In re: Professional Services, Inc.

November 22, 2019 SPECIAL HEARING PANEL SEC SHP CASE NO. PSI-18-02 IN THE MATTER OF: PROFESSIONAL SERVICES, INC. FOUNTEL CORPORATION, FELICITAS ANTOINETTE, INC., VIVA HEALTHCARE LIMITED, VIVA HOLDINGS (PHILIPPINES) PTE. LTD. , respondents . For: Violations of Sections 18, 19 and 26 of the Securities Regulation Code and the Amended Implementing Rules and Regulations RESOLUTION This administrative action for violations of the Securities Regulation Code (SRC) stems from the application for exemptive relief filed by Fountel Corporation (Fountel), Felicitas Antoinette, Inc. (FAI), 1 and Viva Holdings (Philippines) Pte. Ltd. (Viva). HTcADC On November 17, 2017, Fountel, FAI and Viva (Offerors) requested the Securities and Exchange Commission (Commission), through the Corporate Governance and Finance Department (CGFD), for exemptive relief from SRC Rules as precursor to its intended Mandatory Tender Offer (MTO) over the shares of Professional Services, Inc. (PSI). In December 2017, Offerors informed CGFD that an intervening event, i.e. , approval of PSI's increase in capital stock, would require revision of the letter-request. Thus, on January 18, 2018, 2 Offerors submitted an updated request for exemptive relief. On April 26, 2018, CGFD, through a letter, informed the Offerors about the result of their request for exemptive relief and included therein a copy of the preliminary comments to the MTO Report. It is to be noted that this request for exemptive relief has been treated with confidentiality by the Commission in order to avoid infringement of SRC Rule 19.10. 3 Accordingly, all requests 4 to be furnished a copy of Offeror's letter-request and MTO report has been denied by CGFD. On May 15, 2018, despite absence of publication of the MTO, Viva wrote a letter to PSI requesting the corporation's cooperation in the intended MTO, particularly on the requests for information and documentation and the prompt implementation of the right of first refusal provisions of PSI's Articles of Incorporation (AI). Consequently, on May 31, 2018, an Opposition was filed with the CGFD by Alberto I. Buenviaje; Blesilda E. Concepcion, M.D.; Maria Eufemia C. Yap, M.D. (Dr. Yap); and Mt. Halcon Philippines, Inc. (Mt. Halcon). The Opposition prayed for the injunction of the MTO considering that the acquisitions of Offerors are void for violation of the SRC. Thereafter, parties named in the Opposition, even without issuance of summons by CGFD, submitted various pleadings endeavoring to refute and dispute the other party's claims. CAIHTE On June 8, 2018, Alfredo R. A. Bengzon, M.D. (Dr. Bengzon) filed with the Enforcement and Investor Protection Department (EIPD) a Complaint-Affidavit against Viva Healthcare Limited (Viva Healthcare), Viva, Fountel, FAI, Jose Xavier B. Gonzales (Mr. Gonzales) and Martin Eric Robinson (Mr. Robinson) 5 for violation of Sections 19, 26.1 and 26.3, in relation to 54 and 73, of the Securities Regulation Code. Given the various allegations and issues involved, the Commission on September 6, 2018 resolved 6 to create a Special Hearing Panel (SHP) which shall have authority to conduct investigations, hearings and to resolve and decide matters relative to the PSI. Accordingly, the SHP evaluated the records and documents filed with the Commission. In the course of investigation, SHP (utilizing the names of stockholders reflected in the general information sheet filed by PSI, and letters which were filed with the EIPD and supposedly 7 signed by stockholders named therein) invited individuals for conferences. During the course of the investigation, documents and affidavits were also submitted. Meanwhile, on October 23, 2018, a Complaint-Affidavit was filed with the EIPD by Ronald Arce Vergel De Dios and Patricia Esteban Vergel De Dios 8 (De Dios Complainants) against Fountel, FAI, Viva Healthcare, Viva, Mr. Gonzales, Augusto P. Sarmiento, Mr. Robinson, Joel L. Bodegon, Carlos Alfonso T. Ocampo, PSI Healthcare Development Services Corp. and PSI, for violation of Section 26 of the SRC. Given the above occurrences and documents submitted, SHP found sufficient ground that SRC Rules may have been violated. Thus, a Formal Charge was issued against Fountel, FAI, Viva Healthcare and Viva, on November 8, 2018. Respondents were ordered to show cause why they should not be liable for violations of Sections 18, 19 and 26 of the SRC and the Amended Implementing Rules and Regulations (IRR). On November 12 and 23, 2018, Dr. Bengzon filed a Motion for Leave to File the Attached Affidavit and Motion for Leave to File the Attached Manifestation, respectively. On November 26, 2018, Fountel and FAI, through counsel, filed their consolidated Verified Answer Ad Cautelam . On the other hand, Viva and Viva Healthcare filed their respective Answer Ad Cautelam on November 28, 2018. Subsequently, the following pleadings were submitted by the parties: 1. Opposition with Omnibus Motion Ad Cautelam , filed by Viva on January 7, 2019. In such pleading, Viva opposed the abovementioned November 12 and 23, 2018 motions of Dr. Bengzon, and also asked for the striking out of the Supplemental Rejoinder filed by Yap and Mt. Halcon on November 7, 2018 (which was filed in the Opposition to the MTO case/SEC SHP Case No. PSI-18-01). Additionally, Viva prayed that SHP refrain and desist from proceeding with this case (SEC SHP Case No. PSI-18-02), the Opposition to the Tender Offer and other actions or proceedings (which includes the Complaint Affidavits separately filed by Dr. Bengzon and the De Dios with the EIPD) ; 2. Dr. Bengzon's January 15, 2019 'Motion for Leave to File the Attached Manifestation' (Re: Resolution dated December 19, 2018 of the Office of the City Prosecutor of Pasig City and the Information filed on January 14, 2019); aScITE 3. Viva's February 13, 2019 'Counter Manifestation [to Dr. Alfredo R. A. Bengzon's Manifestation dated January 15, 2019 [With Urgent Motion to Resolve (Viva Holdings (Philippines) Pte. Ltd.'s Opposition with Omnibus Motion Ad Cautelam dated December 27, 2018]'; 9 4. Dr. Bengzon's March 19, 2019 'Manifestation (Re: Office of the City Prosecutor of Makati City's Resolution dated 18 February 2019); 5. Viva's April 24, 2019 'Counter-Manifestation [to Dr. Alfredo R. A. Bengzon's Manifestation dated March 19, 2019].' Thereafter, no supplemental pleadings were filed. Thus, the case was deemed submitted for resolution. Facts of the Case On April 23, 2013 , PSI's Executive Committee 10 (Execom) held a meeting. Present during such meeting are the following people: Augusto P. Sarmiento, M.D. (BOD Chairman) Manolito S. Soller Assistant Corp. Secretary (Atty. Soller) Alfredo R. A. Bengzon, M.D. (BOD) Gary Cheng (Fortman Cline Capital Market) Jose Xavier B. Gonzales (BOD) Caroline Chu (Fortman Cline Capital Market) Eugenio F. Ramos, M.D. Benita J. Macalagay Virginia B. Alano Among other topics, the Execom discussed the corporation's funding plan for its long term objective of becoming a global player and short term objective of financing the Guam project. In this regard, a presentation was conducted by Mr. Gonzales, together with Gary Cheng of Fortman Cline Capital Market (Fortman Cline). The minutes of the executive committee meeting provides: . . . Mr. Gonzales said that he has effectively found a partner wherein he and his partner will become majority . He said that Lombard can keep its 17.72% equity so it has to top up. Insular said that they want to consider topping up and yesterday the Jesuits said that they want to top up also. So there is a problem on the allocation of the 107.5 million. Ms. Macalagay inquired if the big stockholders or the rest of the stockholders were not considered. Mr. Gonzales said he did not. Mrs. Macalagay clarified the matter in case a question will be asked on why the existing stockholders will not top up, considering that the Corporation does not have pre-emptive rights. Mr. Gonzales said that he did not say that he cannot entertain it is just that there are certain allocation process, so if people top-up there is going to be too much money. From the allocation point of view, management just has to rationalize it. x x x. DETACa x x x. Mr. Gonzales summed up that the ownership would be himself ending up with 43% . Lombard if he takes up with 17.7% and Insular if he stays with 6.1% and depending upon how other shareholder want to top-up, they would have some movements. Mrs. Macalagay said that the shareholder's impact will happen after approval. Mr. Gonzales said that the in-coming partner, Richard Chandler, wants 2 board seats. Additionally, the slides presented categorically reflect the envisaged shareholding of 43.1% by Fountel/ Fountel and Partner , to wit: Private & Confidential Current and Envisaged Shareholding Structure Shareholder Current Envisaged Shares % Shares % New Shares Fountel 84,872 10% 752,211 43% 667,339 Lombard 159,321 18% 309,371 18% 150,050 Insular Life 53,572 6% 106,973 6% 53,401 Others 575,808 66% 575,808 33% - 873,573 100% 1,744,363 100% 870,790 Shareholding Impact As may be deduced from the minutes, the ownership of Mr. Gonzales and partner has always been counted and treated as one. Furthermore, the fact that Fountel and partner would become majority has been discussed extensively in such execom meeting. Interestingly, however, such detail of oneness between Fountel and partner, including their plan to acquire majority shares, has not been communicated during the April 24, 2013 Board of Directors (BOD) meeting. It is at such meeting that the increase of capital stock from One Million to 1,400,000 shares (First Capital Increase) was discussed and approved. The minutes of the BOD meeting provides: . . . Mr. Pote expressed his concern that in the past when the company issued shares or increased its authorized capital, it had been for a much smaller amount, recollecting his memory that the last time was from 850,000 in 1,000,000 or an increase of 150,000 shares, and that in each case there was a specific project, whether it was Guam or Johnson. He said that he is very concerned that the increase of authorized capital is much too large and recommended to do it incrementally, and said that Lombard would be much more comfortable in an increase of 250,000 rather than 400,000 shares. x x x. HEITAD Mr. Pote stressed his belief that he would strongly prefer having a smaller increase in terms of capital, and if there is specific capital raising program that should give priority to current shareholders and be very specific to an investment. x x x. Mr. Gonzales commented that pain has to be distributed in any number of ways to come up with some compromise and that he can work with 400,000 shares increase in authorized capital in terms of his commitment to deliver support to the expansion . He said that the hat would be passed around for people who want to come in, further commenting that this is his comfort level in terms of what he can do with his partner . Mr. Pote then referred to Mr. Gonzales' statement of having the hat passed around the table for people who want to come in, he concluded that priority should be given in any capital increase to existing shareholders. Mr. Gonzales responded that there should be an opportunity for existing shareholders if they want to top up. But at the same time, he highlighted that as an existing shareholder, the capital that Mr. Gonzales is bringing in is a large amount of capital to be taken care of at any event, that is why the proposal to increase 800,000 shares. x x x. Mr. Reyes asked about the exact methodology for assigning the subscription rights on any capital increase. Mrs. Macalagay responded that PSI shareholders do not have pre-emptive rights. Mr. Reyes asked further as to who would subscribe to those share and how will the number of shares be offered to each of the shareholders in relation to the statement that the hat has to be passed around. Mr. Pote and Mr. Reyes both proposed that current shareholders be given the chance to subscribe first before granting any subscription. xxx xxx xxx. Mr. Pote also mentioned that an IPO will be beneficial to the company because it can offer at a higher amount per share, i.e. , within the range of P10,000 to P15,000, rather than at P5,000 which would be much lower, emphasizing that an IPO is in consonance with good corporate governance and that good corporate governance should be made. aDSIHc Mr. Gonzales assured the Board that his partner will serve the best interest of the company being in accord with the hospital's vision and core values. Mr. Pote inquired on why priority should then be given to existing shareholders, citing good corporate governance again as a justification. xxx xxx xxx. Mr. Gonzales again put emphasis on his commitment and that offering the shares to other stockholders has no difference at this time. He said that what matters is the coming up with the expansion projects of the company, pointing the level of trust that management has given. xxx xxx xxx. Mr. Reyes then asked about the identity of the outside subscriber to solve the mystery revolving around. Mr. Gonzales revealed to the body Richard Chandler of Australia as his partner . It is clear from the above minutes that Mr. Gonzales is advancing the entry of a potentially significant subscriber for PSI, amidst the hesitance of two vocal directors. Blatantly, too, Mr. Gonzales is using the term partner, but no mention nor hint as to their intention or plan to acquire 43% or majority of PSI shares was mentioned in said April 24, 2013 BOD meeting. In fact, Fountel and partner's plan to acquire 43% or majority shares of PSI cannot also be inferred from the July 31, 2013 BOD meeting. It is at this meeting where capital stock was further increased from 1,400,000 to 1,900,000 shares (Second Capital Increase). Also, the amount of subscription for the first and second increase of capital stock, including subscription to unissued shares, was approved as follows: RESOLVED, that the shares of stock to be issued out of the Unissued Shares Capital Stock composed of 125,827 common shares, out of the Increase in Capital Stock by 400,000 common shares with a par value of P100.00 per share (First Capital Increase), and out of the Increase in Capital stock by another 500,000 common shares also with a par value of P100.00 per share (Second Capital Increase), all with an issue value of Five Thousand Pesos (P5,000.00) per share, be, as it is hereby, approved to be allotted and issued as follows: a. Out of the Unissued Common Shares i. Ninety One Thousand Three Hundred Sixty Three (91,363) Common shares to Viva Holdings (Philippines) Pte. Ltd. , ii. Twenty Nine Thousand Four Hundred Sixty Four (29,464) Common Shares to Insular Life Assurance Co. Ltd., and iii. Five Thousand (5,000) Common Shares to various doctors or individuals at the discretion of the Management. b. Out of the First Capital Increase i. One Hundred Ninety Six Thousand Fifty Four (196,054) Common Shares to Viva Holdings (Philippines) Pte. Ltd. , and ii. Two Hundred Three Thousand Nine Hundred Forty Six (203,946) Common Shares to Felicitas Antoinette, Inc. c. Out of the Second Capital Increase i. One Hundred Fourteen Thousand Three Hundred Sixty Nine (114,369) Common Shares to Viva Holdings (Philippines) Pte. Ltd. , ATICcS ii. One Hundred Fourteen Thousand Seven Hundred Sixty Seven (114,767) Common Shares to Felicitas Antoinette, Inc. , iii. Twenty Nine Thousand Four Hundred Sixty Four (29,464) Common Shares to Insular Life Assurance Co. Ltd., iv. One Hundred Seventy Seven Thousand Three Hundred Fifty Nine (177,359) Common Shares to LA III Medical City Cooperatief U.A., v. Twelve Thousand Five Hundred (12,500) Common Shares to Religious of the Virgin Mary, and vi. Fifty One Thousand Five Hundred Forty One (51,541) Common Shares to various doctors, individuals, and institutions at the discretion of the Management. It would be noted from the foregoing subscription allocation that Fountel is not included, but FAI, which is 99.9% owned by Fountel, is given shares allocation. Additionally, the shares of Viva and FAI are identified distinctly and not jointly, unlike the presentation in the Execom meeting of April 23, 2013. Relative to the above subscription allocation, the BOD also resolved, 11 on July 31, 2013 , to authorize Dr. Bengzon and Ms. Benita J. Macalagay (Ms. Macalagay) to deal and negotiate with the subscribers under such terms and conditions which they deem appropriate. In such connection, Viva submitted a series of email correspondences between Mr. Gonzales, Mr. Martin, their counsel and advisors, 12 Fortman Cline, Atty. Soller, Ms. Macalagay. It is worthy to note that such correspondences were made from July 10 to July 30, 2013, which is clearly before the July 31, 2013 BOD resolution. Additionally, it is observed that on July 15, 2013, at 11:52, a mail from Fortman Cline's Gary Cheng to Gonzales, Martin and their counsel/advisers, states: Sending through our latest redrafts of the CSA, 13 LA, 14 PA. 15 Please note that we've NOT copied Attorney Lito Soller here. On the other hand, Atty. Soller's involvement in the aforesaid email correspondences can be tracked earliest in the July 20, 2013 e-mail, where he was copy-furnished, under the subject: 'RE: Project Helix/Lotus Revised Documents Subscription Agreement.' On July 30, 2013 , Atty. Soller was furnished with two e-mails under the subjects: (1) ' FW Execution Update ,' with attachments denominated as follows: 'RE: Project Helix/Lotus Revised Documents CSA, LA, PA'; and (2) ' FW Project Lotus Share Pledge (Execution Version) ,' with attachment stated as follows: ' Share Pledge execution version (July 31) version 2. pdf .' Additionally, Ms. Macalagay was copy-furnished with above e-mails. However, it should be reiterated that the authorization upon Dr. Bengzon and Ms. Macalagay to deal and negotiate with subscribers was passed only on July 31, 2013 . On August 1, 2013, Atty. Soller and Ms. Macalagay were also sent copies of the following e-mails under subjects and attachments, to wit: (1) 'Lotus Share Pledge Executed and Notarized by CC ' with attachments denominated as Lotus Share Pledge Notarized 1 August 2013. pdf ; and (2) ' Lotus Co-operation & Shareholders' Agreement Executed by CC ,' with attachment stated as follows: 'Lotus Executed Co-operation & Shareholders' Agreement 1 August 2013. pdf . Such attachments only provide for the cover page and execution page; while the Share Pledge includes the notarial certificate. In addition, Atty. Soller on, August 5, 2013 , replied to the email under the subject: RE: Lotus Short Form Subscription Agreement Executed by CC and Notarised,' and declared: ETHIDa We are just post-checking the files sent last week and we found out that what appears to be attached in this email is the Written Resolutions of Viva Holdings that were passed and approved on 1 August 2013 instead of the short form Subscription Agreement as mentioned in the covering email. Kindly send the correct attachment . The submitted e-mails would lead one to the deduction that Atty. Soller and Ms. Macalagay have been copy-furnished with negotiation documents between Respondents. However, it would be noted that they have been sent these emails even before any resolution authorizing them to transact business, on behalf of PSI, was passed. It would also be worthy to note that upon authorization of the BOD on July 31, 2013, the documents forwarded to Ms. Macalagay, as an authorized representative of PSI, are documents which are already executed, signed and notarized. Additionally, the reliability of documents, as denominated in the series of e-mails, cannot be fully counted upon since documents may be wrongly attached, as shown above, or documents in forwarded messages may not have been attached with the latest e-mail. In accordance with the July 31, 2013 Resolution to increase capital stock, a subscription agreement was executed between PSI and Viva over 196,054 shares; while PSI and FAI executed a subscription agreement over 203,946 shares, on August 1, 2013 . 16 Concurrently, on August 1, 2013 , Viva Healthcare, Viva, Fountel and FAI entered into a contract denominated as ' Co-Operation and Shareholders Agreement in Respect of Professional Services, Inc.' (CSA) . The CSA provides: (B) . . . (O)n or around the date hereof, Viva Holdings and New Regency Investments Limited, which is wholly owned by Beneficial Holdings Limited and which will become a shareholder of Fountel to an extent of at least 33 1/3%, a corporation duly organized and existing under the laws of Hong Kong, having its registered office address at 27/F, Tesbury Centre, 28 Queen's Road East, Wanchai, Hong Kong, ("New Regency") entered into a loan agreement between Viva Holdings (as lender) and New Regency (as borrower) in respect of the subscription funds required by FAI to fund its subscription for PSI shares pursuant to the FAI Subscription Agreement (the "Loan Agreement"). On or around the date hereof, Fountel and Viva Holdings also entered into a pledge agreement pursuant to which Fountel agreed to pledge to Viva Holdings all of the shares of capital stock in the share capital of FAI as security in respect of the Loan Agreement . xxx xxx xxx. 3. GENERAL UNDERTAKINGS Compliance with this Agreement by the Company and the Subsidiaries 3.1 Each of the Fountel Parties and the Viva Parties shall use its best endeavours to procure that the Company and each Subsidiary shall duly and punctually perform, enforce and comply with all the rights of and protections afforded to the Fountel and Viva Parties under this Agreement. TIADCc Cooperation in respect of the Business 3.2 Each of the Viva Parties and the Fountel Parties shall: 3.2.1 cooperate with each other on all matters relating to the governance of the Company and the conduct of the Business; xxx xxx xxx. 3.4 For so long as Dr. Alfredo Bengzon ("Dr. Bengzon") has the support and approval of the Fountel parties to act in the role of chief executive officer of the Group as carried out at the date of this Agreement, the Viva parties shall support Dr. Bengzon in such role. xxx xxx xxx. 3.8 In the event of any future share capital increase of PSI, where Viva Holdings or FAI is not invited to subscribe for PSI shares in accordance with its pro rata PSI shareholder rights pursuant to sub-clause 6.4, each of the Fountel Parties or the Viva Parties , as applicable, shall vote against such share capital increase . xxx xxx xxx. 4.1 In the event that any Reserved Matter 17 is raised for decision of: (a) the PSI Board or the board of directors of any Subsidiary; (b) any committee of the PSI Board or of the board of directors of any Subsidiary; or (c) the shareholders of the Company or any of the Subsidiaries, each of the Fountel Parties undertakes to use its best endeavours to procure that such Reserved Matter is not carried out by the Company or any subsidiary (as applicable) without the prior unanimous approval of both Viva Healthcare and Fountel (such approval not to be unreasonably withheld by either party). xxx xxx xxx. 4.3 In the event that the PSI Shareholders, the PSI Board or the board of directors of any Subsidiary propose(s) to consider or carry out a Trade Sale or an Admission, each of the Fountel parties shall only discuss or consider such Trade Sale or Admission with the PSI Board and/or the other PSI Shareholder and/or board of directors of any Subsidiary after consultation by Fountel with Viva Healthcare on such Trade Sale or Admission. xxx xxx xxx. 5.1 Each of the Fountel Parties shall use its best endeavours to procure that: xxx xxx xxx. 5.1.4 the quorum of the PSI Board shall include at least one Viva Holdings Director for meetings of the PSI Board to be qourate. 