POWER HOME UNLIMITED CORPORATION v.
SEC Cease and Desist Order (CDO) which ordered POWERHOUSE to
FACTS: Petitioner is a domestic corporation duly registered with public
respondent SEC on October 13, 2000 under SEC Reg. No. A200016113. Its
primary purpose is:
“To engage in the transaction of promoting, acquiring, managing, leasing,
obtaining options on, development, and improvement of real estate
properties for subdivision and allied purposes, and in the purchase, sale
and/or exchange of said subdivision and properties through network
marketing.”
- Respondent Noel Manero requested public respondent SEC to investigate
petitioner’s business. He claimed that he attended a seminar conducted by
petitioner where the latter claimed to sell properties that were inexistent and
without any broker’s license.
- One Romulo E. Munsayac, Jr. inquired from public respondent SEC
whether petitioner’s business involves "legitimate network marketing."
- Public respondent SEC held a conference that was attended by petitioner’s
incorporators. The attendees were requested to submit copies of petitioner’s
marketing scheme and list of its members with addresses.
- Subsequently, petitioner submitted to public respondent SEC copies of its
marketing course module and letters of accreditation/authority or
confirmation from Crown Asia, Fil-Estate Network and Pioneer 29 Realty
Corporation.
- Thereafter, public respondent SEC visited the business premises of
petitioner wherein it gathered documents such as certificates of accreditation
to several real estate companies, list of members with web sites, sample of
member mail box, webpages of two (2) members, and lists of Business
Center Owners who are qualified to acquire real estate properties and
materials on computer tutorials.
- After finding petitioner to be engaged in the sale or offer for sale or
distribution of investment contracts, which are considered securities under
Sec. 3.1 (b) The Securities Regulation Code but failed to register them in
violation of Sec. 8.1 of the same Act, public respondent SEC issued a
immediately CEASE AND DESIST from further engaging in the sale, offer or
distribution of the securities.
- Petitioner moved for the lifting of the CDO, which public respondent SEC
denied for lack of merit. Aggrieved, petitioner went to the Court of Appeals
imputing grave abuse of discretion amounting to lack or excess of jurisdiction
on public respondent SEC for issuing the order. It also applied for a
temporary restraining order, which the appellate court granted.
- On June 19, 2001, petitioner filed in the Court of Appeals a Motion for the
Issuance of a Writ of Preliminary Injunction. On July 6, 2001, the motion was
heard. On July 12, 2001, public respondent SEC filed its opposition. On July
13, 2001, the appellate court granted petitioner’s motion, thus:
Considering that the Temporary Restraining Order will expire
tomorrow or on July 14, 2001, and it appearing that this Court cannot
resolve the petition immediately because of the issues involved
which require a further study on the matter, and considering further
that with the continuous implementation of the CDO by the SEC
would eventually result to the sudden demise of the petitioner’s
business to their prejudice and an irreparable damage that may
possibly arise, we hereby resolve to grant the preliminary injunction.
- The Court of Appeals issued its Consolidated Decision which denied the
petition for certiorari and prohibition filed by the other petitioner Powerhomes
Unlimited Corporation.
ISSUES:
(1) Whether public respondent SEC followed due process in the issuance of
the assailed CDO. - YES!
(2) Whether petitioner’s business constitutes an investment contract which
should be registered with public respondent SEC before its sale or offer for
sale or distribution to the public. – YES!
HELD:
(1) YES. The records reveal that public respondent SEC properly examined
petitioner’s business operations when it:
(1) called into conference three of petitioner’s incorporators,
(2) requested information from the incorporators regarding the nature
of petitioner’s business operations,
(3) asked them to submit documents pertinent thereto, and
(4) visited petitioner’s business premises and gathered information
thereat. All these were done before the CDO was issued by the public
respondent SEC.
(2) YES. Public respondent SEC found the petitioner "as a marketing
company that promotes and facilitates sales of real properties and other
related products of real estate developers through effective leverage
marketing."
It also described the conduct of petitioner’s business as follows:
The scheme of the [petitioner] corporation requires an investor to
become a Business Center Owner (BCO) who must fill-up and sign
its application form. The Terms and Conditions printed at the back of
the application form indicate that the BCO shall mean an
independent representative of Power Homes, who is enrolled in the
company’s referral program and who will ultimately purchase real
property from any accredited real estate developers and as such he
is entitled to a referral bonus/commission. Paragraph 5 of the same
indicates that there exists no employer/employee relationship
between the BCO and the Power Homes Unlimited, Corp.
