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Govt must probe Rappler’s foreign ownership

THE Duterte government must investigate, and prosecute, the news website Rappler for violating the Constitution by having foreign capital, which accounts for about half of its P250 million capitalization.

While mining and energy magnate Benjamin Bitanga is the principal Filipino owner of Rappler, the firm got a reported $2 million in investments in 2015 from US firms Omdiyar Network (funded by the founder of the world’s biggest online retailer eBay) and tech investment firm North Base Media.

Rappler’s excuse that these firms merely invested in it (through “Philippine Depositary Receipts”) but “don’t own” (sic) is total hogwash, as I explain below.

The Constitution’s Article XVI, Section 11 is categorical: “The ownership of mass media shall be limited to citizens of the Philippines.” That means that not a single peso of foreign money can be invested in a media company. Indeed, even in an era of free-flowing capital, most countries in the world have maintained their restrictions on foreign capital in their media. For good reason, since only its citizens must have primary control of the means of forming public opinion.

Worse, Rappler has even been at the forefront of the Yellow Cult’s efforts to portray—falsely—the country as one in which the streets are flowing with blood and littered with corpses as a result of Duterte’s anti-drug campaign.

It was Rappler that fabricated the false figure of 7,000 which it said was the number of extra-judicial killings under this administration as of September last year. Despite the fact that this figure has been totally, completely debunked, Rappler has refused to apologize for it and correct it. It has been that false figure that the New York Times, BBC, the Guardian and nearly all Western media have quoted as “facts” to condemn this administration as guilty of massive human rights violations.

It was Rappler’s biased articles that Sen. Antonio Trillanes’ minion Jude Sabio quoted the most in his “mass murder” allegations against Duterte and 11 other government officials in his complaint before the International Criminal Court. So did Magdalo party-list Rep. Gary Alejano in his rejected impeachment complaint, so much so that Rep. Rodolfo Fariñas blurted out in anger, scolding this former mutineer: “You’re wasting our time by basing your complaint on Rappler articles!”

Unmindful of the Constitution, Rappler even boasted of getting foreign funding in its 2015 articles. (Left, American investor Marcus Brauchli; right, CEO Maria Ressa.)

How can we not be in outrage against a news outfit funded hugely by foreigners that spreads lies about our country?

Rappler contortions
Rappler itself in a February article (by-lined by “Rappler.com”) admitted that foreign firms invested in it in 2015. Yet this is not reported in its financial statements submitted to the Securities and Exchange Commission.

It claimed that the foreign capital it received was in the form of “Philippine Depositary Receipts” (PDRs).

It argued in a contortion of logic: “PDRs do not indicate ownership. This means our foreign investors do not own Rappler. They invest, but they don’t own. Rappler remains 100 percent Filipino-owned.” It said that other media firms have been using PDRs to get foreign investors. The anonymous Rappler writer was referring of course to the PDRs that ABS-CBN, GMA 7, and even Indonesian Anthoni Salim’s media empire have been using.

In the first place, PDRs violate the Constitution’s foreign-capital restrictions, since these are mere legal constructs precisely designed to skirt our Charter to give crooked regulators and judges the excuse to look the other way.

Corporate laws all over the world, including the US, all define a person as an owner of a corporate stock if he is the” beneficial owner” of it, that is, if he gets the monetary benefits from it. Only in the Philippines do we have such a scheme of “depositary shares” in which a foreigner is technically not the owner of the stock but gets all the income because of that share.

The invention of “depositary shares” was actually because of PLDT’s political power: the strongman Marcos secretly became its biggest stockholder through dummies when US firm GTE sold it in 1967. To pretend compliance with constitutional restrictions, the Marcos-controlled SEC authorized it to replace with “depositary shares” American-owned PLDT stocks that had been listed in the New York Stock Exchange, because after 1974 when the Laurel-Langley Agreement ended, even Americans could no longer own more than 40 percent of a public utility firm.

On the basis of that precedent, media firms GMA-7 in 2007 and ABS-CBN in 2013 ware authorized by the SEC to sell PDRs to foreign firms in order to expand their capital. That of course was a demonstration of the power of media in this country—and of the Lopezes’ clout with Aquino 3rd’s government.

The nature of these broadcast firms’ PDRs though reveals how totally illegal and unconstitutional Rappler’s fake PDRs are.

PDRs have been defined by the SEC as “securities”—instruments of participation in a company’s shares (and income) offered to the public. All existing PDRs in fact have been issued on the justification that this would expand our stock market. Thus GMA-7’s and ABS-CBN’s PDRs are traded in the Philippine Stock Exchange.

The Securities Regulation Code (Section 8.1) furthermore emphasizes: “Securities shall not be sold or offered for sale… without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.” (Italics mine.)

The SEC has not authorized Rappler to issue any public securities, much less those special PDRs. Rappler isn’t even listed in the stock market. How can it issue PDRs?

Enforce securities laws
I would think that if the Duterte administration executes our laws, as it is required to do, it would have to enforce the Securities Regulation Code on this matter, which other than huge financial penalties would require the suspension of Rappler’s authority to operate as a corporation.

The past regime of course had looked the other way in this case of Rappler’s violation of the Constitution (or of our securities laws), just as it did in the case of the Philippine Daily Inquirer’s tax case and refusal to vacate government lands. After all, these two media outfits were big supporters of Aquino 3rd.

We cannot allow Rappler’s violation of the Constitution to continue, as it would be a very dangerous precedent. Filipinos are among the biggest number of internet users in the world, the 15th largest, with an estimated 54 million users. This is such a huge market for the business of internet news sites, which is now, after TV and radio, the biggest source of Filipinos’ information about the country.

Because Rappler has been able to get away with having foreign investors, the biggest internet firms in the world could also set up their own news sites for the Philippines and use unscrupulous Filipinos as dummies. With their mammoth finances, they would be able control the dominant news vehicle of this era, the Internet, and bury even the Philippine media giants now, the broadsheets and the TV networks.

Rappler has indeed demonstrated—what with its P250 million capitalization, half from foreigners—how an outfit with little journalistic excellence but with tons of money to burn in internet technology can get a huge chunk of the market in a few years’ time.

And as Rappler has also demonstrated, a foreign-funded internet news site can seriously and very easily damage the country’s reputation.

This Post Has One Comment

  1. Marie Bernardo

    While the historical report on how PDRs came about, i.e. who started it and when, are accurate, other assertions are badly researched. As the author noted, PDRs are securities. Some securities are listed and publicly traded, some are not. It’s no different for PDRs. Skycable’s PDRs is an example of a [private] PDR. That “PDRs do not indicate ownership” is not a contortion of logic by Rappler. Any finance person worth his salt understands that PDRs do not vest ownership or any voting rights to the PDR holder, and it is unfortunate that the author fails to grasp that. In fact, PDRs have not been assailed, and remain legal and valid. ABS CBN’s, GMA7’s and Skycable’s PDRs have set the precedent. If it is at all a contortion of logic, it is an established contortion that Rappler merely copied.

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