5.2 Each of the Viva parties shall use its best endeavours to procure that: xxx xxx xxx. 5.2.2 any person appointed by FAI to be its representative in the PSI Board in accordance with clause 5.2.1 above is duly elected as a member of the PSI Board. cSEDTC 6. FUTURE ACQUISITION OF PSI SHARES 6.1 As soon as reasonably practicable following the Completion Date, each of the Fountel Parties shall use its best endeavours to facilitate: 6.1.1 the acquisition of PSI shares by Viva Holdings and the Fountel Parties from the other PSI Shareholders from time to time with the same terms and price per PSI Share for such acquisition offered to any of the Fountel Parties being offered to Viva Holdings; and/or 6.1.2 the subscription by Viva Holdings and the Fountel parties of PSI Shares and with the same terms and price per PSI share for such subscription offered to any of the Fountel parties being offered to Viva Holdings, such that Viva Holdings and the Fountel parties shall increase their respective holdings in PSI and hold a respective minimum 25% and 25.1% interest in the entire issued stock capital of PSI and further that Viva Holdings and the Fountel Parties shall subsequently continue to work together to increase their respective shareholdings in PSI, provided that (subject to the terms of clauses 6.2 to 6.5); xxx xxx xxx. (c) Viva Holdings shall have due regard to the on-going relationship of the Fountel parties and the Viva Parties with the PSI Board, the senior medical professional of PSI and the management teams of PSI and, for so long as Dr. Bengzon remains the chief executive officer of PSI, the Viva Parties and the Fountel Parties shall consult with Dr. Bengzon prior to any material transactions contemplated by this clause 6.1 including the increase of their respective shareholdings in PSI to 25% and 25.1% and beyond; and xxx xxx xxx. 6.4 Other than with respect to the PSI shares issued pursuant to the Second Capital Increase, each of the Fountel Parties shall use its best endeavours to procure that no PSI Share(s) shall be issued whether for cash or otherwise unless such PSI Share(s) have been offered to Viva Holdings in proportion, as nearly as may be to its holding in PSI and provided that following such issue of PSI Share(s), the interest of Viva Holdings in the entire issued stock capital of PSI shall be no less than 21.1% at any time. Each of the Viva Parties shall use its best endeavours to procure that no PSI Share(s) shall be issued whether for cash or otherwise unless such PSI Share(s) have been offered to the Fountel Parties in proportion as nearly as may be, to their holdings in PSI and provided that following such issue of PSI Share(s), the aggregated interest of the Fountel Parties in the entire issued stock capital of PSI shall be no less than 21.2%. AIDSTE xxx xxx xxx. 7.6 If any of the Viva Parties or the Fountel Parties (the Offered Party) receives an offer from another PSI Shareholder (the "Other PSI Shareholder") to sell all or any of the other PSI Shareholder's PSI Shares to that Party (the "Offered Shares") (the "Offer"). The Offered Party shall be obliged to offer, in the case of a Viva Party being the Offered Party to a Fountel Party and in the case of Fountel Party being the Offered Party to a Viva Party, (the Party in receipt of such offer being the "Notified Party") 7.6.1 at least a pro rata portion of the Offered Shares (in the case of a Fountel Party being the Notified party on the basis of the aggregated direct shareholdings of the Fountel parties in the entire issued stock capital of PSI); and 7.6.2 such number of PSI Shares forming part of the Offered party's pro rata portion of the Offered Shares that the Offered party is willing to take up. xxx xxx xxx. 10.2. Without prejudice to the rights of Viva Holdings against FAI, Fountel shall be a primary obligor and shall be deemed a principal debtor in respect of its obligations under this Agreement and not a surety. xxx xxx xxx. 13.6 Each of the Fountel parties shall use its best endeavours to facilitate the waiver by the other PSI Shareholders and PSI of any restrictions in the PSI Articles of Incorporation or otherwise (including without limitation the ROFR Provisions) which may apply to restrict the transfer of PSI shares in accordance with provisions of this clause 13. xxx xxx xxx. 14.2 Viva Holdings and FAI acknowledge their respective disclosure and SEC Filing obligations in respect of the transactions contemplated by the Viva Holdings Subscription Agreement and the FAI Subscription Agreement as follows: 14.2.1. in the case of Viva Holdings, to file both the SEC Form 18-A and the SEC Form 23-A; 14.2.2. in the case of FAI, to file the SEC Form 18-A; and 14.2.3. in the case of Fountel, to file the SEC Form 23-A. And the parties agree to make disclosure of this Agreement and of the Share Pledge in such forms. On the same date (August 1, 2013), a Loan Agreement was executed between Viva (as Lender) and New Regency Investments Limited (as Borrower). 18 The Loan Agreement provides: SDAaTC 1. DEFINITION AND CONSTRUCTION xxx xxx xxx. "Final Repayment Date" means the date falling 3 years after the date of the first Advance. xxx xxx xxx. "Interest Rate" means five percent (5.00%) per annum. xxx xxx xxx. "PSI Amended Articles of Incorporation" means the articles of incorporation of PSI in effect as at the date of this Agreement in a form amended to reflect the following: (i) the ROFR provision shall be deleted in their entirety and (ii) no provision having a remotely similar effect to the ROFR provisions shall be included or substituted in the place of the ROFR Provisions. xxx xxx xxx. "Regency Share" means one (1) fully paid ordinary share with nominal value of HK$1.00 each in the Borrower. "ROFR Provisions" means the right at first refusal provisions in article TENTH of the articles of incorporation of PSI. xxx xxx xxx. "Share Pledge" means a share pledge over the entire issue share capital in FAI granted or to be granted by Fountel in favour of the Lender in the form set out in Schedule 2. xxx xxx xxx. 2. FACILITIES 2.1 Facilities Subject to the terms of this Agreement, the Lender shall lend to the Borrower the Facilities which shall be divided into: 2.1.1. the Tranche A Facility , which is a term loan facility of up to US$24,359,828 (United States Dollars twenty four million three hundred and fifty nine thousand eight hundred and twenty eight); and 2.1.2. the Tranche B Facility which is a term loan facility of up to US$13,534,742 (United States Dollars thirteen million five hundred and thirty four thousand seven hundred and forty two). 2.2 Purposes The proceeds of the Tranche A Facility shall be used exclusively for the purposes of (A) on-lending to FAI, through Fountel, for financing FAI's subscription of the FAI Subscription Shares pursuant to the terms of the FAI Subscription Agreement, and (B) for financing the payment of the professional fees of Fortman Cline Capital Markets in connection with the transactions contemplated under the FAI Subscription Agreement, the Shareholders Agreement and the Finance Documents. The proceeds of the Tranche B Facility shall be used exclusively for the purposed of (A) on-lending to FAI for financing FAI's subscription or common shares in PSI under the Second Capital Increase, and (B) for financing the payment of the professional fees of Fortman Cline Capital Markets in connection with the transactions contemplated under the FAI Subscription Agreement, the Viva Holdings Subscription Agreement, the Shareholders Agreement and the Finance Documents. The Lender is not bound to monitor or verify the application of any amount borrowed pursuant to this Agreement. AaCTcI xxx xxx xxx. 2.6.4. The date of the first Advance under the Tranche A Facility shall be no later than 2 Business days after the date of this Agreement and the date of the second Advance under the Tranche A Facility shall be the FAI Completion Date. The date of the first Advance under the Tranche B Facility shall be a date to be agreed between the Lender and Borrower, but in any event not later than 28 February 2014 and the date of the second Advance under the Tranche B Facility shall be within five (5) business days from the approval by the Philippine Securities and Exchange Commission of the Second Capital Increase. xxx xxx xxx. 3.1 CONVERSION, REPAYMENT AND PREPAYMENT 3.1 Conversion of Loans 3.1.1. The outstanding Loans (together with all accrued interest and all other amounts accrued, due and owing under the Finance documents) shall convert into the Regency Share in accordance with the terms of this Agreement (the "Conversion") if (i) the Lender receives the Certified PSI Amended Articles of Incorporation (as defined below) or (ii) for any reason, if the Parties otherwise mutually agree in writing to the Conversion. xxx xxx xxx. 3.2.1. The Conversion shall take place immediately upon the receipt by the Lender of the Certified PSI Amended Articles of Incorporation (the "Conversion Date"). 3.2.2. On the Conversion Date, all outstanding Loans (together with all accrued interest and all other amounts accrued, due and owing under the Finance Documents) shall be converted into the Regency Share which will represent, on the Conversion date, 9.09 percent of the Borrower's total issued share capital and the Borrower shall procure that all necessary actions and approvals are carried out and obtained so as to enable the Conversion and each of the Borrower and the Lender shall execute all such documents and such acts necessary to enable and effect the Conversion. xxx xxx xxx. 3.2.6 In consideration at the amount of HK$100 (the "Option Price"), the Borrower shall have the option (the "Buy Back Option") to buy back the Regency Share arising on conversion of the Loans at a nominal strike price of HK$1. The Borrower may exercise the Buy-Back Option within a period of six (6) months from the date of Conversion by providing notice in writing to the Lender of the intended buy-back 10 Business Days prior to the proposed date of buy-back. The Option Price shall be paid by the Borrower to the Lender on the proposed date of buy-back. Any sale, transfer or assignment of the Regency Share by the Lender shall be subject to the Buy-back Option of the Borrower. 3.3 Repayment In the event that Conversion does not take place on or before the Final Repayment Date and subject to Clause 8 below, the Borrower shall repay the Loan, all unpaid interest accrued thereon and any other amounts due but unpaid under this Agreement in full on the Final Repayment Date. The Borrower may not reborrow any part of the Facilities which is repaid. Relative to the CSA, Loan Agreement, Share Pledge Agreement and short form Subscription Agreement, 19 another long form Subscription Agreement was simultaneously executed on August 1, 2013. The long form Subscription Agreement provides: acEHCD 6.7 Within ten (10) Business Days of the Completion Date, Viva Holdings shall file the SEC Form 18-A required as a result of the subscription by it for the Viva Holdings Subscription Shares. After filing the completed Form 18-A with the SEC, Viva Holdings shall, within five (5) days thereof, deliver a copy of such Form 18-A to PSI . 6.8 Within ten (10) calendar days of the Completion Date, or within such shorter period as may be required by regulation: 6.8.1 Viva Holdings shall file with the SEC, the SEC Form 23-A required to be filed as result of the subscription by it for the Viva Holdings Subscription Shares and after filing the completed SEC Form 23-A with the SEC, Viva Holdings shall, within five (5) days thereof, deliver a copy of such SEC Form 23-A to PSI . xxx xxx xxx. 6.9 The parties agree that any penalty that may be imposed by SEC resulting from the failure or delayed filing , of the SEC Forms referred to in sub-clauses 6.7 and 6.8 shall be the sole and respective responsibility of the Party required to file such forms. The Parties further agree that any other action made or required to be made by Viva Holdings as a stockholder of PSI that would result in an imposition of any penalty by the SEC shall be the sole responsibility of Viva Holdings. The resolution to increase PSI's capital stock from 1 Million to 1.4 Million, along with the short form subscription agreement and other required documents, was submitted to the Commission which then issued on September 26, 2013, a Certificate of Filing of Amended Articles of Incorporation, to PSI. Subsequent to the approval of the increase in capital stock, Viva, Fountel and FAI filed with the Commission their individual SEC Form 23-A (Initial Statement of Beneficial Ownership). Said forms indicated the individual acquisitions of each company in the first capital increase, save for Fountel which disclosed its beneficial ownership over the shares of FAI, as a controlled corporation. Fountel's SEC Form 23-A was amended on September 26, 2013, whereby a copy of the CSA was attached to the original SEC Form 23-A. On October 10, 2013, Viva subscribed to 91,363 common shares from the unissued capital share of PSI. This transaction is in consonance with the above-discussed July 31, 2013 BOD resolution. On October 23, 2013, it was proposed that the earlier increase from 1.4 Million to 1.9 Million Shares (Second Capital Increase) be further increased by 100,000 shares or a total of 2 Million Shares. Such proposal was approved by the BOD on that same date. 20 On November 7, 2013, PSI filed a General Information Sheet (GlS) with the Commission. The following table would show the individual and total shareholdings of Fountel, Viva and FAI, as a result of the negotiation and contracts earlier mentioned. EcTCAD July 5, 2013 Nov. 7, 2013 FOUNTEL 80.720 (9.24%) 80,720 (5.77%) VIVA HOLDINGS 0 287,416 (20.53%) FAI 0 203,946 (14.57%) Total Subscribed Shares 873,373 1,400,000 Group's Total Percentage of Shareholdings 9.24% 40.87% On November 8, 2013, Viva filed its SEC Form 23-B, by virtue of its subscription to the unissued capital stock on October 10, 2013. In the said filing, Viva also disclosed the aforementioned CSA, Loan Agreement and Share Pledge Agreement. A copy of the CSA was also attached. On November 28, 2013, Viva wrote a letter to PSI expressing the following: This letter formalizes the intent of Viva Holdings (Philippines) Pte. Ltd., together with Fountel Corp. to jointly acquire the 50,000 shares of Professional Service, Incorporated currently owned by Splash Holding, Inc. This letter is understood to be sent in conjunction with the letter of intent from Fountel Corp. Thus, on December 13, 2013, Splash Corporation (Splash) sold its 50,000 PSI shares to Fountel and Viva. Accordingly, the shareholdings of Fountel and FAI increased by 24,940 and 25,060 shares, respectively. Such shareholdings of Fountel, FAI and Viva are further increased with their subscription 21 to the increase of capital stock filed and approved by the Commission on February 28, 2014. Later on May 15, 2015, San Miguel Corporation (San Miguel) sold its 5,636 shares to Fountel and its 5,614 shares to Viva which increased the shareholdings of Offerors in PSI. The total shareholding of 46.33% (as shown in the October 17, 2016 GIS and reflected below) was shown to have increased to 49.44%, as reflected in the September 8, 2017 GIS. It could be seen that the shareholdings of Fountel and FAI are not changed but the shares of Viva increased. This increase is probably owing to an acquisition by Viva which was not disclosed during the investigation of this case. However, as the GIS filed by PSI are notarized, the statements therein shall be accepted as true. PSI's GIS Submissions July 5, 2013 (Initial Shareholdings of Offerors) November 7, 2013 ( Shareholdings of Offerors after First Capital Increase and Subscription to Unissued Shares) July 2, 2014 (Shareholding of Offerors after Acquisition of Splash Shares and Second Capital Increase) October 17, 2016 (Shareholding of Offerors after Acquisition of San Miguel's Shares) September 8, 2017 (Shareholding of Offerors after the undisclosed acquisition of Viva) FOUNTEL 80,720 (9.24%) 80,720 (5.77%) 132,195 (6.68%) 142,841 (7.15%) 142,841 (7.15%) VIVA HOLDINGS 0 287,416 (20.53%) 452,939 (22.88%) 463,544 (23.22%) 525,981 (26.33%) FAI 0 203,946 (14.57%) 318,713 (16.10%) 318,713 (15.96%) 318,713 (15.96%) Total Subscribed Shares 873,873 1,400,000 1,980,008 1,996,631 1,996,687 Group's Total Percentage of Shareholdings 9.24% 40.87% 45.66% 46.33% 49.44% In the interim, FAI, on July 25, 2017 acquired 62,563 common shares from Insular Life Assurance Co., Ltd. (Insular). This acquisition was not yet included in the September 8, 2017 GIS. In a clarificatory conference, conducted during the application for Exemptive Relief, counsel for Offerors explained that the September 8, 2017 GIS does not yet reflect the acquisition by FAI of the 62,563 common shares from Insular, as the Certificate Authorizing Registration for the said sale has not yet been presented to PSI's Corporate Secretary, which would effectively transfer such shares in the name of FAI. Thus, the 62,563 shares (equivalent to 3.13%) are still reflected in the name of insular. 22 SDHTEC On August 18, 2017, PSI resolved to increase its capital stock from 2 Million to 4.5 Million shares. The increase of 2.5 Million shares shall be funded from: (a) 100% stock dividends in favor of stockholders of record as of August 18, 2017; and (b) additional subscription from PSI's stockholders. Consequently, on August 28, 2017, Viva subscribed for an additional 72,968 PSI shares; while FAI, on August 29, 2017, subscribed for an additional 73,275 common shares. The increase of capital stock to 4.5 Million shares was approved by the Commission on October 18, 2017. 23 Accordingly, if the following events are plotted into a diagram, then the following shareholdings can be calculated as follows: GIS (October 17, 2016) Acquisition of Insular Shares by FAI on July 25, 2017 After 100% Stock Dividend in October 2017 24 After addition of the August 28 and 29, 2017 Subscription of Viva and FAI GIS submitted in 2018 and 2019 25 Fountel 142,841 (7.15%) 142,841 (7.15%) 285,682 (7.15%) 285,682 285,682 (6.90%) Viva 525,981 (26.33%) 26 525,981 (26.33%) 27 1,051,962 (26.33%) 28 1,124,930 1,204,850 (29.09%) FAI 318,713 (15.96%) 318,713 (15.96%) 637,426 (15.96%) 835,827 755,907 (18.25%) (Insular) 62,563 (3.13%) 125,126 (3.13%) Total PSI OCS 1,996,687 1,996,687 3,393,374 Offeror's Total % of Shares 29 49.44% 52.57% 52.57% 54.24% Total Stocks of Offerors 2,246,439 2,246,439 As may be seen from the fifth column, which shows the shareholdings of Offerors after the increase of capital stock from 2 Million to 4.5 Million, the total amount is 2,246,439 common shares. This is the same amount of total shares reflected in the 2018 and 2019 GIS of PSI (sixth column). The only variation is the individual amount of shares held by Viva and FAI, which is logically presumed to be due to transfers between said companies, considering that the acquisition from Insular was only undertaken by FAI. Such transaction is unlike the usual approach of Fountel/FAI of acquiring shares in conjunction with Viva, and vice versa; a scheme of acquisition which is in accordance with Item 7.6 30 of the CSA. At any rate, it would be seen from foregoing table that upon acquisition of the Insular shares on July 25, 2017, the Offeror's percentage of shareholdings amounted to 52.57% . 