By Krista A. M. Montealegre,
THE Securities and Exchange Commission (SEC) has revoked the incorporation papers of online news site Rappler, Inc. and its parent company for failing to meet the constitutional limits on foreign ownership, as investors closely monitor the ruling’s implication on listed mass media companies.
In a 29-page decision dated Jan. 11, the SEC, in an en banc decision, ruled that Rappler and its parent Rappler Holdings Corp. (RHC) were “liable for violating the constitutional and statutory foreign equity restrictions in mass media.”
The Foreign Equity Restriction in Article XVI, Section 11(1) of the Constitution provides that “the ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly owned and managed by such citizens.”
“Revocation of certificate of incorporation on each respondent — Rappler, Inc. being the mass media entity that sold control to foreigners, and Rappler Holdings Corp. being its alter ego, existing for no other purpose than to effect a deceptive scheme to circumvent the Constitution,” the SEC said.
A copy of the ruling will be furnished to the Department of Justice “for appropriate action,” it added.
“There is substantial evidence that respondents intentionally created an elaborate scheme, upon which its receipt of over a million dollars from a foreign investor would be theoretically defensible — the investor would never own ‘stock’ and would never receive ‘dividends,’ and he would never become an officer or director, but respondents would still be able to give him his money’s worth in the form of negative control and cash distributions, all through a private contractual arrangement,” the SEC said.
While the “formal, in depth” investigation on Rappler’s corporate structure began on July 8, 2017, the SEC has embarked on an “internal, inter-departmental investigation” as early as December 2016 when it received a letter from the Office of the Solicitor General requesting an investigation “for any possible contravention of the strict requirements of the 1987 Constitution.”
SPOTLIGHT ON PDR
The probe focused on Rappler’s sale of Philippine Depositary Receipts (PDR) — a security which grants the holder the right to the delivery of sale of the underlying share — to foreign entities Omidyar Network Fund LLC. and NBN Rappler LP.
The SEC, also in its ruling, declared “void” the PDRs issued to Omidyar pursuant to Section 71.2 of the Securities Regulation Code for being a “fraudulent” transaction.
“The restriction of foreign equity prevents any scheme to transfer rights attached to equity — even in the guise of an equity derivative. The (Omidyar) PDR requirement of ‘prior discussion’ and ‘approval of 2/3’ was a grant of more than 0% control to foreigners; control no less than 100% reserved to Filipinos,” the SEC said.
The SEC explained that “control” is not limited to stock ownership, but involves “other schemes that grant influence over corporate policy, actions and structure.”
Armando A. Pan, Jr., officer-in-charge of the Office of the Commission Secretary, said in a mobile phone message on Monday the “decision is not final and executory” and Rappler can appeal the SEC ruling with the Court of Appeals within 15 days.
In a statement posted on its Web site, Rappler said the SEC decision was “pure and simple harassment,” noting it has “acted in good faith and adhered to the best standards in a fast-evolving business environment.”
“We intend to not only contest this through all legal processes available to us, but also to fight for our freedom to do journalism and for your right to be heard through an independent platform like Rappler,” it added.
President Rodrigo R. Duterte claimed in his second State of the Nation Address last June that Rappler is “fully owned by Americans,” an accusation that Rappler has repeatedly denied.
Listed mass media companies ABS-CBN Corp. and GMA Network, Inc. have issued PDRs in the past to obtain foreign capital without violating the constitution.
“I am just not sure if this will create a domino effect where ABS-CBN and GMA would be dragged into the investigation due to their PDR issuances too. But we won’t really know until the issue with Rappler has been fixed first,” said Jervin S. de Celis, equities trader at Timson Securities, Inc., noting that the “noise” may depress share prices of the media companies in the short term.
Solicitor General Jose C. Calida applauded the SEC ruling and vowed to defend the regulator’s “sound decision.”
“This decision demonstrates that even influential media outfits cannot skirt the restrictions set forth in the Constitution,” Mr. Calida said.
The National Union of Journalists of the Philippines, in a statement, said it is “outraged” at the SEC ruling, noting that it “was one of many threats (Mr.) Duterte has made against media critical of him and his governance, such as the Philippine Daily Inquirer and broadcast network ABS-CBN, whose franchise renewal he threatened to block.”
“Hindi muna ako magsasabi na ito ba ay tama o mali, kasi meron naman talaga tayong mga proseso na dapat na sinusunod. Basta ang nararapat dito, hindi pinipigil ang isang organisasyon kung naghahayag ng balita o opinyon basta lamang ito ay naaayon sa batas,” said Senator Grace L. Poe, chairperson of Senate Committee on Public Information and Mass Media. — with reports from Arra B. Francia, Minde Nyl R. dela Cruz and Camille A. Aguinaldo