State Policy Purpose.

The establishment of a socially conscious,

free market that: (1) Regulates itself; (2) Encourage the widest
participation of ownership in enterprises; (3) Enhance the
democratization of wealth; (4) Promote the development of the
capital market; (5) Protect investors; (6) Ensure full and fair
disclosure about securities; (7) Minimize if not totally eliminate
insider trading and other fraudulent or manipulative devices and
practices which create distortions in the free market (Sec. 2).
Securities Required to be Registered General rule: Securities
shall not be sold or offered for sale or distribution to the public
within the Philippines, without a registration statement duly filed
with and approved by the Commission (Sec. 8.1) [N.B. The
Securities Regulation Code (SRC) regulates public offering within
the Philippines.]
Exceptions:
(1) Exempt securities (Sec. 9)
(a) Any security issued or guaranteed by the Government of the
Philippines/ its political subdivision or agency/its instrumentality/
or any person controlled or supervised thereby; [N.B. Rationale for
the exception: The public does not need protection from the
government itself. The government will always be solvent to pay
its obligations because of its ability to raise revenues through
taxation.]
(b) Any security issued or guaranteed by the government of any
country with which the Philippines maintains diplomatic relations,
or by any state, province or political subdivision thereof on the
basis of reciprocity: Provided, That the Commission may require
compliance with the form and content for disclosures the
Commission may prescribe; [Rationale for the exception: This is
rooted in comity among nations.]
(c) Certificates issued by a receiver or by a trustee in bankruptcy
duly approved by the proper adjudicatory body; [Rationale: This is
not a public offering. Besides, protection is already afforded by
that proper adjudicatory body and additional SEC protection is
not necessary.]
(d) Any security or its derivatives the sale or transfer of which, by
law, is under the supervision and regulation of the Office of the
Insurance Commission, Housing and Land Use Rule Regulatory
Board, or the Bureau of Internal Revenue. [Rationale: The issuers
are governmental agencies covered by exception (a) above. SEC
protection would be a duplication.]
(e) Any security issued by a bank except its own shares of stock
(Sec. 9.1) [Rationale: Banks are under the supervision of the
Bangko Sentral. SEC protection is a duplication.]
(f) Any class of security with respect to which the SEC finds that
registration is not necessary in the public interest and for the
protection of investors (Sec. 9.2)
Note: The exemption of securities by the SEC must be made
through the issuance of a rule or regulation (Sec. 9.2)
(2) Exempt transactions
(a) At any judicial sale, or sale by an executor, administrator,
guardian or receiver or trustee in insolvency or bankruptcy.
[Rationale for exclusion: A court will presumably not order the sale
if the public will be prejudiced thereby.]
(b) By or for the account of a pledge holder, or mortgagee or any
of a pledge lien holder selling of offering for sale or delivery in the
ordinary course of business and not for the purpose of avoiding the
provision of this Code, to liquidate a bona fide debt, a security
pledged in good faith as security for such debt. [Rationale: This is
not a voluntary sale contemplated by the SRC.]
(c) An isolated transaction in which any security is sold, offered for
sale, subscription or delivery by the owner thereof, or by his
representative for the owners account, such sale or offer for sale
or offer for sale, subscription or delivery not being made in the
course of repeated and successive transaction of a like character by
such owner, or on his account by such representative and such
owner or representative not being the underwriter of such security.

