In re Goodpocket and Easymoney Lending Corp.

January 18, 2022 SEC CDO CASE NO. 01-22-077 IN THE MATTER OF: GOODPOCKET AND EASYMONEY LENDING CORPORATION ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT , movant . CEASE AND DESIST ORDER This resolves the Motion for Issuance of a Cease and Desist Order 1 (the "Motion") filed by the Enforcement and Investor Protection Department ("EIPD") on 6 January 2022 praying that a Cease and Desist Order ("CDO") be issued against GOODPOCKET and EASYMONEY LENDING CORPORATION (collectively referred to as: "Online Lending Operators" ), including their agents, representatives and promoters, as well as the owners of the hosting sites of the Online Lending Operators who are operating, engaging in, carrying out and/or promoting lending/financing business and related activities without the requisite license from the Commission. RELEVANT FACTS The present Motion was triggered by a complaint 2 filed by Ruffa Rose Baltazar (the "Complainant") who reported the alleged unfair collection practices carried out by the Online Lending Operators, and harassment that she experienced as a consequence thereof. The Complainant alleged that the Online Lending Operators posted/published libelous statements against her person in social media and tagged/labelled her as a scammer. The same message as well as information on her alleged loan with the Online Lending Operators was likewise sent by the latter to her contacts. 3 On the basis thereof, the EIPD proceeded to conduct a formal investigation for possible violation of Republic Act No. 9474 or the Lending Company Regulation Act of 2007 which the Commission is mandated to administer and implement. For this purpose, the EIPD looked into the website of the Online Lending Operators and the social media platforms used by the latter in carrying out their online lending activities, and was able to confirm that the Online Lending Operators were indeed actually operating and maintaining an online lending business. 4 The foregoing was confirmed and attested to by the handling investigator who executed and issued an affidavit which was submitted in evidence. 5 Finally, the EIPD also alleged that its investigation on the matter subject of the complaint revealed that the Online Lending Operators are not registered as a corporation, partnership or a one-person corporation, which is required by the Lending Company Regulation Act of 2007 of all entities that are engaged in lending business/activities. This finding was confirmed by the Corporate Governance and Finance Department ("CGFD") through a Certification dated 22 December 2021 6 which stated that the Online Lending Operators are not registered with the Commission. ISSUE Whether the evidence on record presented by the EIPD warrants the issuance of a CDO against the Online Lending Operators? RULING The Commission finds merit in the Motion filed by the EIPD and hereby grants the same. The powers and authority, as well as the jurisdiction of the Commission is specifically provided in Section 5.1 (a) of Republic Act No. 8799 or the Securities Regulation Code (SRC), thus: "Section 5. Powers and Functions of the Commission 5.1. The Commission shall act with transparency and shall have the powers and functions provided by this code, Presidential Decree No. 902-A, the Corporation Code, the Investment Houses law, the Financing Company Act and other existing laws . Pursuant thereto the Commission shall have, among others, the following powers and functions : (a) Have jurisdiction and supervision over all corporations, partnership or associations who are the grantees of primary franchises and/or a license or a permit issued by the Government; xxx xxx xxx (d) Regulate, investigate or supervise the activities of persons to ensure compliance ; xxx xxx xxx (n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives and purpose of these laws ." (Emphasis and underscoring supplied) In relation to the performance of its authority to investigate persons, and exact compliance with laws administered by it, the Supreme Court emphasized in Provident International Resources Corp. v. Venus , 7 that the Commission has the concomitant duty to impose the appropriate sanctions/penalties for non-compliance, thus: "It can be said that the SEC's regulatory authority over private corporations encompasses a wide margin of areas, touching nearly all of a corporation's concerns. This authority more vividly springs from the fact that a corporation owes its existence to the concession of its corporate franchise from the state. Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or revoke (after due notice and hearing), certificates of registration of corporations, partnerships and associations (excluding cooperatives, homeowners' association, and labor unions); compel legal and regulatory compliances ; conduct inspections; and impose fines or other penalties for violations of the Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted." (Emphasis supplied) Among the existing laws that the Commission is mandated to implement is Republic Act No. 9474, otherwise known as the "Lending Company Regulation Act of 2007" (the "Lending Company Regulation Act"), Section 4 of which specifically requires that persons or entities operating as lending companies should be registered as a corporation and should have an authority to operate issued by the Commission, to wit: " SEC. 4. Form of Organization . A lending company shall be established only as a corporation : Provided That existing lending investors organized as single proprietorships or partnerships shall be disallowed from engaging in the business of granting loans to the public one year after the date of effectivity of this Act. No lending company shall conduct business unless granted an authority to operate by the SEC. " (Emphasis and underscoring supplied) The Lending Company Regulation Act penalizes any person who, without being registered as a corporation and without a subsisting authority to operate obtained from the Commission, engages in the business of a lending company, to wit: " SEC. 12. Penalty . A fine of not less than Ten Thousand Pesos (P10,000.00) and not more than Fifty thousand pesos (P50,000.00) or imprisonment of not less than six months but not more than ten (10) years or both, at the discretion of the court, shall be imposed upon : 1. Any person who shall engage in the business of a lending company without a validly subsisting authority to operate from the SEC. 2. The president, treasurer and other officers of the corporation, including the managing officer thereof, who shall knowingly and willingly : a. Engage in the business of a lending company without a validly subsisting authority to operate from the SEC; b. Hold themselves out to be a lending company , either through advertisement in whatever form, whether in its stationery, commercial paper, or other document, or through other representations without authority; c. Make use of a trade or firm name containing the words "lending company" or "lending investor" or any other designation that would give the public the impression that it is engaged in the business of a lending company as defined in this Act without authority; and d. Violate the provisions of this Act ." (Emphasis and underscoring supplied) In relation to the lending business and industry, it bears emphasis that the Commission is mandated in Section 2 of the Lending Company Regulation Act to implement the policy of regulating lending companies to effectively prevent and mitigate the commission of practices prejudicial to public interest, thus: " SEC. 2. Declaration of Policy . It is hereby declared the policy of the State to regulate the establishment of lending companies and to place their operation on a sound, efficient and stable condition to derive the optimum advantages from them as an additional source of credit ; to prevent and mitigate , as far as practicable, practices prejudicial to public interest ; and to lay down the minimum requirements and standards under which they may be established and do business." (Emphasis supplied) To ensure that the Commission is able to perform this mandate and to protect the public, Section 179 (f) and (p) of the RCC authorizes it to issue a cease and desist order and to perform such other powers which are incidental or necessary in carrying out its mandate, to wit: Section 179. Powers, Functions, and Jurisdiction of the Commission. The Commission shall have the power and authority to: xxx xxx xxx (f) Issue cease and desist orders ex parte to prevent imminent fraud or injury to the public ; xxx xxx xxx (p) Exercise such other powers provided by law or those, which may be necessary or incidental to carrying out the powers expressly granted to the Commission . (Emphasis and underscoring supplied) The certification 8 issued by the CGFD stating that the Online Lending Operators are not registered with the Commission either as corporations, partnerships, or OPC. Neither is there anything on the records of the Commission that will show that these Online Lending Operators have been issued the Certificate of Authority which is required to validly engage in lending activities. The act of the Online Lending Operators in engaging in the lending business sans the required registrations/licenses constitutes a clear violation of Section 4 of the Lending Company Regulation Act, which warrants the imposition of the appropriate penalties provided under Section 12 of the Lending Company Regulation Act. Moreover, the evidence presented by the EIPD shows that the Online Lending Operators are