31 Further, this amount has increased to 54.24% upon subscription of additional shares on August 28 and 29, 2017. Statement of Issues A. Does the Commission have jurisdiction over violations of SRC Sections 18, 19 and 26, despite the verity that administrative issues are interspersed with intra-corporate controversies? B. Should Respondents be treated as beneficial owners of each other's shares and thus, be liable for non-filing of SEC Form 18-A? C. Under the effective IRR at the time of CSA, were Respondents obligated to conduct MTO? D. Did Offerors commit prohibited practices specified under SRC Rule 19.12? HSAcaE E. Are Offerors liable under SRC Sec. 19.2 or Sec. 26? Discussions/Administrative Findings The presence of intra-corporate controversies Will not automatically deprive the Commission of its jurisdiction over administrative cases. At the outset, Respondents have constantly attacked the authority of the Commission over this administrative case. In fact, during the investigation proceedings, Respondents' counsel vigorously impeded the conduct thereof and pungently argued that intra-corporate matters, as enumerated under Sec. 5 of Presidential Decree No. 902-A, 32 are in issue; therefore, jurisdiction properly belongs to courts of general jurisdiction, in accordance with the transfer of jurisdiction mandated by Sec. 5.2 33 of the SRC. This fundamental issue of jurisdiction has already been discussed by the Court in SEC vs. Subic Bay Golf , 34 to wit: Intra-corporate controversies, previously under the Securities and Exchange Commission's jurisdiction, are now under the jurisdiction of Regional Trial Courts designated as commercial courts. However, the transfer of jurisdiction to the trial courts does not oust the Securities and Exchange Commission of its jurisdiction to determine if administrative rules and regulations were violated . xxx xxx xxx. . . . (E)ven though the Complaint filed before the Securities and Exchange Commission contains allegations that are intra-corporate in nature, it does not necessarily oust the Securities and Exchange Commission of its regulatory and administrative jurisdiction to determine and act if there were administrative violations committed. The Securities and Exchange Commission is organized in line with the policy of encouraging and protecting investments. It also administers the Securities Regulation Code, which was enacted to promote the development of the capital market, protect investors, ensure full and fair disclosure about securities [and] minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. Pursuant to these policies, the Securities and Exchange Commission is given regulatory powers and absolute jurisdiction, supervision and control over all corporations, partnerships or associations. xxx xxx xxx. Thus, when Villareal and Filart alleged in their letter-complaint that SBGCCI and UIGDC committed misrepresentations in the sale of their shares, nothing prevented the Securities and Exchange Commission from taking cognizance of it to determine if SBGCCI and UIGDC committed administrative violations and were liable under the Securities Regulation Code. The Securities and Exchange Commission may investigate activities of corporations under its jurisdiction to ensure compliance with the law. As is clear from the above-quoted Decision, intra-corporate issues will not divest the Commission of its "jurisdiction, supervision and control over all corporations." 35 In other words, the Commission's regulatory power to determine violations of administrative rules and regulations (which protect investors, ensure full and fair disclosure about securities and minimize insider trading and other fraudulent or manipulative devices and practices) 36 is established by law and excluded in those matters transferred to the regular courts . Accordingly, violations of the SRC IRR fall under the jurisdiction of the SEC and such jurisdiction attaches despite the natural and obvious entwinement of intra-corporate matters. The CSA covenants of Respondents effectively transformed their business relation into beneficial ownership over each other's shares. SRC Rule 3.1.A 37 provides: A. Beneficial owner or beneficial ownership means any person who , directly or indirectly, through any contract, arrangement , understanding, relationship or otherwise, has or shares voting power , which includes the power to vote, or to direct the voting of such security ; and/or investment returns or power; which includes the power to dispose of, or to direct the disposition of such security; provided, however, that a person shall be deemed to have an indirect beneficial ownership interest in any security which is : AScHCD i. Held by members of his immediate family sharing the same household; ii. Held by a partnership in which he is a general partner; iii. Held by a corporation of which he is a controlling shareholder; or iv. Subject to any contract, arrangement or understanding which gives him voting power or investment power with respect to such securities; provided however, that the following persons or institutions shall not be deemed to be beneficial owners of securities held by them for the benefit of third parties or in customer or fiduciary accounts in the ordinary course of business, so long as such shares were acquired by such persons or institutions without the purpose or effect of changing or influencing control of the issuer: x x x. As is clear from the foregoing definition, a person who indirectly shares voting power, through any contract or arrangement, which includes the power to direct the voting of such security, shall be deemed to have an indirect beneficial ownership. In this case, the Respondents categorically and repeatedly agreed that their voting power on certain matters shall be controlled in accordance with the contract or the arrangements therein, to wit: Cooperation in respect of the Business 3.2 Each of the Viva Parties and the Fountel Parties shall: 3.2.1 cooperate with each other on all matters relating to the governance of the Company and the conduct of the Business; xxx xxx xxx. 3.8 In the event of any future share capital increase of PSI, where Viva Holdings or FAI is not invited to subscribe for PSI shares in accordance with its pro rata PSI shareholder rights pursuant to sub-clause 6.4, each of the Fountel Parties or the Viva Parties , as applicable, shall vote against such share capital increase . xxx xxx xxx. 4.1 In the event that any Reserved Matter 38 is raised for decision of: (a) the PSI Board or the board at directors of any Subsidiary; (b) any committee of the PSI Board or of the board of directors of any Subsidiary; or (c) the shareholders of the Company or any of the Subsidiaries, each of the Fountel Parties undertakes to use its best endeavours to procure that such Reserved Matter is not carried out by the Company or any subsidiary (as applicable) without the prior unanimous approval of both Viva Healthcare and Fountel (such approval not to be unreasonably withheld by either party). xxx xxx xxx. 4.3 In the event that the PSI Shareholders, the PSI Board or the board of directors of any Subsidiary propose(s) to consider or carry out a Trade Sale or an Admission, each of the Fountel parties shall only discuss or consider such Trade Sale or Admission with the PSI Board and/or the other PSI Shareholder and/or board of directors of any Subsidiary after consultation by Fountel with Viva Healthcare on such Trade Sale or Admission. xxx xxx xxx. 13.6 Each of the Fountel parties shall use its best endeavours to facilitate the waiver by the other PSI Shareholders and PSI of any restrictions in the PSI Articles of Incorporation or otherwise (including without limitation the ROFR Provisions) which may apply to restrict the transfer of PSI shares in accordance with provisions of this clause 13. To exemplify the shared voting power and the power to direct the voting of a security, the affidavit of Fr. Yap, dated October 23, 2018, is hereto quoted: 11. In 2017, I was invited to join and chair the PSI Finance Committee whose members would be the other Directors, namely, Mr. Gonzales , Dr. Eugene Ramos, Mr. Albert Buenviaje, Mr. Thomas Smith, and Mr. Martin Robinson, Viva's nominee director. HESIcT 12. The Finance Committee was convened to examine generating finance by means of raising authorized capital stock and allowing the entry of Ayala Corporation's subsidiary, AC Health ("Ayala"), as strategic partner in PSI . The Finance Committee was tasked to make recommendations to the Board on the quantum of the increase in authorized capital stock and Ayala's investment. xxx xxx xxx. 16. The Finance Committee met several times in 2017 and as the Finance Committee continued its meetings, it became very clear that Viva , through Mr. Robinson, was vehemently opposed to AC's subscription to 20% unless Viva was likewise allowed to maintain or increase its proportionate equity by subscribing to more shares . 17. As such, the four other members of the Finance Committee, at Mr. Gonzales' urging, would meet prior to the start of formal committee sessions to discuss how to address Viva's and Mr. Robinsons concerns, and convince him about the increase in authorized capital stock and the entry of Ayala. 18. It was in 2017 during these meetings with the four other members, including Mr. Gonzales, that I first heard about some sort of agreement between Viva and the Fountel parties. Towards the later meetings, Mr. Gonzales began mentioning about "some" agreement with Viva, but still remained vague about it. Mr. Gonzales also stated during our caucuses that if he will have to vote contrary to Mr. Robinson and Viva with respect to the capital increase, he will have to be ready to go to Hong Kong for arbitration. 39 19. It slowly begin to dawn on me that Mr. Gonzales was bound by a kind of formal agreement with Viva. Mr. Bueviaje and I asked him what this agreement was and to share it with the Finance Committee, but Mr. Gonzales declined, insisting that it was confidential. 20. x x x. 21. During one of the last Finance Committee meetings on the matter, Mr. Robinson told the other members that he does not care what the Committee's position is on the capital increase and the investment of Ayala because these proposals will be blocked and disapproved when it reaches the shareholder's meeting. Looking back, I realize now that Mr. Robinson was asserting that Viva's shares are to be aggregated with Fountel Parties' when it comes to voting. 22. During our Finance Committee meetings, Mr. Gonzales claimed that if the Fountel Parties would vote for the capital increase and the Ayala subscription, he would have to go to Hong Kong for arbitration for not following the agreement that Fountel parties would vote with Viva, because Viva was against the Ayala subscription. Foregoing CSA instructions/directives on how to vote in particular topics, as actually and easily demonstrated in the Ayala case, effectively shows that the Respondents ( i.e ., Viva, Fountel, FAI, including Viva Healthcare Limited) are not plain business collaborators/cooperators, but are actually beneficial owners of the PSI shares held by parties to the CSA. AcICHD In this regard, SRC Rule 18.1 40 provides: 1. The provisions of this Rule shall apply to any person who directly indirectly acquires the beneficial ownership of more than five percent or such lesser per centum as the Commission may prescribe, of any class of equity securities of a company that satisfies the requirements of Subsection 17.2 of the Code. 2. Any person who qualifies under paragraph 1 of this Rule shall, within five (5) business days after such acquisition, submit to the Issuer , the Exchange where the security is traded, and to the Commission a sworn statement containing the information required by SEC Form 18-A . 3. x x x. An examination of the reports filed with the Commission shows that no SEC Form 18-A were filed by the Respondents Viva Healthcare, Viva and FAI upon acquisition of beneficial ownership over the PSI shares of Fountel. Accordingly, penalties in accordance with Sec. 54 41 of the SRC shall be imposed. Offerors adroitly circumvented the IRR in order to avoid the requirements of MTO; Nonetheless, they are liable for failing to disclose their intent. The IRR of the SRC has gone through three different revisions, as follows: 1. IRR of the SRC, approved on December 15, 2000; 2. Amended IRR of the SRC (Amended IRR), approved on December 30, 2003; and 3. 2015 IRR of the SRC (2015 IRR), approved on August 4, 2015. At the time of signing the CSA and subscription agreements, the prevailing rule is the Amended IRR. In this regard, SRC Rule 19.2.A of the Amended IRR states: 19.2.A. Any person or group of persons acting in concert , who intends to acquire thirty five percent (35%) or more of equity shares in a public company shall disclose such intention and contemporaneously make a tender offer for the percent sought to all holders of such class, subject to paragraph (9) (E) of this Rule. Acting in Concert The law and IRR refers to "person or group of persons acting in concert ." This term is applicable to the Offerors as may be seen from their various covenants in the CSA. In fact, Viva, through Mr. Robinson, identified Offerors as such when it expressed the following in the letter dated May 15, 2018: x x x. As we are party , as you know, to a co-operation and shareholders agreement with the Fountel Parties, the aggregate shareholding of the Fountel Parties and Viva were aggregated for the purposes of the SRC requirements . caITAC Accordingly, the question of whether the Offerors were acting in concert is a non-issue, as the facts clearly reflect the same. Also, the Respondents, in the letter quoted above, admitted the relationship evidenced in the CSA, and subjected themselves to the SRC requirements. Intent to Acquire 35% or more of Equity Shares As regards the matter of intention, it would be helpful to recap that from the outset, Offerors intended to become owners of more than 35% PSI shares. Such intention has been expressed during the April 23, 2013 Execom meeting, where the minutes thereof provides the following: . . . Mr. Gonzales said that he has effectively found a partner wherein he and his partner will become majority . x x x. x x x. Mr. Gonzales summed up that the ownership would be himself ending up with 43%. Lombard if he takes up with 17.7% and Insular if he stays with 6.1% and depending upon how other shareholder want to top-up, they would have some movements. Foregoing statements are even illustrated, in said meeting, with a graphical timeline showing the Offerors' intention to acquire up to 43.1% by 2013. The indisputable intent of Respondents to acquire more than 35% of PSI shares is also unequivocally exhibited in the terms of the CSA, to wit: 6. FUTURE ACQUISITION OF PSI SHARES 6.1 As soon as reasonably practicable following the Completion Date, each of the Fountel Parties shall use its best endeavours to facilitate 6.1.1 the acquisition of PSI shares by Viva Holdings and the Fountel Parties from the other PSI Shareholders from time to time with the same terms and price per PSI Share for such acquisition offered to any of the Fountel Parties being offered to Viva Holdings; and/or 6.1.2 the subscription by Viva Holdings and the Fountel parties of PSI Shares and with the same terms and price per PSI share for such subscription offered to any of the Fountel parties being offered to Viva Holdings, such that Viva Holdings and the Fountel parties shall increase their respective holdings in PSI and hold a respective minimum 25% and 25.1% interest in the entire issued stock capital of PSI and further that Viva Holdings and the Fountel Parties shall subsequently continue to work together to increase their respective shareholdings in PSI, provided that (subject to the terms of clauses 6.2 to 6.5). Glaringly, thus, the intention of the Respondents is to acquire 35% or more of equity shares. In fact, the July 31, 2013 BOD Resolution would demonstrate that the requirement of SRC Rule 19.2 for MTO has been triggered. To elucidate, the following table is useful: July 31, 2013 Resolution 42 Amount of Unissued Shares Allocated Amount of Shares Allocated from First Increase (1M to 1.4M shares) Amount of Shares Allocated from Second Increase (1.4M to 1.9M shares) Total Percentage of Shares to be Acquired Fountel - - - - Viva 91,363 (4.81%) 196,054 (10.32%) 114,369 (6.02%) 21.15% FAI 203,946 (10.73%) 114,767 (6.04%) 16.77% Total Percentage of Shares to be Acquired 4.81% 21.05% 12.06% 37.92% The July 31, 2013 BOD Resolution, as computed above, reflects that as of that time period, the intention of Offerors was to take up 37.92% of PSI shares. Such amount, along with the intended percentages of 43.1% (as expressed in the Execom meeting) and 50.1% (as shown in the CSA), 43 clearly reflects the intention to acquire 35% or more of equity shares. Accordingly, the threshold under the IRR has been reached, necessitating the disclosure of such intention and conduct of MTO . Avoidance of the obligation to (1) disclose and (2) contemporaneous tender offer However, instead of disclosing their intention and conducting tender offer, Offerors conveniently structured their acquisition in order to take it out of the requirements of MTO. To achieve this, Rule 19.3 of the Amended IRR, as quoted below, was utilized. TAIaHE 19.3.A The mandatory tender offer requirement shall not apply to the following: i. any purchase of shares from the unissued capital stock provided that the acquisition will not result to a fifty percent (50%) or more ownership of shares by the purchaser; ii. any purchase of shares from an increase in authorized capital stock ; xxx xxx xxx. 19.3.B. Purchasers of shares in the foregoing transactions shall, however, comply with the disclosure and other obligations under SRC Rule 18.1 and SRC Rule 23 . In view of the exemption provided under the IRR, the acquisitions of Offerors (as parties in concert), even though reaching the threshold of intent , are indeed exempted from the mandatory tender offer requirement. However, SRC Rule 19.3.B requires disclosure of intention in purchases of shares from the unissued capital stock and increase in authorized capital stock. This rule is logical for the reason that upon disclosure of the intention to acquire more than 35% of equity shares, the BOD and stockholders, fully apprised of the possible change in control, may vote to approve or disapprove the said increase in capital stock or subscription in unissued shares. Accordingly, the intention to acquire 35% or more of equity shares should be disclosed at the meetings approving the purchases of shares from unissued capital stock and increase in authorized capital stock. In this case, Offerors did not just deliberately defy the duty to disclose the intent to acquire 35% or more of equity shares, as required by Rules 19.2.A and 19.3.B of the SRC IRR, but in fact covertly kept this intention from directors and shareholders of PSI, as shown from the minutes of the April 23, 2013 Execom meeting vis--vis the April 24, 2013 BOD meeting. On the other hand, the CSA, which is an incontrovertible evidence of Respondents' intention to acquire majority shares, was also kept confidential from PSI directors and stockholders. In fact, it was only discussed in 2017, as a consequence of the negotiation to acquire shares by AC Health (Ayala). Such may be inferred from the submitted minutes of BOD meetings 44 of June 8 and 12, 2018 , to wit: Dr. Bengzon . . . then said that it was only in 2017 that he came to read the CSA, when exposed as part of Ayala's due diligence . He added that he was shocked when Mr. Gonzales claimed to not have known that he had to vote with Clermont on the matter of increasing the capital stock to accommodate the Ayala Investment. He further stated that it was at such time that he (Dr. Bengzon) demanded to see the agreement, but that Mr. Gonzales initially resisted, claiming that the documents was confidential, until he eventually reluctantly agreed. Dr. Bengzon said that he requested that the CSA be shared with Atty. Soller, given that it was a legal document and he would need counsel on it. Dr. Bengzon added that such was the first time he and Atty. Soller saw the actual document. Dr. Saniel stated that Mr. Robinson had repeatedly made his case about the disclosure matter, but that, as a member of the Board, she did not know about the CSA until 2017 when the Ayala investment failed . xxx xxx xxx. Dr. Sarmiento requested Mr. Buenviaje to repeat his earlier statement, Mr. Buenviaje stated that he learned of the existence of a CSA in 2017 when Dr. Bengzon mentioned it to him, having found it out in the same year. He mentioned that Dr. Bengzon was accordingly told by Mr. Gonzales to keep the agreement confidential, but was allowed to share the same with Atty. Soller. He further mentioned that when their discussion veered into possible ethical issues, he stated that he wanted to see the CSA but Dr. Bengzon did not want to show it to Mr. Buenviaje, because the former agreed that he will keep it to himself . x x x. Fr. Yap, on the matter of whether the CSA was disclosed, stated that he was a member of the Board in 2013 and knew nothing about it. He stated that he remembered the meeting regarding the possibility of the Chandler group to come in, wherein Lombard raised objections. He recalled getting the impression that Mr. Gonzales was pressured to reveal that it was Chandler. He continued that the first time he heard of a CSA was during a Finance Committee meeting in 2017, during a discussion on the increase in capital stock, and whether Ayala should be allowed in . He further stated that Mr. Gonzales declared that he was the one who invited Ayala; that in the said meeting, Mr. Gonzales accordingly had said that if it came to a vote in a shareholder's meeting, and Mr. Gonzales had to vote against Clermont, he had to be ready for arbitration in Hong Kong . Fr. Yap mentioned that at such juncture, he realized that a CSA bound him that they had to vote together. He recalled also that, at that time, Mr. Gonzales was for the entry of Ayala, and that it was what the committee was working for. He further added that the matter of the loan came out in the stockholders' meeting, which was mentioned to him by Mr. Buenviaje as he was in Thailand at that time. He reiterated that the first time he heard of the CSA was in 2017 that he never heard of it before then, that it was never mentioned in a meeting, and that it was never disclosed. ICHDca Dr. Concepcion posited that she had been a member of the Board since 2013, and that she never knew about the CSA until late in 2017. Dr. Saniel reiterated her declaration that she did not know about the CSA until 2017. She recalled that Mr. Gonzales sent her an e-mail containing a letter, also sent to other doctors, wherein it was mentioned that he earned a premium, which she assumed was in relation to the CSA and the loan agreement. She pointed out that it was important for the Board to know the nature and the amount of such premium. Fr. Yap inquired, in connection with Dr. Saniel's statement, as to the reason the loan granted, amount, terms, and status of it. In defense, Respondents counter that the CSA was copy-furnished to Atty. Soller and Ms. Macalagay . However, as earlier observed, the emails were sent to aforesaid individuals even before any resolution authorizing Dr. Bengzon and Ms. Macalagay to transact with the purchasers was passed. Also, upon authorization of