[Rationale: Isolated and not meant to be an ongoing public

offering.]
(d) The distribution by a corporation actively engaged in the
business authorized by its articles of incorporation, of securities to
its stockholders or other security holders as a stock dividend or
other distribution out of surplus. [Rationale: The offerees are not
the public but shareholders already familiar with their company.]
(e) The sale of capital stock of a corporation to its own
stockholders exclusively, where no commission or other
remuneration is paid or given directly or indirectly in connection
with the sale of such capital stock. [Rationale: Same as (d) above.]
(f) The issuance of bonds or notes secured by mortgage upon real
estate or tangible personal property, when the entire mortgage
together with all the bonds or notes secured thereby are sold to a
single purchaser at a single sale. [Rationale: This is not a public
sale.]
(g) The issue and delivery of any security in exchange for any
other security of the same issuer pursuant to a right of conversion
entitling the holder of the security surrendered in exchange to
make such conversion: Provided, That the security so surrendered
has been registered under this Code or was, when sold, exempt
from the provision of this Code, and that the security issued and
delivered in exchange, if sold at the conversion price, would at the
time of such conversion fall within the class of securities entitled
to registration under this Code. Upon such conversion the par
value of the security surrendered in such exchange shall be deemed
the price at which the securities issued and delivered in such
exchange are sold. [Rationale: The SEC has already registered the
convertible security and presumably also passed upon the security
to be issued upon conversion.] UP COLLEGE OF LAW
SECURITIES REGULATION CODE BAR OPERATIONS
COMMISSION PAGE 114
(h) Brokers transaction, executed upon customers orders, on any
registered Exchange or other trading market. [Rationale: If
brokers transactions are registered each time, the transactions on
the exchange will be unduly hampered. Besides, the brokers are
subject to a code of conduct protective of the interest of the
investors.]
(i) Subscriptions for shares of the capitals stocks of a corporation
prior to the incorporation thereof or in pursuance of an increase in
its authorized capital stocks under the Corporation Code, when no
expense is incurred, or no commission, compensation or
remuneration is paid or given in connection with the sale or
disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscription is to comply with
the requirements of such law as to the percentage of the capital
stock of a corporation which should be subscribed before it can be
registered and duly incorporated, or its authorized, capital increase.
[Rationale: This is not a public offering. Besides, the SEC is
involved in the subscription process, as a regulator.]
(j) The exchange of securities by the issuer with the existing
security holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for soliciting
such exchange. [Rationale: This is not a public offering.]
(k) The sale of securities by an issuer to fewer than twenty (20)
persons in the Philippines during any twelve-month period.
[Rationale: This is not a public offering but a private placement.]
(l) The sale of securities to any number of the following qualified
buyers:
(i) Bank;
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the
Government of the Philippines or any political subdivision thereof
or manage by a bank or other persons authorized by the Bangko
Sentral to engage in trust functions;
(v) Investment company or;
(vi) Such other person as the Commission may rule by determine
as qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial

and business matters, or amount of assets under management. (Sec.

10.1) [Rationale: These are sophisticated investors that could fend
for themselves.]
(m) Any transaction with respect to which the SEC finds that
registration is not necessary in the public interest and protection of
investors such as by the reason of the small amount involved or the
limited character of the public offering (Sec. 10.2)
Note: Application for exemption under this Section must be
accompanied by: (1) notice of the exemption relied upon; (2)
payment of fee equivalent to 1/10 of 1% of the maximum value
aggregate price or issued value of the securities.

(ii) Has violated any of the provision of this Code, the rules
promulgate pursuant thereto, or any order of the Commission of
which the issuer has notice in connection with the offering for
which a registration statement has been filed
(iii) Has been or is engaged or is about to engage in fraudulent
transactions;
(iv) Has made any false or misleading representation of material
facts in any prospectus concerning the issuer or its securities;
(v) Has failed to comply with any requirements that the
Commission may impose as a condition for registration of the
security for which the registration statement has been filed; or

Procedure for Registration of Securities

(1) Filing of a sworn registration statement with the SEC (Sec.
12.1), which:
(a) Shall include any prospectus required or permitted to be
delivered under Subsections 8.2, 8.3, and 8.4 (Sec. 12.1)
Chapter III, Sec. 8. Requirement of Registration of Securities xxx
8.2 The Commission may conditionally approve the registration
statement under such terms as it may deem necessary.
8.3 The Commission may specify the terms and conditions under
which any written communication, including any summary
prospectus, shall be deemed not to constitute an offer for sale
under this Section.
8.4. A record of the registration of securities shall be kept in
Register Securities in which shall be recorded orders entered by the
Commission with respect such securities. Such register and all
documents or information with the respect to the securities
registered therein shall be open to public inspection at reasonable
hours on business days.
(b) Shall include the effect of the securities issue on ownership, on
the mix of ownership, especially foreign and local ownership (Sec.
12.3)

