Procedures in the Enforcement of the Corporation Code, Securities Regulation Code, and Other Existing Laws

May 22, 2001 SEC CIRCULAR NO. 04-01 HUMAN RESOURCE AND ADMINISTRATIVE DEPARTMENT PROCEDURES IN THE ENFORCEMENT OF THE CORPORATION C OD E OF THE PHILIPPINES, SECURITIES REGULATION C OD E, AND OTHER EXISTING LAWS IMPLEMENTED BY THE COMMISSION PART 1 General Provisions RULE I General Provisions ARTICLE 1. Coverage . (a) This circular shall govern the procedures to be observed by the Compliance and Enforcement Department (CED), the Review Unit, and other Departments of the Securities and Exchange Commission (Commission) in connection with the enforcement by the CED of the Corporation Code of the Philippines, the Securities Regulation Code, and other existing laws and implementing rules and regulations being implemented by the Commission, hereinafter collectively referred to as "Laws". (b) These procedures do not divest the other Departments of their functions under the law to monitor and summarily impose administrative fines and penalties for violations falling within their respective functional responsibility. ARTICLE 2. Construction . These procedures shall be liberally construed in order to promote their objective of securing a just, summary, speedy and inexpensive determination of every issue, taking into consideration the paramount concern of investor protection. ARTICLE 3. Venue . All proceedings covered herein shall be commenced and terminated before the Securities and Exchange Commission, EDSA, Mandaluyong City, unless otherwise delegated to the Extension Office concerned. ARTICLE 4. Service of pleadings . (a) All pleadings or documents required by these procedures shall be filed, served, and released through the Central Receiving and Record Division (CRRD) of the Commission. (b) When so authorized by the Commission, any pleading or document required by these procedures may be filed by facsimile transmission (fax) or electronic mail (e:mail). In such cases, the date of transmission shall be deemed to be prima facie the date of service. ARTICLE 5. Signing of pleadings, motions and other papers . (a) Every pleading, motion, and other paper of a party represented by an attorney shall, except a settlement offer under Part IV, Rule V, be signed by at least one attorney of record in the attorney's name, whose complete business address shall be stated. A party who is not represented by an attorney shall sign the pleading, motion, or other paper and state his complete residential or business address. (b) If a pleading, motion, or other paper is not signed, it shall be deemed not filed, unless it is promptly signed by the pleader or movant, after he is notified of the omission. ARTICLE 6. Prohibited pleadings . The following pleadings are prohibited: a) Motion to dismiss b) Motion for a bill of particulars c) Motion to dismiss/quash d) Motion for the extension of time to file pleadings, affidavits or any other paper e) Motion for postponement and other motions of similar intent f) Third Party Complaint g) Motion for Intervention ARTICLE 7. Service of orders . All orders of the Commission shall be served personally to the parties, if practicable, or by registered mail. ARTICLE 8. Number of copies . The number of copies of any pleading or document required by these Rules shall be: a) Two (2) copies for the CED, b) One (1) copy for the Review Unit, and c) "X" number of copies as there are respondents. ARTICLE 9. Documents . Shall mean accounts, correspondence, memoranda, tapes, discs, papers, books and other documents or transcribed information of any type, whether expressed in ordinary or machine readable form. ARTICLE 10. Suppletory application of the Rules of Court . The Rules of Court, in so far as they may be relevant, shall suppletorily apply in the absence of governing procedures. ARTICLE 11. Review Unit . The hearing of motions or cases pending before the Commission will be heard by the Review Unit attached to the Office of the General Counsel. This shall, however, not preclude the Commission from delegating such function to a member of the Commission or any other officer or officers of the Commission. ARTICLE 12. Responsibility of CED . The CED shall have primary responsibility to investigate all original complaints filed before it and complementary responsibility regarding those referred to it by other Departments of the Commission in connection with the enforcement of violations of the Laws. PART 2 Procedures For Inspections, Surveillance And Investigation RULE I Commencement ARTICLE 1. Logging of Complaints, etc . (a) The Director of the CED, motu proprio , or upon receipt of information, verified complaints, documents or events obtained directly from the general public or through referral from other government agencies or Departments of the Commission, Divisions of the CED, or Self-Regulatory Organizations (SRO) shall log the same and refer it to the Complaints and Investigation Division (CID) for determination as to the need for ex parte investigation. (b) When necessary, complaints must be reduced into affidavit form together with the accompanying exhibits. (c) The fact that a person is under investigation shall remain confidential, unless otherwise provided under these procedures and Laws. ARTICLE 2. Determination of Sufficiency of Evidence (a) Upon receipt of the complaint, documents, or referral from the Director, the CID shall determine whether there is sufficient evidence to proceed with an administrative case and/or criminal case against the alleged violator. (b) If there is no basis for the complaint, etc., the same shall be dismissed by order of the Director,-upon recommendation of the Assistant Director of CID. (c) If