the BOD on July 31, 2013, the documents forward to Atty. Soller and Ms. Macalagay, on August 1, 2013, as authorized representatives of PSI, are merely the cover page and execution page of documents which were already executed/signed and notarized. Additionally, the reliability of documents, as denominated in the series of e-mails, cannot be fully relied upon as the documents can be wrongly attached, as exhibited in the email of Atty. Soller, on August 5, 2013, asking for the correct attachment. Respondents next argue as defense the filing and submission of the CSA with the Commission, through SEC Form 23-A (for Fountel) and SEC Form 23-B (for Viva). However, this is not the form of disclosure contemplated by the IRR, considering that the filing with the SEC is not tantamount to disclosure to the Issuer . This is clear from the following rules: SRC Rule 18.1. The provisions of this Rule shall apply to any person who directly or indirectly acquires the beneficial ownership or more than five percent (5%) or such lesser per centum as the Commission may prescribe, of any class of equity securities of company that satisfies the requirement of Subsection 17.2 of the Code. 2. Any person who qualifies under paragraph 1 of this Rule shall, within, five (5) business days after such acquisition, submit to the Issuer , the Exchange where the security is traded, and to the Commission a sworn statement containing the information required by SEC Form 18-A . xxx xxx xxx. SRC Rule 23.1. Every person who is directly or indirectly the beneficial owner of ten percent (10%) or more of any class of any security of a company which satisfies the requirements of Subsection 17.2 of the Code, or who is a director or an officer of the issuer of such security, shall: A. within ten (10) days after the effective date of the registration statement for that security, or within ten (10) days after he becomes such beneficial owner , director or officer, subsequent to the effective date of the registration statement, whichever is earlier, file a statement with the Commission and with an Exchange if the security is listed on that Exchange, on Form 23-A indicating the amount of all securities of such issuer of which he is the beneficial owner. cDHAES B. Within ten (10) days after the close at each calendar month thereafter, if there has been any change in such ownership during the month, file a statement with the Commission and with an Exchange if the security is listed on that Exchange, on Form 23-B . As required by the IRR quoted above, SEC Form 18-A shall be submitted to the Issuer and the Commission; while SEC Form 23-A and Form 23-B shall be furnished to the Commission only. Accordingly, the non-submission of SEC Form 18-A to the Issuer and Commission, despite the inclusion of the CSA in SEC Form 23-A/B, cannot be considered as notice/disclosure in favor of the Issuer . In a related matter, one would initially surmise that the directors present during the April 23, 2013 Execom meeting, especially Dr. Bengzon, are privies to the Respondents' objectives as enumerated in the CSA. However, the following minutes of the August 7, 2018 BOD special meeting would obscure such supposition: Dr. Roxas stated that, as the newest addition to the Board, he read the CSA only the month prior. He noted that there was a confidentiality provision in the CSA , and inquired how the agreement can be both confidential and public. Mr. Robinson responded that, at the end of the day, it was publicly disclosed, so the whole world can see it. He added that all agreements had a confidentiality agreement, and that it was a standard form. Mr. Gonzales stated that he had a confidentiality agreement with Mr. Robinson, based on which, he could not disclose to anyone , and was the reason why it took him a while to get to this point with Dr. Bengzon, as advised by his lawyers. He added that, also according to his lawyers, for proper disclosure and good governance, disclosure should be made with the SEC, which they did. He continued that, in May 2017 , he wrestled with the idea that he was effectively violating his agreement with Mr. Robinson, of which they had a discussion, and the management advice was that he was being asked to step aside in the primary subscription of shares. He continued that based on the CSA if there was going to be a primary subscription of shares. Mr. Robinson had to have his pro rata on those shares, even if Mr. Gonzales does not. He stated that this was the provision that was incontrovertible, while others called for best endeavors. He continued that, on such basis, he needed to disclose the matter to Dr. Bengzon, who then requested to have Atty. Soller brought in, which was okay. He added that when Dr. Bengzon asked for Mr. Buenviaje to be brought in also, he felt that it might already be going too far , so he suggested talking with the latter instead . He then brought up Ayala, and stated that there really were efforts to try to bring them in so he took the risk and told Ayala. (Page 25) It may be deduced from the above statements of Mr. Gonzales, himself, that the CSA was not disclosed to anyone due to the confidential nature of the agreement. However, upon the advice of his lawyers, the same was filed with the Commission. In May 2017 , he felt the need to disclose the CSA considering that he invited Ayala as a strategic partner and yet he needed to vote against its entry, since Viva was opposed to Ayala's subscription of shares in PSI. Thus, Mr. Gonzales disclosed the matter to Dr. Bengzon, who requested Atty. Soller to review the contract. When Dr. Bengzon suggested the disclosure of the CSA to Mr. Buenviaje, Mr. Gonzales felt that "it might already be going too far." This account is corroborated by the statements of Atty. Soller and Mr. Buenviaje in the same August 7, 2018 meeting, where the minutes provide as follows: TCAScE Atty. Soller stated that the first time he saw the CSA was in May 2017 , when Mr. Gonzales shared a copy of the document with Dr. Bengzon, and he was asked to review it from a legal aspect. He stated that Mr. Gonzales gave him specific instructions not to share the document with anyone else. He recalled asking whether he could also show the document to Mrs. Macalagay, which was answered in the negative for the reason that it was confidential. He further stated that he may have been copied with earlier e-mails wherein the CSA, and other documents, were attached, but he neither reviewed nor negotiated it because of the instructions that it was confidential, that PSI was not involved as party to it, and as such he had no reason to review it. x x x. Mr. Buenviaje stated that he found out about the CSA in 2017 . He stated that this was in the context of Dr. Bengzon calling him up to say that he found out that there existed a CSA, of which he and Atty. Soller had a copy, and that Mr. Gonzales emphasized on its confidential nature so Mr. Buenviaje could not be given a copy. He recalled that Dr. Bengzon asked a general question about any ethical issues that may be written into CSAs, to which he answered that if it is a regular CSA, signed between different shareholders, there would probably be nothing wrong with it. He added then, however, that if there were material information found in the CSA which would affect the decisions of the corporation , the issue of transparency would be an ethical issue . x x x. (Page 17.) At any rate, this matter of knowledge by directors or authorized representatives is actually immaterial in this administrative case, despite the endeavor of Respondents to put it into issue. The law and rules clearly impose upon the person intending to acquire more than 35% of equity shares, the obligation to disclose its purpose/intent/plan. Respondents should not be allowed to muddle the issue by shifting the obligation to disclose intent to another person. Accordingly, Offerors' failure to disclose their intention to acquire 35% or more of equity securities is an act which violates SRC Rule 19.2.A, in relation to Rule 19.3.A and 19.3.B. In view thereof, Offerors are liable for penalties imposed by Sec. 54 of the SRC. To surreptitiously takeover PSI, Offerors omitted to state material facts, Misleading PSI's directors and shareholders. As previously discussed, SRC Rule 19.2.A of the Amended IRR provides for the general rule that a person who intends to acquire 35% or more of a public company's equity shares shall: ASEcHI 1. Disclose such intention ; and 2. Contemporaneously make a tender offer . On the other hand, SRC Rule 19.3.A relieves one from the mandatory tender offer requirement in purchases of shares from the unissued capital stock and increase in authorized capital stock. However, SRC Rule 19.3.B patently requires purchasers in the foregoing transaction to comply with the disclosure of the intention to acquire 35% or more of equity shares. Additionally, purchaser shall comply with the obligations under SRC Rules 18 and 23. In other words, SRC Rule 19.2.A (mandatory tender offers) provides for the general rule; while SRC Rule 19.3.A states the exemptions to the general rule. Such exemptions, however, are qualified by SRC Rule 19.3.B. Considering that SRC Rules 19.2.A, 19.3.A, 19.3.B, and SRC Sections 18 and 23 are all interconnected with each other, discussion or reliance upon one of the foregoing provisions of the IRR shall require consideration of the other provisions, as well. In other words, SRC Rule 19.3.A and 19.3.B, along with SRC Sections 18 and 23, shall be considered in connection with the general rule (mandatory tender offers/Rule 19.2.A) In this regard, Section 18 of the SRC specifically provides that: Sec. 18.1. . . . any person who acquires directly or indirectly the beneficial ownership of more than five percentum . . . shall, . . . submit . . . a sworn statement containing the following information and such other information as the Commission may require in the public interest or for the protection of investors: (a) The personal background, identity, residence, and citizenship of, and the nature of such beneficial ownership by, such person and all other persons by whom or on whose behalf the purchases are effected, in the event the beneficial owner is a juridical person, the lines of business of the beneficial owner shall also be reported; (b) If the purpose of the purchases or prospective purchases is to acquire control of the business of the issuer of the securities, any plans or proposals which such persons may have that will effect a major change in its business or corporate structure . On the other hand, SRC Sec. 23 states: Sec. 23. Transactions of Directors, Officers and Principal Stockholders. 23.1. Every person who is directly or indirectly the beneficial owner of more than ten percentum (10%) of any class of any equity security . . . shall file, at the time the issuer of such security, shall file . . . a statement with the Commission . . . of the amount of all equity securities of such issuer of which he is the beneficial owner . . . As may be inferred from the foregoing, the required filings, under Sections 18 and 23 of the SRC will enable the Issuer and the Commission in monitoring the "intent" of persons in their purchases of equity shares. Thus, correlating the requirements of SRC Rules 19.2.A, 19.3.A, 19.3.B, and SRC Sections 18, 19 and 23, it would be easy to conclude that the purpose of the law is to require accurate disclosure of the amount of ownership, including beneficial ownership, in order to prevent any hostile/unannounced takeover/change in the control of an issuer . In line with the intention of the law, SRC Sec. 19.2 prohibits the non-disclosure of material facts and the use of fraudulent, deceptive, or manipulative acts or practices. To demonstrate, SRC Sec. 19.2 mandates that: cTDaEH Sec. 19.2. It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading, or to engage in any fraudulent , deceptive, or manipulative acts or practices , in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. The Commission shall, for the purposes of this subsection, define and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative. Hence, to prevent fraudulent, deceptive or manipulative acts or practices, the Commission promulgated the following definition: SRC Rule 19.12. Prohibited Practices It shall be fraudulent, deceptive or manipulative act or practice, in connection with any tender offer: A. To employ any device, scheme or artifice to defraud any person; B. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made , in light of the circumstances under which they were made, not misleading ; or C. To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. In such regard, material fact or information is defined under the rules, as follows: Rule 3.1.1. Material Fact/Information means any fact/information that could result in a change in the market price or value of any of the issuer's securities, or would potentially affect the investment decision of an investor. x x x. The foregoing definition finds correspondence with the declaration of the U.S. Supreme Court in TSC Industries, Inc. vs. Northway, Inc. , 45 to wit: The general standard of materiality that we think best comports with the policies of Rule 14a-9 is as follows: an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote . This standard is fully consistent with Mills' general description of materiality as a requirement that "the defect have a significant propensity to affect the voting process." It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the "total mix" of information made available. In this case, Respondents, who intended to acquire 35% or more of equity shares in PSI, failed to disclose the following material facts: ITAaHc 1. Loan/Financing Agreement; 2. Plan to acquire control; and 3. To act in concert as regards governance and other corporate decisions. Such omission of material facts misled both the BOD and its stockholders to vote for the approval of the increase in capital stock. Additionally, the omission has led the BOD in approving the issuance of unissued shares in favor of the Offerors. This cause and effect is evident in the following declarations, amongst others. The Complaint-Affidavit of De Dios Complainants declares: 12. When we inquired about the CSA, we learned that the other members of the Board of Directors of PSI did not also know about the CSA. They had previously asked Mr. Gonzales for a copy of the CSA, but he refused claiming that it was confidential. 13. To our knowledge, Mr. Gonzales or Mr. Robinson never disclosed to or discussed with the Board of Directors and shareholders the CSA and the secret loan of Viva to FAI. What is more appalling is that the VFF Group (Viva, Fountel, FAI) had deliberately concealed their arrangement under the CSA to act together to continue to acquire more shares with the aim of owning at least 50% of PSI. 14. Because the VFF Group had deliberately concealed the CSA, they were able to continuously acquire more than 50% of PSI and ultimately allowed a foreign entity, Viva to gain control of PSI. At this time, based on the records of this Honorable Commission, FAI and Fountel own approximately 25% of the total subscribed shares, while Viva has the single largest shareholdings at approximately 30% of the total subscribed shares. 15. Had the Board of Directors and the shareholders been informed of the CSA, the Board of Directors and the shareholders would not have allowed Viva to be a part of PSI. In fact, since the Board of Directors discovered the CSA, we understand that it had been opposing any attempts of the VFF Group to acquire additional shares. Personally, if we knew about the VFF Group's arrangement, we would have probably sold our shares. 16. We felt that we were completely defrauded by the VFF Group and left in the dark as minority shareholders of PSI. From the time Viva and FAI first acquired shares in PSI in 2013 until recently, we had no idea that the VFF Group were bound by contract to act together in voting and in acquiring even more shares of PSI. We, along with the other shareholders, were deprived of crucial information that would have been vital in our decision making in relation to our shares in PSI. Worse, we had lesser voting power since our shareholdings were diluted by the VFF Group's continued acquisition of shares. Fr. Yap, in his affidavit, declared: 1. I am the designated representative of Isabela Cultural Corporation ("Isabela"), the corporation sole of the Society of Jesus in the Philippines, for Professional Services, Inc. ("PSI"). Isabela has been a shareholder of PSI since 2004. cSaATC xxx xxx xxx. 29. It was also in May 2018, when I first saw the CSA, that I learned of a loan in the amount of US$37,894,570.00 extended by Viva to New Regency Investments Limited ("New Regency"), a company that I subsequently discovered was also beneficially owned by Mr. Gonzales. The CSA specifically states that this US$37.9 million loan was to be used to fund FAI's subscription to PSI shares. 30. Some members of the Board and I would later request Mr. Gonzales to show us a copy of such Loan Agreement, but Mr. Gonzales once again initially refused, insisting that it was also confidential Mr. Gonzales only gave a copy of the Loan Agreement very recently in September 2018, as part of the investigation of the Governance Committee of PSI. 31. At no point in time between 2013 and 2017 did Mr. Gonzales or Mr. Robinson disclose to or discuss with the PSI Board the CSA and the Loan Agreement. What bothered me was that they had deliberately kept hidden their arrangement under the CSA to act together to continue to acquire more shares with the aim of owning at least 50% of PSI and that FAI's subscription had been fully financed by Viva in 2013. 32. What was even more alarming was that it appeared the loan for US$37.9 million that funded FAI's subscriptions of PSI shares in 2013 could be effectively "settled" for only HK$1.00. 33. If I had known of these matters in 2013, as a director of the Board, I would never have voted to approve Viva's and FAI's subscriptions because it could have and ultimately lead to a foreign entity, Viva, effectively gaining control of PSI and The Medical City. Similarly, Isabela would also have voted against the increase in authorized capital stock during the shareholder's meeting. CHTAIc 34. Now that Viva, Fountel and FAI, as a group, are in full control of PSI having acquired more than 50% of the Company, I feel that I and Isabela were deprived of crucial information that would have been vital in our decision making in relation to the shares Isabela had held in PSI. Meanwhile, Dra. Yap stated in her affidavit: 1. To the best of my recollection, I have been a stockholder of Professional Services, Inc. ("PSI") since about 2000. I have been an Independent Director of PSI and a member of the Board's Professional Development Committee since 2017. xxx xxx xxx. 19. If Mr. Gonzales had fully disclosed and discussed with all the shareholders that his companies, the Fountel parties, were going to enter into (i) the CSA which required the Viva and the Fountel Parties to act together to continue to acquire at least 50% of the shares of PSI; and (ii) the Loan Agreement whereby Viva fully funded FAI's subscription of PSI shares, as a shareholder, I would have voted against the increase of authorized capital stock in 2013. 20. After learning that Viva and the Fountel parties have been acting in concert since 2013, with Viva funding FAI's subscription, and had the intent as early as then to acquire more than 50% of PSI, I felt completely defrauded. As a shareholder, I was deprived of making an informed decision. Maria Micaela B. Poe also executed an affidavit, to wit: 1. I am the Corporate Secretary, Treasurer and authorized representative of Mt. Halcon Philippines Investments, Inc. ("Mt. Halcon"). I have been Corporate Secretary and Treasurer of Mt. Halcon since 2012. 2. Mt. Halcon has been a shareholder of Professional Services, Inc. ("PSI" or the "Company") since 2012 and presently owns 40,000 shares. xxx xxx xxx. 16. If Mt. Halcon had known of: (i) the CSA, (ii) the US$37.8 million loan extended by Viva for FAI's subscription, and (iii) that Viva and Fountel Parties had been acting in concert from the onset to acquire at least 50% of PSI's shares, it would have voted against the increases in authorized capital stock during the shareholders' meetings in 2013 and 2017, or it may have considered selling its shareholdings in PSI then. 17. Now that Viva, Fountel, and FAI, as a group, are in full control of PSI, having acquired more than 50% of the company, Mt. Halcon certainly feels and believes that it has been defrauded. Mt. Halcon voted in favor of the increases in PSI's authorized capital stock, which paved the way for Viva and the Fountel parties to acquire PSI shares, without the benefit of knowing about (i) the CSA, (ii) the US$37.8 million loan from Viva for FAI's subscription, and (iii) that Viva and Fountel Parties are a group intending to acquire at least 50% of PSI's shares. 