(b) The registration statement is on its face incomplete or

inaccurate in any material respect or includes any untrue
statements of a material fact required to be stated therein or
necessary to make the statement therein not misleading; or
(c) The issuer, any officer, director or controlling person
performing similar functions, or any under writer has been
convicted, by a competent judicial or administrative body, upon
plea of guilty, or otherwise, of an offense involving moral turpitude
and /or fraud or is enjoined or restrained by the Commission or
other competent or administrative body for violations of securities,
commodities, and other related laws (Sec. 13.1)
(d) If any issuer shall refuse to permit an examination to be made
by the Commission (Sec. 13.3)
Note: A registration statement may be withdrawn by the issuer
only with the consent of the Commission (Sec. 13.6).
(5) Statement under oath by the issuer in all prospectus that
registration requirements have been met and that all information
are true and correct as represented by the issuer or the one making
the statement. Statement under oath must be made upon effectivity
of the registration statement. (Sec. 12.7)
Prohibitions on fraud, manipulation and insider trading
MANIPULATION OF SECURITY PRICES

(c) Shall be signed by the issuers executive officer, its principal

operating officer, its principal financial officer, its comptroller, its
principal accounting officer, its corporate secretary, or persons
performing similar functions accompanied by a duly verified
resolution of the board of directors of the issuer corporation (Sec.
12.4)
(d) Shall be accompanied by: (a) written consent of the expert
named as having certified any part of the registration statement or
any document used in connection therewith; and (b) Where the
registration statement shares to be sold by selling shareholders, a
written certification by such selling shareholders as to the accuracy
of any part of the registration statement contributed to by such
selling shareholders (Sec. 12.4).
(2) Payment to the SEC a fee of not more than one-tenth (1/10) of
one per centum (1%) of the maximum aggregate price at which
such securities are proposed to be offered (Sec. 12.5a)
(3) Publication of the notice of the filing of registration statement.
The publication must be in two (2) newspapers of general
circulation in the Philippines, once a week for two (2) consecutive
weeks, or in such other manner as the Commission by the rule
shall prescribe (Sec. 12.5b)
(4) Declaration by the SEC whether the registration statement is
effective or rejected, Declaration is made within 45 days from
filing of the registration statement or on such later date to which
the issuer has consented unless applicant has been allowed to
amend the registration statement under Sec. 14 (Sec. 12.6).
Notes: Grounds for: (1) rejection/revocation of registration
statement and (2) refusal of registration/revocation of securities
thereunder:
(a) The issuer:
(i) Has been judicially declared insolvent;

It shall be unlawful for any person acting for himself or through a

dealer or broker, directly or indirectly:
(1) To create a false or misleading appearance of active trading in
any listed security traded in an Exchange of any other trading
market (hereafter referred to purposes of this Chapter as
"Exchange"):
(a) By effecting any transaction in such security which involves
no change in the beneficial ownership thereof;
(b) By entering an order or orders for the purchase or sale of such
security with the knowledge that a simultaneous order or orders of
substantially the same size, time and price, for the sale or purchase
of any such security, has or will be entered by or for the same or
different parties; or
(c) By performing similar act where there is no change in
beneficial ownership.
(2) To affect, alone or with others, securities or transactions in
securities that:
(a) Raises their price to induce the purchase of a security, whether
of the same or a different class of the same issuer or of controlling,
controlled, or commonly controlled company by others; or
(b) Creates active trading to induce such a purchase or sale through
manipulative devices such as marking the close, painting the tape,
squeezing the float, hype and dump, boiler room operations and
such other similar devices.
(3) To circulate or disseminate information that the price of any
security listed in an Exchange will or is likely to rise or fall
because of manipulative market operations of any one or more
persons conducted for the purpose of raising or depressing the
price of the security for the purpose of inducing the purpose of sale
of such security.

(4) To make false or misleading statement with respect to any

material fact, which he knew or had reasonable ground to believe
was so false or misleading, for the purpose of inducing the
purchase or sale of any security listed or traded in an Exchange.

(b) Would be considered by a reasonable person important under

the circumstances in determining his course of action whether to
buy, sell or hold a security (Sec. 27.2)
It shall be unlawful for an insider:

