CHAPTER VI

Enforcement and Liability

Sec. 37. Liabilities of Controlling Persons and Aider and Abettor and Other Secondary Liability. –

(a)    Subsections 51.1, 51.2, 51.3 and 51.4 of the SRC shall apply to violations of this Act and rules, regulations and orders made under this Act in the same manner as they apply to the SRC and rules, regulations and orders made under the SRC.

(b)    The civil liability provided under Subsection 51.5 of the SRC shall apply to a person who substantially assists the act or omission of any person primarily liable under Section 42.

Sec. 38. Investigations, Injunctions and Prosecution of Offenses. –

(a)    The powers of the Commission to make investigations under Subsections 53.1 and 53.2 of the SRC shall apply to this Act and any rule, regulation or order under it in the same manner as they apply to the SRC.

(b)    The powers of the Commission to issue orders or transmit evidence under Subsection 53.3 of the SRC shall apply to this Act and any rule, regulation or order under it in the same manner as they apply to the SRC.

(c)    Subsection 53.4 of the SRC shall apply to any lawful order, decision or subpoena issued by the Commission under Subsection (a) or (b).

Sec. 39. Administrative Sanctions. –

(a)    If, after proper notice and hearing, the Commission finds any of the following, it shall, in its discretion, impose any or all of the sanctions listed in Subsection (b) as may be appropriate in light of the facts and circumstances:

1.       There is a violation of this Act or any rule, regulation or order under it.

2.       A registered investment company, principal distributor or mutual fund dealer has failed reasonably to supervise, with a view to preventing violations, any investment solicitor who violated this Act or any rule, regulation or order under it and whose application for registration was certified by it.

3.       Any registered investment company or other person has, in a registration statement, application, report, account, record or other document required to be filed under this Act or any rule, regulation or order under it made any untrue statement of a material fact or omitted to state any material fact required to be stated or necessary to make the statements in it not misleading.

4.       A person has refused to permit any lawful examination into its affairs.

(b)    The sanctions under Subsection (a) are:

1.       Suspension or revocation of any registration issued by the Commission under this Act or the SRC.

2.       A fine of not less than P1,000 nor more than P500,000 plus not more than P10,000 for each day of continuing violation.

3.       Disqualification from being an investment adviser, administrative manager, custodian, principal distributor, mutual fund dealer or principal underwriter.

4.       Other penalties within the power of the Commission to impose.

(c)    The imposition of administrative sanctions under this section shall be without prejudice to the filing of criminal charges.

(d)    The Commission shall have the power to issue writs of execution to enforce the provisions of this section and to enforce payment of the fees and other amounts collectible under this Act.

(e)    Section 55 of the SRC, concerning settlement offers, and any rules or regulations under it shall apply to any investigation or proceeding under this Act.

Sec. 40. Penalties. –

(a)    Any person who:

1.       Steals, unlawfully abstracts, unlawfully and willfully converts to his own use or to the use of another, or embezzles any of the moneys, funds, securities, credits, property or assets of a registered investment company;

2.       Violates any provision of this Act or any rule, regulation or order under it; or

3.       In any registration statement, application, report, account, record or other document required to be filed under this Act makes any untrue statement of a material fact or omits to state any material fact required to be stated or necessary  to make the statements in it not misleading, shall, except as provided elsewhere in this Act, upon conviction suffer a fine, imprisonment or other penalties as prescribed in Section 73 of the SRC.

 (b)    Any person who violates Section 32 shall upon conviction be subject to a fine of up to P50,000.  Upon the conviction of any person acting as an investment solicitor or salesman for the commission of an offense connected with the business of a registered investment company, the Commission shall immediately revoke his registration under this Act or the SRC and not grant him registration under either statute subsequently.

Sec. 41. Validity of Contracts. –

(a)    Any condition, stipulation or provision binding any person to waive compliance with any provision of this Act or any rule, regulation or order under it shall be void.

(b)    A contract made in violation of this Act or any rule, regulation or order under it, and a contract the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, this Code or any rule, regulation or order under it shall be void as regards the rights of:

1.       Any person who, in violation of any of them, shall have made or engaged in the performance of any such contract; and

2.       Any person who, not being a party to the contract, shall have acquired any right under it with actual knowledge of the facts by reason of which the making or performance of the contract was in violation of any of them.