The BCO is required to pay US$234 as his enrollment fee. His
enrollment entitles him to recruit two investors who should pay
US$234 each and out of which amount he shall receive US$92. In
case the two referrals/enrollees would recruit a minimum of four (4)
persons each recruiting two (2) persons who become his/her own
down lines, the BCO will receive a total amount of US$147.20 after
deducting the amount of US$36.80 as property fund from the gross
amount of US$184. After recruiting 128 persons in a period of eight
(8) months for each Left and Right business groups or a total of 256
enrollees whether directly referred by the BCO or through his down
lines, the BCO who receives a total amount of US$11,412.80 after
deducting the amount of US$363.20 as property fund from the gross
amount of US$11,776, has now an accumulated amount of
US$2,700 constituting as his Property Fund placed in a Property
Fund account with the Chinabank. This accumulated amount of
US$2,700 is used as partial/full down payment for the real property
chosen by the BCO from any of [petitioner’s] accredited real estate
developers.
- Under the Howey Test, it requires a transaction, contract, or scheme
whereby a person (1) makes an investment of money, (2) in a common
enterprise, (3) with the expectation of profits, (4) to be derived solely from
the efforts of others.
- Prescinding from these premises, the Court ruled that the public
respondent SEC and the Court of Appeals that the petitioner was engaged in
the sale or distribution of an investment contract. An investor enrolls in
petitioner’s program by paying US$234. This entitles him to recruit two (2)
investors who pay US$234 each and out of which amount he receives
US$92. A minimum recruitment of four (4) investors by these two (2) recruits,
who then recruit at least two (2) each, entitles the principal investor to
US$184 and the pyramid goes on.
- We therefore rule that the business operation or the scheme of petitioner
constitutes an investment contract that is a security under R.A. No. 8799.
Thus, it must be registered with public respondent SEC before its sale or
offer for sale or distribution to the public. As petitioner failed to register the
same, its offering to the public was rightfully enjoined by public respondent
SEC. The CDO was proper even without a finding of fraud. As an investment
contract that is security under R.A. No. 8799, it must be registered with public
respondent SEC, otherwise the SEC cannot protect the investing public from
fraudulent securities. The strict regulation of securities is founded on the
premise that the capital markets depend on the investing public’s level of
confidence in the system.
SEC v. SANTOS
FACTS: Sometime in 2007, yet another investment scam was exposed with
the disappearance of its primary perpetrator Liew, a self–styled financial guru
and Chairman of the Board of Directors of Performance Investment Products
Corporation (PIPC–BVI), a foreign corporation registered in the British Virgin
Islands.To do business in the Philippines, PIPC–BVI incorporated herein as
Philippine International Planning Center Corporation (PIPC Corporation).
- Because the head of PIPC Corporation had gone missing and with it the
monies and investment of a significant number of investors, the SEC was
flooded with complaints from 31 individuals against PIPC Corporation, its
directors, officers, employees, agents and brokers for alleged violation of
certain provisions of the SRC, including Section 28 thereof.
- Santos was charged in the complaints in her capacity as investment
consultant of PIPC Corporation, who supposedly induced private
complainants Lorenzo and Sy, to invest their monies in PIPC Corporation.
The common recital in the 31 complaints is that they were enticed by the
inducements and solicitations of the PIPC corporation’s directors, officers,
and employees, promising that their investment will be of higher income
potential of an interest of 12 – 18%
- Soon thereafter, the SEC, through its Compliance and Endorsement
Division, filed a complaint-affidavit for violation of Sections 8, 26 & 28. Private
complainants Lorenzo and Sy annexed to SEC’s complaint-affidavit the
narration as to how Santos participated in how they came to invest their
monies in PIPC Corporation. That it was Santos who presented the
characteristics of the investment product called “Performance Managed
Portfolio” and when she was asked about the names of the traders, she
answered that they were confidential.
- Lorenzo: “Oudine Santos also emphasized in that same meeting that I
should keep this transaction to myself because they were not allowed to
conduct foreign currency trading. However, she assured me that I should not
worry because they have a lot of “big people” backing them up. She also
mentioned that they were applying for a seat in the “stock exchange.”
- Sy: Ms. Santos told me that she is a resident of Damariñas Village and was
working as an investment consultant for a certain company, Performance
Investment Products Corporation [PIPC]. She told me that she wanted to
invite me to her office at the Citibank Tower in Makati so that she could
explain the investment products that they are offering.”
- “During the meeting, Ms. Santos enticed me to invest in their Performance
Managed Portfolio which she explained was a risk controlled investment
program designed for individuals like me who are looking for higher
investment returns than bank deposits while still having the advantage of
security and liquidity. She told me that they were engaged in foreign currency
trading abroad and that they only employ professional and experienced
foreign exchange traders who specialize in trading the Japanese Yen, Euro,
British Pound, Swiss Francs and Australian Dollar. Ms. Santos quickly
allayed my fears by emphasizing that the capital for any investment with
[PIPC] is secure.”
- On the whole, Lorenzo and Sy charge Santos in her capacity as investment
consultant of PIPC Corporation who actively engaged in the solicitation and
recruitment of investors. Private complainants maintain that Santos, apart
from being PIPC Corporation’s employee, acted as PIPC Corporation’s agent
and made representations regarding its investment products and that of the
supposed global corporation PIPC–BVI.
