In a case involving the Securities and Exchange Commission (SEC) versus Oudine Santos, the Supreme Court addressed the liability of individuals involved in selling unregistered securities. The Court reversed the Court of Appeals’ decision, ruling that Santos, despite not being a signatory to investment contracts, could be held liable for violating Section 28 of the Securities Regulation Code as she actively solicited investments for PIPC Corporation, which sold unregistered securities. This decision clarifies that individuals who actively promote or solicit investments, even without direct involvement in contract signing or fund handling, can be held accountable for violations of securities laws, ensuring greater protection for investors against fraudulent schemes.

When ‘Providing Information’ Becomes Unlawful Solicitation

The case originated from complaints filed against Philippine International Planning Center Corporation (PIPC Corporation) and its officers, including Oudine Santos, for violations of the Securities Regulation Code. PIPC Corporation, linked to Performance Investment Products Corporation (PIPC-BVI), had allegedly defrauded investors by promising high returns on investments in a low-risk program. Investors, including Luisa Mercedes P. Lorenzo and Ricky Albino P. Sy, claimed that Santos, acting as an investment consultant for PIPC Corporation, induced them to invest in the company.

The SEC filed a complaint-affidavit with the Department of Justice (DOJ), alleging violations of Sections 8, 26, and 28 of the Securities Regulation Code. Lorenzo and Sy provided affidavits detailing Santos’ involvement in their investment decisions. Lorenzo stated that Santos presented the investment product, “Performance Managed Portfolio,” and emphasized the confidentiality of the transactions. Sy recounted how Santos convinced him to invest in the Performance Management Portfolio, highlighting the security of the capital and PIPC’s track record. The investors claimed that Santos actively solicited and recruited investors, representing the safety and profitability of investing with PIPC Corporation.

In her defense, Santos denied any intent to defraud, asserting that she was merely an employee and later an independent information provider for PIPC Corporation. She claimed that PIPC Corporation was a separate entity from PIPC-BVI, and she had no involvement with the latter. Santos argued that she never received any money from Sy and Lorenzo, who directly invested in PIPC-BVI. She maintained that her role was limited to providing information and that the investment contracts were solely between the investors and PIPC-BVI.

Initially, the DOJ issued a Resolution indicting Liew and Gonzalez-Tuason for violations of Sections 8 and 26 of the Securities Regulation Code, and Santos, along with others, for violation of Section 28. However, on a motion for reconsideration, the DOJ modified its ruling and excluded Santos from prosecution, a decision that was later affirmed by the Secretary of Justice. This exclusion was based on the premise that Santos did not directly participate in the sale of securities and that the investors dealt directly with PIPC-BVI. The Court of Appeals upheld the DOJ’s resolution, leading the SEC to file a petition for certiorari with the Supreme Court.

The Supreme Court analyzed the case, focusing on whether Santos’ actions constituted a violation of Section 28 of the Securities Regulation Code, which prohibits engaging in the business of buying or selling securities as a broker or dealer, or acting as a salesman or associated person without proper registration. The Court referenced Section 3 of the Securities Regulation Code for definitions of key terms:

Sec. 3. Definition of Terms. – x x x.

3.3. “Broker” is a person engaged in the business of buying and selling securities for the account of others.

3.4. “Dealer” means [any] person who buys [and] sells securities for his/her own account in the ordinary course of business.

3.5. “Associated person of a broker or dealer” is an employee thereof whom, directly exercises control of supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial.

3.13. “Salesman” is a natural person, employed as such [or] as an agent, by a dealer, issuer or broker to buy and sell securities.

The Court determined that Santos’ role as an “information provider” involved soliciting the sale of securities by PIPC Corporation and/or PIPC-BVI. Solicitation, in this context, is defined as the act of seeking or asking for business or information and bringing about the sale of securities made by PIPC Corporation and/or PIPC-BVI to certain individuals by providing information on the investment products of PIPC Corporation and/or PIPC-BVI with the end in view of PIPC Corporation closing a sale. Although Santos was not a signatory to the contracts, she procured the sale of unregistered securities to Sy and Lorenzo by providing information and convincing them to invest.

The Court found that Santos actively recruited and referred possible investors to PIPC Corporation and/or PIPC-BVI, acting as an ostensible agent. The transactions initiated by Santos constituted an investment contract, defined as an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others. The Court highlighted that Sy and Lorenzo did not go directly to Liew or any principal officer of PIPC Corporation and/or PIPC-BVI before making their investments, underscoring Santos’ role in facilitating the deals.

The Supreme Court set aside the Court of Appeals’ decision and reinstated the DOJ’s Resolutions, directing the inclusion of Santos in the Information for violation of Section 28 of the Securities Regulation Code. The court emphasized that the absence of Santos’ signature in the contract is not exculpatory. The Court clarified that it was only dealing with the preliminary investigation aspect of the case and not adjuging the guilt or lack thereof. Santos’ defense of being a mere employee or simply an information provider is best raised and threshed out during the trial of the case.

FAQs

What was the key issue in this case?	The key issue was whether Oudine Santos violated Section 28 of the Securities Regulation Code by engaging in the business of selling securities without being registered as a broker, dealer, or salesman.
What is Section 28 of the Securities Regulation Code?	Section 28 prohibits individuals from engaging in the business of buying or selling securities as a broker or dealer, or acting as a salesman or associated person, without proper registration with the SEC.
Who was Oudine Santos and what was her role?	Oudine Santos was an investment consultant for PIPC Corporation who allegedly induced individuals to invest in the company’s securities. She claimed to be merely an employee or information provider.
What did the Supreme Court decide in this case?	The Supreme Court ruled that Santos could be held liable for violating Section 28, reversing the Court of Appeals’ decision and directing the DOJ to include her in the Information for violating the Securities Regulation Code.
Why did the Supreme Court reverse the Court of Appeals’ decision?	The Supreme Court found that Santos actively solicited investments for PIPC Corporation, which sold unregistered securities, and that her actions went beyond merely providing information.
What is the definition of “solicitation” in this context?	Solicitation is the act of seeking or asking for business or information, which in this case, involved bringing about the sale of securities by PIPC Corporation by providing information and convincing individuals to invest.
What does it mean to act as an “ostensible agent”?	Acting as an “ostensible agent” means that Santos appeared to be acting on behalf of PIPC Corporation in recruiting and referring investors, even if she was not officially designated as an agent.
Why was Santos’ signature on the investment contracts not necessary for liability?	The Court stated that individual culpability could be established even without her signature in the investment contracts, indicating her active recruitment and referral of possible investors to the company’s fraudulent products.
What is the significance of this ruling for potential investors?	This ruling enhances investor protection by clarifying that individuals who actively solicit investments, even without direct involvement in contract signing, can be held accountable for violations of securities laws.

This case underscores the importance of due diligence in investment decisions and the potential liability of individuals involved in selling unregistered securities. The Supreme Court’s decision reinforces the SEC’s authority to pursue those who facilitate investment scams, even if they are not directly involved in the final sale. This ruling serves as a cautionary tale for those who promote investment products without proper registration and highlights the need for greater scrutiny of individuals presenting investment opportunities.

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: Securities and Exchange Commission vs. Oudine Santos, G.R. No. 195542, March 19, 2014