Академический Документы
Профессиональный Документы
Культура Документы
Court of Appeals
Manila
FOURTEENTH DIVISION
Promulgated:
SECURITIES AND
EXCHANGE COMMISSION,
Respondent. MARCH 15, 2018
____________________
DECISION
MARTIN, J.:*
*
This case was re-assigned to the new Ponente only on 2 February 2018 pursuant to Office Order No. 05-18-RFB dated
12 January 2018, as part of his Initial Case Load.
1
Rollo, pp. 33-43.
2
Rollo, pp. 44-60.
3
Rollo, pp. 61-69.
4
Rollo, p. 296.
CA-G.R. SP No. 137353 Page 2 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
The Facts
TVI Express was registered with the SEC on 27 October 2010 under
SEC Registration No. CS201017609.7 Based on its Amended Articles of
Incorporation, the company's primary purpose was “[t]o engage in an online
direct selling business through an automated marketing system, independent
distributorship and network marketing by linking access to various booking
and search engines that offers high quality travel and leisure, providing
business and training tools, and compensation plan package, to the extent
permitted by law.”8
On 11 July 2013, the SEC issued a Cease and Desist Order (CDO)
against TVI Express which enjoined TVI Express' officers, directors, agents,
representatives, conduits, assigns, and any and all persons claiming and
acting for and in behalf and under its authority, from offering, soliciting or
selling unregistered securities in the form of investment contracts to the
public.9 The CDO was based on an investigation conducted by the
Enforcement and Prosecution Department (EPD) of the SEC.10
5
Rollo, Petition for Certiorari and Prohibition, p. 6.
6
Id.
7
Rollo, Comment, p. 109.
8
Rollo, Amended Articles of Incorporation of TVI Express Holidays Philippines, Inc., p. 139.
9
Supra at Note 3.
10
Rollo, Comment, p. 110.
11
Rollo, Comment, pp. 110-111.
CA-G.R. SP No. 137353 Page 3 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
The basis of the letter from the City Mayor of Tandag City was a
handwritten statement executed by the eleven (11) teachers stating that: a)
they have not received the amounts promised by TVI Express promoters,
Rey Pedrola (Pedrola) and his sister Dorothea Waje (Waje), despite the
lapse of more than one year; and b) they eventually demanded the amount
that they invested, but they failed to collect the same.12
Consequently, on 11 July 2013, the SEC issued the subject CDO. The
SEC found that the investment opportunities sold by Pedrosa, Waje and and
Shimpee Quiñonez (Quiñonez) to the complainant teachers were investment
contracts not registered with the SEC. The SEC concluded that TVI Express
was engaged in the sale of unregistered investment contracts to the teachers
who were not paid their promised returns.
Issues
II
III
In its Comment, the SEC through the Office of the Solicitor General
(OSG) contends that TVI Express availed of the incorrect remedy of a
Petition for Certiorari and Prohibition under Rule 65 and that the correct
remedy is to file a Petition for Review under Rule 43 of the 1997 Revised
Rules of Civil Procedure. The SEC further contends that TVI Express cannot
depend on Rule X, Section 10-8 of the SEC Rules of Procedure because it
specifically refers to the procedure within the SEC itself.19
On the other hand, TVI Express, citing the cases of Power Homes
19
Rollo, Comment, pp. 116-118.
CA-G.R. SP No. 137353 Page 5 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
The Court agrees with the arguments of TVI Express. TVI Express
availed of the correct remedy as Rule X, Section 10-8 of the SEC Rules of
Procedure itself provides that a CDO “shall not be a subject of an appeal and
no appeal from it will be entertained.” There being “no appeal or any plain,
speedy and adequate remedy in the ordinary course of law”, 23 TVI Express
availed of the correct remedy by filing a Petition for Certiorari and
Prohibition under Rule 65 of the 1997 Revised Rules of Civil Procedure.
TVI Express, on the other hand, contends that it is not involved in the
sale of securities. Instead, TVI Express argues that it is engaged in the online
direct-selling business through an automated marketing system, independent
distributorship and network marketing by linking access to various booking
and search engines.24 It further claims that the complaint of the teachers only
pertains to the “complained petitioner's members” in Tandag City, Surigao
del Sur and not against TVI Express itself or any of its members.25
20
G.R. No. 164182, 26 February 2008.
21
G.R. No. 164197, 25 January 2012.
22
Rollo, Reply, pp. 197-198.
