CA upholds SEC on Rappler ruling

The Court of Appeals (CA) upheld the Securities and Exchange Commission’s (SEC) decision to revoke the certificate of incorporation of online news outfit Rappler Inc. and its unit Rappler Holdings Corp.

(RHC) for violation of the constitutional provision restricting foreign ownership in mass media.

In denying the petition of Rappler, the CA’s 12th Division said the SEC did not abuse its discretion in the ruling it rendered.

The SEC ruling stated that Rappler’s agreement with a foreign investor, Omidyar Network established in 2004 by eBay founder Pierre Omidyar, constituted “some foreign control” contrary to the Constitution.

The CA ruling said Rappler must be given “reasonable time” to correct the disputed parts of deal.

“The court noted that, in cases where the articles of incorporation or any amendment thereto is found by the SEC to be non-compliant with the requirements of the Corporation Code, under Section 17 of the Corporation Code, the SEC is mandated to give incorporators a reasonable time within which to correct or modify the objectionable portions of their articles of incorporation or amendment thereof,” the CA said in a 72-page decision.

The appellate court, however, directed the SEC to conduct an evaluation of the legal effect of the alleged supervening donation made by Omidyar Network of all its Philippine Depository Receipts (PDR) to the staff of Rappler while returning to SEC the adjudication of the case.

Malacañang welcomed the CA decision, saying it supported “the Palace stance that this case does not involve press freedom but the regulatory powers of the SEC.”

Roque said the Palace is “confident that the SEC will be able to resolve the case with the same competence and objectivity as before.”

The SEC order also assailed Omidyar’s ownership of Rappler PDR as “existing for no other purpose than to effect a deceptive scheme to circumvent the Constitution.”

In October 2015, RHC issued 7,217,257 PDR covering shares of Rappler Inc. designated as Omidyar Network PDR because these were sold to Omidyar Network Fund LLC, a foreign juridical entity. RHC then reported that it received an investment from Omidyar Network LLC.

It also issued PDR covering shares of Rappler Inc. to NBM Rappler L.P., a foreign unit of the firm. NBM Rappler L.P. was founded and co-owned by North Base Media Ltd., a foreign venture-capital firm.

“We have not yet received a copy of the decision but we will surely not take the decision sitting down and will take all legal actions necessary to have the issue finally resolved by the Supreme Court. Having said that, I’m glad that the Court of Appeals has ordered the SEC to conduct further proceedings to determine the legal effect of the donation of the PDR to the Filipino staff of Rappler. What this means is that the SEC decision cannot be enforced or implemented until the issue is finally decided. Meanwhile, it’s business as usual for Rappler,” Francis Lim, lawyer for Rappler, said.

The SEC en banc also declared Omidyar PDR void for “being a fraudulent transaction within the ambit of Section 26.1 of the Securities Regulation Code.”

The CA also ruled there was no denial of administrative due process with the SEC since notice and hearing was afforded to Rappler.

“Accordingly, the court rules that in the present case, a substantial compliance with the requirements of due process was observed by the SEC,” it said.

“It bears stressing that the foreign equity restriction on mass media implies ‘zero’ foreign control. It thus includes any appearance of control that will influence the corporate actions and decisions of Rappler,” the ruling stated.

“Also, it does not matter whether the approval from Omidyar is required only when the actions taken by Rappler will prejudice the rights of Omidyar, because RHC, will still nonetheless be required to secure the approval of at least 2/3 of the PDR Holders before Rappler can carry out or implement any action which has the effect of altering, modifying or otherwise changing Rappler’s Articles of Incorporation or bylaws,” it added.

The SEC conducted its investigation upon the request of the Office of the Solicitor General that wrote the agency in December 2016.

Solicitor General Jose Calida said he asked SEC to probe Rappler after reading the newspaper articles of a former ambassador to Cyprus and Greece who disclosed in October 2016 that two American companies, Omidyar Network Inc. and North Base Media, in 2015 “made substantial investments” in Rappler.

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