By Mar T. Supnad
The Securities and
Exchange Commission (SEC) has ordered CROWD1 Asia Pacific, Inc. to immediately
stop soliciting and accepting investments from the public under a scheme
disguised as a digital marketing business.
In an order
issued May 12, the Commission directed CROWD1 to cease and desist, under pain
of contempt, from engaging in activities of selling or offering for sale
securities in the form of investment contracts or other similar schemes without
prior registration and permit to sell.
The SEC also
ordered CROWD1 to cease from promoting its investment scheme in social media
and other online platforms.
The
Commission prohibited CROWD1 from transacting any business involving funds in
its depository banks, and from transferring, disposing, or conveying in any
manner all related assets for the benefit of the investors, SEC said in a
statement sent to this writer.
The cease and
desist order covers the corporation’s operators, partners, directors, officers,
salespersons, agents, representatives, promoters, and all persons, conduit
entities and subsidiaries claiming and acting for and on its behalf.
The SEC
issued the cease and desist order after finding that CROWD1 has operated “a
fraudulent investment scheme consisting of the sale and/or offer of inexistent
securities in the form of investment contracts to the public.”
CROWD1
solicits and accepts investments from the public by offering what it describes
as educational packages for a minimum of P6,000 and as much as P240,000.
To entice the
public to invest, CROWD1 promises member-investors five different bonuses:
streamline bonus, binary pairing bonus, fear of loss bonus, matching bonus, and
residual bonus from games and gambling apps.
CROWD1
likewise touts a pairing incentive payable in euros to encourage member-
investors to recruit new members.
Representing
itself as a digital marketing business, CROWD1 claims it generates income from online
games and facilitates the generation by its members of residual income from its
affiliate gaming companies such as AFFIGLO and MIGGSTER.
The SEC,
however, ruled that CROWD1’s scheme involved the sale and/or offer of
securities in the form of investment contracts and, thus, required a secondary
license under Republic Act No. 8799, or The Securities Regulation Code (SRC).
Rule 26.3.5
of the 2015 Implementing Rules and Regulations (IRR) of the SRC defines an
investment contract as “a contract, transaction or scheme whereby a person
invests his money in a common enterprise and is led to expect profits primarily
through the efforts of others.”
An investment
contract is presumed to exist when a person seeks to use the money or property
of other persons on the promise of profits. Also, a common enterprise is deemed
created when two or more investors pool their resources even if the promoter
receives nothing more than a broker’s commission.
In this
light, the SEC held that CROWD1 engaged in the sale and/or offer for sale of
securities in the form of investment contracts.
The
Commission also ruled that the act of CROWD1 of publishing and making
presentations on its investment/ business scheme through its website, Facebook,
YouTube and on-ground events, and inviting investors constituted a public
offering as defined under Rule 3.1.17 of the 2015 IRR of the SRC.
Section 8 of
the SRC 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.
CROWD1
neither secured a secondary license to operate as a broker/dealer, registered
as issuer of mutual funds, exchange-traded funds or proprietary/ nonproprietary
shares, nor registered any securities pursuant to the SRC.
CROWD1 only
registered as a corporation for the primary purpose of engaging in business
process outsourcing services.
The SEC,
however, emphasized that the certificate of incorporation granted to CROWD1
explicitly prohibited the corporation from soliciting, accepting or taking
investments or placements from the public as well as from issuing investment
contracts.
The
Commission urged the public to exercise caution in dealing with individuals and
groups representing CROWD1 through an advisory dated April 28, after gathering
information about the corporation’s unauthorized investment- solicitation
activities.
Acting on
numerous complaints, reports and inquiries, the SEC Enforcement and Investor
Protection Department (EIPD) conducted an investigation, which included
surveillance and field operations, for possible violations of the SRC and its
IRR.
The EIPD was
then able to establish by substantial evidence that CROWD1 was selling and/or
offering securities to the public in the form of investment contracts without
the required secondary license from the Commission.
Based on the
findings and evidence gathered, the SEC proceeded with the issuance of a cease
and desist order against CROWD1.
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