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, 2020 the Commission directed CROWD1 to cease and desist, under pain of contempt, from engaging in activities of selling and/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.
Furthermore, 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.
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 Cagayan de Oro Extension Office (SEC – CDOEO) despite the pandemic which still operates, has been receiving inquiries from various people under jurisdiction regarding to the legality of CROWD1. Numerous reports were also sent via emails of SEC CDOEO.
“We really encourage everyone to always check the SEC Advisories and be extra cautious in dealing your investments to different entities currently operating today amid this pandemic”, Atty. Renato V. Egypto, SEC CDOEO Director said in a statement.
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.
With all these various entities which have the same schemes of defrauding the people by showing certificates of registration from the Commission, SEC-CDOEO takes this challenge to educate the investing public by attending or organizing radio interview and press releases as a strategy of informing the public amid this pandemic.
Atty. Egypto added that “Our investing public should always ask for the secondary license if they are dealing an entity which offers/sells investment contracts. It is your right as well as an investor to look for their financial report to assure that the market can sustain the promises they are dealing with you.”
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.
“[I]t is clear that CROWD1 is not authorized to sell or offer its educational packages to the public because they are securities in the form of investment contracts, and CROWD1 does not have the requisite license from this Commission,” the order read.
“This undoubtedly warrants the issuance of a cease and desist order because the act of CROWD1 in selling/ offering unregistered securities operates as a fraud to the public which, if unrestrained, will likely cause grave or irreparable injury or prejudice to the investing public.”
The public is encouraged to submit their reports for any fraudulent activities which they have the information and send it to email@example.com for faster action towards the rightful authorities.