By Krista A. M. Montealegre
National Correspondent

MULTIMEDIA news Web site Rappler, Inc. faces an uphill battle to challenge the Securities and Exchange Commission’s (SEC) decision to revoke its incorporation papers, a ruling that fed suspicions about the government’s hand in undermining press freedom.

“We have no problem. They should bring it to court if they want to. Kahit anong baliktad gawin (From any point of view), it was an admitted violation pa nga,” SEC Chairperson Teresita J. Herbosa said in an interview in Pasay City on Tuesday.

In a press briefing, Armando A. Pan, Jr., officer-in-charge of the Office of the Commission Secretary, said Rappler can undertake corrective measures to cure the “fraudulent” Philippine depositary receipts (PDR) with the SEC, but the Department of Justice (DoJ) can still pursue criminal charges against it.

The SEC, which has no quasi-judicial power, has endorsed its ruling to the DoJ “for appropriate action.”

“They can issue new PDRs. If they want to register they can, but the decision stands,” Mr. Pan said, noting that companies seeking to register their securities can amend their filings with the commission, but this is before an en banc decision has been made.

“The DoJ will start the proceedings…” he said.

For now, Rappler can continue its operations, as it has 15 days from Jan. 12 to file an appeal with the Commission on Appeals, Mr. Pan said.

The SEC, in a 29-page decision dated Jan. 11, ruled that Rappler and its parent Rappler Holdings Corp. (RHC) were “liable for violating the constitutional and statutory foreign equity restrictions in mass media,” resulting in the revocation of their incorporation papers.

At the center of the SEC ruling is Rappler’s sale of PDRs — securities that give holders the right to the delivery or sale of the underlying share without conferring ownership or control — to Omidyar Network Fund LLC, which contains a “repugnant” provision requiring Rappler to seek approval of PDR holders on corporate matters.

“These rights are reserved to the shareholders of a corporation. Ordinarily, PDR holders cannot do this, but when it comes to Omidyar PDR holders, these rights were given to them,” Mr. Pan said.

The SEC, in its ruling, declared “void” the PDRs issued to Omidyar Network, arguing that “control” is not limited to stock ownership alone but encompasses “other schemes that grant influence over corporate policy, actions and structure.”

Rappler has argued that PDR holders do not interfere in editorial matters.

While Rappler issued the securities to Omidyar in 2015, Mr. Pan said the SEC did not have access to the terms and conditions of the PDRs at that time because the multimedia news Web site asked for exemptive relief for the registration of the securities.

The SEC grants exemptive relief when securities are sold through a private placement or issued to less than 19 qualified institutional buyers, among others.

“That’s why we had to issue a subpoena so the documents will be made available to the special panel,” Mr. Pan said.

The Philippine Stock Exchange (PSE) has two listed PDRs: ABS-CBN Holdings Corp. and GMA Holdings, Inc. The mass media companies have issued PDRs to the public in the past to obtain foreign capital without violating the Constitution.

“The ABS-CBN (and) GMA PDRs were registered — unlike the Omidyar PDRs where a notice of exemption was filed — because they were offered to the public,” Mr. Pan said.

“I was told GMA and ABS-CBN PDRs do not contain those political rights.”

Investors appeared to have shrugged off the Rappler issue, with the bellwether PSE index (PSEi) hitting another intraday high on Tuesday.

“It shouldn’t affect (the investment community) as Rappler’s PDRs didn’t follow what listed companies do, i.e. no control is given to the investors. PDRs should be economic only,” Eduardo V. Francisco, president of BDO Capital and Investment Corp., said by phone.

Mr. Francisco, who has assisted several listed companies in issuing PDRs, said the SEC had a legal basis in its decision against Rappler.

“With Rappler, while the PDRs are not voting, there is exercise of control. Just to change the address you need the approval and you need to consult with the PDR holders,” Mr. Francisco said.

“It is not just economic right; there is control. It is not a true PDR in the spirit.”

The SEC decision against Rappler has marked the latest showdown between the press and the administration of President Rodrigo R. Duterte, who has slammed media for their critical coverage of his bloody war on the narcotics trade.

Presidential Spokesperson Harry L. Roque, Jr. yesterday said Mr. Duterte had not influenced the corporate regulator’s decision against Rappler and that the President had called him to ask why critics were pointing the finger at him.

“He did not like the fact that Rappler was saying this is a result of the President’s dislike of Rappler,” Mr. Roque said in a regular news briefing in Malacañan Palace.

“Of course not, he had nothing to do with this decision. He was not even aware there was a decision coming up.”

Responding to Rappler’s description of the decision as “pure and simple harassment,” SEC’s Mr. Pan said: “We never think about that — harassment.”

“We only assess governance and ownership structure of Rappler. As to claims of restraint of press freedom, hindi naman. We focused on the PDR issue, the security itself.”

Interestingly, Omidyar Network, owner of the PDRs in question, is a philanthropic investment firm founded by online auction firm e-bay founder Pierre Omidyar, who reportedly pledged to donate $100 million to fund investigative journalism and combat the spread of “fake news” online.

“Regardless of whether it’s political or legal in nature, I think it may, in general, have a negative impact on people’s perception of press freedom in the Philippines,” RCBC Capital Corp. President Jose Luis F. Gomez said in a mobile phone message. — with Reuters input

RELATED ARTICLESMORE FROM AUTHOR