Sec. 42. Civil Liability. –

(a)    An affiliated person of a registered investment company, or an investment adviser, administrative manager, principal distributor, mutual fund dealer, underwriter or custodian of a registered investment company, or any of their affiliated persons, who unlawfully and willfully diverts the funds, securities or other assets of the investment company to his personal use, or who otherwise willfully commits a breach or abuse of trust in respect to the assets of, or transactions with, the investment company shall be liable for damages to the investment company.

(b)    The civil liability provided under Sections 56 and 57 of the SRC in respect of a false or misleading registration statement, prospectus or other communication, or report or document filed under the SRC, shall apply in respect of a false or misleading registration statement, prospectus or other communication by means of which a person offers to sell or sells a security under this Act, or a report or document filed under this Act or any rule, regulation or order under this Act.

(c)    Section 63 of the SRC shall apply in respect of suits to recover damages under Subsection (b) in the same manner as it applies to suits to recover damages under Sections 56 or 57 of the SRC.

(d)    A security holder of a registered investment company may recover any unreasonable or excessive sales load imposed upon and paid by him in connection with the sale to, or redemption from, him of securities of the investment company.

(e)    A registered investment company, or any of its stockholders through a derivative suit, may recover any unreasonable or excessive payments by the investment company for management fees or other amounts paid as compensation for services to an investment adviser, administrative manager, principal distributor, mutual fund dealer, underwriter or custodian, or any of their affiliated persons.

(f)    A registered investment company or any of its investment advisers, administrative managers, principal distributors, mutual fund dealers, underwriters or custodians, or any of their affiliated persons, who is a defendant in an action by a registered investment company, or any of its stockholders in a derivative suit, for an alleged breach of duty shall transmit, unless already transmitted to the Commission, the documents specified in Subsection (g) if (1) the action has been compromised or settled and the settlement or compromise has been approved by a court, or (2) a final judgment has been entered on the merits of the action.

(g)    Within 30 days after a settlement, compromise or final judgment referred to in Subsection (f), copies of all pleadings and any written record made in the action, together with a statement of the terms of settlement or compromise if not included in the record, shall be transmitted to the Commission.  Any information contained in those documents may be used by the Commission in connection with any report or study that the Commission may make.  The Commission shall not disclose the names of persons it obtains from documents transmitted under this subsection.

Sec. 43. Limitation of Actions. –

(a)    No action shall be maintained to enforce any liability created under Subsection 42(b) of this Act unless brought within two years after the discovery of the untrue statement or the omission.  In no event shall any such action be brought to enforce a liability created under Subsection 42(b) more than five years after the security was offered to the public.

(b)    No action shall be maintained to enforce any liability created under any other provision of this Act unless brought within two years after the discovery of the facts constituting the cause of action and within five years after the cause of action accrued.

SEC. 44. Substituted Service Upon the Commission. –

Service of summons or other process shall be made upon the Commission in actions or legal proceedings against a person liable under this Act who is not domiciled in the Philippines.  Within 10 days after receipt by the Commission of the summons, the Commission shall send by registered mail a copy of the summons and the complaint or other legal process to the person at his last known address or principal office.  The sending of the summons by the Commission shall complete the service.  The expenses for sending the summons shall be advanced by the party requesting it.

Sec. 45. Effect of Action of Commission and Related Unlawful Representations. –

Subsection 67 of the SRC shall apply to an action or failure to act by the Commission in the administration of this Act in the same manner as it applies to an action or failure to act by the Commission in the administration of the SRC.

Sec. 46. Effect on Existing Law. –

The rights and remedies provided by this Act shall be in addition to all rights and remedies that may otherwise exist.  However, no person permitted to maintain a suit for damages under this Act may recover, through satisfaction of judgment in one or more actions, a total amount in excess of his actual damages on account of the act for which remedy was sought, except that exemplary damages may be awarded in cases of bad faith, fraud, malevolence or wantonness in violation of this Act or the rules and regulations under it.

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