(5) To effect, either alone or others, any series of transactions for

the purchase and/or sale of any security traded in an Exchange for
the purpose of pegging, fixing or stabilizing the price of such
security; unless otherwise allowed by this Code or by rules of the
Commission (Sec. 24.1)
SHORT SALES
[N.B. The SEC is regulating transactions wherein the seller does
not yet own or have the securities he is selling. He is required to
show that he has made arrangements to effect delivery of such
securities on settlement date; otherwise, the sale will not be
allowed.]
(1) No person shall use or employ, in connection with the
purchase or sale of any security any manipulative or deceptive
device or contrivance.
(2) No short sale shall be effected nor any stop-loss order be
executed in connection with the purchase or sale of any security
except if allowed by the SEC (Sec. 24.2)
Note: The SEC may allow certain acts or transactions under Sec.
24 (on Manipulation of Security Prices and Sales), for public
interest and protection of investors (Sec. 24.3)
FRAUDULENT TRANSACTIONS
It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:
(1) Employ any device, scheme, or artifice to defraud; (Sec. 26.1)
(2) Obtain money or property by means of any untrue statement of
a material fact of any omission to state a material fact necessary in
order to make the statements made, in the light of the
circumstances under which they were made, not misleading (Sec.
26.2)
(3) Engage in any act, transaction, practice or course of business
which operates or would operate as a fraud or deceit upon any
person (Sec. 26.3)
INSIDER TRADING [N.B. What is sought to be addressed here is
the asymmetry in information about a public company (such as a
company listed on the Philippine Stock Exchange) between
insiders and outsiders. Insiders could have material information not
yet known to the public about the company, and they might use
this information to benefit themselves at the expense of the
outsiders or the public. Therefore, they must not trade in the shares
of the company pending the disclosure of such information to the
public.]
Notes:
(1) An insider means:
(a) The issuer;
(b) A director or officer (or any person performing similar
functions) of, or a person controlling the issuer; gives or gave him
access to material information about the issuer or the security that
is not generally available to the public;
(c) A government employee, director, or officer of an exchange,
clearing agency and/or self-regulatory organization who has access
to material information about an issuer or a security that is not
generally available to the public; or
(d) A person who learns such information by a communication
from any foregoing insiders (Sec. 3.8)

(1) To sell or buy a security of the issuer, while in possession of

material information with respect to the issuer or the security that
is not generally available to the public, unless:
(a) The insider proves that the information was not gained from
such relationship; or
(b) If the other party selling to or buying from the insider (or his
agent) is identified, the insider proves:
(i) That he disclosed the information to the other party, or
(ii) That he had reason to believe that the other party otherwise is
also in possession of the information (Sec. 27.1)
Note: Presumption that purchase or sale is effected while in
possession of material non-public information arises:
(1) If the purchase or sale is transacted after such information came
into existence but prior to dissemination of such information to the
public; and
(2) The lapse of a reasonable time for market to absorb such
information.
Presumption may be rebutted by showing of purchasers or sellers
awareness of the material non-public information at the time of
purchase or sale (Sec. 27.1)
(2) To communicate material nonpublic information about the
issuer or the security to any person who, by virtue of the
communication, becomes an insider where the insider
communicating the information knows or has reason to believe that
such person will likely buy or sell a security of the issuer whole in
possession of such information (Sec. 27.3)
Protection of Investors TENDER OFFER RULE
[N.B. This protects the minority shareholders. If a person or a
group of persons (acting in concert) intends and is in discussion
with certain shareholders of a public company (normally, the
controlling shareholders) to acquire a substantial stake in such
company (now, the threshold is 35% of the outstanding class of
shares in a public company), the acquirer must make an offer to all
the shareholders of the company to tender their shares at the price
being offered to the controlling shareholders. Before, the minority
shareholders are left out; so, the acquirer only dealt with the
controlling shareholders and disregarded the minority.]
When a tender offer has commenced or is about to commence, It
shall be unlawful for:
(a) Any person (except the tender offeror) who is in possession of
material nonpublic information relating to such tender offer, to buy
or sell the securities of the issuer that are sought or to be sought by
such tender offer if such person knows or has reason to believe that
the information is nonpublic and has been acquired directly or
indirectly from the tender offeror, those acting on its behalf, the
issuer of the securities sought or to be sought by such tender offer,
or any insider of such issuer
(b) Any tender offeror, those acting on its behalf, the issuer of the
securities sought or to be sought by such tender offer, and any
insider of such issuer to communicate material nonpublic
information relating to the tender offer to any other person where
such communication is likely to result in a violation of (a) (Sec.
27.4).
RULES ON PROXY SOLICITATION
Proxies shall be:

(2) Material non-public information means:

