Rappler’s wounds were self-inflicted

THE LEGAL injuries sustained by digital media outfit Rappler in its encounter with the Securities and Exchange Commission were self-inflicted. Still, this corner sympathizes with it and its highly motivated staff.

But crying violation of press freedom merely accentuates the fact that the coin of a free press has two sides: While Rappler Inc. and the rest of Philippine media are protected from undue government restrictions, they are also shielded from unwanted foreign control and influence.

The Constitution commands in Section 11, Article XVI (General Provisions): “The ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations, wholly-owned and managed by such citizens.”

Here lies the crux of the debate generated by Rappler’s accepting foreign funds and the alien control that comes with the investment ostensibly in violation of Section 11 of Article XVI cited.

“The foreign equity restriction is very clear,” the SEC said. “Anything less than 100 percent Filipino control is a violation. Conversely, anything more than exactly zero percent foreign control is a violation.”

With that, the SEC revoked the license of Rappler Inc. and its holding company. It also voided the PDR (Philippine Depositary Receipts) of Omidyar Network, a foreign firm owned by eBay founder Pierre Omidyar and one of two holders of PDRs of Rappler.

 A PDR is an instrument that gives foreign investors a passive economic interest in a Philippine company (depending on how the document is worded).

In its decision dated Jan. 11, 2018, the SEC said among other things:

“Aware of the constitutional restrictions, and yet eager to receive capital from its ‘global impact investors,’ Rappler Inc. created an alter ego that would validate the transfer of control. So that no ‘equity’ per se would be transferred, the alter ego would issue an equity derivative.”

“Reasonable persons who read paragraph 12.2.2 of the Omidyar Network PDR would agree that there is some control – definitely not zero – granted to the foreign holder. It clearly states that when a corporate action would affect the PDR holders, the stockholders must consult the ON PDR holders and obtain their approval.”

There is another Rappler PDR, one held by North Base Media, but the SEC zeroed in on the ON PDR which contained the controversial paragraph 12.2.2 that allegedly gave Omidyar Network virtual veto power on corporate policy decisions.

The SEC said that with Rappler’s mistaken premise that control equates to ownership of stock, the firm “devised a scheme where no foreigner would own stock or sit on the board… making the ownership and management appear ‘Filipino’ on paper, while granting control (i.e. influence over corporate policy) to foreign investors.”

Rappler said it intends to appeal the ruling within 15 days, fight it all the way to the Supreme Court – and, we suppose, in the court of public opinion. Meantime it can, and will, continue its media operations.

It said in a statement: “We thought this day would never come, even as we were warned in the first week of December last year that the SEC would be handing down a ruling against us…. The SEC’s kill order revoking Rappler’s license to operate is the first of its kind in history – both for the Commission and for Philippine media.”

• Other media PDRs under scrutiny

WE ARE watching if Rappler’s case will ignite a PDR conflagration in Philippine media, considering that several major media outfits have similar foreign fund injections that could influence their handling of the news and opinions being carried by them.

Other big media organizations are also being mentioned as having issued PDRs to foreign investors, but industry sources said the funds involved are passive investments that do not translate to direct ownership or some control over management.

The Rappler case is an alert to all information media harboring foreign money to make sure their layering and their disguising hot money do not violate the constitutional ban on foreign ownership or management of media.

Media with foreign money in them will be under pressure to behave, or else, meaning that they better cooperate with the hyper-sensitive administration, and probably be ready to sacrifice a little of their “press freedom.” Such an accommodating attitude may soon trickle down to their staff.

The issue of press freedom stuck out as the SEC decision came after President Rodrigo Duterte warned in his State of the Nation Address in July that the administration would pierce the corporate veil of Rappler, a constant critic, to expose the American financing behind it.

It was also noticed that the SEC, which had approved the controversial ON PDR, did a detailed research on the question only after Solicitor General Jose Calida brought it to the commission’s attention, presumably on Malacañang’s instructions.

Motivations are hard to prove, and even if proved, in this case they may not alter the fact of a violation of the Constitution as the SEC has ruled.

But it seems to this observer that Rappler’s lawyers who prepared the media firm’s basic papers may have missed that telltale detail in the ON PDR about giving the hidden investor some control over the firm’s policy. Such a detail is not in the PDR held by its other investor.

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