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What wrong did Rappler do? Law firm explains why SEC found site’s PDRs problematic

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Law-firm Dizon and Orbe-Dizon has published a point-by-point explanation on how online news platform Rappler had violated the law, prompting the Securities and Exchange Commission (SEC) to revoke Rappler’s registration as a Philippine corporation.

In a January 16 article in the law firm’s website, lawyer Peter Michael Dizon said Rappler had violated the Constitution, which requires 100-percent Filipino control for any media entity.

Dizon said Rappler violated this provision when it granted foreign firm Omidyar Network control of the media outfit through some clauses in the foreign investor’s provision of Philippine Depositary Receipts (PDRs).

Simply put, PDRs are a form of a capital infusion of a foreign entity so a local firm can keep its operations going.

“There is nothing wrong with the issuance of PDRs,” Dizon said. The problem, the lawyer pointed out, was with the conditions linked to the PDRs issued by Rappler to Omidyar Network, prompting the SEC to revoke the news site’s registration as a Philippine corporation.

“The provisions included a condition that Rappler and Rappler Holdings cannot alter, modify, or change their Articles of Incorporation and Corporate By-Laws without discussion with the Omidyar Network PDR holders and obtaining the approval of at least two-thirds of all issued PDRs,” Dizon explained.

Rappler Holdings was the company established by Rappler to get foreign investments via PDRs, Dizon noted. Rappler Holdings fully acquired the Rappler news site in 2015.

Dizon stressed that under the Securities Regulation Code (SRC), control goes beyond ownership of shares. In the case of media firms, there should be no foreign firm control at all, based on Philippine laws.

Rappler’s defense

One of Rappler’s defenses is that “it is not a media company” and “what it does is not part of mass media,” Dizon noted.

“The SEC threw this defense out the door,” the law firm said, however, pointing out that Rappler had in fact named itself publicly as a media outfit.

“Rappler had been outing itself publicly as a mass media firm in legal terms and in its press releases,” Dizon pointed out.

Rappler, Dizon recalled, also submitted last December a piece of paper saying that the holders of the PDR are waiving their rights to the control provision of the PDR.

“The piece of paper was ignored because it was not even authenticated,” he said.

What the SEC did

Dizon noted that in the end, there was enough basis for the SEC to conclude that Rappler issued the PDRs to illegally skirt the strict ownership and control requirements of Philippine law.

The SEC then declared the PDRs issued to Omidyar Network by Rappler void and revoked the news site’s certificate of registration as a corporation with the SEC.

“Note that PDRs are not evidence of foreign ownership. It is the contractual provisions in the PDR that will determine foreign control and/or ownership. In Rappler’s case, the PDRs granted its investors some control. Our law prohibits ANY control,” the lawyer stressed. “And that was why Rappler’s registration was revoked.” (PNA)

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