23
Section 1, Rule 65 of the Revised Rules of Court.
24
Rollo, Petition, pp. 10-11.
25
Rollo, Petition, pp. 12-13.
CA-G.R. SP No. 137353 Page 6 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
Section 8.1 of the SRC27 provides that securities shall not be sold or
offered for sale or distribution within the Philippines, without a registration
statement duly filed with and approved by the SEC.
26
Rollo, Petition, pp. 14-16.
27
Section 8. Requirement of Registration of Securities.– 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, 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.
28
Section 3.1 of R.A. No. 8799, otherwise known as the Securities Regulation Code.
29
Section 3.1 (b) of R.A. No. 8799.
30
Virata v. Ng Wee, G.R. Nos. 220926, 221058, 221109, 221135 & 221218, 5 July 2017, citing Power Homes
Unlimited Corporation v. Securities and Exchange Commission, G.R. No. 164182, February 26, 2008, 546 SCRA 567,
575-576.
31
Virata v. Ng Wee, G.R. Nos. 220926, 221058, 221109, 221135 & 221218, 5 July 2017, citing Securities and
Exchange Commission v. Santos, G.R. No. 195542, March 19, 2014, 719 SCRA 514.
32
328 US 293 (1946).
33
Supra at Note 20.
CA-G.R. SP No. 137353 Page 7 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
Under the Howey test, the following must concur for an investment
contract to exist: (1) a contract, transaction, or scheme; (2) an investment of
money; (3) investment is made in a common enterprise; (4) expectation of
profits; and (5) profits arising primarily from the efforts of others.36
34
Supra at Note 21.
35
G.R. Nos. 220926, 221058, 221109, 221135 & 221218, 5 July 2017.
36
Id.
37
Rollo, Annex “4”, Distributor's Application Form, p. 160.
38
Rollo, Annex “3”, p. 159.
39
Rollo, Annex “3”, p. 161.
40
Rollo, Annex “6”, pp. 177-180.
CA-G.R. SP No. 137353 Page 8 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
Thus, the existence of the third and fourth elements are established.
There were investments made in a common enterprise and the promised high
returns with the teachers naturally led them to expect profits.
Lastly, the teachers did not have a hand in the operation of TVI
Express or the management of their money. In the present case, the teachers
were made to believe that the returns on their investments were
unconditional and only require the mere lapse of time. Hence, the profits
would arise primarily on the effort of TVI Express.
In the present case, the conclusion that TVI Express was engaged in
the sale of investment contracts without a prior registration with the SEC has
been supported by substantial evidence.
The relevant portion of the ruling of the Supreme Court in the case of
SEC v. Prosperity.com, Inc.47 concluded:
The CA is right in ruling that the last requisite in the Howey test is
lacking in the marketing scheme that PCI has adopted. Evidently, it is PCI
that expects profit from the network marketing of its products. PCI is
correct in saying that the US$234 it gets from its clients is merely a
consideration for the sale of the websites that it provides.”
TVI Express went on and argued that the P15,000.00 membership fee
is not an investment that will allow people to receive profits even without
working. It added that the members who neither promote the business nor
attain the thresholds set by the various compensation plans of the company
will not earn until and unless they manage to produce sales themselves. It
likens its set-up with Prosperity.com and contends that it is the company
itself and not its members that will earn profit from the work done by its
46
Rollo, Reply, pp. 203-206.
47
Supra at Note 21.
CA-G.R. SP No. 137353 Page 10 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
You will receive a 5-10% bonus for every member that joins your
organization after you cycle out of Express board. Sponsoring more than
two people and opening multiple legs in your downline organization will
not just have you earn more money from the matrix structure but will also
ensure faster cycles in the Express Board. Follow-the-leader system makes
all members to follow their sponsors.”50
Other than the FAQ in website of TVI Express, there were other
statements in the website that highlighted the promise of high monetary
returns and other financial benefits one a person becomes a member of TVI
Express. These statements that were likewise uncontroverted by TVI
Express read:
“xxx ... change the way you look at creating wealth. xxx
And witness how our Distributors coming from different walks of life are
making thousands of dollars a month, with a simple and effective system
48
Rollo, Reply, pp. 205-206.
49
People v. Romero, G.R. No. 112985, 21 April 1999.
50
Rollo, Annex “7”, Printout of Frequently Asked Questions from TVI Express'' website, pp. 184. Note, at present, the
website could no longer be accessed.