based on the information before the CID there appears to be possible violation of the Laws, the CID may refer the case to the Inspection and Surveillance Division (ISD) for it to conduct inspections, surveillance, and investigations, or if there is no need for inspection and surveillance, CID may at its discretion decide to conduct the investigation immediately. (d) For complaints or referrals that do not require notice and hearing, if there is sufficient evidence, the CID shall prepare a Resolution ordering the payment of the appropriate fines plus twenty percent (20%) penalty within a non-extendible period of ten (10) days from receipt thereof subject to the approval of the Director. Any payment made after the prescribed period shall be subject to a fifty percent (50%) additional penalty. (e) If respondent, without good cause, fails to comply with the order within the prescribed period, the CID shall refer the case to the Evaluation and Prosecution Division (EPD) for the preparation of the necessary petition for suspension/revocation/imposition of administrative sanctions. Any offer to comply at this point shall be subject to the procedures on Settlement Offer under Part IV, Rule V. (f) For administrative cases that require notice and hearing, if there is sufficient evidence, the CID shall prepare the necessary petition for suspension/revocation of registration/imposition of administrative sanction, which shall be forwarded to the EPD for evaluation. The petition shall contain the following: i. The Parties; ii. A brief narration of the facts constituting the offense iii. The provisions of law violated; iv. Copies of the affidavits and/or documentary and other evidence supportive of such cause or causes of action; v. The final relief sought. (g) The EPD shall complete its ex parte review within ten (10) days from receipt of the draft complaint and/or investigation report, provided, that the Assistant Director of EPD may extend the period. If the same is meritorious, the EPD shall either adopt the complaint affidavit or draft a complaint affidavit and file the same with the Review Unit, otherwise it shall refer the case back to the CID for build-up. RULE II Investigation ARTICLE 1. Authority . (a) The Director of CED, through the Assistant Directors of the ISD and CID, may authorize the conduct of investigations as deemed necessary in order to determine whether any person has violated or is about to violate any provision of any law being administered by the Commission. (b) In furtherance of an investigation, the Director is authorized to request the assistance of any and all Commission Departments and offices and such assistance shall be provided promptly. (c) The Director is authorized to request the assistance of law enforcement agencies and/or SRO's in connection with the investigation of a case. ARTICLE 2. Conduct of Investigation . (a) In conducting an investigation, the investigator assigned to review the case shall draft an investigation plan to ascertain the: a) Nature of the violation; b) Relevant laws, rules, regulations and orders; c) Elements under which the existence of a violation is proven; d) Procedure for conducting the investigation; and e) The time-frame for the conduct of the investigation. (b) During an investigation, the investigator shall have the authority to request for information and documents and receive information through voluntary compliance. The investigator may also require or permit any person to file a statement in writing, under oath or otherwise, as the Commission may determine, as to all facts and circumstances concerning the matter under investigation. (c) When the content analysis results indicate that there may be violation/s of any laws, the investigator shall submit a written recommendation to the Assistant Director of the ISD or CID, which shall include a synopsis of the facts gathered and the theories supporting the recommendation. ARTICLE 3. Subpoena Power . (a) Only the Director of CED and Assistant Directors of the ISD or CID shall have the power to issue subpoenas pursuant to an investigation. Subpoenas may be issued ad testificandum or duces tecum . Any person requested or subpoenaed to produce documents or testify during an investigation shall simultaneously be notified in writing of the purposes of such investigation. (b) Other CED lawyers may be authorized to administer oaths when taking testimony or receiving complaints. ARTICLE 4. Search Warrants . The Director of CED, Assistant Director of the ISD or CID, or a duly authorized investigator, may apply for a search warrant in accordance with the Rules of Court. ARTICLE 5. Investigation Report . After the completion of an investigation, the investigator shall complete an Investigation Report (Annex "A") to be submitted to the Assistant Director. ARTICLE 6. Compliance . The Director of CED, upon recommendation of the Assistant Director of the ISD or CID, may allow a person subject of an investigation to voluntarily comply with the proposed penalties and/or administrative sanctions subject to the requirements of the Laws, and the case shall be deemed terminated upon proof of compliance. ARTICLE 7. Conclusion of investigation . An investigation is considered concluded: a) Upon written recommendation of the investigator and approval of the Director of CED and Assistant Director for ISD or CID that the investigation be terminated based on the conclusion that there is no violation of any of the laws; b) Upon written recommendation of the investigator and approval of the Director of CED and Assistant Director for ISD or CID that the matter be referred to the EPD for criminal prosecution subject to the provisions of Rule III Criminal