First Pacific Securities Philippines, Inc. vs. Manila Stock Exchange

[SEC-SICD * CASE NO. 3801. July 24, 1992.] FIRST PACIFIC SECURITIES PHILIPPINES, INC. (NOW PHILIPPINE ASIA EQUITY SECURITIES, INC.) , plaintiff, vs . MANILA STOCK EXCHANGE , defendant . D E C I S I O N This is a complaint to annul and set aside a resolution adopted by the defendant's Board of Governors on May 29, 1990, with a claim for damages amounting to 15 Million Pesos and P500,000.00 attorney's fees and litigation expenses. In that resolution of May 29, 1990, plaintiff was expelled as member from the defendant Manila Stock Exchange, its seat was declared vacant, thereby authorizing defendant's Board to dispose of it, and a P5 million fine was required to be paid. Based on evidence presented by both parties, the following are the unrefuted facts: plaintiff First Pacific Securities Philippines, Inc. (Now: Philippine Asia Equity Securities, Inc.) used to be a registered member of defendant Manila Stock Exchange, Inc. (MSE) until April 6, 1990 when it gave notice that it would stop operating therein (Exhibit "A"). Notices of such cessation of operations was also made known to the Commission and defendant's clearing house (Exhibit "A-1"). On the same day, plaintiff began to operate at the Makati Stock Exchange (MKSE) (Exhibit "I". Through a contract of sale, plaintiff sold its seat on April 26, 1990 to one Raymundo Chuanico (Exhibit "C"). Defendant was informed of this transaction (Exhibit "D") but the latter refused to receive Chuanico's payment for the seat as it was still investigating the credentials of said buyer (Exhibit "E"). On April 30 and May 4, 1990, defendant received letters from two of its members complaining about the conduct of plaintiff (Exhibits "1 and 2"). The letters claimed that plaintiff by its transfer to the Makati Stock Exchange violated specific provisions of its by-laws and regulations of this Commission on membership in stock exchanges. Copies of these letters were sent to plaintiff (Exhibit "3") and a reply was promptly sent to defendant by plaintiff's corporate secretary (Exhibit "H"). On May 14, 1990, defendant's secretary sent another letter to plaintiff inquiring about its response and informing the latter that the complaints would be resolved on the basis "of the matters contained in (its) answer" (Exhibit "5") . dctai On May 23, 1990, during a regular meeting of defendant's Board, the complaints against plaintiff were discussed. Thereafter, the Board found plaintiff "guilty of violation of the By-Laws and Regulations of the SEC" and "of acts detrimental to the best interest of the exchange". The penalties of expulsion, declaration of vacancy of seat, and payment of a fine were imposed upon plaintiff (Exhibit "8"). On May 29, 1990, defendant's Board met again and, after some discussions, adopted the text of the resolution in question (Exhibit "I"). A copy of the resolution was thereafter sent to plaintiff (Exhibit II). Plaintiff's evidence tends to show that it cleared all its accountabilities with defendant's clearing house prior to its actual transfer to MKSE on April 6, 1990; it sought an opinion with this Commission concerning the validity of its intended transfer to MKSE (Exhibit "K"), and that its action (owning seats in two exchanges) was allowed by that opinion provided that both seats are not operated simultaneously (Exhibit "J"); the complaints against plaintiff had been disseminated by the defendant to its members through its Circular No. 142 (Exhibit "F"); the sale of its seat to Chuanico was subject to final approval of defendant, hence, cannot be construed as a violation of the by-laws provisions on prior notice; and defendant's action was motivated by ill-will and bad blood directed against plaintiff's Chief Executive Officer who had a feud in the past with the officers of the defendant (Exhibits "O" and "P"). Defendant, upon the other hand, established the following matters through its evidence; two complaints were filed against plaintiff for violations of its By-Laws and regulations of this Commission; those complaints contained attachments which support the same; plaintiff was provided a copy of the complaints and it answered them; sufficient notice was provided plaintiff that the resolution of the complaint will be based on its answer (Exhibit "3"); its Board met on May 23, 1990 and discussed the merits of the complaint and answer for four (4) hours; and penalties imposed on plaintiff were decided on May 23, 1990 but the text of the Board's discussion was adopted only during the special meeting convoked on May 29, 1990; and the dissemination of the subject resolution was done in accordance with the provisions of its By-Laws. The issues to be resolved in this case are the following: llcd 1. Whether or not plaintiff's act of transferring from defendant to MKSE, constitute a violation of defendant's By-Laws and regulations of this Commission; 2. Whether or not the penalties imposed upon the plaintiff was decided fairly and the latter's right to due process observed; and 3. Whether or not the parties are entitled to the damages each of them seek. After a careful and thorough evaluation of the evidence adduced by both parties, it is evident that plaintiff failed to prove the basis of its claims. It is plaintiff's position that the meeting of defendant's Board on May 23, 1990 was a pre-set and trumped up proceedings intended solely to justify the imposition of penalties upon it which defendant had long pre-determined. The evidence on record is unassailed that a meeting lasting for about four (4) hours was indeed conducted by defendant and that the subject resolution was reached only, after defendant read the complaint and the answer; discussed the merits of the contending claims; sought legal advise on the appropriate legal provisions involved in the case and after the Board deliberated