I have just read the complete decision of the Securities and Exchange Commission “In re: Rappler, Inc. and Rappler Holdings Corp., January 11, 2018.” This is my contribution to a public understanding of the issue(s).
1. Was there a political motive behind Rappler’s misfortune? The best answer I can give is “probably.” After all, Rappler (for which I have written) has been one of the most critical of media against the administration.
2. Was the decision legally correct? To this question, my answer is yes. I have taught Corporation and Securities Law and I know enough of it to be able to give this answer with confidence.
Distinguish therefore between the possible political motive and the legal correctness of the decision.
3. Some basic legal considerations:
3.1. Article XVI, Sec. 11 (1) requires that control and management of mass media be limited to Filipino citizens. In short, for corporations engaged in mass media 100 percent of voting shares and equitable ownership should be Filipino.
3.2. Piercing the veil of corporate personality: This is a judicially crafted doctrine that allows a court or a quasi-judicial body to look beyond the fictive personality of a corporation into the persons behind it, when the fiction of corporate personality is used for fraudulent, illegal or dishonest purposes.
So if A, B, C, D, and E set up Corporation X and the corporation borrows heavily while A, B, C, D and E squander its resources and its income, the Court will ignore the personality of Corporation X and make A, B, C, D, and E liable for the debts of Corporation X.
Owning virtually all the shares of another corporation and having the same officers though not conclusive are red flags.
3.3. Depositary receipt: generally, it is a certificate representing shares of a foreign stock owned and issued by a domestic bank. That concept is applied mutatis mutandis (changing what needs to be changed) in this case.
4.1. In 2013, Rappler, Inc negotiated with Omidyar for funding. Omidyar is a foreign entity.
4.2. In 2014: Rappler, Inc negotiated with North Base Media also for funding.
4.3. Maria Ressa admits this much when she says that they looked for foreign investors to be “independent.”
4.4. Rappler Holdings Inc. came into being—a corporation distinct from Rappler, Inc, but NOT REALLY distinct, because 98.84 percent of all of Rappler, Inc.’s shares were held by Rappler Holdings.
4.5. In fact, the roster of officers for both corporations—Rappler, Inc. and Rappler Holdings is the same:
President: Maria Ressa
Treasurer: Jose Maria Bitanga
Secretary: Jose Hofileña
4.6. Rappler Holdings issued 12 million Philippine Depositary Receipts covering shares of Rappler Inc to NBM (North Base Media) Rappler (a foreign juridical entity).
4.7. Rappler Holdings announced partnership with North Base Media in 2015.
4.8. Rappler Holdings issued 7 million Philippine Depositary Receipts covering Rappler shares to Omidyar Network (foreign).
4.9. In the PDRs issued to Omidya, there is the clause that Rappler was required to seek the “approval of Omidyar Network on corporate matters”. Clearly this meant DILUTION of the constitutionally-required all Filipino control.
5. Rappler therefore attempted to disguise foreign ownership by creating Rappler Holdings. However, Rappler Holdings is clearly the alter ego of Rappler—as the holdings and the roster of officers show, as well as the acts by which Rappler Holdings issued PDRs covering shares of Rappler.
Conclusion: Rappler violated the provisions of the Constitution.
One of the powers of the SEC is to cancel the certificates of incorporation of corporations that violate the law.
SEC cancelled the incorporation of Rappler.
6. Could SEC have imposed other penalties? Yes, there is an array of sanctions open to SEC, and cancellation of registration is among them.
7. Why this harsh a sanction? “Harsh” is debatable. If you violate a key provision of the Constitution on corporate control, is that not serious enough to warrant cancellation. On the other hand, there comes in once more the possibility that the SEC found Rappler particularly odious. But on this matter, your guess is as good as mine.
8. In summary: Through its acts—which it thought clever—Rappler provided the government with an excuse or a legal pretext, on solid legal ground, to cause the demise of its corporate existence.
9. Should this threaten press freedom? Why should it? There will be a threat only if press freedom is identified with Rappler. But social media has provided the platform for almost unfettered free discussion. Just see to it that people are willing to follow you.