Prosecution; c) Upon written recommendation of the investigator and approval of the Director of CED and Assistant Director for ISD or CID that the matter be referred to the EPD for the filing of suspension/revocation proceedings/administrative sanctions; or d) Where there is voluntary compliance. ARTICLE 8. Confidentiality of Information obtained during an Investigation . Information or documents obtained by the CED in the course of an investigation, unless made a matter of public record, shall be deemed confidential, provided that the Commission, pursuant to the applicable laws may, by written order, authorize members of its staff to engage in discussion with representatives of domestic and foreign governmental authorities, foreign Securities authorities, and self regulatory organization, concerning information obtained in individual investigations. RULE III Criminal Prosecution ARTICLE 1. If, based upon its investigation of a complaint filed before it or through referral by other Department or Divisions, or motu proprio , the ISD or CID determines that there is enough evidence to file a criminal complaint against any person who has violated any of the laws, it shall prepare the investigation report, and where possible, a draft complaint-affidavit, which shall be forwarded, together will all supporting affidavits and evidence, to the Assistant Director of EPD who may assign the case to EPD lawyers for evaluation. ARTICLE 2. (a) The EPD shall complete its ex parte review within ten (10) days from receipt of the draft complaint and investigation report, provided, that the Assistant Director of EPD may extend the period. If the same is meritorious, the EPD shall either adopt the complaint affidavit or draft a complaint affidavit and shall prepare the case folder for trial, which shall contain the case history and index of documents. (b) Any dropping of charges or of respondents shall be with the approval of the Commission or Commissioner-in-Charge of the CED, upon recommendation of the Director of CED and Assistant Directors of ISD or CID, and EPD. (c) The Director of CED, Assistant Directors, and the EPD lawyer assigned to the case shall, with the approval of the Commission, file the case before the Department of Justice. (d) If the EPD does not find the case to be meritorious, it may refer it back to the ISD or CID, for further case build-up, or recommend the dismissal of the case, subject to the approval of the Commission. PART 3 Procedures For Issuance Of Cease And Desist Orders RULE I Commencement of Action ARTICLE 1. Commencement of action . If pending the investigation or build-up of a case, the Director of the CED determines that a person has engaged or is about to engage in any act or practice constituting a violation of any provisions of any of the laws, the Director of CED, by authority of the Commission and pursuant to ART. 53.3, SRC, P.D. 902-A, as amended, and the Corporation Code of the Philippines, may issue ex parte, a cease and desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance with such provision. The CDO shall clearly state: a) the provision of law violated, b) the ten (10)-day lifespan of the CDO, and c) the penalty of violating the CDO. Within the ten (10)-day period, the Director of CED shall order the inspection by ISD of the premises of the person to verify compliance, and shall also commence the preparation and filing of the initiatory pleading for the suspension, revocation, or imposition of other sanctions of the respondent, provided, that this is without prejudice to the filing of the appropriate petition before the Department of Justice. A violation of the 10-day CDO, as determined by the ISD, shall be considered as a ground for the imposition of administrative sanctions in accordance with the laws. ARTICLE 2. Motion for Issuance of CDO . (a) Under Sec. 64, SRC, P.D. 902-A, as amended, and the Corporation Code of the Philippines, if the Director of CED, after proper investigation or verification of the information and evidence gathered by the ISD and/or the CID, motu proprio , or upon verified complaint by any aggrieved party, is satisfied that there is an ongoing violation of any of the laws, and unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the public, the Director of CED shall file a motion for issuance of CDO before the Commission or designated Review Unit, provided , that in the absence of any initiatory pleading for the main case, the same shall serve as the initiatory pleading. (b) The motion shall contain: a) a brief narration of the facts and law upon which it relies on, which shall be supported by affidavits and/or copies of documentary and other evidence supportive of such cause or causes of action; b) a statement on the urgency of the CDO; and c) a statement stating the final relief sought by the CED, i.e. revocation of license, suspension of operations, fine, etc. ARTICLE 3. Issuance of CDO and Posting . (a) The Commission shall review the motion within one (1) day from receipt thereof and shall issue a cease and desist order without the necessity of a prior hearing. A CDO is immediately executory and may be enforced through the assistance of any law enforcement agency, and shall be posted in a conspicuous place at the main entrance of the office/s of the corporation or individual. (b) The cease and desist order shall contain the following: a) a brief narration of the facts and law upon which it relies on, which shall be supported by affidavits and/or copies of documentary and other evidence supportive of such cause or causes of action; b) a statement informing the respondent that it may file a formal request for lifting of the CDO within a non-extendible period of five (5) days from receipt