In the Matter of Philcomsat Holdings Corporation

April 23, 2015 SEC EN BANC CASE NO. 09-06-89 IN THE MATTER OF PHILCOMSAT HOLDINGS CORPORATION PHILCOMSAT HOLDINGS CORPORATION , petitioner . FOR : Review of CFD's Order DECISION This refers to the Petition for Review , filed by Philcomsat Holdings Corporation (hereinafter 'PHC') on 07 September 2006, appealing the Order, 1 dated 22 August 2006, of the then Corporation Finance Department ('CFD') 2 which directed the PHC to allow the Department to conduct an audit of its 2003 and 2004 3 books and accounts on 08 September 2006. PHC did not allow the CFD access to its books and accounts. Instead, it filed the instant Petition arguing that: 1. The Commission must defer examination of PHC's books and records since it is subjudice . 2. The intended examination violates PHC's right to due process. 3. Section 15 of the Securities Regulation Code (SRC) does not apply to PHC. 4. The Commission is being used by certain individuals for their own personal interest. In its Comment , dated September 20, 2006, the CFD avers that: 1. It has the authority to inspect and examine the corporate books and records of PHD despite the attendant circumstances. 2. There was no violation of due process. 3. Section 15 of the SRC applies to the petitioner. 4. It is impartial and it will not allow itself to be partisan to any of the personal interest of the parties concerned. The CFD also maintains, in its Comment , that it's 22 August 2006 Order emanated from a letter of Jose Ma. Ozamis 4 requesting the Office of the General Counsel (OGC) of the Commission to issue a Cease and Desist Order (CDO) against PHC, its directors and officers, to enjoin them from making any withdrawals from any and all PHC's accounts and placements which would result in the dissipation of PHC's assets until the completion of PHC's Annual Stockholders' Meeting. The OGC, in its Memorandum to the CFD, 5 referred Mr. Ozamis' letter for CFD's appropriate action. Thus, CFD's action was "to determine through the intended audit, if there is a violation of the SRC and its Implementing Rules and Regulations to warrant the issuance of a CDO." 6 While this Petition was pending, the Commission received, on 27 April 2009, a letter 7 from Katrina Ponce-Enrile, representing herself as the chairwoman of PHC, requesting the Commission to defer its Order revoking the registration of its securities and alleging that: CAIHTE 1. Since 11 December 2007, PHC has been under the control of a different group of directors/stockholders. The Bildner & Ponce-Enrile group was able to take control of PHC from the Brodett, Lokim & Locsin group that refused the audit and filed the subject case. 2. The Commission was able to conduct the audit after the PHC's external auditor, Virgilio Santos, was compelled to submit his working papers. 3. PHC appeared for hearing on 20 April 2009 before the CFD regarding the matter of revoking the registration of PHC's securities for violations of the Securities Regulation Code. 4. PHC's new Board of Directors is intent on complying and will certainly comply with the reportorial requirements both of the Commission and the Philippine Stock Exchange . Acting on the letter of Katrina Ponce-Enrile, the Commission, in its Order dated 26 October 2011, directed the parties to file their respective Position Papers on whether the present Petition should be dismissed for being moot and academic. The CFD, in its Position Paper dated November 2011, contends that its purpose for ordering the inspection of PHC's books and records was to determine PHC's compliance with the provisions of the Securities Regulation Code considering that there has been an allegation from a legitimate stockholder that the company has been illegally dissipating its assets. 8 The CFD then avers that its purpose was fulfilled when the following events took place: (1) the requesting group was able to take control of the company; and (2) the company's external auditor submitted his working paper to the Commission, upon which an audit was subsequently conducted. Finally, the CFD declares that "the requesting group is still in control as officers and members of PHC's Board of Directors." 9 PHC, in its Position Paper , dated February 7, 2012, confirms the fact that CFD was able to gain access to the working papers and records in the possession of its former external auditor. 10 It also alleges that the documents and papers listed in the 22 August 2006 were among those records that CFD was able to access and examine. 11 Thus, PHC submits that "SEC had already conducted the examination initially sought to be questioned by PHC before this Commission." 