(a) It has not been generally disclosed to the public and would
likely affect the market price of the security after being
disseminated to the public and the lapse of a reasonable time for
the market to absorb the information; or

(1) Issued in accordance with SEC rules and regulations; Proxy

solicitations shall also be made in accordance with the said rules
and regulations (Sec. 20.1)
(2) In writing (Sec. 20.2)

(3) Signed by the stockholder or his duly authorized

representatives (Sec. 20.2)
(4) Filed before the scheduled meeting with the corporate
secretary (Sec. 20.2)
(5) Valid only for the meeting for which it is intended unless
otherwise provided in the proxy (Sec. 20.3)
Note: No proxy shall be valid and effective for a period longer than
five (5) years at one time (Sec. 20.3)
A broker or dealer shall:
(1) Not give any proxy, consent or any authorization, in respect of
any security carried for the account of the customer, to a person
other than the customer, without written authorization of such
customer (Sec. 20.4)
(2) If he holds or acquires the proxy for at least ten percent (10%)
or such percentage as the commission may prescribe of the
outstanding share of such issuer, submit a report identifying the
beneficial owner of ten days after such acquisition, for its own
account or customer, to the issuer of security, to the exchange
where the security is traded and to the Commission (Sec. 20.5)
DISCLOSURE RULE
DISCLOSURE BY THE ISSUER
To the SEC
Every issuer shall file with the Commission:
(1) Annual Report within one hundred thirty-five (135) days, after
the end of the issuers fiscal year, or such other time as the
Commission may prescribe
(2) Such other periodical reports for interim fiscal periods and
current reports on significant developments of the issuer as the
Commission may prescribe as necessary to keep current
information on the operation of the business and financial
condition of the issuer (Sec. 17.1)
Note: Under this Section, issuer includes: (a) An issuer which
has sold a class of its securities pursuant to a registration under
section 12 hereof.
BUT the requirement shall be suspended for any fiscal
year if such issuer, as of the first day of any such fiscal year, has
less than one hundred (100) holder of such class securities or such
other number as the Commission shall prescribe and it notifies the
Commission of such;
(b) An issuer with a class of securities listed for trading on an
Exchange; and
(c) An issuer with assets of at least Fifty million pesos
(50,000,000.00) or such other amount as the Commission shall
prescribe, and having two hundred (200) or more holder each
holding at least one hundred (100) share of a class of its equity
securities.

(1) The personal background, identity, residence, and citizenship

of, and the nature of such beneficial ownership by, such person and
all other person by whom or on whose behalf the purchases are
effected; in the event the beneficial owner is a juridical person, the
of business of the beneficial owner shall also be reported;
(2) If the purpose of the purchases or prospective purchases is to
acquire control of the business of the issuer of the securities, any
plans or proposals which such persons may have that will effect a
major change in its business or corporate structure;
(3) The number of shares of such security which are beneficially
owned, and the number of shares concerning which there is a right
to acquire, directly or indirectly, by; (i) such person, and (ii) each
associate of such person, giving the background, identity,
residence, and citizenship of each such associate; and
(4) Information as to any contracts, arrangements, or understanding
with any person with respect to any securities of the issuer
including but not limited to transfer, joint ventures, loan or option
arrangements, puts or call guarantees or division of losses or
profits, or proxies naming the persons with whom such contracts,
arrangements, or understanding have been entered into, and giving
the details thereof.
Note: If it appears to the SEC that securities were acquired by
person in the ordinary course of his business and were not acquired
for the purpose of and do not have the effect of changing or
influencing the control of the issuer nor in connection with any
transaction having such purpose or effect it may permit any person
to file in lieu of the statement required by subsection 17.1 hereof, a
notice stating:
(a) The name of such person;
(b) The shares of any equity securities subject to Subsection 17.1
which are owned by him;
(c) The date of their acquisition; and
(d) Such other information as the commission may specify (Sec.
18.3
DISCLOSURE BY INSIDER
An insider has the duty to disclose material information with
respect to the issuer or the security that is not generally available to
the public (Sec. 27.1) (See definitions of insider and material
non-public information at pp. 132-133)
A beneficial owner of 10% of a public company becomes a
principal shareholder required to disclose his interest to the SEC,
the company, and the Philippine Stock Exchange (if the company
is listed there).
Civil Liability
CIVIL LIABILITIES ON ACCOUNT OF FALSE
REGISTRATION STATEMENT (SEC. 56) Civil liabilities arise
when the registration statement or any part thereof contains on its
effectivity:
(1) An untrue statement of a material fact; or