- SANTOS’ DEFENSE: On her defense, Santos alleged that she was merely
an employee of PIPC thus should not be personally liable. Santos’ defense
consisted in: (1) denying participation in the conspiracy and fraud perpetrated
against the investor–complainants of PIPC Corporation, specifically Sy and
Lorenzo; (2) claiming that she was initially and merely an employee of, and
subsequently an independent information provider for, PIPC Corporation; (3)
PIPC Corporation being a separate entity from PIPC–BVI of which Santos
has never been a part of in any capacity; (4) her not having received any
money from Sy and Lorenzo, the two having, in actuality, directly invested
their money in PIPC–BVI; (5) Santos having dealt only with Sy and the latter,
in fact, deposited money directly into PIPC–BVI’s account; and (6) on the
whole, PIPC–BVI as the other party in the investment contracts signed by Sy
and Lorenzo, thus the only corporation liable to Sy and Lorenzo and the
other complainants.
- Complainant SEC filed the instant case for alleged violation by respondents
[therein, including herein respondent, Santos,] of Section 8 of the SRC.
complainant SEC is now accusing all respondents [therein, including Santos,]
for violating the same when they allegedly sold and/or offered for sale
unregistered securities. Moreover, they cannot evade liability by hiding
behind the veil of a corporate fiction.
- DOJ panel : based its finding of probable cause on the collective acts of the
majority of the respondents therein, including herein respondent Santos,
which consisted in their acting as employees–agent and/or investor–agents
of PIPC Corporation and/or PIPC–BVI. Specifically alluding to Santos as
Investment Consultant of PIPC Corporation, the DOJ found probable cause
to indict her for violation of Section 28 of the Securities Regulation Code for
engaging in the business of selling or offering for sale securities, on behalf of
PIPC Corporation and/or PIPC–BVI (which were found to be an issuer of
securities without the necessary registration from the SEC) without Santos
being registered as a broker, dealer, salesman or an associated person.
- Respondent Santos filed a petition for review before the Office of the
Secretary of the DOJ assailing the Resolutions dated 18 April 2008 and 2
September 2008 and claiming that she was a mere clerical
employee/information provider who never solicited nor recruited investors, in
particular complainants Sy and Lorenzo, for PIPC Corporation or PIPC–BVI.
Santos also claimed dearth of evidence indicating she was a salesman/agent
or an associated person of a broker or dealer, as defined under the
Securities Regulation Code.
- The SEC filed its Comment opposing Santos’ petition for review. The Office
of the Secretary of the DOJ, through its then Undersecretary Ricardo R.
Blancaflor, issued a Resolution dated 1 October 2009 which, as previously
adverted to, excluded respondent Santos from prosecution for violation of
Section 28.
ISSUE: Whether or not respondent Santos acted as agent of PIPC Corp. or
had enticed Luisa Mercedes P. Lorenzo or Ricky Albino P. Sy to buy PIPC
Corp. or PIPC–BVI’s investment products.
HELD: YES. The Court held that Santos acted as an agent or salesman of
PIPC Corporation making her liable under Sec. 28 of SRC.
- There is no question that Santos was in the employ of PIPC Corporation
and/or PIPC–BVI, a corporation which sold or offered for sale unregistered
securities in the Philippines. To escape probable culpability, Santos claims
that she was a mere clerical employee of PIPC Corporation and/or PIPC–BVI
and was never an agent or salesman who actually solicited the sale of or
sold unregistered securities issued by PIPC Corporation and/or PIPC–BVI.
- Santos, by the very nature of her function as what she now unaffectedly
calls an information provider, brought about the sale of securities made by
PIPC Corporation and/or PIPC–BVI to certain individuals, specifically private
complainants Sy and Lorenzo by providing information on the investment
products of PIPC Corporation and/or PIPC–BVI with the end in view of PIPC
Corporation closing a sale.
- While Santos was not a signatory to the contracts on Sy’s or Lorenzo’s
investments, Santos procured the sale of these unregistered securities to the
2 complainants by providing information on the investment products being
offered for sale by PIPC Corporation and/or PIPC–BVI and convincing them
to invest therein.
- No matter Santos’ strenuous objections, it is apparent that she connected
the probable investors, Sy and Lorenzo, to PIPC Corporation and/or PIPC–
BVI, acting as an ostensible agent of the latter on the viability of PIPC
Corporation as an investment company. At each point of Sy’s and Lorenzo’s
investment, Santos’ participation thereon, even if not shown strictly on paper,
was prima facie established.
- Thus, Santos violated Sec. 28 of SRC. Its elements are as follows:
1. Engaging in the business of buying or selling securities in the
Philippines as a broker or dealer;
2. Acting as a salesman; or
3. Acting as an associated person of any broker or dealer, unless
registered as such with the SEC.