18. Such matters were certainly crucial and would have been very material in Mt. Halcon's decision-making process in 2013 and 2017. However, because these were never brought to the attention of and discussed with us shareholders, Mt. Halcon was made to vote on important corporate matters based on incomplete and misleading information. On the other hand, the August 7, 2018 Minutes of the Special Meeting of PSI BOD reveals the following: cHDAIS Dr. Roxas inquired the other significant minority who were already members of the Board in 2013, namely Fr. Yap, Sr. Nacionales, and Mr. Smith, whether they would have agreed to the provisions of the CSA had they read the same in 2013. Fr. Yap responded that he was uncomfortable of the fact that the group was aiming for 51%. He stated that he was also concerned and uncomfortable on the matter of the loan, which was of a very generous amount. He further stated that, had the CSA been disclosed, there would have been significant discussions on those two (2) things, including how the loan was settled. Mr. Fabiani commented that it was provided that before their group acquired over 50% shareholding, Mr. Gonzales was to get Dr. Bengzon's blessing. He added that when they acquired the Insular shares, there was a discussion before the Corporate Secretary signed off on it and issued the shares. Mr. Gonzales interjected that this process took time, instead of doing it in March, it was finished in July, and he was obliged to pay before it. Fr. Yap pointed out that, had he known of the agreement, he would have expressed concern about it. He explained that his understanding that there would be significant blocks but would not have control. Mr. Gonzales responded that, control of the Corporation remained with Dr. Bengzon. Sr. Nacionales stated that CSAs are not necessarily bad, depending on the contents, but what accordingly concerned her was the matter of the loan and its condonation. She further stated that she understood that the Chandler's group, as businessmen, will prioritize their own advantage. She stated that she was also confused as to the veracity of the statements of the differing sides adding that a conversation with Mr. Gonzales wherein he had explained his side on the issue, and that she was not entirely convinced of said explanation. She added that a disclosure of their congregation's stance on the matter was made, and that she hoped that the matter will be settled. Dr. Sarmiento clarified that the loan was not condoned but paid for by Mr. Gonzales. xxx xxx xxx. Mr. Smith, in answer to the question posed by Dr. Roxas, stated that had he read the CSA in 2013, he would have sold Lombard' shares. Mr. Robinson noted that Lombard did not have a shareholders' agreement, but that, in hindsight, they wished that they did. In another related matter, it was gathered from the investigation and the affidavits submitted that, due to the omission of material facts necessary to make the statements not misleading, the directors present during the meetings in 2013, were made to believe that the use of the term partner is not for the purpose of taking control over the company but merely for the purpose of inviting a "strategic investor or partner ." To explain this confusion, the statement of Fr. Yap in his Affidavit dated October 23, 2018 is quoted as follows: 23. In 2013, I sat on the PSI Board with Mr. Jose Xavier B. Gonzales, who was director and Treasurer of PSI. Mr. Gonzales is the nephew of Dr. Alfredo R. A. Bengzon, PSI's President and CEO. Dr. Bengzon was grooming Mr. Gonzales to take over as CEO upon his retirement from office. 24. During this period, Mr. Gonzales presented to the Board many expansion plans for PSI, including hospital operations in Guam and South Luzon/Laguna. To fund this, Mr. Gonzales proposed: (i) the entry of a strategic foreign equity investor or partner who would subscribe to a significant minority stake ; (ii) subscription to a nearly equivalent number of PSI share by Felicitas Antoinette, Inc. ("FAI"), of which Mr. Gonzales was the ultimate beneficial owner. Prior to this time, Mr. Gonzales' other company, Fountel Corporation ("Fountel"), was already a PSI shareholder. EATCcI 25. To accommodate these subscriptions, it was necessary to increase PSI's authorized capital stock from 1,000,000 shares to 1,400,000 shares and ultimately to 2,000,000 shares. 26. I remember that during discussions on this matter. LA III Cooperatief U.A. ("Lombard"), a major shareholder of PSI, opposed such a considerable increase in authorized capital stock because it wanted a more conservative increase. It also objected to Mr. Gonzales' proposal to approve the new investors' subscriptions to a significant portion of such increase. 27. During the 24 April 2013 Board meeting, I recall one of the Directors urging Mr. Gonzales to finally disclose the identity of the foreign investor. It was the first time that Mr. Gonzales revealed that it was Mr. Richard Chandler, an Australian. 28. While Mr. Gonzales referred to the foreign investor as a "partner," I understood that he meant this in the loose sense, as an investor he invited to be a strategic partner for PSI. There was no disclosure by Mr. Gonzales (or even later by the group of Mr. Chandler) of any legal or formal arrangement or agreement between them. 29. x x x. 30. From 2013 when Viva and FAI first became PSI shareholders until 2017, I had no idea that Viva, on the one hand, and Mr. Gonzales' FAI and Fountel, (collectively the "Fountel Parties"), on the other, were bound by contract to act together in voting and in acquiring even more shares of PSI. 31. In 2017, I was invited to join and chair the PSI Finance Committee whose members would be the other Directors, namely, Mr. Gonzales , Dr. Eugene Ramos, Mr. Albert Buenviaje, Mr. Thomas Smith, and Mr. Martin Robinson, Viva's nominee director. 32. The Finance Committee was convened to examine generating finance by means of raising authorized capital stock and allowing the entry of Ayala Corporation's subsidiary, AC Health ("Ayala"), as strategic partner in PSI . The Finance Committee was tasked to make recommendations to the Board on the quantum of the increase in authorized capital stock and Ayala's investment. ISHCcT 33. On May 24, 2017, I participated through telecom in a meeting with Dr. Bengzon, Mr. Gonzales, and Atty. Manolito Soller, Assistant corporate Secretary to discuss the tasks given to the Finance Committee. As a representative of Isabela, I expressed my concerns that if Ayala were permitted to enter with at least 20% stake, it could have control of the majority with Viva , which had, at such time, approximately 24% equity. 34. It had always been Isabela's understanding from the time it had made its investment in PSI in 2004 that no one shareholder or group of shareholders will have majority and that was one of the reasons for the inclusion of a right of first refusal in PSI's Articles of Incorporation . 35. I clearly recall that at the 24 May 2017 meeting, Mr. Gonzales reassured me that there was no need to worry on the part of Isabela and the other minority shareholders because the Fountel parties' shares would be allied with the minority , which if aggregated with the doctors' shares, would account for over 30% of outstanding equity. Thus, we would be a third block that will match Ayala and Viva. As may be seen from the foregoing statement, the use of the term "partner" denotes a strategic investor in PSI. The term strategic is used since the investor subscribes to a " significant minority stake ," an amount that is neither majority nor insignificant, but one which is substantial as to warrant a seat in the board (the policy making body of PSI/corporate controller) . Furthermore, as reflected in the declaration, the Finance Committee ensures that an incoming partner's subscription allocation, when aggregated with another holder of a "significant minority stake" will not brush aside the other minority shareholders. The BOD utilizes such mechanism of aggregation to specifically project and, thus, avoid any concentration of control in the two biggest holders of "significant minority stake." As illustrated from the foregoing, Respondents' non-disclosure of their loan/financing agreement, plan to acquire 50.1% of PSI shares, and arrangement to act together as regards various corporate decisions/governance has misled the BOD and stockholders to believe in the independence of Viva from the Fountel group. As a result, the BOD and stockholders approved PSI's increases in capital stock and allowed Respondents to increase their shareholdings, without any inkling that these supposedly owners of "significant minority stake" have planned from the outset to become and, eventually, became the majority owners. DHITCc The steady purchases of Respondents in PSI shares were undertaken through omission of material facts, which misled shareholders (this includes BOD) in voting for an investment decision which they probably would not have voted for if they knew of such omissions. These omissions were made in connection with the intent to acquire 35% or more of equity shares. For this reason, Rules 19.2.A, 19.3.A and 19.3.B should be considered in the assessment of Respondents' obligations. Consequently, Offerors' failure to disclose material information (which had the effect of misleading shareholders in their investment decisions) before acquisition of 35% or more of equity shares is a prohibited practice under SRC Rule 19.12. Correspondingly, administrative penalties in accordance with Sec. 54 46 of the SRC shall be imposed. Respondents' failure to state a material fact is an omission punishable by SRC Sec. 19.2. As may be observed from the foregoing, the violation of SRC Rule 19.12 has been evaluated on the basis of administrative definitions in the IRR, without meticulously delving into the criminal elements of fraud or deceit. To understand the reason for such determination, it would be beneficial to differentiate SRC Sec. 19.2 from Sec. 26. Sec. 19.2 of the SRC provides: 19.2. It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made , in the light of the circumstances under which they are made, not misleading , or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. The Commission shall, for the purposes of this subsection, define and prescribe means reasonably designed to prevent , such acts and practices as are fraudulent, deceptive, or manipulative . In this regard, the Commission defined fraudulent, deceptive or manipulative acts as follows: SRC Rule 19.12. Prohibited Practices It shall be fraudulent, deceptive or manipulative act or practice, in connection with any tender offer: A. To employ any device, scheme or artifice to defraud any person; B. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made , in light of the circumstances under which they were made, not misleading ; or C. To engage in any act, practice or course at business which operates or would operate as a fraud or deceit upon any person. The foregoing definition of fraudulent, deceptive or manipulative acts or practices in connection with Sec. 19 of the SRC can be paralleled with the anti-fraud provision of Sec. 26 of the SRC, which is hereto quoted for easier comparison: Sec. 26. Fraudulent Transactions. It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: 26.1. Employ any device, scheme or artifice to defraud; 26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or 26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person. It is to be noted that Sec. 19.2 of the SRC is patterned from Sec. 14 (e) of the United States (US) of America's Securities Exchange Act of 1934 (as amended by the Williams Act in 1968). On the other hand, Sec. 26 of the SRC is modelled from Rule 10b-5 issued by the American SEC to implement Sec. 10b of the 1934 Securities Exchange Act. Given the congruence of legal provisions in the US and the Philippines, jurisprudence and opinions in the former jurisdiction has been given considerable weight in the Philippines. In this regard, Mark J. Loewenstein, in his article entitled 'Section 14 (e) of the Williams Act and the Rule 10b-5 Comparisons,' 47 discussed as follows: CAacTH . . . (T)he language of section 14(e) and rule 10b-5 are similar. However, rule 10b-5 and section 14(e) do differ in language as well as congressional purpose and legislative history. These differences, therefore, may require a different interpretation and application of the two sections. 48 . . . (S)ection 14(e), in contrast to rule 10b-5, may not require the plaintiff to prove that the defendant acted with scienter or that the plaintiff relied on the defendant's misrepresentation or omissions in deciding on a course of action. 49 x x x. In enacting the Williams Act, Congress sought to increase the protection available to investors by bringing a measure of order to a complex and sometimes chaotic are of securities practice. 50 x x x. Although the legislative history of section 14(e) is not extensive, there is evidence that the first clause of section 14(e) was not intended as a scienter provision . For instance, in explaining section 14(e), the Senate Report of the bill said: Proposed subsection (e) would prohibit any misstatement or omission of material fact, or any fraudulent or manipulative acts or practices, in connection with any tender offer. . . . This provision would affirm the fact that persons engaged in making or proposing tender offers . . . are under an obligation to make full disclosure of material information to those with whom they deal. The Senate Report, like the language of section 14 (e) itself, separates the prohibition against misstatements and omissions from the prohibition against fraudulent or manipulative acts or practices, and gives no indication that the misstatements or omissions had to be made knowingly or with an intent to deceive, or with any other specific mental state. 51 x x x. The Williams Act is not simply another piece of antifraud legislation. Rather, the Act seeks to regulate tender offer contests by positive means: the accumulation of more than five percent of a class of registered securities must be disclosed . x x x. By prohibiting material misstatements and omissions, section 14(e) serves as more than an antifraud provision; it gives meaning to the disclosure provisions in the same way that a prohibition against material misstatements and omissions in section 11(a) of the Securities Act gives meaning to the disclosure requirements of Section 7. Like the disclosure provisions of the Securities Act, the disclosure provisions of the Williams Act are intended to do more than merely prohibit fraud. 52 If anything, the legislative history indicates that the Williams Act should be construed with reference to the proxy rules. Several statements made during the hearings support this view, as do statements made by Senator Williams, the Act's principal sponsor, on the floor of the Senate during debates on the Act. For example, Senator Williams stated: "What this bill would do is to provide the same kind of disclosure requirements which now exist, for example, in contests through proxies for controlling ownership in a company. . . . This legislation is patterned on the present law and the regulations which govern proxy contest. Moreover, reference to the proxy rules is logical as proxy contest are, of course, another means by which one might gain control of a company. 53 x x x. The leading case discussing whether scienter is a necessary element is a private damage action based on rule 14a-9 is Gerstle v. Gamble-Skogmo, Inc. , . . . The court concluded that scienter was not required under rule 14a-9, noting as support several differences between 14(a), on the one hand, and section 10(b) and rule 10b-5, on the other hand differences that are equally applicable to a comparison of section 14(e) and rule 10b-5. For instance, the Gerstle court first concluded that the statutory language of section 14(a), unlike that of section 10(b) does not emphasize the prohibition of fraudulent but rather indicates a congressional concern with " protection of the outsider whose proxy is being solicited." Similarly, at least with respect to material misstatements and omissions, section 14(e) is not concerned with fraudulent conduct, but with protecting shareholders confronted with a tender offer. cEaSHC In a nutshell, the above article, along with its supporting jurisprudence, categorizes violations of the US Sec. 14 (e) into two classifications, to wit: 1. To make any of untrue statement of a material fact OR omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; OR 2. To engage in any fraudulent, deceptive, or manipulative acts or practices. The first category (misstatement/omission of a material fact) is one that is prohibited under the law as a safeguard for stockholders; while the second category (fraudulent, deceptive or manipulative acts) is prohibited as the same is not merely unlawful, but actually morally wrong. Given the identical language of the US Sec. 14 (e) and the Philippine Sec. 19.2, it would be easy to deduce that the violations under SRC Sec. 19.2 also fall under two categories. This categorization is in fact supported by the Philippine legislative intent, as discussed by the Court in Cemco Holdings, Inc. vs. National Life Insurance Company of the Philippines, Inc. , 54 to wit: The legislative intent of Section 19 of the Code is to regulate activities relating to acquisition of control of the listed company and for the purposes of protecting the minority stockholders of a listed corporation. Whatever may be the method by which control of a public company is obtained, either through the direct purchase of its stocks or through an indirect means, mandatory tender otter applies. As appropriately held by the Court of Appeals: The petitioner posits that what it acquired were stocks of UCHC and not UCC. By happenstance, as a result of the transaction, it became an indirect owner of UCC. We are constrained, however, to construe ownership acquisition to mean both direct and indirect. What is decisive is the determination of the power of control. The legislative intent behind the tender offer rule makes clear that the type of activity intended to be regulated is the acquisition of control the listed company through the purchase of shares. Control may [be] effected through a direct and indirect acquisition of stock, and when this takes place, irrespective of the means, a tender offer must occur. The bottom line of the law is to give the shareholder of the listed company the opportunity to decide whether or not to sell in connection with a transfer of control. In view of the foregoing, it may be argued that Sec. 19.2 is both a malum prohibitum and an anti-fraud provision that may be penalized under SRC Sec. 73. It should be understood, however, that violation of Sec. 19.2 is also categorized as an administrative action under Sec. 54 55 of the Code. In such regard, any administrative action brought under Sec. 19.2 may also fall under two categories: 1. To make any untrue statement of a material fact OR omit to state any material fact necessary in order to make the statements made , in light of the circumstances under which they are made, not misleading ; OR 2. To engage in any fraudulent, deceptive, or manipulative acts or practices, which is defined under SRC Rule 19.12, as follows: a. To employ any device, scheme or artifice to defraud any person; IAETDc b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made , in light of the circumstances under which they were made, not misleading ; or c. To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. A perusal of the above list, would lead one to the observation that items 1 and 2.b are worded in exactly the same manner. However, if the previous discussion is applied, Item 1 would entail a violation that does not require scienter, reliance or even loss, since the law prohibits the omission as a protection for the stockholder. On the other hand, item 2.b would require reliance upon the omission in order to conclude a finding of violation. Additionally, it would be observed that item 2.b, compared to 2.a and 2.c, does not require fraud nor deceit. Nonetheless , 2.b is defined as fraudulent and deceptive, by law and the rules, due to the reliance on the statement or omission which is misleading. This explains why the criminal elements of fraud or deceit are not given much emphasis. In this case, reliance was substantially proven from the affidavits presented by the stockholders. Thus, a violation of SRC Rule 19.12 was earlier declared. WHEREFORE , in view of the above-stated facts and circumstances, SHP finds the Respondents to have violated the following provisions of the SRC and the Amended IRR, and are hereby penalized as follows: For Violation of Section 18 of the SRC (Reports filed by 5% Holders of Equity Securities) Viva Healthcare Limited One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from August 1, 2013 56 up to the time that SEC Form 1B-A is filed 57 Viva Holdings (Philippines) Pte. Ltd. One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from August 1, 2013 up to the time that SEC Form 18-A is filed Felicitas Antoinette, Inc. One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from August 1, 2013 up to the time that SEC Form 18-A is filed For Violation of Rule 19.2.A, in relation to Rule 19.3.A and 19.3.B, of the Amended IRR (Failure to Disclose Intent to Acquire 35% or more of Equity Shares) Viva Holdings (Philippines) Pte. Ltd. One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day continuing violation computed from July 31, 2013 58 up to May 15, 2018 59 Fountel Corporation One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from July 31, 2013 up to May 15, 2018 Felicitas Antoinette, Inc. One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from July 31, 2013 up to May 15, 2018 For Violation of Rule 19.12 of the Amended IRR (Omission to State Material Facts, like Respondents' Loan Agreement and Agreement to Act in Concert) Viva Holdings (Philippines) Pte. Ltd. One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from July 31, 2013 60 up to May 15, 2018 61 Fountel Corporation One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from July 31, 2013 up to May 15, 2018 Felicitas Antoinette, Inc. One Million (P1,000,000.00) Pesos plus Two Thousand Pesos (P2,000.00) for each day of continuing violation computed from July 31, 2013 up to May 15, 2018 SO ORDERED. Issued this 22nd day of November 2019, in the City of Pasay, Philippines. (Please See Concurring and Dissenting Opinion) (SGD.) ERWIN EDWARD P. MENDINUETO Head, PSI Special Hearing Panel (SGD.) ALMA JEAN GANAYO L. ROUX Member (Please see Concurring and Dissenting Opinion) (SGD.) ERETZISREL B. VALLE Member CONCURRING AND DISSENTING OPINION Atty. Erwin Edward P. Mendinueto The respondents were formally charged for violations of Sections 18, 19.2 (Rule 19.2 A of the Amended IRR) and 26 of the SRC, I concur with the Resolution insofar as (1.) the Commission has jurisdiction over Laws and Rules & Regulations it seeks to implement; and (2.) that the respondents violated Section 18 of the SRC. It must be stated at the outset that it is the law that confers jurisdiction. 1 Any judgment rendered without jurisdiction is a total nullity and may be struck down at any time, oven on appeal; the only exception is when the party raising the issue is barred by estoppel. 