The Supreme Court ruled on the prescriptive periods for filing criminal and administrative complaints under the Securities Regulation Code (SRC). It clarified that while the SRC itself does not specify a prescriptive period for criminal offenses, the general law, Act No. 3326, applies, setting a 12-year limit for offenses punishable by imprisonment of six years or more. This decision underscores the importance of timely legal action in securities violations and helps ensure accountability while clarifying the procedural rules for both investors and regulated entities.

Unregistered Securities and the Ticking Clock: When Does Justice Expire?

This case revolves around investments made by Ester H. Tanco-Gabaldon, Arsenio Tanco, and the Heirs of Ku Tiong Lam (respondents) in Ceres II Finance Ltd. and Aeries Finance II Ltd. Income Notes through Citibank and Citigroup (petitioners). The respondents alleged that Carol Lim, an officer of Citigroup, induced them to invest in these securities, which later turned out to be unregistered and worthless. When the investments plummeted, the respondents filed a complaint with the Securities and Exchange Commission (SEC) for violations of the Revised Securities Act (RSA) and the Securities Regulation Code (SRC). The primary legal question centers on whether the prescriptive period for filing criminal charges under the SRC had already lapsed, and whether the principle of laches barred the administrative action against the petitioners.

The petitioners argued that Section 62.2 of the SRC, which sets a prescriptive period of two years from the discovery of the cause of action and five years from its accrual, applied to both civil and criminal liabilities. The respondents, on the other hand, contended that Act No. 3326, which provides a 12-year prescriptive period for offenses punishable by imprisonment of six years or more, should apply. The Court of Appeals (CA) sided with the respondents, holding that Act No. 3326 was indeed applicable in the absence of a specific prescriptive period within the SRC for criminal offenses.

The Supreme Court began its analysis by dissecting Section 62 of the SRC, which addresses the “Limitation of Actions.” This section is divided into two subsections, each dealing with different types of liabilities. Section 62.1 specifically addresses civil liabilities arising from false registration statements or misleading communications, setting a prescriptive period of two years after discovery or five years after the security was offered or sold. On the other hand, Section 62.2 provides a prescriptive period of two years after the discovery of the facts constituting the cause of action and five years after such cause of action accrued for enforcing “any liability created under any other provision of this Code.”

The crux of the dispute lies in interpreting the phrase “any liability” in Section 62.2. Does it encompass both civil and criminal liabilities, or is it limited solely to civil liabilities? The Supreme Court, employing principles of statutory construction, clarified that the phrase “any liability” refers exclusively to civil liabilities. The Court emphasized that every part of a statute must be interpreted within the context of the entire enactment. Therefore, Section 62.2 should not be read in isolation but in conjunction with Section 62.1, which specifically deals with civil liabilities under Sections 56, 57, 57.1(a), and 57.1(b) of the SRC.

Moreover, the Court noted that the civil liabilities outlined in the SRC extend beyond Sections 56 and 57. These include civil liabilities for fraud in connection with securities transactions (Section 58), manipulation of security prices (Section 59), liabilities related to commodity future contracts and pre-need plans (Section 60), and liabilities arising from insider trading (Section 61). Given that Section 62.1 only covers civil liabilities under specific sections, it logically follows that Section 62.2 addresses other civil liabilities not explicitly covered by Section 62.1. This interpretation is reinforced by Section 63, which details the amount of damages recoverable under various sections, including Sections 56 through 61, solidifying the intent to limit Section 62 to civil liabilities.

Therefore, with the SRC lacking a specific prescriptive period for criminal offenses, the Court correctly turned to Act No. 3326. As highlighted in Panaguiton, Jr. v. Department of Justice, Act No. 3326 governs offenses under special laws that do not prescribe their own prescriptive periods. Section 1 of Act No. 3326 lays out varying prescriptive periods based on the severity of the punishment, with a 12-year period for offenses punishable by imprisonment of six years or more.

