The SEC CDO Decision

Written on Wednesday, June 4th, 2008 at 5:13 am | by Manuel Buencamino

The following is from Business Mirror in “Dispatches from The Enchanted Kingdom”, Jess Martinez of SEC explains why he issued a CDO against the Meralco board.

Jess Martinez airs his side

Securities and Exchange (SEC) Commissioner Jesus Martinez, Commission on Higher Education Chairman Romulo Neri and Supreme Court Associate Justice Renato Corona were batch mates at the Ateneo de Manila High School (ADMHS).

ADMHS ’66 calls itself the “MOBB” (Men of Blue Blood) because its members were dubbed mga balasubas by one of their teachers.

Romy Neri’s Senate testimony surprised and disappointed many of his batch mates. Rene Corona’s concurring vote and opinion on Neri’s case elicited a similar reaction. Much was expected of Romy and Rene because they were in the honors class.

Jess was not in the honors class. He was just one of the boys, as the saying goes. Still, I was a bit put off when I heard he signed a cease-and-desist order (CDO) against the Manila Electric Co. (Meralco) based on a complaint filed by Winston Garcia, the hand puppet of Bonnie and Clyde.

I’ve known Jess a long time. He is of the MOBB but he’s not a balasubas. He is a lawyer, but he’s a God-fearing man.

Thursday, Jess and I talked about his controversial CDO.

Me: “Buddy, what happened?”

Jess: “There was a huge stack of papers waiting for me when I got to the office. My secretary told me it was an urgent prayer for a CDO from Winston Garcia. I read the petition. It was not frivolous.”

Me: “Oh?”

Jess: “There were attachments, solicitation letters that lacked proxy forms, etc. What was I supposed to do, play blind?”

Me: “Without even giving Meralco a chance to respond?”

Jess: “I didn’t have to hear the side of Meralco.”

Me: “Why?”

Jess: “A CDO is like a TRO [temporary restraining order]. It can be filed ex-parte.”

Me: “Buddy, I’m not a lawyer.”

Jess: “Look, if you’re being evicted from your home and you believe you shouldn’t be, then you go to a judge and ask for a TRO. The purpose of a TRO is to prevent you from being thrown out of your house. You don’t alert the other side.”

Me: “Aah. . . .”

Jess: “Garcia wanted the public proxies verified.”

Me: “Public proxies?”

Jess: “Those shares that don’t belong to either the Lopez or Garcia blocs, those shares owned by ordinary investors like the Meralco pension fund. The SEC, as regulator, is supposed to protect the rights of those shareholders.”

Me: “But Meralco says your CDO was intended to stop the meeting and disenfranchise the votes of the people you were supposed to protect.”

Jess: “No. The CDO didn’t stop the meeting or disenfranchise anybody. We moved to supervise the validation of proxies—in full view of the stockholders present.

“I don’t understand why the Lopezes didn’t want us to open the ballot boxes, as it were. Those proxies, upon validation, would have been counted in their favor.”

Me: “But what about the undue haste with which the order came out?”

Jess: “There was haste, but it was not undue.

“Meralco is not an ordinary corporation. It’s publicly listed and it’s an index stock. It requires expeditious attention. The petition was filed at 10 that morning and the SEC order didn’t come out until around four that afternoon.”

Me: “Same day is not fast?”

Jess: “Well, if we had waited till the next day the meeting would have been over. Garcia’s electoral challenges would have gone down as ‘noted.’”

Me: “But shouldn’t Garcia have gone to the complaints division first?”

Jess: “He could have, but he didn’t.”

Me: “Why?”

Jess: “I don’t know, maybe he wanted to ambush the Lopezes.”

Me: “Isn’t that dirty pool?”

Jess: “I didn’t decide the merits of his petition based on what I thought he and his lawyers had in mind. I acted on what was presented to me at the time it was presented.”

Me: “You were the only signatory.”

Jess: “That’s not exactly true.

“After I read the petition, I went to the office of Commissioner [Thaddeus] Venturanza and asked him to read the petition. He said we should issue a CDO.

“Commissioner [Raul] Palabrica was out of the office at the time so Venturanza and I phoned him. After our teleconference, he said, ‘Issue the CDO.’ That’s three commissioners. I signed for and in behalf of the commissioners because I was the OIC.”

Me: “But you know, this whole thing is just Bonnie and Clyde using Winston to get hold of Meralco.”

Jess: “It’s not about white hats and black hats; it’s whether or not there was cause for the SEC to step in and issue a CDO.”

Me: “What’s next?”

Jess: “We will ask Meralco to explain its defiance.”

Me: “Meralco filed a case with the Court of Appeals [CA].”

Jess: “Good. Let the CA decide whether the SEC overreached. I’d like to get a clarification from them. Ever since the new SEC law reduced our jurisdiction from adjudication, regulation and registration to regulation and registration only, no one really knows where regulation ends and adjudication begins.”

Me: “What if they rule for Meralco?”

Jess: “Then our limits are clear.”