12 Records of the Commission show that, while this case was pending, the CFD were able to examine the books and records of PHC through the audit working papers provided by PHC's external auditor, Virgilio R. Santos. Thereafter, the CFD submitted the report 13 of its examination, including specific findings on PHC's Financial Statements, Advances to Officers and Employees, and Advances to Affiliates from 2003 to 2005. Incidentally, the allegation that the group requesting for the issuance of a CDO against PHC was able to take control of PHC during the period at issue, was cited in the consolidated cases of POTC vs. Victor Africa, et al. ; 14 POTC v. Hon Jenny Lin Aldecoa-Delorino, et al. ; 15 PHC v. Philcomsat ; 16 and PHC v. PHC . 17 In said consolidated cases, the Court also directed that: "The Court DIRECTS the Locsin-PCGG Group to render an accounting of all the funds and other assets received from the Philippine Overseas Telecommunications Corporation, Philippine Holdings Corporation and Philippine Communications Satellite Corporation since September 1, 2004, and to return such funds to the respective corporations within thirty days from the finality of this decision." Moreover, the fact that the matter of lifting of the Order of Suspension of Registration of Securities 18 issued by the then CFD is still pending with the MSRD shows that the Commission does not cede its visitorial powers over PHC. In fact, the Commission already assessed PHC a penalty of PhP5,402,100.00 for non-compliance with the reportorial requirements. In the instant case, the Order appealed from was issued by the then CFD to determine whether there is a ground to suspend PHC's right to sell and offer for sale securities pending further investigation. Accordingly, the foregoing indicate that the instant Appeal has been rendered moot and academic by the subsequent events that transpired during the pendency of the case. WHEREFORE, premises considered, the instant Petition for Review is hereby DISMISSED for being moot. DETACa SO ORDERED. Mandaluyong City, April 23, 2015. (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ANTONIETA F. IBE Commissioner (SGD.) EPHYRO LUIS B. AMATONG Commissioner (SGD.) BLAS JAMES G. VITERBO Commissioner Footnotes 1. The Order declared that: "Finally, the authority of the Commission to require the issuer further information under Section 15 of the Securities Regulation Code applies if at any time, the information contained in the registration statement together with its financial reports, which were filed and approved by the Commission, has become misleading, incorrect, inadequate or incomplete in any material respect. Since there has been allegation for a legitimate stockholder that the company has been illegally dissipating its assets, the Commission must determine the veracity of such claim and verify the accuracy of the company's representation of its financial condition considering that Philcomsat Holdings Corporation is a listed company. Registration of the company's securities being valid and subsisting, the same may be suspended even if the company is not currently selling or offering for sale such securities should there be a finding that the company has violated the Securities Regulation Code. . . . In view thereof, PHC is hereby directed to allow the said inspection subject of the matter on September 8, 2006." 2. Now Corporate Governance & Finance Department. 3. CFD's letter to PHC dated April 27, 2006 states that, "[u]pon review, the audited financial statements filed by your company show that the documents do not fully disclose and explain the specific reasons for the substantial increase in expenses from years 2003 to 2004. Hence, there is a need to further examine other financial information and records of your company such as vouchers, disbursement books and other relevant documents." 4. Dated 21 September 2005, Annex "H", CFD's Comment to the Petition. 5. Dated February 27, 2006, Annex "A", Comment. 6. Page 8, last paragraph, Comment. 7. Dated 27 April 2009 (erroneously dated 27 April 2008). 8. Page 2, citing 22 August 2006 Order. 9. 2011 General Information Sheet submitted on June 2011. 10. Paragraph 5, page 2. 11. Supra . 12. Paragraph 8, note 8, supra . 13. Memorandum for the General Counsel dated January 15, 2007. 14. G.R. No. 184622, July 3, 2013. 15. G.R. Nos. 184712-14 16. G.R. No. 186066. 17. G.R. No. 186590. 18. Commission's Order, dated August 7, 2008, suspending the registration of PHC's securities due to its violation of the S R C Rules 17.1 (1) (A) (i) and (ii) for non-filing of 2006 and 2007 Annual Report, as well first three Quarterly Reports for 2007.