Lectures &

News & Views

Law &



Trust Products
& Practice

About the Guru


Email Feedback

Guest Register










Did RVO illegally trade his Philex shares?

(Article published in the Aug 31,2011 issue of Manila Standard Today) 

There is no question that, at the time relevant to the controversial loan granted to him by the Development Bank of the Philippines (DBP) to Delta Ventures Resources Inc. (DVPI) for the purpose of enabling the latter to purchase shares in Philex Mining, Honourable Roberto V. Ongpin was a member of the Board of that mining company.  Ipso facto, his membership in the Philex board, even without his other duties in the company, made him, within the meaning of the Securities Regulation Code (R.A. 8799) an “insider.” 

An “insider”, as defined by Section 3.8 of R.A. 8799, “means (a) the issuer; (b) a director or officer (or person performing similar functions) of, or a person controlling the issuer; (c) a person whose relationship or former relationship to the issuer gives or gave him access to material information about the issuer or the security that is not generally available to the public; (d) a government employee, or 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 (e) a person who learns such information by a communication from any of such insiders.”


There is something weird in that definition of “insider”.   The first two types of “insiders”, namely, (a) the issuer and (b) a director, or officer, of a person performing similar functions, are not, unlike the third, fourth, and fifth kinds, qualified by the need to have “access to material information about an issuer or security that is not generally available to the public.”   Does this mean that the offense of insider trading is not committed by a director who can prove that he, as a matter of fact, did not have such material information?

The Honourable  Ongpin seems to so believe.  In his paid advertisement that came out in the August 12 issue of a major broadsheet, he issued a stern rebuke to DBP’s duly authorized spokesperson, Atty. Zenaida Ongkiko-Accorda who suggested that his being in the board of Philex “made it highly probable that they [Messers Roberto V. Ongpin and Reynaldo G. David] were privy to relevant information regarding the impending change in the corporate control of Philex and, therefore, knew of the impending increase in the value of Philex shares.”

With obvious umbrage, the Honourable Ongpin described the genteel ways of boardroom habitués and said, “For Atty. Accord’s information, such matters as attempts to change control are always kept highly confidential and are certainly never discussed on the Board.”  Ergo, the argument concludes, the mere fact of being on the board of Philex, by itself, did not make any board member subject to the obligation imposed by Subsection 27.1 of the Securities Regulation Code of disclosing or refraining. 

A superficial reading of Subsection 27.1 in fact could give the impression that the Honourable Ongpin is correct.  Subsection 27.1 makes it “unlawful for an insider 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...”  That is the general prohibition against insider trading.

And while Subsection 27.1 proceeds to say that “a purchase or sale of a security of the issuer made by an insider... shall be presumed to have been effected while in possession of material non-public information if transacted after such information came into existence but prior to dissemination of such information to the public and the lapse of a reasonable time for the market to absorb such information”, it is quick to add the proviso that “this presumption shall be rebutted upon a showing by the purchaser or seller that he  was not aware of the material non-public information at the time of the purchase or sale.”  Ergo, as implied by the Honourable Unpin in his own defense, there no unlawful insider trading by an insider who did not know.

Such a reading of law with respect to a director, I submit, does violence to the spirit of the law on insider trading.  A director, as the well-respected Institute of Corporate Directors insists, is a fiduciary. He owes his principal, who is not the fictional person or juridical entity that is the corporation, but rather the real individuals, of human flesh and warm blood, of dreams and dreads, the obligation to work for what is good for them. 

This collective mass, I further submit, is not confined to those stockholders of the company of which a person is a director; it also includes all those owning stocks and other equity interests in the other corporations, specially, but not limited to, those listed in our organized market.  They have braved the surreal world of the stock market on the premise that the participants therein are not just players, not unlike those who sit in poker tables, but fiduciaries who could be trusted with their money.

It does no good to any one in this collective mass to be served by any person who can disclaim responsibility simply by saying “I did not know nothing.”  A director, precisely because of his exalted function, has the responsibility to know; the innards of his corporate transactions he knows, or ought to know. 

Actually, the Honourable Ongpin has made an admission of sorts.  In the aforementioned statement, he proclaimed: “Indeed, I borrowed money not only from DBP but from five other banks to finance my acquisition of Philex shares because as early as 2007, I had come to the conclusion that Philex was greatly undervalued and that the rise in gold and copper prices would continue.”  To what extent, if any, that conclusion was based on information gathered as a director of Philex need to be investigated.