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Business

High Court rejects SEC move to cancel permit of forex firm

- Jose Rodel Clapano -
The Supreme Court has rejected the efforts of the Securities and Exchange Commission to cancel the registration of the Performance Foreign Exchange Corp. (PFEC), which is engaged in foreign currency transactions in the country.

In an 11-page decision penned by Associate Justice Angelina Sandoval-Gutierrez, the High Court’s second division junked the petition for review on certiorari filed by the SEC seeking to reverse the July 3, 2002 ruling of the Court of Appeals (CA) which nullified the cease and desist order (CDO) issued by the SEC stopping the operations of the PFEC.

In ruling against the SEC, the High Court said the SEC failed to observe two essential requirements in the issuance of a cease and desist order which include the "conduct of proper investigation or verification and there must be a finding that the act will operate as a fraud on investors or likely to cause grave or irreparable injury to the investing public."

Court records showed that the SEC issued on Jan. 16, 2001, through its compliance enforcement division (CED), a cease and desist order against PFEC for alleged violation of Republic Act no. 8799 or the Securities Regulation Code.

CED director Emilio Aquino said the outcome of its investigation showed that the PFEC traded foreign currency futures contracts on behalf of its clients without the necessary license.

Aquino said PFEC’s transactions are deemed to be direct violation of Section 11 of RA 8799 and other related provisions of its implementing rules and regulations.

For its part, PFEC asked the SEC to lift the CDO maintaining that it did not violate any law while conducting its business which involves spot currency trading.

The company said spot currency trading is very much different from currency futures contracts trading.

In an effort to know the nature of the company’s business, then SEC Chairman Lilia Bautista asked the Bangko Sentral ng Pilipinas (BSP), through a letter dated Feb. 8, 2001 for a definitive statement that Performance’s business transactions are a form of financial derivatives, which can only be undertaken by banks or non-bank financial intermediaries performing quasi-banking functions.

The SEC issued a permanent cease-and-desist order on April 23, 2001 even before the Bangko Sentral ng Pilpinas could issue its definitive statement.

The PFEC filed on June 20, 2001 before the Court of Appeals a petition seeking to stop the SEC from implementing the cease and desist order.

In a reply letter dated Aug. 13, 2001 to Bautista, BSP office of the Governor Officer-in-Charge Amado Tetangco, Jr. ruled that the foreign exchange business activity does not fall under the category of futures trading and cannot be classified as financial derivatives transactions.

vuukle comment

ASSOCIATE JUSTICE ANGELINA SANDOVAL-GUTIERREZ

BANGKO SENTRAL

CHAIRMAN LILIA BAUTISTA

COURT OF APPEALS

EMILIO AQUINO

GOVERNOR OFFICER-IN-CHARGE AMADO TETANGCO

HIGH COURT

PERFORMANCE FOREIGN EXCHANGE CORP

PFEC

REPUBLIC ACT

SEC

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