CA upholds SEC order against Rappler

FILE: “The petition is hereby denied. However, the Securities and Exchange Commission is hereby directed to conduct an evaluation of the legal effect of the alleged supervening donation made by Omidyar Network of all its Philippine Depository Receipts to the staff of Rappler, Inc., Accordingly, this case is hereby remanded to the SEC for this purpose,” read the CA ruling. (Photo: Rappler.com)

MANILA — The Court of Appeals (CA) has denied the petition filed by online news site Rappler seeking to stop the implementation of the Securities and Exchange Commission (SEC) decision revoking the certificate of incorporation of Rappler Inc. and Rappler Holdings Corporation (RHC) allegedly for violating the Constitution and foreign equity restrictions in mass media.

In a 72-page decision dated July 26 penned by Associate Justice Rafael Antonio Santos, the CA’s 12th Division affirmed SEC’s findings and dismissed the petition filed by Rappler finding no grave abuse of discretion on the part of SEC.

“The petition is hereby denied. However, the Securities and Exchange Commission is hereby directed to conduct an evaluation of the legal effect of the alleged supervening donation made by Omidyar Network of all its Philippine Depository Receipts to the staff of Rappler, Inc., Accordingly, this case is hereby remanded to the SEC for this purpose,” read the CA ruling.

The SEC earlier cancelled the registration of Rappler, Inc. and RHC for “existing for no other purpose than to effect a deceptive scheme to circumvent the Constitution.”

It cited foreign equity restriction in the Constitution, Presidential Decree and the Securities Regulation Code that provide that “the ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations or associations wholly owned and managed by such citizens.”

The SEC En Banc also declared Omidyar Philippine Depository Receipts (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 states.

“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 By Laws,” it states.

In a 70-page petition for review, Rappler asked the appellate court to set aside the SEC en banc decision dated Jan. 11, 2018, noting that it violated Rappler’s constitutional right to due process.

They alleged that SEC came up with the revocation order in the absence of formal charge, which was supposed to be required in the commission’s rules.

It also said the SEC erred in canceling Rappler’s certificate of incorporation and voiding the Omidyar PDRs. They pointed out that the SEC has no finding that Omidyar had actually exercised control of the media outfit.

In October 2015, RHC issued 7,217,257 PDRs covering shares of Rappler Inc.

designated as ON PDRs because they were sold to Omidyar Network Fund LLC, a foreign juridical entity.

RHC publicly reported that it received an investment from Omidyar Network LLC.

It also issued PDRs covering shares of Rappler Inc. to NBM Rappler L.P., a foreign juridical entity. NBM Rappler L.P. was founded and co-owned by North Base Media Ltd., a foreign juridical entity.

The body 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 former ambassador to Cyprus and Greece Rigoberto Tiglao, who disclosed in October 2016 that two American companies, Omidyar Network, Inc. and North Base Media, in 2015 “made substantial investments” in Rappler.