breaking news: MERALCO majority board defies SEC commish “order”; elections go on; what happens next?

 

  

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      Breaking news: MERALCO majority board defies the cease-and-desist order from the SEC signed by SEC Commissioner Martinez “for the Commission”. The stockholders’ meeting go on as of this posting.

        I was careful in writing that, and the title, i don’t have a copy of the cease-and-desist order (CDO) that the SEC issued against MERALCO to stop the holding of the annual stockholders’ meeting two hours ago; and i make an effort to be fair; so i put “order” in quotes and i didn’t say it was an SEC order because, as read in the news, then SEC Commissioner signed it as follows: “For the Commission:” then the signature. And to be fair, too, i didn’t say “MERALCO board”, i said “majority board” because board director Winston Garcia, and maybe three others, are on the other side.  That’s intra-corporate battle for you.

      Based on the news report, the grounds of the CDO are: the SEC acquired jurisdiction over the complaint filed by board director Winston Garcia and there was a “finding” that the proxy validation process was “fraudulent” or that some of the proxies were “manufactured” (i don’t have a copy of the order, i’m paraphrasing). The grounds of the majority board are: the CDO is invalid for being issued by just one commissioner and not by the Commission en banc and it is undated.

      What happens next?

      It depends. (And, not having a copy of the order, i won’t give my own opinion, just scenarios). In the face of an “order” from the SEC or an SEC commissioner to cease and desist, the majority board can successfully maintain its defiance if it is able to successfully show it was correct in its theory on the jurisdictional “issues”. Remember the oft-quoted principle, “Jurisdiction is conferred by law”? If the order was issued without jurisdiction, it is void. No amount of words and paper can confer jurisdiction, it is given by law. On the other hand, if the order was issued with jurisdiction, while it cannot retroact once elections are held, or while it cannot turn back the hands of time, to be metaphorical, because the matter had become moot and academic, the SEC can issue ANOTHER CDO preventing or stopping the newly elected board from exercising functions. Then the SEC will hold hearings on the allegations regarding the proxy votes. Pending that, the SEC can appoint a temporary management committee. And then later on, the SEC can nullify the elections held today. 

        The latter scenario: if the SEC or the SEC commissioner HAD  jurisdiction in issuing the order and the majority board defied a valid order: (i will use my Keanu Reeves voice for that): Dude, that scenario is messy. But if the SEC or SEC commissioner did NOT have jurisdiction in issuing the order, then GSIS chair Winston Garcia has to go the long route of litigation and pending that, the newly elected board takes over, that’s  temporary smooth-sailing for MERALCO pending litigation, but either way, the value of the stocks might continue to go down because of the uncertainty.

 

         Some pertinent provisions: (RTC’s have jurisdiction over intra-corporate suits but SEC has general powers to issue cease-and-desist orders “to prevent fraud or injury to the investing public”, and contempt powers):

 

          “RA 8799 Securities Regulation Code. Sec. 5. Powers and Functions of the Commission. 5.1.  The Commission shall act with transparency and shall have the powers and functions provided by this Code,  Presidential Decree No. 902-A, as amended, the Corporation Code, the Investment Houses Law, the Financing Company Act, and other existing laws. Pursuant thereto, the Commission shall have, among others,  the following powers and functions:

 

“(a)  Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of primary franchises and/or a license or permit issued by the Government;

 “(b)  Formulate policies and recommendations on issues concerning the securities market, advise Congress and other government agencies on all aspects of the securities market and propose legislation and amendments thereto;

 “(c)  Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications;

 “(d)  Regulate, investigate or supervise the activities of persons to ensure compliance;

 “(e)  Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;

 “(f)   Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;

 “(g)  Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders;

 “(h)  Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military as well as any private institution, corporation, firm, association or person in the implementation of its powers and functions under this Code;

 “(i)   Issue cease and desist orders to prevent fraud or injury to the investing public;

 “(j)   Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court;

 “(k)  Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof under its supervision;

 “(l)   Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;

 “(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law; and

 “(n)  Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purposes of these laws.

 “Under Section 5.2 of the Securities Regulation Code, the Commission’s jurisdiction over all cases enumerated under Section 5 of PD 902-A has been transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court.  The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of the Code.  The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

 “Considering that only Sections 2, 4, and 8 of PD 902-A, as amended, have been expressly repealed by the Securities Regulation Code, the Commission retains the powers enumerated in Section 6 of said Decree, unless these are inconsistent with any provision of the Code.”