MANILA, Philippines -- (UPDATE 2) The Manila Electric Co (Meralco) has pushed through with its annual shareholders' meeting in defiance of a cease-and-desist order (CDO) from the Securities and Exchange Commission (SEC).

In the order served Meralco's board during its annual stockholders' meeting on Tuesday, the SEC restrained acting corporate secretary Anthony Rosete from "recognizing, counting and tabulating or honoring" proxies in favor of Meralco chairman Manuel Lopez, vice chairman Felipe Alfonso, president Jesus Francisco, director Christian Monsod, First Philippine Holdings president Elpidio Ibanez and FPHC chief finance officer Francisco Giles-Puno or any officer representing Meralco management.

FPHC, the holding company for the Lopez family's interests in toll road operation, power generation and distribution and manufacturing, owns 33.4 percent in Meralco.

The order was signed on behalf of the commission en banc by SEC commissioner Jesus Martinez, who is the officer in charge while SEC chairperson Fe Barin is away on an official business trip to attend a securities conference in Paris, France.

The CDO arose from a complaint filed before the SEC, Monday morning, by state pension fund Government Service Insurance System (GSIS).

GSIS owns 22.05 percent in Meralco and is the designated proxy of four other government agencies which collectively own 10.8 percent of Meralco's oustanding stock.

In its petition, GSIS alleged that Rosete usurped the functions of a corporate secretary when he presided over the validation of proxies ahead of Meralco's stockholders' meeting on Tuesday. GSIS also claimed there was "massive solicitation of proxies" by Meralco management and that Rosete was poised to validate and honor these proxies without complying with the legal requirements for solicitation of these proxies.

GSIS said in its petition that the right of the investing public, including its right to an honest and fair election of Meralco's board of directors, would be "trampled upon." GSIS said it was not an ordinary investor in Meralco since it represented 1.3 million GSIS members.

The SEC issued its CDO late Monday afternoon.

Martinez in a telephone interview said three SEC commissioners, including himself, were consulted before the issuance of the CDO. They are SEC Commissioners Raul Palabrica and Thaddeus Venturanza. The fifth member of the commission en banc, Commissioner Juanita Cueto, is on medical leave.

The SEC further restrained Lopez, Alfonso, Francisco, Monsod, Ibanez and Giles-Puno from voting the protested shares solicited by Meralco management.

The order also directed SEC Compliance and Enforcement Department director Hubert Guevara and two of his qualified lawyers as SEC representatives to supervise the stockholders' meeting with full powers and authority to ensure the holding of a "credible, transparent and peaceful election of directors" in Meralco.

Rosete, however, declared that the SEC order was "null and void."

This meant Meralco would proceed with the election of a new 11-member board and count the proxy votes. Canvassing is being conducted as of this writing.

Gina Lopez, a shareholder, said "a good election is where everyone has a voice. This [SEC order] is totally unfair." Ms Lopez is niece of Oscar Lopez, chairman of First Philippine Holdings Corp., which controls Meralco.

"An election is supposed to be the manifestation of what the people decide but you're muting half the people," she added.

Meralco is controlled by the Lopez family, which also owns two power generation plants and geothermal firm PNOC EDC, as well as the country's biggest media firm, ABS-CBN Broadcasting Corp. Ms Lopez is managing director of the ABS-CBN Foundation.

Hubert Guevara, director of compliance and enforcement division at the SEC said "we take note of your [Meralco's] opposition to the CDO but ask you to reconsider because this is in defiance of the SEC rules."

He said "the SEC will allow Meralco to continue the election but the results will be subject to the SEC's decision."

Guevara said that SEC did not move further to stop the stockholder's meeting on Tuesday nor the elections of the new board directors because it was focused on making sure that the contested proxies were not voted.

Meralco gave 10 reasons why it considered the SEC order void:

? The order does not have a docket number

? The order is undated

? The order does not have the official seal of the SEC

? The decision to issue the CDO was made by only one person, SEC officer-in-charge (OIC) Jesus Martinez

? There is no official document to show that a complaint has been filed by the Government Service Insurance System (GSIS) with the SEC challenging the validity of proxy votes

? Martinez has no authority to issue the decision because he is only the OIC

? There was a violation of due process because the CDO had been predetermined against the validity of the proxy shares favoring the Lopez group

? There was no notice issued to the Meralco group

? It is an intra-corporate issue and

? GSIS is allegedly guilty of forum shopping because a similar case has already been filed with the Pasay regional trial court

The SEC will hold a hearing on Garcia's complaint on Friday. Meralco is also given till Friday to rebut Garcia's claim.

SEC Commission Secretary Gerard Lukban said the CDO was issued, in consultation with three members of the Commission, which constituted a quorum. It was signed by one member of the Commission "for the Commission en Banc."

Lukban said that an option available to the SEC was to hold the company in contempt for defying the SEC's CDO but it had not issued a new order as of Tuesday, pending the completion of a report on the outcome of Meralco's stockholders' meeting supervised by the SEC's Compliance and Enforcement Department.

Lukban explained that SEC's move to step in during the Meralco stockholders' meeting was not unprecedented, as it previously performed duties like validating proxies for smaller companies. He could not, however, specify the name of any company for which SEC managed a stockholders' meeting before.

Lukban added that validating proxies fell within its duty as a regulator under the Securities Regulation Code.

"There's a fine line between our role in intracorporate disputes which the SEC has transferred to regular courts and this case which also involves disputing shareholders," Lukban said.

"But in this case [Meralco boardroom brawl], it involves a petition that says there will be an injury on the part of investors and this falls within our power as a regulator of all corporations and not as an adjudicator [one who renders judgement on rights of the people which have gone to regular courts]," Lukban said.

Meanwhile, Winston Garcia, president and general manager of Government Service Insurance System said that with Meralco's defiance, "this is a bogus meeting" as he called on the SEC to supervise the proceedings.

Amid jeers and boos from the crowd which jampacked the Meralco auditorium, he said: "This meeting cannot be decided by a mob."

The GSIS hopes to retain at least four seats in the 11-member board. The Lopezes have five seats in the board, which also has two independent directors.

Garcia has led a campaign against the Lopez family's management of Meralco.