of the cease and desist order; c) a statement on whether the respondent is willing to enter into a settlement offer under Section 55, SRC; d) a statement on whether the respondent would opt for summary procedures; e) a statement ordering respondent to show cause on why the CDO should not be made permanent; and f) a statement stating the final relief sought by the CED, i.e. revocation of license, suspension of operations, fine, etc. (c) The Commission Secretary shall furnish copies of all CDOs issued by the Commission to the extension offices of the Commission and to the Assistant Director of MIS for the immediate posting in the Commission Website of said CDOs. Copies shall also be furnished all Commission Departments except the Human Resource and Administrative Services Department and Financial Management Department. ARTICLE 4. Motion to Lift CDO . (a) The Motion to Lift CDO shall be verified, and three (3) copies shall be filed with the Central Receiving and Records Division, 1st Floor, SEC Building, within five (5) days from receipt of the CDO as stated in the registry return card or if the same was served personally, from the stamped receipt of the Commission process server. An unverified motion shall not interrupt the running of the five (5)-day period. (b) The motion to lift CDO shall contain the following: a) a brief narration of the facts and law supporting its case; b) all the grounds upon which the respondent bases its position and failure to plead any ground shall be deemed a waiver on its part; c) affidavits and/or copies of documentary and other evidence supportive of such position; d) a statement declaring whether the respondent opts for summary procedures; and e) a settlement offer, if any. (c) Upon receipt of the motion to lift CDO the Central Receiving and Record Division shall immediately forward the first set to the Review Unit, and the second and third sets to the Director of the CED. ARTICLE 5. Settlement Offer . A settlement offer for any violation under the Laws shall be made in accordance with Sec. 55, SRC, SRC Rule 55.1, and Part IV, Rule V of these procedures. ARTICLE 6. Failure to file Motion to Lift . (a) If the respondent fails to file its motion to lift CDO within the five (5)-day period from receipt of the CDO, the Director of CED shall file with the Commission a motion to make the CDO permanent, attaching thereto a draft Order making the CDO permanent. The Order shall contain the following: a) a brief factual and procedural history of the case; b) a statement declaring the CDO as PERMANENT; c) a statement ordering the respondent to appear before the Commission within fifteen (15) days to file its Comments and to show cause why the stated penalty should not be imposed. (b) Within five (5) days from the recommendation of the Director of CED, the Commission, if the evidence warrants, shall issue an Order declaring the CDO permanent and ordering respondent to appear before it at a given time and date and to show cause why the stated penalty should not be imposed. RULE II Summary Procedures ARTICLE 1. Option for Summary Proceedings . The Commission upon receipt of the motion to lift a CDO with option for summary proceedings, shall review the case without need of setting a hearing, and shall resolve the case within ten (10) days from receipt of said motion. RULE III Hearing Before The Commission Or Designated Review Unit ARTICLE 1. Appearance by EPD . The EPD shall represent the CED before the Commission. ARTICLE 2. Procedure . (a) The Commission shall set the case for hearing not later than fifteen (15) days from the filing of the motion to lift. Failure to set for hearing within the prescribed period shall result in the automatic lifting of the cease and desist order. (b) During the hearing, the Commission shall be authorized to administer oaths and to issue subpoena duces tecum and ad testificandum , summon witnesses to appear in appropriate cases, order the examination of papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws. (c) The Commission may cite in contempt, both direct and indirect, persons appearing before it, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court and the laws. (d) The Commission shall call the movant to mark its evidence, present its case, and offer its evidence; thereafter, it shall call the EPD to mark its evidence, present its case, and offer its evidence. (e) Immediately after the last offer of evidence, the Commission may order the parties to simultaneously file within a non-extendible period of three (3) days their respective draft decision, whereby the hearing shall be deemed terminated, otherwise the hearing shall be deemed terminated. The draft decisions shall contain the following: a) A "Statement of the Facts," which is a clear and concise statement in narrative form of the established facts, with reference to the testimonial, documentary or other evidence in support thereof; b) A "Statement of the Issues," which is a clear and concise statement of the issues presented for resolution; c) The "Arguments," which is a clear and concise presentation of the argument in support of each issue; and d) The "Decision," which is a specification of the order or judgment which the party seeks to obtain. (f) For cases heard by a Review Unit, the latter shall recommend its findings on the case not later than eight (8) days from the termination of the hearing, and the Commission en banc shall decide the case within two (2) days, otherwise the cease and desist order shall automatically be lifted. RULE IV Resolution of the CDO ARTICLE 1. Grant of Motion to Lift . (a) In case the Commission grants the motion, it shall order the lifting of the CDO. (b) Upon the lifting of the CDO