Section 28 of the Securities Regulation Code (SRC) provides that “[n]o person shall engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated person of any broker or dealer unless registered as such with the Commission.”
What is a “salesman” of securities for purposes of the SRC’s registration requirement?
This was one of the issues in the recent case of Securities and Exchange Commission vs Oudine Santos, G.R. No. 195542, March 19, 2014, where the Supreme Court held that an employee of an issuer, who provides information on unregistered securities offered by the latter, may be deemed as “salesman” of securities if such giving of information brings about the sale of the unregistered securities.
In this case, Santos provided information on unregistered investment products offered by her employer-issuer to certain retail investors in the Philippines. She received extra consideration for providing the information. She helped convince the public to invest their money in the investment product. The whole scheme turned out to be a scam.
When charged with engaging in the “selling” and “offering” of securities without the required registration and permit as a salesman from the SEC, Santos claimed that she was merely an employee who provided information to prospective buyers. She also claimed that she was neither a signatory to any contracts nor a recipient of the investment money.
In the light of the peculiar facts of the case, the Supreme Court ruled that Santos was a “salesman” of securities and needed to be registered and licensed as such by the SEC pursuant to our securities laws. The Court principally relied on the fact that Santos provided information that eventually led to the sale of the securities to the investors.
Does the ruling mean that any information dissemination that eventually leads to the sale of the securities constitutes an offer or sale of securities so that they need to be registered with the SEC? What if the presentation is limited to introducing foreign-issued securities and providing information thereon, without more, to Philippine-based investors? What if no actual offer or sale of the securities takes place in the Philippines? What if the sale is negotiated, paid for and consummated outside the Philippines through a foreign account?
On its face, the Santos case does not answer these questions. The legal puzzle then is: Does the case give an idea of how the Supreme Court will rule on these issues if and when they are brought to it for decision?
Well, it may be prudent for those concerned to consult their lawyers in light of this new case.
(The author is a senior partner of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) and is a law professor in the Ateneo Law School. The views in this column are exclusively his, and should not be attributed in any way to the institutions with which he is affiliated.)