SEC orders Rappler to shut down
The Securities and Exchange Commission (SEC) has ordered the revocation of online news site Rappler’s license to operate.
In a 29-page decision dated January 11, the SEC ruled that Rappler, Inc. and its controlling shareholder Rappler Holdings Corp. were “liable for violating the constitutional and statutory Foreign Equity Restrictions in Mass Media enforceable through rules and laws within the mandate of the Commission.”
The online media outfit has been accused of purportedly using “deception” to circumvent a provision in the Philippine Constitution, which mandates 100 percent Filipino ownership of mass media.
Citing Rappler as the “mass media entity that sold control to foreigners,” the SEC ruling, which was served to Rappler on Friday, decided to revoke the online news company’s certificate of incorporation.
Likewise stripped of its certificate of registration was Rappler’s 98.77-percent stockholder, Rappler Holdings Corp., which the SEC said was “existing for no other purpose than to effect deceptive scheme to circumvent the Constitution.”
The decision was signed by SEC Teresita Herbosa and three SEC Commissioners: Antonieta Ibe, Ephyo Luis Amatong, and Emilio Aquino. Another Commissioner, Blas James Viterbo, did not take part, in the decision-making.
Based on the 29-page SEC en banc ruling, the SEC said there was “substantial evidence that respondents intentionally created an elaborate scheme, upon which its receipt of over a million dollars from a foreign investor would be theoretically defensible – the investor would never own stock and would never receive dividends and he would never become an officer or director but respondents would still be able to give him his money’s worth in the form of negative control and cash contributions, all through a private contractual arrangement.”
The SEC added that since this “deceptive scheme” involved the sale of a security, it fell within Section 26 or the Anti-Fraud provision of the Securities Regulation Code.
A copy of the decision will “be furnished the Department of Justice for appropriate action,” the SEC said.
Based on the copy of the ruling, SEC had investigated this matter since December 22, 2016, when the Commission en banc received a letter from the Office of the Solicitor General requesting an investigation into Rappler and Rapper Holdings Corp. “for any possible contravention of the strict requirements of the 1987 Constitution” with regard to the issuances of Philippine depositary receipts to NBN Rappler LP and Omidyar Network Fund LLC.
In the same ruling, the SEC declared the Philippine depositary receipts (PDRs) issued to Omidyar “void” citing this as a “fraudulent” transaction under the Securities Regulation Code.
PDRs refer to derivative instruments which are based on the value of equities as underlying assets but don’t grant ownership to the holder.
In Rappler’s case, however, the SEC argued that the PDRs issued to Omidyar gave the foreign entity sufficient control even without having actual ownership.
“The foreign equity restriction is very clear. Anything less than 100 percent Filipino control is a violation. Conversely, anything more than exactly zero percent foreign control is a violation,” SEC said in its ruling.
“Here, the stockholders must have prior discussion with and approval of at least 2/3 of the PDR Holdings, meaning Rappler is at the very least under obligation to consult with Omidyar Network. The stockholder has become, in effect, subservient to the holder. It is neither 100 percent control by the Filipino stockholders nor is it 0 percent control by the foreigner PDS holders,” the SEC said.
Among others, the SECC also cited the Rule 18.104.22.168. of the 2015 SRC implementing rules and regulations which stated that “control exists whenever one entity has the power to govern the financial and operating policies of (another) entity under a statute or agreement.”
The SEC said this would even be true “even if the controlling entity does not own any equity, such as through agreements that grant influence in corporate matters.”
Likewise cited was Section 1 of the Commonwealth Act 108 also known as “The Dummy Act” which penalizes any citizen of the Philippines or of any specific country who allows his name or citizenship to be used for the purpose of evading constitutional or legal provisions which require Philippine or any specific citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege. The same law states that any alien or foreigner profiting thereby may also be held liable.
The SEC also cited the foreign negative investment list which included mass media as among the industries where 100-percent ownership was required. /kga