on the reasonableness of the imposable penalties. We have also taken a careful note of the equally established fact the plaintiff was provided the opportunity to refute the charges against it, by filing its answer, which was contained in a four (4) page letter prepared by its corporate secretary, and sent to defendant by plaintiff; and that it had been sufficiently warned that the matters contained in that answer will provide the basis for the resolution of the complaints (Exhibit "5"). At the time such warning was made, plaintiff could have well informed defendant of its desire to adduce further evidence if it had any. As the record shows, aside from plaintiff's letter/answer, it sought no further opportunity to present evidence. We see no basis for plaintiff's claim that it had been deprived of its right to due process and that the resolution in question was arbitrarily reached. If indeed no opportunity was provided plaintiff to refute the charges levelled against it, or if the meeting of defendant's directors on May 23, 1990 was truly a sham, evidence to that effect should have been presented by it. Unfortunately, the only evidence on record is the uncontradicted testimony of both plaintiff's adverse party witnesses, as well as defendant's own witnesses all, of whom confirm that (1) plaintiff was given every opportunity to controvert with evidence the accusations contained in the complaints and (2) the meeting on May 23, 1990 was not, as plaintiff puts it, a "moro-moro". (Exhs. "3", "5" and "8"; T.S.N., February 19, 1992, p. 21; T.S.N. March 18, 1992, p. 20; Memo (Plaintiff ) dated May 5, 1992 p. 21). As regards the acts committed by plaintiff in transferring its seat to Chuanico on April 26, 1990, and in moving its operations to MKSE without prior notice to defendant, it appears that such conduct is contrary to the clear tenor of defendant's By-Laws. Under Section 14, Article XVI thereof, a transfer of ownership to a seat in defendant can be affected after the name of the proposed transferee is first submitted to defendant, through its President. Such transfer should further comply with posting and notice procedures under Article XV. aEAIDH These requirements were not complied with by plaintiff. What it did was to sell its seat immediately to Chuanico without informing defendant beforehand of the name of such transferee. Neither did it comply with requirements of posting and notice. Plaintiff justifies this act by contending that defendant provides, in any case, the final stamp of approval for such transfer, hence, no violation of the By-Laws can be said to have occurred. This argument ignores the fact that it is precisely being accused of non-compliance with specific provisions of the By-Laws. By implicitly admitting that the procedure for transfer as enumerated in the By-Laws has, in fact, not been met, but that the same can be glossed over inasmuch as the Board will anyway render the final act of approval over such transaction, the validity of defendant's action appears justified. On the matter of the charge or violation of this Commission's regulation relative to membership of a seat in a stock exchange, it appears clear that such a violation had in fact been committed. Plaintiff attempts to take refuge in the opinion rendered by this Commission in August 1989 concerning the procedure for such transfer. We cannot, however, brush aside the unqualified provisions of our own regulation which expressly prohibits membership in two stock exchanges. We tend to agree with the argument of defendant that the request of plaintiff for an opinion on the matter was not clearly set forth as it failed to cite the applicable provision of this Commission's regulations when it was sought. Further, it is fundamental that an opinion rendered by this Commission does not and cannot have the effect of a revision or modification of its own regulation especially where, as here, that regulation is clear and is intended to protect the investing public. Under the foregoing circumstances, it is evident that the act of defendant in finding plaintiff guilty of violations of its By-Laws and regulations of this Commission appears to be meritorious. We, however, disagree on the amount of FIVE MILLION (5,000,000.00) PESOS fine imposed by defendant upon plaintiff. Although the propriety of the figure and manner by which such sum was reached was sufficiently explained by witnesses Wilson Sy and Edgardo Guevarra, the enormity of the amount involved does not appear commensurate to the violation committed by plaintiff. Considering the nature of the offense and its effect upon defendant Exchange, which we have recognized as an institution in this country, we are of the belief that a fine of P500,000.00 would be reasonably adequate to instruct and serve as a deterrent to member firms of defendant to comply strictly with procedure relative to the transfer of seats and the conduct of its operations. Finally, in the light of the absence of any cause of action against defendant, the filing of this case before this Commission having been proven by the defendant to have caused injury to its reputation, a remuneration in damages would be appropriate. For this reason, defendant should, likewise, be given moral damages and attorney's fees and costs. WHEREFORE, in view of the foregoing premises, judgment is hereby rendered as follows: 1. Declaring the resolution adopted by the defendant's Board of Governors on May 29, 1990 valid and legal with the fine imposed against the plaintiff therein reduced to FIVE HUNDRED THOUSAND (P500,000.00) PESOS. 2. Ordering the plaintiff to pay the defendant the amount of P200,000.00 as moral damages and P100,000.00 by way of Attorney's fees and costs. SO ORDERED. (SGD.) JUANITO B. ALMOSA, JR. (SGD.) ROLANDO C. MALABONGA Hearing Officer Hearing Officer (SGD.) KIRTH S. BANSUELO-PAGKANLUNGAN Hearing Officer