CA-G.R. SP No. 137353 Page 11 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
xxx
You should be! This is a real opportunity and a real Business company
with REAL PEOPLE WORLDWIDE making fantastic monthly incomes
that will come to them month-after-month, year-after-year.
xxx”51
“ATTY. BALTAZAR
But to clarify. The incentives for the club are not based on the actual
purchase, booking of rooms or accommodations through TVI. That is
correct, right? Meaning the incentives members get in TVI is not
contingent on anyone actually booking in this. That is correct?
ATTY. CASTILLO II
Sorry I don't.
ATTY. BALTAZAR
Okay, at least based on the previous explanation and you feel free to
mention this in a memorandum. You get an incentive…
ATTY. CASTILLO II
The discount?
ATTY. BALTAZAR
No, no, not the discount, the incentive, the financial incentive.
ATTY. CASTILLO II
The compensation?
51
Rollo, Annex “8”, Printout of Website of TVI Express', pp. 186-187. Note, at present, the website could no longer be
accessed.
CA-G.R. SP No. 137353 Page 12 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
ATTY. BALTAZAR
ATTY. CASTILLO II
Yes.
ATTY. BALTAZAR
ATTY. CASTILLO II
Yes.
ATTY. BALTAZAR
ATTY. CASTILLO II
None.
ATTY. BALTAZAR
ATTY. CASTILLO II
(inaudible)
ATTY. BALTAZAR
And even if nobody is booking any tickets or cashing in the travel voucher
so long as people are being recruited meaning the payment of P15,000,
some individuals will get compensation?
ATTY. CASTILLO II
ATTY. BALTAZAR
Yes
ATTY. CASTILLO II
CA-G.R. SP No. 137353 Page 13 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
That TVI Express merely obtains its funds to finance the supposed
returns of its more established members or “uplines” from the membership
fees of new recruits is confirmed by the statements made by Atty. Villamosa,
another representative of TVI Express during the hearing held on 1 August
2013:
“ATTY. BALTAZAR
None. Underneath the tab profile on the left… commission, what exactly
is that supposed to be?
Residual Income.
ATTY. BALTAZAR
I see several dates … residual income and then the commission. Can you
just explain …
Okay. Residual income is the income that you get for growing your
organization, helping your downlines. Pag nag-join kasi halimbawa mag-
join kayo, I get residual income from you.
ATTY. CASTILLO II
Overriding Commission.
ATTY. BALTAZAR:
Yes.
ATTY. BALTAZAR
52
Rollo, Comment, pp. 128-120; Annex “6”, pp. 168-170; Annex “9”, pp. 189-191.
CA-G.R. SP No. 137353 Page 14 of 16
DECISION
x- - - - - - - - - - - - - - - - -x
ATTY. CASTILLO
Sale of membership.
In the present case, the SEC was able to present substantial evidence
that TVI Express was indeed engaged in a pyramiding scheme. TVI
Express's self-serving statements which were unsubstantiated cannot
overturn the evidentiary weight of the statements contained in their website
as well as the statements uttered by their representatives. If TVI Express
actually operated a legitimate business, it could have easily gathered
statements from its satisfied members that would prove its legitimate
operation and that indeed, they have received from TVI Express the
promised high returns from its business operations. Unfortunately, for TVI
Express, all it presented were self-serving statements that were
unsubstantiated. It is an age-old rule that the one who alleges a fact has the
burden of proving it and the proof should be clear, positive and convincing.
Mere allegation is not evidence.54
The SEC has the power to issue CDOs to prevent fraud or injury to
the investing public. In the present case, the SEC's basis for the issuance of
the CDO against TVI Express is Section 64.1 of the SRC which reads:
considering that they have thousands of members that are being encouraged
by TVI Express to recruit more people in order to earn additional
commissions.
What is even more alarming is that TVI Express also has operations in
other countries. Their website indicates that it is currently operational in 150
countries.55 In fact, the National Bureau of Investigation also had a press
release back in 2011 in which the Federal court of Australia found TVI
Express to be a pyramid selling scheme.56
In view of the aforegoing discussion, this Court finds that the issuance
of the CDO to enjoin TVI Express and its officers, agents, representatives
and employees from further offering for sale to the public investment
contracts which they market as travel membership packages was proper.
and paramount necessity for the writ to prevent serious and irreparable
damage.”
SO ORDERED.
WE CONCUR:
CERTIFICATION
RICARDO R. ROSARIO
Associate Justice
CHAIRPERSON, FOURTEENTH DIVISION