the respondent shall have the authority to remove any CDO posted at the place of business of the corporation or individual. The Commission Secretary shall furnish copies of the order to the Assistant Director of MIS who shall cause the removal of the CDO from the Commission Website. ARTICLE 2. Denial of the Motion to Lift In case the Commission denies the motion it shall issue an Order stating the following: a) a brief factual and procedural history of the case; b) the reasons and grounds for the denial; c) a statement declaring the CDO as PERMANENT; d) a statement ordering the respondent to file within a non-extendible period of fifteen (15) days its Answer and to show cause why the stated penalty should not be imposed. RULE V Posting and Publication of CDO ARTICLE 1. Posting at the principal place of business. Once the CDO is made PERMANENT, copies shall be personally served to the respondent by the Commission, with the assistance of the National Bureau of Investigation and/or members of other law enforcement agencies; one copy to be served to any responsible officer of the corporation, while the other copies to be posted conspicuously at the entrance of the main office and branches of the corporation. ARTICLE 2. Posting at the Commission Website . The Commission, through the MIS, shall also cause the posting of the CDO at its website, the same to contain the following: a) Name of the Corporation; b) Names of incorporator; c) Names of principal officers; d) Brief description of the violation e) Date of the initial CDO f) Date the CDO was made permanent g) Status of the main relief h) Contact numbers The Commission Secretariat shall furnish the different extension offices of the Commission copies of CDOs made permanent. ARTICLE 3. Publication . The Commission, through the Commission Secretary, may circulate the CDO to media and may also cause the publication of the CDO with a newspaper of general circulation at the principal place of residence of the corporation, or in Metro Manila, at the discretion of the Commission. RULE VI Monitoring of Compliance with the CDO ARTICLE 1. Routine Inspection and Surveillance . (a) The Director of CED, through the ISD shall routinely inspect any person subject of a CDO, whether permanent or not, to determine compliance with the same. (b) The Assistant Director of the ISD shall form a two (2) person team which shall be authorized to conduct an ocular inspection of the juridical person and to examine its books, documents, and papers that would show whether the corporation is in compliance with the CDO. (c) The inspection team shall submit a written report within one (1) day after the completion of the inspection stating their findings therein. ARTICLE 2. Monitoring by Extension Offices . It shall be the responsibility of the different extension offices of the Commission to monitor compliance with the CDOs within their areas of responsibility and shall furnish the Director of CED and the Commission a written report within fifteen (15) days from receipt of their copy of CDOs issued by the Director or Commission, as the case may be. RULE VII Contempt and Closure for Violation of CDO ARTICLE 1. Direct Contempt . The duly designated officer of the Review Unit may summarily punish for contempt any person committing misconduct in his/her presence, or so near to the officer as to seriously interrupt the proceedings, or refuses to be sworn as a witness or to answer questions when lawfully required to do so. Such person may be summarily adjudged in contempt and punished in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court and the laws. ARTICLE 2. Indirect Contempt . (a) Any person who shall fail or refuse to comply with the promulgated decision, order or writ of the Commission or Review Unit without justifiable cause after being required to do so, shall be punished for contempt in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court and the laws. (b) Removal of the Commission CDO prior to its lifting or refusal to have the same posted shall constitute indirect contempt. ARTICLE 3. Closure for Violation of CDO . (a) Pending the determination of the permanency of the CDO, the Commission, as per motion of the Director of CED if there is a violation of the CDO, particularly when the refusal or failure to comply is a clear and open defiance of the Commission's order or decision, may issue an ex parte order for the immediate physical closure of the corporation, provided , that this is without prejudice to citing the corporation or its responsible officers in contempt and for enforcing the appropriate penalty and administrative sanctions pursuant to Sections 53.4 and 54 of the SRC. (b) Pending the determination of the final relief sought, the Commission, as per motion of the Director of CED if there is a violation of the CDO, particularly when the refusal or failure to comply is a clear and open defiance of the Commission's order or decision, may issue an ex parte order for the immediate physical closure of the corporation, provided , that this is without prejudice to citing the corporation or its responsible officers in contempt and for enforcing the appropriate penalty and administrative sanctions pursuant to Sections 53.4 and 54 of the SRC. ARTICLE 4. Contents of Motion . The motion shall contain the following: a) a brief statement of fact showing the place, time, and date of the violation, and whether the violation is continuing. b) supporting documents/affidavits, and c) relief prayed for. ARTICLE 5. Issuance of Show Cause Order: Procedure . (a) If the Commission, as per motion of the Director of CED, decides to cite a person in contempt, it shall issue a Show Cause Order to be served personally or by