The obligation of such issuer to file report shall be terminate ninety

(90) days after notification to the Commission by the issuer that
the number of its holders holding at least one hundred (100) share
reduced to less than one hundred (100) (Sec. 17.2)

(2) Omission to state a material fact required to be stated therein or

necessary to make such statements not misleading
WHO MAY BE LIABLE? (NUPSAID)

To the equity holders An annual report shall be furnished by every

issuer which has a class of equity securities satisfying any of the
requirements in Subsection 17.2 to each holder of such equity
security (Sec. 17.5)
DISCLOSURE BY EQUITY HOLDERS
Any person who acquires directly or indirectly the beneficial
ownership of more than five of per centum (5%) of such class or in
excess of such lesser per centum as the Commission by rule may
prescribe, shall, within ten (10) days after such acquisition or such
reasonable time as fixed by the Commission, submit to: (1) the
issuer of the securities; (2) to the Exchange where the security is
traded; and (3) to the Commission, the following information:

(1) Issuer and every person who signed the registration statement;
(2) Director of/partner in the issuer at the time of the filing of the
registration statement or any part, supplement or amendment
thereof;
(3) One who is named in the registration statement as being or
about to become (b);
(4) Auditor/auditing firm named as having certified any financial
statements used in connection with the registration statement or
prospectus;

(5) One who, with his written consent filed with the registration
statement, has been named as having prepared or certified any part
of the registration statement/any report or valuation which is used
in connection with the registration statement;
(6) Selling shareholder who contributed to and certified as to the
accuracy of a portion of the registration statement;

WHO MAY BE LIABLE? Any person who engages in any act or

transaction in violation of Sections 19.2, 20 or 26, or any rule or
regulation of the Commission thereunder.
WHO MAY SUE? Any other person who purchases or sells any
security, grants or refuses to grant any proxy, consent or
authorization, or accepts or declines an invitation for tender of a
security who sustained damages as a result of the transaction.

(7) Underwriter with respect to such security (Sec. 56.1)

WHO MAY SUE?

CIVIL LIABILITY FOR MANIPULATION OF SECURITY

PRICES (SEC. 59)

Any person who acquires the security and who suffers damage
unless it is proved that at the time of such acquisition he knew of
such untrue statement or omission (Sec. 56.1)

WHO MAY BE LIABLE? Any person who willfully participates

in any act or transaction in Section 24 (Manipulation of Security
Prices).

Note: When the security is acquired after the issuer has made
generally available to its security holders an income statement
covering a period of at least twelve (12) months beginning from
the effective date of the registration statement, the right of
recovery under this subsection shall be conditioned on proof that
such person acquired the security relying upon such untrue
statement in the registration statement or relying upon the
registration statement and not knowing of such income statement
(Sec. 56.2)

WHO MAY SUE? Any person who shall purchase or sell any
security at a price which was affected by such act or transaction.
CIVIL LIABILITY WITH RESPECT TO COMMODITY
FUTURES CONTRACTS AND PRE-NEED PLANS (SEC. 60)
WHO MAY BE LIABLE? Any person who engages in any act or
transactions in willful violation of any rule or regulation
promulgated by the Commission under Section 11 (on Commodity
Future Contracts) or 16 (on Pre-Need Plans) (Sec. 60.1)

CIVIL LIABILITIES ARISING IN CONNECTION WITH

PROSPECTUS, COMMUNICATIONS AND REPORTS (SEC.
57)

WHO MAY SUE? Any person sustaining damages as a result of

such act or transaction (Sec. 60.1)

LIABILITY OF SELLERS/OFFERORS

CIVIL LIABILITY ON ACCOUNT OF INSIDER TRADING

Who may be liable?

LIABILITY FOR NON-DISCLOSURE

(1) Offeror or seller of a security in violation of Chapter on

Registration of Securities;

Who may be liable?

(1) Any insider who violates Subsection 27.1; and

(2) Offeror or seller of a security, whether or not exempted by the

provisions of this Code, by means of a prospectus or other written
or oral communication which includes an untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements, in the light of the circumstances under which
they were made, not misleading (the purchaser not knowing of
such untruth or omission).
Defense: No knowledge of untruth or omission, despite the
exercise of reasonable care (Sec. 57.1).
Who may sue?

