(Editor's note: This is the Philippine Center for Investigative Journalism's statement on the SEC decision revoking the corporate registration of Rappler, posted Tuesday on www.pcij.org. and emailed to newspapers and news websites for publication.)
HARSH and with horrifying implications on the full and untrammeled exercise of press freedom.
That is the least that could be said of the decision of the Securities and Exchange Commission (SEC) en banc to revoke the certificate of incorporation of Rappler, a digital media company with a creditable record of independent reportage and social engagement on public policy issues.
The SEC -- as it had ruled on similar cases concerning The Nationality Rule, The Control Test, or The Grandfather Rule on foreign investments in prohibited sectors -- could have been less harsh. It could have imposed penalties or fines, or ordered Rappler to amend its papers or unload its foreign investments. The SEC did not. Hence, the journalism that Rappler typifies is now in serious peril.
Was the harshest penalty of revocation of license warranted in this case? The Constitutional guarantee of freedom of the press could have prevailed over the Constitutional prohibition on foreign ownership of media corporations, if the latter indeed is an issue with Rappler.
A few years ago, the SEC had shown inexplicable leniency toward telecommunications giant PLDT, or Philippine Long Distance & Telephone Co., that was investigated for supposedly skirting the Constitutional rule on 60% Filipino vis 40% foreign ownership of public utilities. The SEC did not order PLDT's dissolution on the pretext that doing so would impair telco service delivery by PLDT.
Today, however, the SEC seems to have glossed over the fact that the harshest penalty of revoking the corporate registration of Rappler would have impaired its delivery of news and information on matters of public concern, or even the Constitutional guarantees of press freedom and the people's right to know.
The contrast is clear. The SEC's Memorandum Circular No. 8, Series of 2013, or the “Guidelines on Compliance with the Filipino-Foreign Ownership Requirements" had been criticized in a petition filed with the Supreme Court to have "tailor-made" the rules to allow PLDT to skirt the law limiting foreign ownership of public utilities.
Section 2 of MC No. 8-2013 states that to determine compliance with the Constitutional or statutory requirement on 60 percent Filipino ownership of covered entities, "the required percentage of Filipino ownership shall be applied to BOTH (a) the total number of outstanding shares of stock entitled to vote in the election of directors; and (b) the total number of outstanding shares of stock, whether or not entitled to vote in the election of directors."
Earlier, in separate rulings in 2011 and 2012, the high court had precisely ruled that to determine a covered company's "capital" requirement, the SEC must treat shareholders of stocks entitled to vote and those not entitled to vote company directors as separate classes.
In its decision on Rappler, the SEC has morphed from lenient to severe.
Rappler's journalists have pledged to continue to write and report without fear or favor, and we can offer them our unrelenting support.
But Rappler's existence remains challenged by outstanding issues about its foreign investments that the SEC decision has raised. Indeed, beyond the sphere of journalism, the Rappler story will move next to the sphere of the courts and judicial processes.
The case will soon reach the Court of Appeals, where Rappler said it plans to challenge the SEC decision in the next fortnight. The case will move as well to the Department of Justice, where the SEC decision has been referred for investigation into possible violations by Rappler of the Anti-Dummy Law.
The 29-page SEC decision found that when Rappler Holdings Corp. (which owns Rappler, Inc.) issued Philippine Depositary Receipts to Omidyar Network in 2015, it signed on to an agreement with a provision that supposedly allowed control of Rappler by a foreign group.
This "negative control" provision, the SEC noted, binds Rappler Holdings “not to, without prior good faith discussion with ON PDR Holders and without the approval of PDR Holders holding at least two thirds (2/3s) of all issued and outstanding PDRs, alter, modify or other change the Company Articles of Incorporation or By-Laws or take any other action where such alteration, modification, change or action will prejudice the rights in relation to ON PDRs.”
It is a provision, according to the SEC, that violates the Foreign Equity Restrictions in the Mass Media that the Constitution prescribes because "the stockholders must have prior discussion with and approval of at least 2/3 of the PDR Holders, meaning Rappler is at the very least under obligation to consult with Omidyar Network. The stockholder has become, in effect, subservient to the holder. It is neither 100% control by the Filipino stockholders, nor is it 0% control by the foreigner PDR holders.”
In its verified compliance response to SEC, Rappler said that it did not violate the Constitution because its common shareholders, officers, and managers are Filipino citizens.
To be sure, the Rappler story is still in progress, and we must continue monitoring it. For one, the SEC decision involved an administrative matter. Soon, the DOJ investigation will focus on supposed criminal breach/es of the law, and thus portend more tragic implications for Rappler.
The political context of this story cannot be ignored. It is happening amid the internecine outbursts of displeasure and vitriol by President Rodrigo R. Duterte and his closest allies against Rappler, the Philippine Daily Inquirer, ABS-CBN, and generally journalists and media entities on the independent and critical reporting track.
Regulators and the courts would do well to deal with allegations of legal infractions by the media with utmost fairness, probity, and independence so they do not undermine further the Constitutionally guaranteed freedom of the press and the people's right to know, or worse, put the media now under duress in greater jeopardy and undue censure.
Rappler and all independent media agencies must live to write for many more days and years, and outlast all the enemies of truth, good governance, and justice in this land.
We must not let our guards down. Yet even better, we must all keep watch over the next events that would unfold.
Stand by Rappler. Assert and defend press freedom and the citizen's right to know.