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    SEC-v.-Performance-Foreign-Exchange-Corp.

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    honey samaniego
    The SEC issued a Cease and Desist Order against Performance Foreign Exchange Corporation, alleging it engaged in foreign currency future contracts without a license. Performance argued it conducted spot currency trading, not futures trading. The Court ruled the SEC abused its discretion by issuing the Order without first conducting a proper investigation or verification, and without a positive finding that Performance's operations constituted fraud or would cause public harm, as required by law. The SEC must investigate and verify the nature of a company's operations before restraining it through an order.

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    SEC-v.-Performance-Foreign-Exchange-Corp.

    Uploaded by

    honey samaniego
    274 views1 page
    The SEC issued a Cease and Desist Order against Performance Foreign Exchange Corporation, alleging it engaged in foreign currency future contracts without a license. Performance argued it conducted spot currency trading, not futures trading. The Court ruled the SEC abused its discretion by issuing the Order without first conducting a proper investigation or verification, and without a positive finding that Performance's operations constituted fraud or would cause public harm, as required by law. The SEC must investigate and verify the nature of a company's operations before restraining it through an order.

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    SRC Case Digest

    Original Title

    10. _SEC-v.-Performance-Foreign-Exchange-Corp.

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    The SEC issued a Cease and Desist Order against Performance Foreign Exchange Corporation, alleging it engaged in foreign currency future contracts without a license. Performance argued it conducted spot currency trading, not futures trading. The Court ruled the SEC abused its discretion by issuing the Order without first conducting a proper investigation or verification, and without a positive finding that Performance's operations constituted fraud or would cause public harm, as required by law. The SEC must investigate and verify the nature of a company's operations before restraining it through an order.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    274 views1 page

    SEC-v.-Performance-Foreign-Exchange-Corp.

    Uploaded by

    honey samaniego
    The SEC issued a Cease and Desist Order against Performance Foreign Exchange Corporation, alleging it engaged in foreign currency future contracts without a license. Performance argued it conducted spot currency trading, not futures trading. The Court ruled the SEC abused its discretion by issuing the Order without first conducting a proper investigation or verification, and without a positive finding that Performance's operations constituted fraud or would cause public harm, as required by law. The SEC must investigate and verify the nature of a company's operations before restraining it through an order.

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    Securities and Exchange Commission v.

    Performance Foreign Exchange Corporation


    G.R. No. 154131
    July 20, 2006

    Sandoval-Gutierrez, J:
    Performance Foreign Exchange is a domestic corporation that is registered as a broker/agent between market
    participants in transactions involving, but not limited to, “foreign exchange, deposits, interest rate instruments, fixed
    income securities, bonds/bills, repurchased agreements of fixed income securities, certificate of deposits, bankers
    acceptances, bills of exchange, over-the-counter option of the aforementioned instruments, Lesser Developed Country’s
    (L.D.C.) debt, energy and stock indexes and all related, similar or derivative products, other than acting as a broker for the
    trading of securities pursuant to the Revised Securities Act of the Philippines.” As a secondary purpose, it engages in
    currency exchange. Performance received a Cease and Desist Order from the SEC, where the latter alleges that
    Performance engages in trading foreign currency future contracts without license. The latter asked that the Order be lifted
    and argued that it engaged in spot currency trading, which is different. The SEC denied, and suspended the operations of
    Performance until the Bangko Sentral ng Pilipinas endorses that the former may perform financial derivative transactions.
    During the appeal before the CA, the BSP subsequently ruled that Respondent’s business does not fall under futures
    trading. Hence, the CA ruled that SEC abused its discretion when it issued the Order without a positive finding first.
    Petitioner argues that its factual findings must be respected because of the expertise of the agency.

    Issue:
    May the SEC issue a Cease and Desist Order without a previous positive finding of a violation?

    Held:
    No. Section 64 of R.A. No. 8799, provides: “The Commission, after proper investigation or verification, motu proprio,
    or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior
    hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise
    likely to cause grave or irreparable injury or prejudice to the investing public.”

    Under the above provision, there are two essential requirements that must be complied with by the SEC before it may
    issue a cease and desist order: First, it must conduct proper investigation or verification; and Second, there must be a
    finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave
    or irreparable injury or prejudice to the investing public.

    Here, the first requirement is not present. Petitioner did not conduct proper investigation or verification before it issued
    the challenged orders. The clarificatory conference undertaken by petitioner regarding respondent’s business operations
    cannot be considered a proper investigation or verification process to justify the issuance of the Cease and Desist Order. It
    was merely an initial stage of such process, considering that after it issued the said order following the clarificatory
    conference, petitioner still sought verification from the BSP on the nature of respondent’s business activity.

    Petitioner’s act of referring the matter to the BSP is an essential part of the investigation and verification process. In
    fact, such referral indicates that petitioner concedes to the BSP’s expertise in determining the nature of respondent’s
    business. It bears stressing, however, that such investigation and verification, to be proper, must be conducted by
    petitioner before, not after, issuing the Cease and Desist Order in question. This, petitioner utterly failed to do. The
    issuance of such order even before it could finish its investigation and verification on respondent’s business activity
    obviously contravenes Section 64 of R.A. No. 8799 earlier quoted.

    Which brings us to the second requirement. Before a cease and desist order may be issued by the SEC, there must be a
    showing that the act or practice sought to be restrained will operate as a fraud on investors or is likely to cause grave,
    irreparable injury or prejudice to the investing public. Such requirement implies that the act to be restrained has  been
    determined after conducting the proper investigation/verification. In this case, the nature of the act to be restrained
    can only be determined after the BSP shall have submitted its findings to petitioner. However, there is nothing in the
    questioned Orders that shows how the public is greatly prejudiced or damaged by respondent’s business operation.

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