2 CTIEac By way of background, Section 5 of Presidential Decree No. 902-A (PD 902-A) enumerates the cases under the exclusive and original jurisdiction of the Securities and Exchange Commission: Section 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it as expressly granted under existing law and decrees, it shall have original exclusive jurisdiction to hear and decide cases involving. (a) Devices or schemes employed by or any act of the board of directors, business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or the stockholders, partners, members of the associations or organizations registered with the Commission; (b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist a such entity; (c) Controversies in the election or appointment of directors, trustees, officers or manages of such corporations, partnership or associations. Relevant to the present case is Section 5 (a) of PD 902-A which state that devises or schemes employed by or any act, of the board of directors , business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or the stockholders , partners, members of associations or organizations registered with the Commission. On July 19, 2000, Republic Act No. 8799 ("Securities Regulation Code" or "SRC") was signed into law. Among the significant changes brought about by the Securities Regulation Code was the transfer of jurisdiction over all cases enumerated under Section 5 of PD 902-A to the Courts of general jurisdiction or the appropriate Regional Trial Court ("RTC"): SECURITIES REGULATION CODE 5.2 The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or appropriate Regional Trial Courts ; Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases as of 30 June until finally disposed. Notwithstanding the above explicit pronouncement of the SRC to transfer jurisdiction over all cases enumerated under Section 5 of PD 902-A to the RTC, Section 5 (f) of the SRC also categorically grants the Commission the power to impose sanctions for the violations of the laws and the rules, regulations and orders it seeks to implement . Consequently, with the power to impose sanctions, it is only logical to conclude that the Commission has the power to hear cases relative to laws, rules, regulations and orders it seeks implement. DcHSEa To emphasize, Section 5 (a) of PD 902-A states that devises or schemes employed by or any act, of the board of directors , business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or the stockholders, partners, members of associations or organizations registered with the Commission is now under the jurisdiction of the RTC . On the other hand, Rule 19.12 of the Amended IRR and Section 26 of the Securities Regulation Code also speak of Fraud in connection with Tender Offer and Fraudulent Transaction respectively, which is under the jurisdiction of the Commission. With the seemingly overlapping jurisdiction of the RTC and SEC in the present case, it is necessary to determine if the alleged fraud in the present case falls within the purview of Section 26 ( Fraudulent Transaction ) of the SRC or Rule 19.12 ( Fraud in connection with Tender Offer ) of the Amended IRR; otherwise, the same would fall under Section 5 (a) of PD 902-A ( Devises or Schemes Employed by the Board of Directors, or Its Officers Amounting to Fraud and Misrepresentation Detrimental to the Interest of the Stockholders ). INTRA-CORPORATE DISPUTE Before proceeding any further, it would be important to note the Consolidated Resolution 3 of the Supreme Court which resolved that jurisdiction over a complaint of diminution of a stockholder's shareholdings and consequently, control in the corporation, falls within the jurisdiction of the RTC. The factual antecedents of the case are as follows: On November 18, 1997, the LLDC Board of Directors issued a Resolution authorizing the issuance of the company's 600,000 unsubscribed and unissued shares of stock at par value. Paterno Lu YM, Sr. (Paterno, Sr.) and his children, Paterno, Jr., Victor, John, and Kelly, all surnamed Lu YM (collectively, Lu YM father and sons), availed of this issuance, thus increasing their shareholdings in the company. One of the directors of LLDC, David Lu, opposed the board's action since it led to a substantial increase in Lu YM father and sons' stockholding and drastic decrease in this and the other stockholders' shares in the company. Accordingly, on August 14, 2000, David and three other plaintiffs (Rosa Go, Silvano Lu Do, and CL Corporation; collectively David, et al.) instituted a complaint with the Regional Trial Court of Cebu City for the declaration of nullity of the share issue, receivership, and dissolution of LLDC. The case was raffled to Branch 5 of the Cebu City Regional Trial Court (RTC) and docketed as CED-22502. SaCIDT Given the above factual antecedents the Supreme Court resolved the cases, as follows: Accordingly, LLDC and the minority stockholders whose shares were diluted, David included, have a cause of action separate and distinct from each other. David has a substantial interest in the validity of the subscription and the amount for which the same was issued since he stands to suffer a direct personal injury by reason thereof, i.e. , diminution of his shareholdings and consequently, control in the corporation . The decrease in his voting power will expectedly result in the loss of his control in the corporate affairs at LLDC. Needless to state, David was well within his right as a stockholder to challenge Lu YM father and sons' actions that adversely affected his personal interest in the corporation, such cause of action being anchored on Sec. 1(a (2) of the Interim Rules . The jurisdiction of the RTC having been settled , We now proceed to determine the correctness of the CA's judgment, and whether remand to trial court is warranted. (emphasis supplied) Bearing in mind the facts of the foregoing case, the following are the undisputed facts in the present case: (i.) that Complainants and Respondents are all stockholders of PSI , and (ii.) that the Complainants' shareholding in PSI were diluted . With the foregoing facts, we proceed to determine whether there was a violation of the SRC and its Rules & Regulations, in particular, Sec. 26 of the SRC or Rule 19.12 of the Amended IRR. IN CONNECTION WITH THE PURCHASE OR SALE OF SECURITIES Sec. 26 is the general fraud provision of the Securities Regulation Code. It is interesting to note that the said provision was patterned from Rule 10b-5 (Employment of Manipulative and Deceptive Practices) of the Securities Exchange Act of 1934. To compare Section 26 of the SRC with Rule 10b-5: Securities Regulation Code Rule 10b-5 Securities Exchange Act of 1934 "Section 26. Fraudulent Transactions. It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any security to: 26.1. Employ any device, scheme, or artifice to defraud; 26.2. Obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or 26.3. Engaged in any act, transaction, practice or course of business which operate or would operate as a fraud." "Rule 10b-5. Employment of Manipulative and Deceptive Practices It shall be unlawful for any person, directly or indirectly, by use of any means or instrumentality of interstate commerce, or of the mails or any facility of any national securities exchange, (a) To employ any devices, scheme, or artifice to defraud; (b) To make any untrue statement or a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or (c) To engage in any act 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 security." Based on the afore-cited provision of the SRC, the following elements should be present in order to hold Respondents liable under Section 26 of the SRC (Rule 10b-5), to wit: (i) Fraud or Deception; (ii) By any person; (iii) In connection with ; (iv) The purchase or sale of ; (v) Securities. Relevant to the element of "in connection with" is the decision of the US Court of Appeals in the case of Chemical Bank vs. Arthur Andersen 726 F. 2d 930 4 (decided January 20, 1984) wherein it answered the question " whether misrepresentation or omissions involved in a securities transaction but not pertaining to the securities themselves ." The court in said case held "We are compelled to decide the question, with respect to Sec. 10 (b) and Rule 10b-5 as well as Sec. 17 (a), our answer in the negative ." The court further stated that the Act and Rule impose liability for a proscribed act in connection with the purchase or sale of securities; it is not sufficient to alleged that a defendant has committed a proscribed act in a transaction of which the pledge of a security is a part . Otherwise stated, not all fraud involving security is securities fraud. To illustrate: Mr. A (by virtue of a Special Power of Attorney) is the attorney-in-fact of Mr. B, a registered owner of shares of stock in XYZ Corp. (Public Company or Publicly Listed Company); Mr. C fraudulently represented to Mr. A that Mr. B agreed to sell to him the shares of stock in XYZ Corp. On the basis of Mr. C's representation, Mr. A executed a Deed of Assignment transferring ownership of the subject shares of stock in XYZ Corp. In the above illustration, the fraud was not in the security itself. Thus, to hold that the above illustration as securities fraud (but in fact a simple case estafa under Art. 315 3 (a) 5 of the Revised Penal Code) would flood the Commission with various uses involving securities. Furthermore, with regard to the element " purchase or sale ," the US Supreme Court in the case of Blue Chip Stamps vs. Manor Drug Stores , 421 U.S. 723 (1975) held that action under Rule 10b-5 is confined to actual purchasers or seller of securities. In the present case, complainants never claimed that they are the sellers of the subject securities. Well settled is the principle in corporate law that a corporation is a legal or juridicial person with a personality separate and apart from its individual stockholders. The stockholders or members who, as natural persons, are merged in the corporate body, compose the corporation but they are not the corporation . 6 (emphasis supplied) In view of the foregoing, I find that the complaint does not fall within the purview of Section 26 of the SRC considering that the elements of "in connection with" and "purchase or sale" are not present. cHECAS FRAUD IN CONNECTION WITH TENDER OFFER The Respondents were found to have violated two (2) provisions of the Amended IRR: (i.) Rule 19.12; and (ii.) Rule 19.2. (i.) Respondents were found to have violated Rule 19.12 of the Amended IRR , as follows: " Such deliberate non-disclosure of the intention to acquire majority shares coupled with the failure to disclose the CSA directly to the Issuer is a prohibited practice under SRC Rule 19.12 of the Amended IRR , to wit: SRC Rule 19.12. Prohibited Practices It shall be fraudulent, deceptive or manipulative act or practice in connection with any tender offer : a . To employ any device scheme or artifice to defraud any person; b . To make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made , in light of the circumstances under which they were made, not misleading; or c. To engage in any act , practices or course of business which operates or would operate as a fraud or deceit upon any person ." (emphasis supplied) It can be inferred from reading the above-quoted rule that not all fraudulent, deceptive or manipulative act or practice or the omission to state a material fact is a violation of Rule 19.12 of the Amended IRR. The subject provision of the Amended IRR plainly stated that the prohibited acts should be in connection with any tender offer . As such, it is important to understand the technical definition of "Tender Offer" and the manner of "announcing an intention" to establish that the fraudulent act is "connection with tender offer." The Amended IRR defines a tender offer as a public announced intention by a person acting alone or in concert with other persons to acquire equity securities of a public company . 7 With the said definition, Rule 19.12 of the Amended IRR could be worded as follows: SRC Rule 19.12. Prohibited Practices It shall be fraudulent, deceptive or manipulative act or practice in connection with any public announced intention to . . . acquire equity securities of a public company . On the other hand, Rule 19.5 of the Amended IRR also defines the manner of making a public announcement of intention, to wit: 5. Any person making a tender offer shall make an announcement of his intention in a newspaper of general circulation , prior to the commencement of the offer; Provided, however, that such announcement shall not be made until the bidder has the resources to implement the offer in full. A copy of said notice shall be submitted to the Commission on the date of publication thereof. (emphasis supplied) It can be surmised from the above-cited provisions of the Amended IRR that the fraud should be in connection with the public announcement, in a newspaper of general circulation, of the intention to acquire equity securities of a public company . In the present case, there was no Tender Offer yet at the time of the alleged fraud was committed. The foregoing argument finds support in the decisions of the United States courts in interpreting Section 14 (e) of the Williams Act where Rule 19.12 of the Amended IRR was patterned. As cited in Washington and Lee Review, Prohibited Tender Offer Practices, Volume 37, Issue 3, 949-950 Hundahl vs. United Benefit Life Insurance Co. and Lewis v. Mc-Graw-Hill upheld the standing of non-tendering shareholders to bring a private cause of action under section 14(e). The defendants in each case then argued that the plaintiff-shareholders did not rely on a material omission or misrepresentation because the plaintiffs did not tender their shares. The alleged fraudulent conduct could not be the cause of any injury because the plaintiffs did not tender their shares and thus were not fraudulently deprived at value of their investment. aTHCSE The Hundahl court stated that the purpose of the Williams Act is to insure full disclosure of all information to shareholders who must decide whether to accept a tender offer. Thus, according to the court, the Williams Act protects shareholders who are mislead by material omissions or misrepresentations in the course of a tender offer . (emphasis supplied) In view of the foregoing, I find that the complaint does not fall within the purview of Rule 19.12 of the Amended IRR as the alleged fraud is not in connection with tender offer. (ii.) Respondents were also found to have violated Rule 19.2 A of the Amended IRR , which provides: 19.2 A. Any person or group of persons acting in concert, who intends to acquire thirty-five percent (35%) or more of equity shares of a public company shall disclose such intention and contemporaneously make a tender offer for the percentage sought to all holders of such class, subject to paragraph (9) (E) of this Rule. It is a well settled rule in statutory construction that a statute is passed as a whole and not in parts or sections and is animated by one general purpose and intention. Consequently, each part or section should be construed in connection with every other part and section as to produce a harmonious whole. 8 Indeed, an isolated reading of the above rule would lead to the conclusion that an intention to acquire 35% or more of equity shares of a public company requires the disclosure of such intention and contemporaneously conduct a tender offer. However, it should be noted that the above-cited rule is not absolute, Rule 19.3 of the Amended IRR provides for the exemption from mandatory tender offer: 3. Exempt from Mandatory Tender Offer Requirement A. The mandatory tender offer requirement shall not apply to the following: i. any purchase of shares from the unissued capital stock provided that the acquisition will not result to a fifty percent (50%) or more ownership of shares by the purchaser; ii. any purchase from the increase in authorized capital stock ; iii. purchase in connection with foreclosure proceedings involving a duly constituted pledge or security arrangement where the acquisition is made by the debtor or creditor; iv. purchases in connection with privatization undertaken by the government of the Philippines; v. purchases in connection with corporate rehabilitation under court supervision; vi. purchases through an open market at the prevailing market price; vii. merger or consolidation. (emphasis supplied) Furthermore, it can be said that the rule on exemption from the mandatory tender offer rule is akin to laws granting tax exemption. Jurisprudence on the matter states that tax exemptions are not favored in law, and are construed strictissimi juris against the taxpayer. However, it is equally recognized principle that where the provision of the law is clear and unambiguous, so that there is no occasion for the courts seeking the legislative intent, the law must be taken as it is, devoid of judicial addition or subtraction . 9 Notwithstanding the language of Rule 19.3 A ii, which plainly states that any purchase from the increase in authorized capital stock is exempt from Mandatory Tender Offer, Rule 19.3 B of the Amended IRR mandates the purchasers to comply is the obligation under SRC Rule 18.1 and SRC Rule 23, viz. : AHDacC B. Purchasers of shares in the foregoing transactions shall, however, comply with the disclosure and other obligations under SRC Rule 18.1 and SRC Rule 23. The above-cited rule requires compliance with SRC Rule 18.1 and SRC Rule 23. Records of the case would show that Respondents did not totally disregard their disclosure obligation. Respondents failed to comply with SRC Rule 18.1. However, with regard to SRC Rule 23, Respondents filed their respective SRC Form 23 and attached therein the Cooperation and Shareholders Agreement. Respondents may have been remiss with their disclosure obligation. Be that as it may, Respondents are not the only ones with the obligation to disclose the planned acquisition of majority shares of PSI. In fact, prior to the initial subscription of Respondents, transcript from the Executive Committee meeting of PSI, held on April 23, 2013, revealed that other Directors and Officers of PSI were fully apprised by Mr. Gonzales and representatives of Fortman Cline Capital Market of the planned acquisition of majority shares of PSI together with the funding plan for PSI's long term objective of becoming a global player and short term objective of financing the Guam project. As a background, the aforementioned Executive Committee is an entity created pursuant to Sec. 1, Article IV of PSI's By-laws. It is composed of five (5) members, at least three (3) of whom are members of the Board to be appointed by the Board, the rest shall be senior officers of the Corporation . 10 The members of the Executive Committee present during the April 23, 2013 meeting are as follows: Augusto P. Sarmiento, M.D. Manolito S. Soller-Assistant Corp. Sec. Alfredo R. A. Bengzon, M.D. Gary Cheng (Fortman Cline Capital Market) Jose Xavier B. Gonzales Caroline Chu (Fortman Cline Capital Market) Eugenio F. Ramos, M.D. Virgina B. Alano Benita J. Macalagay Interesting to note that, despite having information about the planned acquisition of majority shares of PSI disclosed during the April 23, 2013 Executive Committee meeting, the Board of Directors of PSI convened on July 31, 2013 and passed a resolution, to wit: Board Resolution, Series of 2013 RESOLVED , that the shares of stock to be issued out of the Unissued Shares Capital Stock composed of 125,827 common shares, out of the Increase in Capital Stock by 400,000 common shares with par value of P100.00 per share (First Capital Increase), and out of the Increase in Capital Stock by another 500,000 common shares also with a par value of P100.00 per share (Second Capital Increase), all with an issue value of Five Thousand Pesos (P5,000.00) per share, be as it is hereby, approved to be allotted and issued as follows: cAaDHT a. Out of the Unissued Commons Shares: i. Ninety One Thousand Three Hundred Sixty Three (91,363) Common Shares to Viva Holdings (Philippines) Pte., Ltd., ii. Twenty Nine Thousand Four Hundred Sixty Four (29,464) Common Shares to Insular Life Assurance Co., Ltd. and iii. Five Thousand (5,000) Common Shares to various doctors or individuals at the discretion of the Management. b. Out of the First Capital Increase i. One Hundred Ninety Six Thousand Fifty Four (196,054) Common Shares to Viva Holdings (Philippines) Pte. Ltd. and ii. Two Hundred Three Thousand Nine Hundred Forty Six (203,946) Common Shares to Felicitas Antoinette, Inc. c. Out of the Second Capital Increase i. One Hundred Fourteen Thousand Three Hundred Sixty Nine (114,369) Common Shares to Viva Holdings (Philippines) Pte. Ltd. ii. One Hundred Fourteen Thousand Seven Hundred Sixty Seven (114,767) Common Shares to Felicitas Antoinette, Inc. iii. Twenty Nine Thousand Four Hundred Sixty Four (29,464) Common Shares to Insular Life Assurance Co. Ltd. iv. One Hundred Seventy Seven Thousand Three Hundred Fifty Nine (177,359) Common Shares to LA III Medical City Cooperatief U.A. v. Twelve Thousand Five Hundred (12,500) Common Shares to Religious of the Virgin Mary, and vi. Fifty One Thousand Five Hundred Forty One (51,541) Common Shares to various doctors, individuals, and institutions at the discretion of the Management. RESOLVED FURTHER, that the President and CEO, Dr. Alfredo R. A. Bengzon, MBA and/or the Senior Vice-President, Mrs. Benita J. Macalagay, be, as they are hereby authorized to deal and negotiate with the subscribers of the said shares issuances under such terms and conditions they deem appropriate in order to comply with the requirements of applicable laws and to sustain the ongoing local and overseas expansion projects of the Corporation. The directors of a corporation are its agents. 11 The ordinary trust relationship of directors of a corporation and stockholders is not a matter of statutory or technical law. It springs from the fact that directors have the control and guidance of corporate affairs and property and, hence, of the property interest of the stockholders. Equity recognizes that stockholders are the proprietors of the corporate interest and are ultimately the only beneficiary thereof. (Gokongwei, Jr. vs. Securities and Exchange Commission, 89 SCRA 336 [179], citing Ashaman vs. Miller, 101 Fed 2nd 85.) 