movant acted in good faith and without any malice or intent to prejudice or defraud any person, party or investor, nor to violate the SRC and its implementing rules. In fact, no person, party or investor had been defrauded or suffered any grave or irreparable injury or prejudice as to necessitate the issuance, without any prior hearing, of a CDO. The EPD, in its Opposition to the Motion to Lift CDO argues that: 1. The Omnibus Motion was filed out of time and, hence, should be denied; 2. Respondent-Movant's voluntary cessation and desistance from making any further advertisement and recall of brochures, banners and other public announcements to invest in the corporation is not sufficient to warrant the lifting of the CDO; and 3. Violations of special laws such as the SRC are mala prohibita ; consequently, good faith is not a defense; EIaDHS In its Reply, Respondent-Movant reiterated that it had already withdrawn any and all public announcements soliciting investment in the corporation even prior to the issuance of the CDO; hence, the registration of its shares of stock has become fait accompli as Respondent has no more intention and plan of selling and distributing the same to the public as contemplated under Sections 8 and 12 of the Securities Regulation Code. It also alleged that although good faith may not be a valid defense, Respondent was entitled to show cause why no administrative and criminal sanctions should have been imposed upon it. The Commission finds no cogent reason to vacate and set aside its CDO dated 11 October 2012. First and foremost, the motion was filed out of time. Section 10.3 of the 2006 SEC Rules of Procedure provides: "A party against whom a CDO was issued may, within a non-extendible period of five (5) business days from receipt of the order , file a formal request or motion for the lifting thereof with the OGC. . . ." (Emphasis supplied). A copy of the CDO was effectively served upon Respondent-Movant on 19 October 2012. Thus, Respondent-Movant had five (5) days, or until 26 October 2012, within which to file the appropriate motion. Unfortunately for Respondent-Movant, its Omnibus Motion was filed only on 16 November 2012, way beyond the period allowed by the 2006 SEC Rules of Procedure. For this reason, the Omnibus Motion must be denied. Even if the Omnibus Motion were filed on time, it would still be denied for lack of merit. Respondent-Movant's voluntary cessation and desistance from making any further advertisement and recall of brochures, banners and other public announcements to invest in the corporation is not sufficient to warrant the lifting of the CDO. Section 8.1, in relation to Section 12.1 of the SRC requires a registration statement duly filed with and approved by the Commission before securities shall be sold or offered for sale or distribution within the Philippines. "The basic purpose of the registration requirement and . . . prohibitions and limitations on permissible offers to sell securities is to assure that the investor has adequate information upon which to base his or her investment decision. . . . Another justification instills confidence and hence stability which would otherwise be lacking . . ." 1 The protection of the public not only against actual fraud but also upon potential fraud is the paramount purpose of the law. More telling is the amount of the minimum investment sought by Respondent-Movant, which was Three Hundred Forty Thousand Pesos (P340,000.00), which is the price of one block of common shares equivalent to forty shares of stocks. As reported by EPD, the value of the blocks if totally sold, would amount to Three Billion Fifteen Million Eight Hundred Thousand Pesos (P3,015,800,000.00). Considering the extent of the potential exposure to the public of Respondent-Movant's proposed offer for sale, it becomes imperative to retain the CDO. Respondent-Movant also argues that, prior to the issuance of the CDO, it should have been given the opportunity to show cause why no administrative or criminal sanction should have been imposed upon it. The records show that it was given more than ample opportunity. Respondent-Movant's officers and counsel appeared several times after due notice before EPD to justify their investment scheme and submit documents in support thereof. However, the justification forwarded by Respondent-Movant was found to be insufficient by EPD, which prompted the latter to file the Motion for Issuance of CDO. SIDEaA Section 64.1 of the SRC provides that 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. "Under the above provision, there are two essential requirements that must be complied with by the SEC before it may issue a cease and desist order: First, it must conduct proper investigation or verification; and Second, there must be a finding that 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." 2 Records show that an investigation was initiated by EPD on Respondent-Movant. An investigating team went to the project site to conduct an ocular inspection of Respondent-Movant's project site and a surveillance operation of the activities of Respondent-Movant. It was during this investigation that EPD discovered that Respondent-Movant was offering for sale securities to the public without the necessary registration requirement. Moreover, Respondent-Movant was summoned by EPD to several conferences in order to shed light on its activities. However, Respondent-Movant failed to offer any justification therefor other than the good faith and lack of experience of its officers and incorporators. The essence of due process in administrative proceedings is the opportunity to explain one's side or seek a reconsideration of the action or ruling complained of. As long as the parties are given the opportunity to be heard before judgment is rendered, the demands of due process are sufficiently met. 3 In the case of SEC vs. Performance Foreign Exchange Corporation , 4 the Supreme Court explained further: "We hold that petitioner was not denied due process. The records reveal that public respondent SEC properly examined petitioner's business operations when it (1) called into conference three of petitioner's incorporators, (2) requested information from the incorporators regarding the nature of petitioner's business operations, (3) asked them to submit documents pertinent thereto, and (4) visited petitioner's 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 one's position. Public respondent SEC abundantly allowed petitioner to prove its side." Finally, violations of special laws such as the SRC are mala prohibita ; consequently, good faith is not a defense; ". . . It is hornbook doctrine that in mala prohibita crimes, the only inquiry is whether the law has been violated. When the act is illegal, the intent of the offender is immaterial. We held in United States v. Go Chico that: EASIHa ". . . [I]t is not necessary that the appellant should have acted with criminal intent. In many crimes, made such by statutory enactment, the intention of the person who commits the crime is entirely immaterial. This is necessarily so. If it were not, the statute as a deterrent influence would be substantially worthless. It would be impossible of execution. In many cases, the act complained of is itself that which produces the pernicious effect the statute seeks to avoid. In those cases the pernicious effect is produced with precisely the same force and result whether the intention of the person performing the act is good or bad." 5 WHEREFORE, premises considered, the Cease and Desist Order dated 11 October 2012 against Pacific Global Medical Center, Inc. (SEC Company Registration Number CS2010016266), its partners, officers, directors, agents, representatives, conduits, assigns, and any and all persons claiming and acting for and in behalf and under its authority is hereby MADE PERMANENT until or unless it has complied with the legal requirements for offering for sale or selling securities to the public. The Enforcement and Prosecution Department is hereby DIRECTED to: (a) serve this Order on Respondent-Movant and any of its authorized representatives, namely its President, General Manager, Corporate Secretary, Treasurer, or In-House Counsel; (b) post copies of the Order at the entrance of the main office and/or branches, if any, of Respondent-Movant. FAIL NOT UNDER PENALTY OF LAW. SO ORDERED. City of Mandaluyong, January 10, 2013. (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner (SGD.) ANTONIETA F. IBE Commissioner Footnotes 1. Hazen, The Law of Securities Regulation , as cited in Morales, The Philippine Securities Regulation Code (Annotated) . 2005. 2. Power Homes Unlimited Corporation vs. SEC, G.R. No. 164182, 26 February 2008. 3. Flores vs. Montemayor , G.R. No. 170146, 8 June 2011. 4. G.R. No. 154131, 20 July 2006. 5. Ampo vs. Court of Appeals , G.R. No. 169091, 16 February 2006.