registered mail to such persons, attaching thereto the motion and supporting documents, directing them to appear before the Commission or designated Review Unit within a non-extendible period of five (5) days from receipt thereof and file a written answer why they should not be cited for contempt. (b) If the evidence warrants the citing for contempt, the Commission shall issue an order imposing the appropriate sanction and/or penalty; provided ; that if the failure or refusal is a clear and open defiance of the Commission's order, decision or subpoena , the Commission may order the arrest of the person until such order, decision or subpoena is complied with. (c) The officer designated by the Review Unit to conduct the hearing shall administer oaths and receive additional evidence(s) (oral or documentary) which are deemed relevant and material. If necessary, the officer may grant one (1) additional period of not more than three (3) days for both parties to file their simultaneous comments. (d) In case a Review Unit was constituted to conduct the hearing, the same shall recommend its findings on the case to the Commission for decision within three (3) days from the termination of the hearing. ARTICLE 6. Failure to Appear and File Answer . Respondents who fail to appear and file a written answer shall be declared in default, and the matter shall be deemed submitted for resolution by the Commission. PART 4 Procedures On Suspension/Revocation Of The Certificate Of Registration Of Corporations, Registration Of Securities And Registration Of Brokers, Dealers, Salesmen And Associated Persons And Imposition Of Administrative Sanctions RULE I Action for Suspension, Revocation or Imposition of Administrative Sanctions ARTICLE 1. Scope . These procedures shall apply to the following: a) Corporations which have failed to formally organized and commence the transaction of their business or the construction of their work within two (2) years from the date of incorporation; b) Corporations which have been inoperative for a continuing period of at least five (5) years; c) Corporations which have failed to file by-laws within the prescribed period; d) Corporations which have failed to file/register for a period of at least five (5) years any of the following: i. Financial Statements ii. General Information Sheets iii. Stock and transfer book/membership book e) Any person who has engaged in fraud in procuring its certificate of registration f) Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public; g) Any person who has refused to comply with or acts in defiance of any lawful order of the Commission restraining the commission of acts which would amount to a grave violation of its franchise; h) Where the issuer: i. is judicially declared insolvent; ii. has violated the SRC, rules, orders of the Commission in connection with the offering for which a registration statement has been filed iii. is engaging or about to engage in fraudulent transactions iv. has made any false or misleading representation of the material facts in any registration statement/prospectus or other documents of similar nature concerning the issuer or its securities; i) Conviction of an offense involving moral turpitude by the issuer, any officer, director or controlling person of the issuer, or person performing similar function, or underwriter; j) Refusal of any person to permit examination when required to do so, or to cooperate or undergo examination; k) Making false statement/omission to state required facts in the registration statement l) Information contained in the registration statement filed is, or has become misleading, incorrect, inadequate or incomplete in any material respect, or sale or the offering of the security registered thereunder may work or tend to work as a fraud; m) Refusal to furnish information; n) Failure of beneficial owner/director/officer to file a statement with the Commission/Exchange of the amount of all equity securities of such issuer of which he is the beneficial owner; o) The unlawful sale of equity Securities; p) Manipulation of security prices, fraudulent transactions; q) Where the Broker, Dealer, Salesmen, and Associated Persons: i. has violated any provision of the SRC, any rule, regulation or order made hereunder, or any other law administered by the Commission, or in the case of a registered broker, dealer or associated person has failed to supervise, with a view to preventing such violation, another person who commits such violation; ii. has made or caused to be made a materially false or misleading statement in any application for registration or report filed with the Commission or a self-regulatory organization, or has omitted to state any material fact that is required to be stated therein; iii. has failed to satisfy the qualifications or requirements for registration prescribed under section 28, SRC, and the rules and regulations of the Commission promulgated thereunder; iv. has been convicted, by a competent judicial or administrative body of an offense involving moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real estate or insurance laws; v. is enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities, banking, real estate or insurance activities or from willfully violating laws governing such activities; vi. is subject to an order of a competent judicial or administrative body refusing, revoking or suspending any registration, license or other permit under the Securities Regulation Code, the rules and regulations promulgated thereunder, and any other laws; vii. is subject to an order of a self-regulatory organization suspending or expelling him from membership or participation therein or from association with a member of