(2) Any person in the case of a tender offer who violates

Subsection 27.4 (a)(I), or any rule or regulation thereunder, by
purchasing or selling a security while in possession of material
information not generally available to the public (Sec. 61.1)
Who may sue? Any investor who, contemporaneously with the
purchase or sale of securities that is the subject of the violation,
purchased or sold securities of the same class unless such insider,
or such person in the case of a tender offer, proves that such
investor knew the information or would have purchased or sold at
the same price regardless of disclosure of the information to him
(Sec. 61.1)

Purchaser of the security may sue to recover:

(1) Consideration paid for such security with interest thereon, less
the amount of any income received thereon, upon the tender of
such security; or

LIABILITY FOR COMMUNICATING NON-PUBLIC

INFORMATION ABOUT ISSUER
Who may be liable?

(2) For damages if he no longer owns the security (Sec. 57.1)

(1) An insider who violates Subsection 27.3; or

LIABILITY OF MAKERS OF FALSE MISLEADING

STATEMENTS

(2) Any person in the case of a tender offer who violates

Subsection 27.4 (a), or any rule or regulation thereunder
communicating material nonpublic information shall be jointly and
severally liable under Subsection 61.1 with, and to the same extent
as, the insider, or person in the case of a tender offer, to whom the
communication was directed and who is liable under Subsection
61.1 by reason of his purchase or sale of a security (Sec. 61.2).

Who may be liable?

Any person who shall make or cause to be made any statement in
any report, or document filed pursuant to this Code or any rule or
regulation thereunder, which statement as at the time and in the
light of the circumstances under which it was made false or
misleading with respect to any material fact, shall be liable to.
Defense: Good faith and lack of knowledge of the false and
misleading statement (Sec. 57.2).
Who may sue? Purchaser or seller of security who purchased or
sold at a price which was affected by such statement knowing that
such statement was false or misleading, and relying upon such
statement may sue for damages caused by such reliance (Sec.
57.2).
CIVIL LIABILITY OF FRAUD IN CONNECTION WITH
SECURITIES TRANSACTIONS (SEC. 58)

LIABILITY OF CONTROLLING PERSONS, AIDER AND

ABETTOR AND OTHER SECONDARY LIABILITY
LIABILITY OF CONTROLLING PERSONS
Who may be liable? Every person who controls any person liable
under this Code or the rules or regulations of the Commission
thereunder, shall also be liable jointly and severally with and to the
same extent as such controlled persons to any person to whom
such controlled person is liable (Sec. 51.1)
Note: Control may be by or through stock ownership, agency, or
otherwise, or in connection with an agreement or understanding
with one or more other persons (Sec. 51.1)

Defense: Lack of knowledge of the existence of facts by reason of

which the liability of the controlled person is alleged to exist (Sec.
51.1)
LIABILITY OF DIRECTOR/OFFICER FOR DELAY IN THE
FILING OF REQUIRED DOCUMENTS
It shall be unlawful for any director or officer of, or any owner of
any securities issued by, any issuer required to file any document,
report or other information under this Code or any rule or
regulation of the Commission thereunder, without just cause, to
hinder, delay or obstruct the making or filing of any such
document, report, or information (Sec. 51.2)
LIABILITY OF AIDER/ABETTOR It shall be unlawful for any
person to aid, abet, counsel, command, induce or procure any
violation of this Code, or any rule, regulation or order of the
Commission thereunder (Sec. 51.3)

Every person who substantially assists the act or omission of any

person primarily liable under Sections 57, 58, 59 and 60 of this
Code, with knowledge or in reckless disregard that such act or
omission is wrongful, shall be jointly and severally liable as an
aider and abettor for damages resulting from the conduct of the
person primarily liable (Sec. 51.4)
BUT an aider and abettor shall be liable only to the extent of his
relative contribution in causing such damages in comparison to
that of the person primarily liable, or the extent to which the aider
and abettor was unjustly enriched thereby, whichever is greater
(Sec. 51.4)
Note: It shall be unlawful for any person, directly, or indirectly, to
do any act or thing which it would be unlawful for such person to
do under the provisions of this Code or any rule or regulation
thereunder (Sec. 51.2)