In this case, violations of the SRC carry imprisonment terms ranging from seven to twenty-one years, thus falling under the 12-year prescriptive period of Act No. 3326. The Court then turned to the issue of when the prescriptive period begins to run. Section 2 of Act No. 3326 stipulates that prescription starts from the day of the violation’s commission. However, if the violation is not immediately known, the prescriptive period begins from the date of its discovery. Republic v. Cojuangco, Jr. clarified that there are two distinct rules: first, the prescriptive period begins from the day of the commission if the violation is known; second, it begins from the discovery if the violation is not initially known, coupled with the institution of judicial proceedings for investigation and punishment.

The respondents argued that while the initial transactions occurred around September 2000, they only discovered the fraudulent nature of the securities in November 2004. Consequently, they filed a complaint with the Mandaluyong City Prosecutor’s Office in October 2005. While the prosecutor’s office referred the complaint to the SEC in July 2007, the formal complaint was filed with the SEC in September 2007. Based on these facts, the Court determined that only seven years had passed since the initial investments and three years since the discovery of the alleged offenses. Therefore, the complaint was filed well within the 12-year prescriptive period mandated by Act No. 3326.

Finally, the Court addressed the argument of laches. Laches is an equitable doctrine that applies when a party unreasonably delays asserting a right, leading to a presumption that they have abandoned or declined to assert it. Lim argued that the principle of laches should bar the administrative liability of the petitioners. However, the Court pointed out that while Section 54 of the SRC outlines administrative sanctions for violations, it does not specify a prescriptive period for initiating administrative complaints.

Since the SRC is silent on the prescriptive period for administrative actions, the doctrine of laches, which is applied in the absence of statutory law, comes into play. Yet, even when laches applies to actions that would otherwise be imprescriptible, its elements must be positively proven. Here, the Court found that the respondents acted judiciously. Upon discovering the worthlessness of their investments in 2004, they promptly filed a complaint with the Mandaluyong City Prosecutor’s Office in 2005. The delay was largely due to the prosecutor’s office referring the case to the SEC, as per the ruling in Baviera. Therefore, the Court concluded that the filing of the complaint with the SEC in 2007 was not barred by laches.

FAQs

What was the key issue in this case?	The main issue was determining the correct prescriptive period for filing criminal complaints under the Securities Regulation Code (SRC) and whether the doctrine of laches barred the administrative action. The Supreme Court had to clarify if the SRC’s general limitation period applied to criminal offenses or if Act No. 3326, the general prescription law, governed.
What is Act No. 3326?	Act No. 3326 is a law that establishes prescription periods for violations of special acts and municipal ordinances. It applies when the special law itself, like the Securities Regulation Code (SRC), does not specify a prescriptive period for criminal offenses.
What is the prescriptive period for criminal violations of the SRC?	Since the SRC does not provide its own prescriptive period for criminal offenses, Act No. 3326 applies. Under Act No. 3326, the prescriptive period for violations of the SRC punishable by imprisonment of six years or more is twelve (12) years.
When does the prescriptive period begin to run?	The prescriptive period generally starts from the day the violation is committed. However, if the violation is not known at the time of commission, the prescriptive period begins to run from the discovery of the violation.
What is the legal definition of laches?	Laches is the failure or neglect for an unreasonable and unexplained length of time to do what, by exercising due diligence, could or should have been done earlier. It creates a presumption that the party entitled to assert a right either has abandoned or declined to assert it.
Does laches apply to administrative cases under the SRC?	The SRC does not specify a prescriptive period for administrative complaints. Laches, an equitable remedy, may apply in the absence of statutory guidance, but its elements must be affirmatively proven, and its application depends on the specific facts of the case.
What was the Court’s ruling on the issue of laches in this case?	The Court ruled that laches did not apply because the respondents acted diligently upon discovering the fraud. They promptly filed a complaint with the prosecutor’s office, and the subsequent delay was due to the prosecutor’s referral of the case to the SEC.
What practical lesson can investors learn from this case?	Investors should act promptly upon discovering potential securities violations to ensure their claims are not barred by prescription or laches. Documenting the timeline of events and seeking legal advice can help preserve their rights.

In conclusion, the Supreme Court’s decision clarifies the prescriptive periods for both criminal and administrative actions under the SRC, providing greater certainty for investors and regulated entities. The ruling underscores the importance of understanding the applicable laws and acting promptly to protect one’s rights in cases of securities violations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Citibank N.A. vs. Tanco-Gabaldon, G.R. No. 198444, September 04, 2013