12 IDSEAH In addition to the above-cited jurisprudence recognizing the trust relationship between directors and stockholders, Section 31 of the Corporation Code underscores the liability of directors to the stockholders: Sec. 31. Liability of directors, trustees, or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustee shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, is stockholders or members and other persons. To recall, devises or schemes employed by or any act, of the board of directors , business associates, its officers or partners, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or the stockholders, partners, members of associations or organizations registered with the Commission is under the jurisdiction of the RTC . Wherefore, in view of the foregoing, I find that (i.) the complaint does not fall within the purview of Section 26 (Fraudulent Transaction) of the SRC or Rule 19.12 (Fraud in connection with Tender Offer) , (ii.) no pronouncement as to fraud as the complaint falls under Section 51 (a) of PD 902-A which is within the jurisdiction of the RTC. CONCURRING AND DISSENTING OPINION Based on the parties' respective submissions and allegations, the issues that needed to be resolved by the SHP are as follows: I. Whether the case is an intra-corporate dispute leaving the Commission without jurisdiction; II. Whether the Respondents violated Section 18 of the SRC and its corresponding provisions in the SRC IRR when it failed to file their respective SEC Form 18-A with the Commission; III. Whether the Respondents violated Rule 19.2.A of the 2003 SRC IRR when they failed, through a series of acquisitions, to conduct MTO over the shares of PSI, despite the terms of the CSA and the requirements for MTO in the 2003 SRC IRR; and IV. Whether the Respondents violated Rule 19.12 of the 2003 SRC IRR; and V. Whether the Respondents violated Section 26 of the SRC. I agree and form part of the majority on issues I, II, III and IV. However, I respectfully submit my dissent in the majority's failure to find the respondents liable under Section 26 of the SRC. Viva Healthcare, Viva Holdings, Fountel and FAI fraudulent acts prohibited under Section 26 of the SRC Section 26 of the SRC is a general anti-fraud provision applicable to securities transactions. It is a basic enforcement tool to protect investors. Section 26 of the SRC provides: HCaDIS Section 26. Fraudulent Transactions. It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale of any securities to: 26.1. Employ any device, scheme, or artifice to defraud; 26.2. Obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or 26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person. The spirit of Section 26 of the SRC was modelled after Rule 10b-5 of the Securities Exchange Act of 1934 of the United States ("1934 Act") 1934 Act which reads: 240.10b-5. Employment of manipulative and deceptive devices. It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, 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 security. There are five principal requirements of a fraud action under Rule 10b-5 of the 1934 Act, the statute upon which Section 26 of the SRC is based, viz. : There are five principal elements for stating a claim under Rule 10b-5. The plaintiff must show: (1) fraud or deceit (2) by any person (3) in connection with (4) the purchase or sale (5) of any security. 1 In contrast, in a typical Section 10 (b) private action, a plaintiff must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. 2 Based on the foregoing, contrary to the majority opinion, an administrative finding of a violation of Section 26 of the SRC does not in any way require damage to the issuer or to any person. It is sufficient that a device, scheme or artifice to defraud was employed in connection with the purchase or sale of any securities . Proof of damage is only mandatory in private actions filed with civil courts. The elements of Rule 10b-5 of the 1934 Act, as well as Section 26 of the SRC, are present in this case. The Respondents employed deceit upon PSI's directors and shareholders when they deliberately concealed the existence and contents of the CSA, Loan Agreement and Share Pledge Agreements. Through the CSA, the Respondents devised means by which they could ensure their collective acquisition of majority of PSI's shares. In the case of the Respondents, pursuant to Sections 18 and 19 of the SRC, they had the duty to fully disclose the extent of their relationships and the existence of the Co-operation and Shareholders Agreement ("CSA"), along with the Loan Agreement and Share Pledge Agreements. Despite this duty, the Respondents failed to sufficiently substantiate their claim that the CSA, Loan Agreement and Share Pledge Agreements were fully disclosed to Professional Services, Inc. ("PSl") Board and stockholders. To the contrary, it was shown that the CSA, along with the Loan Agreement and the Share Pledge Agreement, were concealed from the PSI Board and stockholders. In fact, the SHP already made a finding of fact that there was a violation of Section 19.12 which refers to the employment of deceptive and manipulative acts. The Respondents deceptive and manipulative acts is the fraud employed in the sale or purchase of security. Respondents' failure to disclose facts as to the contents and existence of the CSA, Loan Agreement and Share Pledge Agreements in good faith, when there is a duty to reveal them since the parties are bound by fiduciary relations, constitutes fraud. 3 In fact, the SHP held in its Formal Charge against the Respondents that the latter engaged in fraudulent and deceitful practice whereby they entered into a funding scheme that was concealed from the PSI Board of Directors and stockholders. Through such concealment, Respondents misrepresented their independence from each other to effectively subscribe to substantial, and eventually majority shares in PSI, to the prejudice of unsuspecting stockholders whose share value and voting power declined. 4 The SHP itself found that the Respondents: (a) adroitly circumvented the IRR in order to avoid the requirements of MTO; (b) Respondents employed deceptive and manipulative acts in order to avoid the requirement of MTO. Even assuming that damage is required to make an administrative finding against the Respondents, there is sufficient showing that minority stockholders of PSI were blindsided by the Respondent's surreptitious schemes and were denied their appraisal right, a property right, after voting for successive increases in capital stock. Having relied on the representations of the Respondents of their independence from one another, the minority shareholders forfeited their right to demand the value of their shares. More importantly, the minority shareholders of PSI lost their collective right to be able to have a representative voice in the control and management of PSI because of their diminished voting power. PSI is a public corporation with hundreds of individual stockholders. The fraudulent scheme employed by the Respondents to trick the corporation to issue shares in Respondents' favor in order for them to gain control and the majority caused damage to the hundreds of stockholders representing the public. aCIHcD In fact, the charge sheet issued by the SHP specifically included violation of Section 26 plainly because a preliminary finding was already made that the elements for such violation exist. If the SHP truly believed that damage is a requirement or that the issuer or buyer is required to file a complaint, the charge sheet should have already excluded any accusation of violation of Section 26. The SHP is empowered to make an administrative finding of a violation of Section 26 of the SRC pursuant to Section 54 of the SRC. Section 54 of the SRC provides that if, after due notice and hearing, the Commission finds that there is a violation of the SRC, it shall, in its discretion, impose any or all of the following sanctions prescribed, as may be appropriate in light of the facts and circumstances. The imposition of the administrative sanctions shall be without prejudice to the filing of criminal charges against the individuals responsible for the violation. In the case of Roman, Jr. v. Securities and Exchange Commission , 5 the Supreme Court upheld the authority of the SEC to assume jurisdiction over matters concerning its supervisory, administrative and regulatory functions. The Supreme Court held that the SEC was never dispossessed of the power to assume jurisdiction over complaints, even if these are riddled with intra-corporate allegations, if their invocation of authority is confined only to the extent of ensuring compliance with the law and the rules, as well as to impose fines and penalties for violation thereof; and to investigate even motu proprio whether corporations comply with the Corporation Code, the SRC and the implementing rules and regulations. It is a grave error for the SHP to suddenly require that the complaint be filed by the issuer or the buyer. In Republic v. Megapacific eSolutions, Inc. , the Supreme Court held that fraud includes willful omission calculated to deceive and concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed resulting in damage to or in undue advantage over another: Fraud may be characterized as the voluntary execution of a wrongful act or a willfull omission, while knowing and intending the effects that naturally and necessarily arise from that act or omission . In its general sense, fraud is deemed to comprise anything calculated to deceive including all acts and omission and concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed resulting in damage to or in undue advantage over another . Fraud is also described as embracing all multifarious means that human ingenuity can device, and is resorted to for the purpose of securing an advantage over another by false suggestions or by suppression of truth; and it includes all surprise, trick, cunning, dissembling, and any other unfair way by which another is cheated. 6 (Emphasis and underscoring supplied.) There is a clear duty on the part of the Respondents to fully disclose the extent of their relationships and the existence of the CSA, along with the Loan Agreement and Share Pledge Agreements. This duty is expressed in Sections 18 and 19 of the SRC. Mr. Gonzales also had the fiduciary duty to disclose. Despite this duty to disclose, the Respondents failed to sufficiently substantiate their claim that the CSA, Loan Agreement and Share Pledge Agreements were fully disclosed to PSI Board and stockholders. To the contrary, it was shown that the CSA, along with the Loan Agreement and the Share Pledge Agreement, were concealed from the PSI Board and stockholders. Several PSI officers and shareholders testified and corroborated the concealment that occurred. Instead, Fountel and FAI submitted that there was disclosure through several e-mail correspondences "between certain directors, officers, and shareholders of PSI preceding the execution of the CSA." 7 AHCETa The CSA itself belies Fountel and FAI's claims. The Respondents actually undertook to each other that "its officers, employees, advisers and agents shall keep confidential" "any of the confidential information of the other Parties" which include "the existence and contents of [the] Agreement and any other agreement or arrangement contemplated by [the] Agreement." In short, the Respondents contractually bound themselves to keep confidential not only the contents, but also the existence of the CSA, the Loan Agreement and the Share Pledge Agreements (and any other agreements or arrangements contemplated in the CSA). In any case, a review of these e-mail correspondences reflects that the same do not prove that the CSA, along with the Loan Agreement and the Share Pledge Agreement, was fully disclosed to the PSI Board or the stockholders. It appears that, aside from Mr. Gonzales, none of the members of PSI's Board of Directors was copied in the emails. Only Atty. Soller, then an Assistant Corporate Secretary and external counsel of PSI and Mrs. Macalagay, then Chief Financial Officer, neither of whom were members of the Board, were copied in some of the emails. Even then, the e-mails where Atty. Soller and Ms. Macalagay were only copied did not have the CSA attached thereto. Moreover, the series of the e-mails show that Atty. Soller and Mrs. Macalagay were not copied in the e-mails where the Viva Holdings, Fountel and FAI were discussing the CSA. In an e-mail dated 15 July 2013 where the latest drafts of the CSA, the Loan Agreement and the Share Pledge Agreements were attached, it was even expressly stated therein that they have not copied Atty. Soller. 8 Similarly, none of the emails show that Atty. Soller or Mrs. Macalagay were provided with the full and complete executed version of the CSA. On 1 August 2013, Atty. Soller and Mrs. Macalagay were copied in an email where only the cover page and execution page of the CSA were attached. 9 Neither of them, therefore, were actually apprised of the contents thereof. Drafts are no means the actual contracts. The duty to disclose the contents belonged to Mr. Gonzales, as a Director and Treasurer of PSI, Mr. Robinson and Mr. Fabiani who are likewise PSI Directors. Upon their election as members of the PSI Board, they were bound to act in a fiduciary relation with respect to PSI's stockholders and to act with the utmost good faith. A director cannot secretly bring about conditions by which he himself will receive large benefits at the expense of the stockholders. If he does, he is liable to respond to them for whatever injury his secret and fraudulent acts have done them. It is not contended that the directors of a corporation are liable to the stockholders when they exercise ordinary care, skill, and diligence in the management of the affairs of the corporation and loss occurs. They are not liable for errors of judgment and mistakes of fact or law when they act in good faith and with proper carte. They are liable, however, when by their secret connivance or by fraudulent conduct they have made great profits at the expense of the stockholders. 10 Mr. Gonzales, Mr. Robinson and Mr. Fabiani's failure to disclose facts as to the contents and existence of the CSA, Loan Agreement and Share Pledge Agreements in good faith, when there is a duty to reveal them since the parties are bound by fiduciary relations, constitutes fraud. 11 In any case, even assuming arguendo that Atty. Soller or Ms. Macalagay were made aware of the CSA or the Loan Agreement, their knowledge does not amount to knowledge of the Board since neither are members of the Board. Neither does it dispense of Viva Holdings, Fountel, and FAI's duty to disclose directly to PSI under Sections 18 and 19 of the SRC. Respondents failed to produce proof through the minutes of Board meetings that would show that there was any disclosure of the CSA or the Loan Agreement. cHaCAS Noteworthy is the fact that, even the Honorable OCP of Makati City in the Perjury Complaint filed against Dr. Bengzon held in its 18 February 2019 Resolution that no evidence was submitted to refute Dr. Bengzon's claim that the CSA was not disclosed to him, the Board of Directors and the shareholders prior to August 1, 2013: "There is no evidence submitted to refute Bengzon's claim that the Cooperation Agreement was not disclosed to him, the Board of Directors and the shareholders prior to August 1, 2013. Viva Holdings indeed attached a number of e-mail correspondences, however, Bengzon and the members of the Board of Directors are not privy to the correspondences. There is also no evidence that Bengzon or the Board of Directors were specifically furnished a copy of the Cooperation Agreement, or notified about the terms thereof, prior to August 1, 2013. Anent SEC-Form 23-B filed by Viva Holdings, this form was not filed prior to August 1, 2013. Moreover, there is no showing that Bengzon, the Board of Directors and the shareholders were specifically furnished with this filing. With respect to the meeting of Bengzon and Gonzales in May 2017, again, no evidence was submitted to dispute the assertion that Gonzales revealed no Bengzon that the Fountel Group had a Cooperation Agreement with the Viva Group. Verily, we cannot conclude that Bengzon's statements in his SEC affidavit are absolutely false." In addition to the concealment, misrepresentations were also made by the Respondents to the PSI Board and stockholders on their independence from each other. As corroborated by several testimonies, Gonzales, represented to the Board and the stockholders that he, as an officer of Fountel and FAI, and Viva were acting independently of each other. As earlier discussed, the terms of the CSA, the Loan Agreement, and the Share Pledge Agreement negate this representation. It was through the above concealment and misrepresentation that PSI's Board and shareholders were induced to allow the entry of Viva Holdings and FAI, and the creeping acquisitions of PSI's shares. Specifically, Fr. Roberto Yap, who was a Director of PSI in 2013 and the nominee of PSI shareholder Isabela Cultural Corporation ("Isabela") , recounted that in May 2017, "Mr. Gonzales reassured [him] that there was no need for worry on the part of Isabela and the other minority shareholders because the Fountel Parties' shares would be allied with the minority, which, if aggregated with the doctors' shares, would account for over 30% of outstanding equity." According to Fr. Yap: [i]f I had known of these matters in 2013, as a Director of the Board, I would never have voted to approve Viva's and FAI's subscriptions because it could have and ultimately did lead to a foreign entity. Viva, effectively gaining control of PSI and The Medical City. Similarly, Isabela would also have voted against the increase in authorized capital stock during the shareholders' meeting. Similarly, Mr. Thomas Smith, one of the Directors of PSI and nominee of the shareholder LA III MC Cooperatief U.A. ("Lombard") , recalled that "Mr. Gonzales gave him reassurance that he could vote independently and was not acting in concert." 12 According to Mr. Smith, "had he read the [CSA] in 2013, he would have sold Lombard's shares." In addition, the elaborate corporate layering involved to conceal Viva Holding's funding of 100% of the capital infused by Mr. Gonzales, through FAI, to PSI as well as the attendant circumstances to the Loan Agreement and Share Pledge, show that Viva Holdings, Fountel and FAI did not mean to disclose their relationship. Specifically, the provisions of the Loan Agreement demonstrates Viva Holdings' intent to ensure, with Fountel or FAI's assistance, that it will be able to obtain higher equity interests in PSI, by requiring: (a) Fountel to pledge all its FAI shares in favor of Viva Holdings, which holds beneficial ownership to the same; and (b) New Regency, through Fountel and FAI as shareholders of PSI, to cause the removal of the ROFR restriction from PSI's Articles of Incorporation and thus allow Viva Holdings to acquire more secondary shares without restrictions. In Guinhawa v. People , fraudulent misrepresentation is not confined to words or positive assertion, but may consist as well of deeds, acts or artifacts of a nature calculated to mislead another and thus allow the fraud-feasor to obtain an undue advantage: Concealment which the law denounces as fraudulent implies a purpose or design to hide facts which the other party sought to know. Failure to reveal a fact which the seller is, in good faith, bound to disclose may generally be classified as a deceptive act due to its inherent capacity to deceive. Suppression of a material fact which a party is bound in good faith to disclose is equivalent to a false representation. Moreover, a representation is not confined to words or positive assertions; it may consist as well of deeds, acts or artifacts of a nature calculated to mislead another and thus allow the fraud-feasor to obtain an undue advantage. Fraudulent nondisclosure and fraudulent concealment are of the same genre. Fraudulent concealment presupposes a duty to disclose the truth and that disclosure was not made when opportunity to speak and inform was presented, and that the party to whom the duty of disclosure, as to a material fact was due, was induced thereby to act to his injury. 13 ScHADI Viva Holdings, Fountel, FAI, and their respective directors elected to the PSI Board had the duty to disclose these agreements, but they deliberately withheld material information from the public. The PSI Board and shareholders relied on the representations of Viva Holdings, Fountel and FAI. Had they revealed their true arrangement and intent to collectively amass majority shares of PSI, its shareholders would have been afforded the opportunity to oppose the increase in the capital stock, to exercise their appraisal rights or to decide whether they should invest in the company in the first place. By virtue of the Respondents' willful misrepresentations, fraud, and concealment, the Board and shareholders of PSI increased the capital stock and approved the subscriptions of Viva Holdings and FAI. As a result of which, PSI has been unlawfully taken over by a foreign entity ( i.e. , Viva Holdings) through Fountel and FAI's, and PSI's shared officer, Mr. Gonzales. As shown by the Financial Statements of Viva Holdings for 2013 and 2014, Viva Holdings considered FAI's shares as part of its investment in PSI. Further, knowledge of the Respondents' intention and the existence of the CSA, Loan Agreement and Share Pledge Agreements would have affected the PSI Board's and the shareholders' decision on whether to increase PSI's authorized capital stock, which allowed FAI and Viva Holdings to enter into the PSI business and to subscribe to PSI's shares. The deceit employed by the Respondents upon PSI is a species of fraud, punishable under the Revised Penal Code. It is significant to note that in the Estafa Complaint, the OCP of Makati City in its Resolution dated 19 December 2018 found that all the elements of the crime of estafa by means of deceit are present. Mr. Gonzales in conspiracy with the other individuals charged therein was found to have acted with false pretense or fraudulent act through false representation and fraudulent concealment when he stated that three corporations could potentially invest in PSI and that these corporations will act independently of each other and when he failed to explain the extent of the cooperation among the three corporations. To allege scienter in connection with non-disclosure of material facts, a plaintiff must plead facts demonstrating that (i) the defendant knew of the potentially material fact; and (ii) the defendant knew that failure to reveal the potentially material fact would likely mislead investors. 