Me: Parang ginamit ka lang ni Winston. [“Seems like Winston used you.”]

Jess: “He used the law, not me.”

Me: “One last thing, buddy. Your son’s secretary is really attractive.”

Jess: “Don’t get started on that again.”

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About The Author: Manuel Buencamino is a columnist for Business Mirror. He writes political commentary and is involved with Action for Economic Reforms. He blogs at Uniffors - Life in Gloria's Enchanted Kingdom.

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5 Responses to “The SEC CDO Decision”

  1. Abe N. Margallo on June 5th, 2008 7:04 am

    mb,

    I remember that about 25 years ago (hence, the facts could be a bit hazy now) I was representing a group of minority stockholders attempting to gain control of the board of a medium-size corporation.

    The case we were litigating before the SEC, if memory isn’t failing me now, was about the validity of the transfer of a critical number of shares to the controlling majority. I got a favorable ruling from the adjudicating officer but a couple of days before the stockholders’ meeting to elect the new board, an order (a TRO of sort) was issued by a director reinstating the shares in question and threatening with contempt citation anyone who would disobey the order. The director’s order notwithstanding, I instructed my clients to ignore what was issued (and proceed as if the shares were not validly transferred) assuring them that I’d get a reversal from the Commission after the election. My clients vacillated because of the contempt warning and lost the elections.

    Having gotten wind from a reliable source of the SEC chairman being personally involved in the issuance of the director’s order, I lost no time running up right to the office of the chairman and told him straight in his face something to the following effect: Sir, parehas lang dapat ang labanan. Naghahanap buhay lang naman ako katulad mo. Kung gusto mo, tapusin natin ito, tayong dalawa lang.

    I was then in my early thirties and the chairman, I believe, in his late fifties. I wasn’t surprise he didn’t show up outside to face up to my call. (However because of my impetuousness, to say the very least, I was sternly berated by my former senior law partner who was also a SEC commissioner then.)

    The other points I’m getting at of course are: 1) that if Jess Martinez’s order was for real, why were the Lopez people not immediately made to face contempt proceeding for defying it (if the power is there)? and 2) that unlike my clients, people of the “higher circles” could afford to simply brush aside what on its face is an official action of a mid-level bureaucrat - with reckless gumption.

  2. manuelbuencamino on June 9th, 2008 10:31 pm

    Abe,

    I’m not a lawyer so I don’t quite follow your first point. As to your second point my reply to your question is another question : Didn’t the SEC ask Meralco to explain why it ignored the CDO and isn’t that the reason for Meralco to go to the CA to ask for a TRO?

    Martinez as I mentioned in my column is a friend of many many years and I know him to be honest. I talked to him because I wanted to understand why he issued a CDO. He said he was only doing his job. What is your legal opinion on what Martinez did?

    MB

  3. Abe N. Margallo on June 10th, 2008 7:56 pm

    mb,

    My first point is that it’s not unusual at all for a litigation lawyer in the Philippines (well, at least when I was in active practice) to get a “sucker punch” of a TRO even in clear cases when he may have the law on his side. I believe TROs of those sorts should be criminalized constituting as they do a lucrative cottage industry in the Philippine judicial system.

    Now, unless there is clear and convincing justification, I believe (to continue the boxing analogy in lieu of Jess’ eviction example) issuing an eleventh hour CDO - if in effect it would neutralize the voting of a contested bloc of shares deemed critical to the outcome of the board election - could be likened to issuing a TRO against Joe Frazier to cease and desist throwing his left hook against Ali during The Thrilla in Manila.

    Well, I don’t have all the facts as alleged in the GSIS complaint, I haven’t seen or read the CDO and frankly I’m not even quite familiar now with the obtaining “corporation law” on the matter. But one thing seems clear to me based on your account and news reports: Someone in this particular aspect of Meralco stockholders row is taking the law lightly (or has taken the law into his or their own hands); it’s either your friend or the Lopez people.

    On the surface, it appears to me the Lopez group has decided to slip what looks like rabbit punches in full view of the camera and the world even as a boxing commissioner has jumped into the ring in an attempt directly to officiate the match.

  4. manuelbuencamino on June 10th, 2008 10:11 pm

    Abe,

    Thanks for your reply.

    What about Winston, did he not take advantage of the law? Seems to me like he intentionally waited for the last two minutes before filing his petition for CDO thus forcing the hand of SEC and at the same time not giving the Lopezes time to get a TRO against the CDO.

    MB

  5. Abe N. Margallo on June 12th, 2008 12:10 am

    mb,

    If the order prayed for by Garcia in his complaint/petition requires en banc action by the SEC, he obviously has taken a great risk of allowing the Commission only too little a time to deliberate and observe due process.

    Anyways, Garcia has every right - in the absence of any proof collusion - to push the envelope of the legal remedies available to him. He lost his gambit unfortunately for him as the Lopezes made the smarter move to fight what appears to be a protracted legal battle (presumably beyond 2010) while in power (in the Meralco board).

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