participant thereof; viii. has been found by a competent judicial or administrative body to have willfully violated any provisions of securities, commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, commanded, induced or procured such violation; or ix. has been judicially declared insolvent. r) Where a self-regulatory organization has violated or is unable to comply with any provision of this Code or of the rules and regulations thereunder, or its own rules, or has failed to enforce compliance therewith by a member of, person associated with a member, or a participant in such self-regulatory organization. s) Any other violations under any of the laws. ARTICLE 2. Action by Whom Filed . An action under the preceding article shall be commenced by the filing of a petition for suspension/revocation/administrative sanction by the EPD with the Commission. RULE II Notice and Hearing Before the Commission of Designated Review Unit ARTICLE 1. Hearing Conducted before the Commission. The Commission shall hear and decide all cases for imposition of administrative sanctions/penalties that are file by the CED, provided, that the hearing of such cases may be delegated to a designated Review Unit. ARTICLE 2. Powers of the Review Unit . The Review Unit shall have the following powers: a) To hear cases brought before the Commission consistent with these Rules and exercise full and active control over the proceedings at any stage thereof; b) To issue subpoena and subpoena duces tecum, ad testificandum , or other legal processes; c) To administer oaths and receive evidence(s) (oral or documentary) which are deemed relevant and material; d) To hear and resolve all motions; e) To cite and/or declare any person in direct or indirect contempt in accordance with the pertinent provisions of the Rules of Court. ARTICLE 2. n (a) Pursuant to Part 3, Rule IV, Art. 2(d), or upon receipt of an original petition for imposition of administrative sanctions/penalties, the Commission shall issue a Show Cause Order, attaching thereto the petition, to be sent by personal service, or in the alternative, by registered mail, to the respondent at his/her last known address directing him/her to show cause within fifteen (15) days from receipt thereof why the certificate of registration should not be suspended or revoked, or other administrative sanctions be not imposed. (b) A Second Show Cause Order may be published in a newspaper of general circulation, directing respondent/s who failed to respond with the Order issued under Section 1 above, to appear before the Commission at a hearing on the date, time and place stated in the Order. ARTICLE 3. Time to File Answer . Respondents shall have fifteen (15) days within which to file an answer. ARTICLE 4. Failure to File Answer . If respondent fails to file an answer within the prescribed period the Commission shall grant the relief of the EPD. ARTICLE 5. Hearing . The Commission shall within fifteen (15) days from receipt of the Answer, set the case for hearing. ARTICLE 6. Default . A respondent which fails to appear without any prior written notice and justifiable reason shall be declared in default, and the matter shall be deemed submitted for resolution. ARTICLE 7. Order of Hearing . (a) All exhibits shall be properly and consecutively marked by alphabetical letters if presented by the complainant and by Arabic numbers if presented by the respondent. All evidence introduced at the hearing shall be attached to the records of the case. (b) The parties shall be afforded an opportunity to be present but without the right to examine or cross-examine. If the parties so desire, they may submit questions to the Commission which the latter may propound to the parties or witnesses concerned. (c) The Commission shall admit all evidence relevant or material to the case. The testimonies of witnesses and manifestations of parties during the hearing shall be duly recorded. In case of doubt, the Commission shall admit all the evidence presented, subject to the objections interposed, if there are any. All documents forming part of the records of the case and material to the issues of the case, whether marked as exhibits or not, may be considered by the Commission in the resolution of the case. (d) Immediately after the last offer of evidence, the Commission may order the parties to simultaneously file within a non-extendible period of three (3) days their respective draft decision , whereby the hearing shall be deemed terminated, otherwise the hearing shall be deemed terminated. The draft decisions shall contain the following: a) A "Statement of the Facts," which is a clear and concise statement in narrative form of the established facts, with reference to the testimonial, documentary or other evidence in support thereof; b) A "Statement of the Issues," which is a clear and concise statement of the issues presented for resolution; c) The "Arguments," which is a clear and concise presentation of the argument in support of each issue; and d) The "Decision," which is a specification of the order or judgment which the party seeks to obtain. ARTICLE 8. Order or Decision . The Commission shall resolve the case within ten (10) days from the termination of the hearing. ARTICLE 9. Preventive Suspension . Pending the hearing, the Commission may order the suspension of such person's registration: Provided , that such order shall state the cause for the suspension. Until the entry of a final order, the suspension of such registration, though binding upon the persons notified thereof, shall be deemed confidential, and shall not be published, unless it shall appear that the order of suspension has been violated after notice. RULE III Motion for Reconsideration