14 The Respondents knew of the material effect of the CSA, Loan Agreement and Share Pledge Agreements to the equity structure of PSI. They intended to gain control of the company through a creeping acquisition and if the PSI Board and stockholders discovered the attendant agreements, it would not have allowed the subsequent increases in capital stock. This is precisely why they deliberately concealed their true arrangement and intention and the agreements. The concealment of agreements is obviously deliberate on the part of Mr. Gonzales and the directors of Viva Holdings, Fountel and FAI sitting on PSI's Board since they chose to remain silent on the same until the CSA was inadvertently discovered in 2017. Mr. Gonzales even represented to PSI's Board that he could not produce a copy of the CSA because it was "confidential." Considering the foregoing, the SHP should find the Respondents to have violated Section 26 of the SRC. DACcIH RECOMMENDATIONS In addition to the penalties imposed by the majority, it is recommended that Viva Healthcare, Viva Holdings, Fountel and FAI be found administratively liable for violation of Section 26 of the SRC. Thus, for every violation, the Respondent are penalized, pursuant to Section 54 of the SRC, each one to pay a fine of Php1,000,000.00 plus Php2,000.00 for each day of continuing violation beginning on the date of this decision until Respondents comply with the orders of the Commission. Considering that Mr. Gonzales, Mr. Robinson and Mr. Paviani are the persons who actually committed the acts that bound their respective companies, it is likewise recommended that a Formal Charge be issued against same ordering them to show cause why they should not be held liable for the violation of the law and regulation, by filing an Answer to this Formal Charge, within fifteen (15) days from receipt. (SGD.) ERETZISREL B. VALLE Member Footnotes 1. Fountel and FAI are corporations owned and operated by the family of Jose Xavier Gonzales. 2. The request for exemptive relief was paid on January 26, 2018. 3. SRC Rule 19.10. Transactions Based on Material, Non-Public Information. If a person shall become aware of potential tender offer before the tender offer has been publicly announced, such person shall not buy or sell, directly or indirectly, the securities of the target company until the tender offer shall have been publicly announced. Such buying or selling shall constitute insider trading under Section 27.4 of the Code. 4. Such requests specifically include those made by Romulo Mabanta Buenaventura Sayoc & De Los Angeles, which turned out to be the counsel for Oppositors/Complainants. 5. Robinson is the representative of the Viva. 6. SEC Resolution No. 605, Series of 2018. 7. One of the invited doctor/stockholder informed the SHP that the signature appearing in the letters filed with the EIPD did not belong to said stockholder. 8. These Complainants were not among the individuals invited to the investigation conferences. 9. This refers to the pleading filed on January 7, 2019. 10. Section 1, Article IV of PSI's By-laws provides: Section 1 (a). An EXECUTIVE COMMITTEE is hereby created to compose of five (5) members, at least three (3) of whom shall be members of the Board to be appointed by the Board, the rest shall be senior officers of the Corporation. The members of the Executive Committee may be increase by the Board depending on the exigency and relevance of the services of such additional member or members. For this purpose, the current members of the Committee shall serve as such until their successors shall have been qualified and appointed. Section 1 (b). The Executive Committee may act, by majority vote of all its members on matters within the competence of the board as may be delegated to it as a herein provided or on a majority vote of the Board, except to those exclusively reserve for action by the Board under the law. Section 1 (c). The Executive Committee shall act on the day to day operations of the Corporation, approve the purchase, acquisition and/or disposal of ordinary, incidental and necessary equipment, supplies and materials need by the Corporation in furtherance of its primary purpose. It shall also act on the appointment and/or designation of senior officers as recommended by the President of the Corporation. 11. The Board Resolution provides: RESOLVED FURTHER, that the President and CEO, Dr. Alfredo R. A. Bengzon, MBA and/or the Senior Vice-President, Mrs. Benita J. Macalagay, be, as they are hereby authorized to deal land negotiate with the subscribers of the remaining Unissued Shares of the Corporation under such terms and conditions they deem appropriate in order to comply with the requirements of applicable laws and to sustain the ongoing local and overseas expansion projects of the Corporation; to execute and deliver the said Subscription Agreement for and on behalf of the Corporation; and to perform any and all act necessary to implement this resolution. 12. Participating counsel/advisors in the e-mail includes: a. Villaraza & Angangco (which initially represented Fountel and FAI in its pleadings with the Commission); b. Herbert Smith Freehills; c. Castillo Laman Tan Pantaleon San Jose (which represents Viva in its pleadings with the Commission); and d. Legal team of Chandler Group. 13. Co-operation and Shareholders Agreement in Respect of Professional Services, Inc. 14. Loan Agreement. 15. Share Pledge Agreement. 16. The subscription agreements, executed by (1) PSI and Viva, and (2) PSI and FAI, and submitted to the Commission are in short form consisting of 6 and 3 pages, respectively. 17. Reserved Matters are enumerated in Schedule 2 of the CSA: Reserved Matters 1. Each of the following matters shall apply to the Company (PSI) and any Subsidiary: 1.1 any amendment of the articles of incorporation, or amendment or repeal of the by-laws, or adoption of new by-laws; xxx xxx xxx. 1.3. Any material change in the nature of the business or in the organization of any Group Company or the manner in which they carry on the Business; xxx xxx xxx. 1.11 entry into any investment in or acquisition of any corporate entity, business or assets or any partnership, joint venture, consortium, merger, business combination or any other profit sharing agreement . . . 1.12 entry into or any material amendment(s) to, any contract, liability, commitment or other transaction with any connected or related party of any Group Company; xxx xxx xxx. 18. As disclosed in the CSA, New Regency Investments Limited, is a company which is wholly owned by Beneficial Holdings Limited, which will in turn become a shareholder of Fountel to an extent of at least 33 1/3%. 19. Such short form subscription agreement was submitted by the parties to the Commission, in relation to their application for increase in capital stock. The long form subscription agreement came to the fore during the investigation and was submitted by the parties in the course of this case. 20. The resolution to increase capital stock from 1.4 Million to 1.9 Million and further to 2 Million was approved by shareholders in the meeting held on December 16, 2013. 21. Viva subscribed to 140,583 shares out of the 600,000 increase in capital; while FAI increased its shares by 114,767 common shares out of the 600,000 increase in capital. 22. A simple computation would show that if the 62,563 shares (3.13%) from Insular is added to the total shares of Offerors (49.44%), the same would be equal to 52.57% , which is the amount of shareholdings declared to be held by the Offerors in their application for Exemptive Relief. To quote the application for exemptive relief, Offerors stated: . . . are filing in connection with their mandatory tender offer to acquire up to a total of 947,282 common shares . . . representing 47.43% of the outstanding common shares held by shareholders other than the Offerors (the "PSI Minority Shareholders") . . . Accordingly, if the amount of shares held by the minority is 47.43%, then the amount held by the Offerors as majority stockholders is 52.57% , which coincides with the percentage of shares of Offerors, as declared in the September 8, 2017 GIS, plus the percentage of shares attributable to the insular shares. 23. However, it should be noted that Offerors were not aware of the Commission's approval of the increase of capital stock when they submitted, on November 17, 2017, their request for exemptive relief from SRC Rules in relation to an MTO over the shares of PSI. 24. Previous shareholdings shall be multiplied by two as there is a 100% increase by reason of the 100% stock dividend. 25. GIS submitted on July 10, 2018; July 12, 2018; August 10, 2018; October 1, 2018 and January 8, 2019. No change in ownership could be discerned in these GIS as the issue of MTO over minority shares is currently pending during this period. 26. This is the percentage reflected in the GIS. However, computation thereof would amount to 26.34%. 27. Computation of exact percentage is 26.34%. However, in order to reflect the amount expressed in the September 8, 2017 GIS, the percentage is reflected with discrepancy. 28. Computation of exact percentage is 26.34%. However, in order to reflect the amount expressed in the September 8, 2017 GIS, the percentage is reflected with discrepancy. 29. This amount is computed by adding the individual percentages. As there is a discrepancy in the percentage of Viva's shareholdings, the amount would slightly vary from the computation of adding total stockholdings divided by total outstanding capital stock. 30. Item 7.6 of the CSA provides: 7.6 If any of the Viva Parties or the Fountel Parties (the Offered Party) receives an offer from another PSI Shareholder (the "Other PSI Shareholder") to sell all or any of the other PSI Shareholder's PSI Shares to that Party (the "Offered Shares") (the "Offer"). The Offered Party shall be obliged to offer, in the case of a Viva Party being the Offered Party to a Fountel Party and in the case of Fountel Party being the Offered Party to a Viva Party. (the Party in receipt of such offer being the "Notified Party") 7.6.1. at least a pro rata portion of the Offered Shares (in the case of a Fountel Party being the Notified party on the basis of the aggregated direct shareholdings of the Fountel parties in the entire issued stock capital of PSI); and 7.6.2 such number of PSI Shares forming part of the Offered party's pro rata portion of the Offered Shares that the Offered party is willing to take-up. 31. The 2015 SRC IRR provides: 19.2. Mandatory Tender Offers xxx xxx xxx. 19.2.5. If any acquisition that would result in ownership of over fifty percent (50%) of the total outstanding equity securities of a public company, the acquirer shall be required to make a tender offer under this Rule for all the outstanding equity securities to all remaining stockholders of the said company at a price supported by a fairness opinion provided by an independent financial advisor or equivalent third party. The acquirer in such a tender offer shall be required to accept all securities tendered. 32. Sec. 5 of P.D. 902-A provides: Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations, partnerships and other forms of associations registered with it is expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder, partners, members at associations or organizations registered with the Commission; b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders , members or associate; between any or all of them and the corporation, partnership of association of which they are stockholders, members or associates, respectively; and between such corporation, partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity; c) Controversies in the election or appointments of directors , trustees, officers or managers of such corporations, partnership or associations. 33. Sec. 5.2 of the SRC states: 5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. 34. Securities and Exchange Commission vs. Subic Bay Golf and Country Club, Inc. and Universal International Group Development, G.R. No. 179047 (March 11, 2015). 35. Section 3 of PD 902-A. 36. Sec. 2 of the SRC provides: Sec. 2. Declaration of State Policy. The State shall establish a socially conscious, free market that regulates itself, encourages the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. To achieve these ends, this Securities Regulation Code is hereby enacted. 37. Amended IRR of the SRC. 38. Reserved Matters are enumerated in Schedule 2 of the CSA: Reserved Matters 2. Each of the following matters shall apply to the Company (PSI) and any Subsidiary: 2.1 any amendment of the articles of incorporation, or amendment or repeal of the by-laws, or adoption of new by-laws: xxx xxx xxx. 1.4 Any material change in the nature of the business or in the organization of any Group Company or the manner in which they carry on the Business; xxx xxx xxx. 1.11 entry into any investment in or acquisition of any corporate entity, business or assets or any partnership, joint venture, consortium, merger, business combination or any other profit sharing agreement . . . 1.12 entry into or any material amendment(s) to, any contract, liability, commitment or other transaction with any connected or related party of any Group Company; xxx xxx xxx. 39. Sec. 16 of the CSA provides: 16. GOVERNING LAW AND JURISDICTION 16.1 This Agreement shall be governed by and construed in accordance with the law of the Hong Kong Special Administrative Region of the People Republic of China. 16.2. Any dispute, controversy or claim arising out of or relating to this contract, including the validity, invalidity, breach or termination thereof, shall be referred to arbitration and finally settled under the Hong Kong International Arbitration Centre Administered Arbitration Rules in force when the Notice of Arbitration is submitted in accordance with these Rules. 16.3. The seat of the arbitration shall be Hong Kong. 40. Amended IRR of the SRC. 41. Sec. 54 of the SRC provides: Sec. 54. Administrative Sanctions. 54.1. If after due notice and hearing, the Commission finds that: (a) There is a violation of this Code, its rules or its orders; . . . impose any or all of the following sanctions as may be appropriate in light of the facts and circumstances: (i) Suspension, or revocation of any registration for the offering of securities; (ii) A fine of not less than Ten Thousand Pesos (P10,000.00) nor more than One Million pesos (P1,000,000.00) plus not more than Two Thousand Pesos (P2,000.00) for each day of continuing violation; (iii) In the case of violation of Sections 19.2, 20, 24, 26 and 27, disqualification from being an officer, member of the Board of Directors, or person performing similar functions, of an issuer required to file reports under Section 17 of this Code or any other act, rule or regulation administered by the Commission; (iv) x x x. 42. It is to be noted that the percentage computed in this table is based on the intended increase of shares amounting to 1.9M and not based on the amount of total shareholdings in order to reflect the percentage of intended acquisition. 43. As categorically stated in the CSA, Viva and Fountel parties shall increase their acquisition up to 25% and 25.1%, respectively. 44. As may be observed, the minutes of the meetings are quoted, instead of the respective individual's affidavits, as it is deemed that the statements during the BOD meetings are more spontaneous. Additionally, the fact that such BOD minutes are not objected to by the parties, and in fact are being submitted and adverted to by all the parties, reflects that the reliance on the same is of a substantial degree. 45. TSC Industries, Inc. vs. Northway, Inc. , 426 U.S. 438 (1976). 46. Sec. 54 of the SRC provides: Sec. 54. Administrative Sanctions. 54.1. If after due notice and hearing, the Commission finds that: (a) There is a violation of this Code, this rules or its orders; . . . impose any or all the following sanctions as may be appropriate in light of the facts and circumstances: (v) Suspension, or revocation of any registration for the offering of securities; (vi) A fine of not less than Ten Thousand Pesos (P10,000.00) nor more than One Million pesos (P1,000,000.00) plus not more than Two Thousand Pesos (P2,000.00) for each day of continuing violation; (vii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification from being an officer, member of the Board of Directors, or person performing similar functions, of an issuer required to file reports under Section 17 of this Code or any other act, rule or regulation administered by the Commission; (viii) x x x. 47. Mark J. Loewenstein (1983), Section 14 (e) of the Williams Act and the Rule 10-b5 Comparisons, 71 Geo L.J. 1311. Retrieved from https://scholar.law.colorado.edu/articles/1056 . 48. Id. at 1312. 49. Id. at 1313. 50. Id. at 1330. 51. Id. at 1336. 52. Id. at 1337. 53. Id. at 54. Cemco Holdings, Inc. vs. National Life Insurance Company of the Philippines, Inc ., G.R. No. 171815 (August 7, 2007). 55. Sec. 54. Administrative Sanctions . 541. If after due notice and hearing, Commission finds that: (a) There is a violation of this Code, its rules, or its orders; x x x, it shall in its discretion, and subject only to the limitations hereinafter prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and circumstances: xxx xxx xxx. iii. In the case of a violation of Sections 19.2 , 20, 24, 26 and 27, disqualification from being an officer, member of the Board of Directors, or person performing similar functions, of an issuer required to file reports under Section 17 of this Code or any other act, rule or regulation administered by the Commission; xxx xxx xxx. 54.2. The imposition of the foregoing administrative sanctions shall be without prejudice to the filing of criminal charges against the individuals responsible for the violation. 56. Date of the CSA. 57. Section 54.1 (a) (ii) of the SRC. 58. Date of BOD Resolution whereby shares were allocated in favor of Offerors. 59. Date of Viva letter admitting that Respondents are parties to a CSA; thus, their shares shall be aggregated for the purpose of the SRC MTO requirement. 60. Date of BOD Resolution whereby shares were allocated in favor of Offerors. 61. Date of Viva letter admitting that Respondents are parties to a CSA; thus, their shares shall be aggregated for the purpose of the SRC MTO requirement. MENDINUETO, concurring and dissenting opinion 1. Gracino Padunan vs. DARAB, G.R. No. 132163, January 28, 2003. 2. Suntay vs. Gocolay, 470 SCRA 627; Bank of the Philippine Islands vs. ALS Management & Development Corporation , 427 SCRA 564 as cited in WILLARD B. RIANO, CIVIL PROCEDURE, 124 (Fifth Bantam Edition 2007). 3. Kelly L. Lu YM, Victor L. Lu YM, and Paterno L. Lu YM, Jr., petitioners vs. David Lu, John Lu YM, and Johnson Eric S. Lu YM, respondents [G.R. No. 219902, January 17, 2018]; John Lu YM and Ludo & Lu YM Dev. Corp., petitioners vs. David Lu, respondent [G.R. No 219903, January 17, 2018]; and David Lu, petitioner vs. Paterno Lu YM, Sr., Paterno L. YM, Jr., Victor L. Lu YM, John Lu YM, and Ludo & Luy, Development Corporation, respondents [G.R. Nos. 219943-44, January 17, 2018]. 4. https://openjurist.org/726/f2d/930/chemical-bank-v-arthur-andersen-and-co-manufacturer-hanover-trust-company-na. 5. Art. 315 Swindling (estafa) 3. Through any of the following means: (a) By inducing another, by means of deceit, to sign any document. 6. DE LEON DE LEON, JR., The Corporation Code of the Philippines Annotated, 15 (Ninth Edition 2006). 7. Rule 19.1 (1) of the 2003 SRC IRR. 8. RUBEN E. AGPALO, STATUTORY CONSTRUCTION, 247 (Fifth Edition 2003). 9. Republic Flour Mills, Inc. vs. Commissioner of Internal Revenue (G.R. No. L-25602, February 18, 1970) as cited in RUBEN E. AGPALO, STATUTORY CONSTRUCTION, 428 (Fifth Edition 2003). 10. Section 1 (a), Article IV of PSI's By-laws. 11. DE LEON DE LEON, JR., THE CORPORATION CODE OF THE PHILIPPINES, 291 (Ninth Edition 2006). 12. DE LEON DE LEON, JR., THE CORPORATION CODE OF THE PHILIPPINES, 291-292 (Ninth Edition 2006). VALLE, concurring and dissenting opinion 1. Thomas Lee Hazen, The Law on Securities Regulation, 5th Ed., (2006), p. 478. 2. Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc. 552 U.S. 148 (2008), decided Jan. 15, 2008. 3. Article 1339, Civil Code. 4. Formal Charge dated November 18, 2018. 5. G.R. No. 196329, June 1, 2016. 6. G.R. No. 184666, 27 June 2016. 7. Par. 115, Verified Answer Ad Cautelam . 8. Annex 4, Sur-Rejoinder dated 5 September 2018, p. 137. 9. Annex 8, p. 143 of the Sur-Rejoinder dated 5 September 2018. 10. Johnson, Dissenting Opinion in Strong v. Gutierrez Repide , G.R. No. 2201, 15 November 1906 citing McClure vs. Law , 161 N.Y., 78, 76 Am. Reps., 262; Goodhue Farmers Warehouse Co. vs. Davis, 81 Minn.; 210, 83 N.W. Rep., 531; Briggs vs. Spaulding , 141 U.S., 146; The North Hudson Building Co., Etc. vs. Childs, et al. , 82 Wis., 460, 33 Am. State Reps., 57; Killen vs. State Bank, 106 Wis., 546, 82 N.W., Rep., 536; Marshall vs. Farmers, etc., Bank , 85 Va., 676, 17 Am. State Reps., 84; Ellis, et al. vs. Ward, et al. , 137 II., 509. 11. Article 1339, Civil Code of the Philippines. 12. See Minutes of the Meeting of the Board of Directors dated 7 August 2018. 13. G.R. No. 162822, 25 August 2005. 14. In re Thornburg Mortg., Inc. Securities Litigation , 695 F. Supp. 2d 1165, 1186, decided on November 26, 2012.