GR 154131; (July, 2006) (Digest)
G.R. No. 154131 ; July 20, 2006
SECURITIES AND EXCHANGE COMMISSION, petitioner, vs. PERFORMANCE FOREIGN EXCHANGE CORPORATION, respondent.
FACTS
Performance Foreign Exchange Corporation (PFEC) is a domestic corporation registered with the SEC, with a primary purpose to operate as a broker/agent in transactions involving foreign exchange and related instruments, and a secondary purpose to engage in money changing. After two years of operation, the SEC’s Compliance and Enforcement Department (CED) issued a Cease and Desist Order against PFEC, alleging it was engaged in trading foreign currency futures contracts on behalf of clients without the necessary license, in violation of the Securities Regulation Code ( R.A. No. 8799 ). PFEC moved to lift the order, asserting it only engaged in lawful spot currency trading, not futures contracts.
The SEC, seeking clarity, requested the Bangko Sentral ng Pilipinas (BSP) to determine if PFEC’s transactions were financial derivatives, which would require BSP authorization. Without awaiting the BSP’s definitive statement, the SEC subsequently denied PFEC’s motion and made the Cease and Desist Order permanent. It also ordered PFEC to show cause why its corporate registration should not be revoked. PFEC then filed a Petition for Certiorari with the Court of Appeals, which ruled in its favor.
ISSUE
Whether the Securities and Exchange Commission acted with grave abuse of discretion in issuing and making permanent the Cease and Desist Order against Performance Foreign Exchange Corporation without sufficient factual and legal basis.
RULING
The Supreme Court affirmed the Court of Appeals, ruling that the SEC committed grave abuse of discretion. The legal logic is anchored on the requirement that a Cease and Desist Order under the Securities Regulation Code must be based on a clear finding of fact that the entity’s activities pose a grave or irreparable injury to the public. The SEC’s own actions demonstrated uncertainty, as it sought a definitive determination from the BSP regarding the true nature of PFEC’s business. By making the order permanent without awaiting the BSP’s findings, the SEC acted arbitrarily.
The Court emphasized that an administrative agency’s power to issue such a drastic injunctive relief must be exercised with care and based on concrete evidence of public harm. Here, the SEC’s orders failed to substantiate how PFEC’s operations were causing great prejudice or damage to the general public. Consequently, the SEC’s actions, being premature and lacking in factual foundation, constituted a capricious and whimsical exercise of judgment equivalent to grave abuse of discretion. The permanent cease and desist order was therefore invalidated.