ARTICLE 1. Period . The aggrieved party may file one (1) motion for reconsideration within a non-extendible period of five (5) days from receipt of the decision or order. ARTICLE 2. Grounds . The grounds for which a motion for reconsideration shall be allowed are: a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his/her rights; or b) Newly discovered evidence, which could not, with reasonable diligence, have been discovered and produced at the hearing, and which if presented would probably alter the result. ARTICLE 3. Contents of Motion for Reconsideration . (a) The motion shall be made in writing stating the ground or grounds therefore, a written notice of which shall be served by the movant on the adverse party. (b) A motion for the grounds mentioned in the aforementioned Article 2 shall be supported by affidavits and/or duly authenticated documents which are proposed to be introduced in evidence. (c) A motion shall point out specifically the findings or conclusions of the decision or order which are not supported by the evidence, making express reference to the testimonial or documentary evidence. (d) A pro forma motion shall not toll the reglementary period. ARTICLE 4. Bond . If the decision or order imposes a fine or penalty, or said fine or penalty is in addition to the suspension/revocation order, a motion for reconsideration filed by the respondent shall include a cash or surety bond double the amount of the imposed fine and/or penalty. RULE IV Entry and Execution of Decision or Order ARTICLE 1. When Order Becomes Final. The Order of suspension/revocation shall become final and executory if no motion for reconsideration is filed within the prescribed period. ARTICLE 2. Entry and Execution of Judgment/Orders . (a) If no petition for reconsideration is filed within the time provided, the judgment or order shall be entered in the book of entries of the Commission. The record shall contain the dispositive part of the judgment or order and a certificate that the same has become final and executory. (b) The final judgment/order shall be transmitted by the Commission to the Central Receiving and Records Division to be forwarded to the appropriate Department of the Commission for immediate execution thereof, and a copy to be sent to the respondent. RULE V Settlement Offer ARTICLE 1. Form . (a) A settlement offer in accordance with Sec. 55, SRC, and SRC Rule 55.1, may be made in writing and signed by the person making the offer at any stage of the proceedings, provided , that no settlement offer shall be accepted after an Order shall have become final and executory, provided further , that once an accused shall have been arraigned, no settlement offer shall be accepted without the conformity of the court, provided further , that if the respondent is a juridical person, the necessary board resolution shall also be attached to the offer. (b) The settlement offer shall clearly state the offer whether the same be a definite amount and/or a period of suspension and shall incorporate the provisions of Section 3(d) and (e) of SRC Rule 55.1. ARTICLE 2. Criteria . (a) In recommending the approving or rejecting the settlement offer, the Director of CED, after consultation with the handling lawyer/team, shall prepare a memorandum for the Commission, taking into consideration the following: a) The gravity of the offense; b) The effect a settlement offer will have on the seriousness of the offense; c) The timing of the offer; d) The amount and time spent by the Commission; e) The chances of a favourable decision if the case were to go to trial; f) Whether the respondent has previously violated any provisions of any law being administered by the Commission; g) The total imposable penalty or damaged caused; and h) Whether the settlement is in the public interest. (b) No settlement offer that is less than fifteen (15) percent of the total imposable penalty or damage caused, shall be accepted. RULE VI Contempt ARTICLE 1. Direct Contempt . The Commission or any duly designated officer of the Review Unit may summarily punish for contempt any person committing misconduct in his/her presence, or so near to the officer as to seriously interrupt the proceedings, or refuses to be sworn as a witness or to answer questions when lawfully required to do so. Such person may be summarily adjudged in contempt and punished in accordance with the penalties prescribed by the Rules of Court and the laws. ARTICLE 2. Indirect Contempt . Any person who shall fail or refuse to comply with the promulgated decision, order or writ of the Commission or Review Unit without justifiable cause after being required to do so, shall be punished for contempt in accordance with the penalties prescribed by the Rules of Court and the laws. RULE VII Fines ARTICLE 1. Fine . A corporation that is found to have violated any of the laws shall, in addition to suspension or revocation of license, be fined an amount as specified in the schedule of fines as approved by the Commission. RULE VIII Management Committee ARTICLE 1. Creation of a Management Committee . As an incident to any of the case or proceedings before the Commission where there is need to preserve the assets of a corporation, the Commission, may motu proprio appoint a management committee or receiver pursuant to the provision of applicable laws. RULE IX Final Provisions ARTICLE 1. Severability . If any provision or article of these procedures is held invalid, the remaining provisions or articles shall not be affected thereby. ARTICLE 2. Effectivity . These procedures shall take effect immediately. May 22, 2001, Mandaluyong City. (SGD.) LILIA R. BAUTISTA Chairperson n Note from the Publisher: Copied verbatim from the official document.