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SEC Revokes Incorporation of PH’s Pioneering Online Media Startup Rappler

Agency alleges company violated the Constitution’s prohibition of foreign ownership and management of the mass media
By Roel Landingin and Elyssa Christine Lopez |




The Securities and Exchange Commission (SEC) has revoked the certificate of incorporation of pioneering online media startup Rappler Inc. for allegedly violating the Philippine constitution’s prohibition against foreign ownership and management of any mass media entity.


In an order dated January 11, 2018, four of the five members of the Commission said they found that Rappler Inc. and a related holding firm, Rappler Holdings Corp., were “liable for violating the constitutional and statutory Foreign Equity Restrictions in Mass Media.” The fifth member did not participate in the deliberations. 


As penalty for the alleged violation, the SEC revoked the certificate of incorporation of Rappler Inc. and Rappler Holdings. It also declared void Rappler’s issuance of certain securities, called Philippine Depositary Receipts, to a foreign investor, Omidyar Network.


The SEC move immediately drew condemnation from media and human rights organizations. "The decision, which is tantamount to killing the online news site, sends a chilling effect to media organizations in the country," said the Foreign Correspondents Association of the Philippines (FOCAP), a grouping of journalists assigned to cover the Philippines for international news organizations. "Journalists must be able to work independently in an environment free from intimidation and harassment. An assault against journalists is an assault against democracy.”


Human rights group Karapatan said: “The Duterte regime’s revocation of Rappler’s Securities and Exchange Commission (SEC) registration, after months of articles about the Duterte regime’s anti-people drug war campaign, is clearly a move to constrict press freedom, targeting media platforms exposing the brutality and inhumanity of the government program. This also attests to the reality that this regime is gradually moving towards a dictatorship.”


Maria Ressa, Rappler’s CEO and editor-in-chief, said the SEC order comes after more than a year of threats and harassment from the administration of President Rodrigo Duterte, who had voiced his disapproval of Rappler’s coverage of his words and actions a number of times.


“I guess this is the last part of the kind of harassment the journalists have had in a year or so. In Rappler, it began a year-and-a-half ago,” she said in a press conference at the Rappler office just hours after the SEC released its decision.


She also criticized the SEC for failing to follow proper procedure. “The en banc issued an order to shut us down and it didn’t give us the opportunity to respond to what the special panel found. We didn’t get that chance. It wasn’t a normal process.”



The SEC’s move is a big blow to Rappler, which admitted that 2017 was a “difficult year” after hitting “positive EBITDA, essentially breakeven” in 2016, referring to earnings before income tax, depreciation and amortization.


Apart from problems with government, it is also being adversely affected by moves of global technology giants such as Facebook and Google to downplay content from news publishers in a bid to maximize digital advertising revenues. “We were hit on both sides by tech giants,” said Ressa. “Our business model as a media group is threatened by Facebook and Google who are taking the lion’s share of digital revenues.”


A screenshot of's home page taken on January 15, 2018



Founded in 2011 by Ressa and a group of Filipino journalists, Rappler is considered one of the Philippines’ more successful startups. It ranked eighth in terms of revenue in a listing of well-known startups in the country published by Forbes Philippines in May 2016. It was one of 22 startups featured in a major report on the country’s startup ecosystem published last year by the Philippine unit of international accounting firm PwC in partnership with the Department of Trade and Industry and the Department of Science and Technology.


Rappler’s troubles with the SEC began in December 2016 when it received a letter from the Office of the Solicitor General requesting an investigation into Rappler “for any possible contravention of the strict requirements of the 1987 Constitution” with regard to the company’s issuance of Philippine Depositary Receipts (PDR).


The Philippine Constitution and other laws expressly prohibit foreign ownership and management of the mass media.


In its 29-page decision, the SEC said that after investigating the matter, it found that the PDRs issued by Rappler Holdings to Omidyar Network contained a provision that allegedly gives the foreign group control of Rappler Holdings. The provision 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.”


In the SEC’s view, the provision violates the Constitution because it obliges the Filipino stockholders to consult with and seek the approval of PDR Holders who are foreigners. “Here, 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 pleadings, as summarized by the SEC, Rappler insisted that it didn’t violate the Constitution because all of the company’s common shareholders and management are Filipino citizens, including Ressa, who says she is both an American and a Filipino citizen.


“A PDR is not equivalent to ownership. It’s a financial instrument,” Chay Hofileña, acting managing editor and co-founder at Rappler explained. “ABS-CBN has that. GMA-7 has that. PLDT has that. It’s nothing new. It’s a template that we followed. There’s no violation there. And because these are PDRs, what we’re essentially doing is, if they put in money, if we become profitable, then they collect from the investment. But in day-to-day operations, they have no say. They can’t tell us: you cannot run this story or you can run this story. No interference at all in the editorial. If you’re a shareholder, investor, then you have a say. And then you vote on certain issues. That can influence day-to-day operations but not so the PDRs.”


However, a top SEC official said that PDRs issued by ABS-CBN, GMA-7 and PLDT didn’t have a provision giving foreign investors so-called “negative control” over the company’s actions. The official added that the other PDR issuers also sought SEC clearance before issuing their PDRs, unlike Rappler, which did not.


Ressa stressed that Rappler won’t be shutting down. “What we will do is to prepare a fight. Our lawyers are preparing our next step. But it’s business as usual,” she said.


Reynaldo G. Geronimo, a partner at law firm Romulo Mabanta Buenaventura Sayoc & De los Angeles, who focuses on banking and litigation, agrees that the SEC ruling doesn’t mean Rappler has to stop operations. “They don’t have to shut down. They can continue operating while they file a motion for reconsideration or go to the Supreme Court,” he said.


He added that the SEC may have exaggerated the implications of the specific provision in the PDRs on which the regulators built their entire decision. “Corporate actions such as amending the articles of incorporation do not constitute Rappler’s or any media organization’s core operations,” he said. He also found the SEC’s penalty—revocation of Rappler’s certificate of incorporation—too harsh.






Roel Landingin is the editor-in-chief of Entrepreneur PH. Elyssa Christine Lopez is a staff writer

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