illegally engaging in lending activities as the latter are not registered as corporations, and have no Certificate of Authority issued by the Commission. Thus, the act of these Online Lending Operators in offering and providing loans to the public constitutes actual fraud 9 which was intentionally employed to lead the public into the belief that they are legally authorized to engage in the lending business which is not and has never been the case. This, in fact resulted in the public actually taking loans from the Online Lending Operators as shown in the complaint and in the evidence presented by the EIPD. On account thereof, the Commission finds and so holds that the issuance of a CDO is warranted in the instant case not only to stop the illegal act, but also to prevent the continued fraud on the public who are led by the Online Lending Operators to the belief that they are operating a legitimate business. This is a power that is expressly granted to the Commission under Section 179 (f) and (p), in relation to the SRC and the Lending Company Regulation Act. The acts of these unregistered Online Lending Operators in illegally offering and providing loans to the public, charging high interest rates, and subjecting its debtors to unfair treatment through abusive and even libelous language in collecting the loaned amount, have no place in a society that is governed by and faithfully adheres to positive laws. The Commission is duty-bound to strictly implement the provisions of the Lending Company Regulation Act, ensure that public interest is at all times upheld, and that the public is protected from persons who carry out unauthorized or illegal lending activities. WHEREFORE , premises considered, GOODPOCKET and EASYMONEY LENDING CORPORATION , its owners, operators, promoters, representatives, agents AND ANY AND ALL PERSONS CLAIMING AND ACTING FOR AND IN THEIR BEHALF, are hereby ORDERED to immediately CEASE AND DESIST from engaging in, carrying out, promoting and facilitating any lending activity/transaction until they have incorporated and have secured from this Commission the requisite Certificate of Incorporation and Certificate of Authority to Operate as Lending Companies or Financing Companies. GOODPOCKET and EASYMONEY LENDING CORPORATION , its owners, operators, promoters, representatives, agents and any and all persons acting for and in their behalf, are directed to CEASE and DESIST from offering and advertising their lending business through the internet or any other media, and to delete/remove any and all materials involving or covering the same. The EIPD is hereby DIRECTED to: 1.) Cause the posting of a copy of this CDO in the Commission's website, and the publication of the same in two (2) newspapers of general circulation; 2.) Coordinate with the appropriate cyber-criminal investigation and enforcement agency(ies) of the government in order to determine, identify, and apprehend the responsible persons involved in the illegal online operations of GOODPOCKET and EASYMONEY LENDING CORPORATION , including its author, creator, owner and its officers, or any person, agent, representative conniving with them. The EIPD is also directed to conduct an investigation to determine and recommend the filing of a criminal complaint, if warranted; and 3.) Submit a formal compliance report, by way of pleading, to the Commission En Banc within ten (10) days from receipt of this CDO. In accordance with the provisions, of Sec. 64.3 10 of the SRC and Sec. 4-3, Rule IV, Part II of the 2016 Rules of Procedure of the Commission, the parties subject of the Cease and Desist Order may file a Verified Motion to lift thereof within five (5) days from the date of its posting or publication. SO ORDERED. Pasay City, Philippines; January 18, 2022. (SGD.) EMILIO B. AQUINO Chairperson (SGD.) EPHYRO LUIS B. AMATONG Commissioner (SGD.) JAVEY PAUL D. FRANCISCO Commissioner (SGD.) KELVIN LESTER K. LEE Commissioner (SGD.) KARLO S. BELLO Commissioner Footnotes 1. Dated on 5 January 2022. 2. Annex "A" of the Motion. 3. Annexes "A1" to "A-37" of the Motion. 4. Annexes "B" to "B-7" of the Motion. 5. Annex "C" of the Motion. 6. Annex "D" of the Motion. 7. G.R. No. 167041, June 17, 2008. 8. Annex "B". 9. "Fraud is of two kinds: actual or constructive. Actual or positive fraud proceeds from an intentional deception practiced by means of the misrepresentation or concealment of a material fact . Constructive fraud is construed as a fraud because of its detrimental effect upon public interests and public or private confidence, even though the act is not done with an actual design to commit positive fraud or injury upon other persons." ( Encinares vs. Achero , G.R. No. 161419, August 25, 2009) 10. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall automatically be lifted.