SEC-EIPD Order

April 14, 2021 ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT SEC EIPD Case No. 2021-3118 IN THE MATTER OF: BILL FORD VIP TRADING, INC. COMPANY REGISTRATION NO. CS201953503 FOR : Revocation of Certificate of Incorporation for Violation of the Revised CorporationCode of the Philippines (R.A.11232) in Relation to Sections 8.1, 28.1 and 26.1 of the Securities RegulationCode (R.A.8799) and Section 6 i (2) of Presidential DecreeNo. 902-A for Serious Misrepresentation as to what the Corporation can do to the Great Prejudice of or Damage to the General Public ORDER OF REVOCATION This refers to BILL FORD VIP TRADING, INC. , a stock corporation registered with the Commission on 01 July 2019 under Company Registration No. CS201953503. Its principal office address is at 23 Plainview Village Saog Marilao, Bulacan, Philippines. Its primary purpose is: "To engage in the business of buying, selling and providing supply of goods to the canteens or cafeterias. Provided that the corporation shall not solicit, accept or take investments/placements from the public neither shall it issue investment contracts ." (Emphasis supplied.) The instant case stemmed sometime in June 2019, when the Commission has received information that individuals or group of persons representing BILLFORD TRADING COMPANY and BILL FORD VIP TRADING, INC. , operated by BILLY FORD DELOS SANTOS ANDRADA are enticing the public to invest in the said entities by buying one (1) pig for the price of Php2,500.00 with a promise of getting the investment back amounting to Php4,375.00 in just three (3) months. Sample computation of the company's scheme is also posted in its Facebook Page. Below are some of the posts: Investigation conducted by this Department shows that BILLFORD TRADING is a business name registered with the Department of Trade and Industry (DTI) on 15 April 2019 under BILLY FORD DELOS SANTOS ANDRADA . On the other hand, BILL FORD VIP TRADING, INC. , is registered with the Commission on 1 July 2019 under Company Reg. No. CS201953503. The Articles of Incorporation of BILL FORD VIP TRADING, INC. reflects the name of BILLYFORD S. ANDRADA as one of its incorporators, directors and subscribers. An online search likewise shows that Facebook posts of BILLFORD TRADING include posting of DTI Certificate of Business Registration of BILLFORD TRADING and SEC Certificate of Incorporation of BILL FORD VIP TRADING, INC. , as a way of enticing the public to invest in the said entities, as shown below: Per records of the Commission, BILLFORD TRADING COMPANY and BILL FORD VIP TRADING, INC. , are not authorized to solicit investments from the public as these entities did not secure prior registration and/or license to solicit investments from the Commission as prescribed under Sections 8 and 28 of the Securities Regulation Code. This is evidenced by the Certifications issued by the concerned departments of the Commission, Company Registration and Monitoring Department, Corporate Governance and Finance Department and Markets and Securities Regulation Department. Consequently, on 23 January 2020, the Commission issued an SEC Advisory informing the public that BILLFORD TRADING COMPANY and BILL FORD VIP TRADING, INC. : x x x are not authorized to solicit investments from the public as these entities did not secure prior registration and/or license to solicit investment from the Commission as prescribed under Section 8 of the Securities Regulation Code (SRC). x x x the public is advised to STOP INVESTING in the investment scheme being offered by the said entities and by BILLY FORD DELOS SANTOS ANDRADA x x x Despite the issuance of a public warning by this Commission, BILLFORD TRADING COMPANY and BILL FORD VIP TRADING, INC. , did not bother to react, much less refute the issued Advisory against it. On 10 February 2021, a Show Cause Order was issued against BILL FORD VIP TRADING, INC. , addressed to the company's registered principal office address, and to its stockholders-directors-incorporators, namely; Billyford S. Andrada, Cecille C. Cantuba, Trixie Faith M. Pena, Andrew James T. Balero and Jethro John G. Reyes, directing the company to show cause why its Certificate of Incorporation should not be revoked for serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public and for committing fraud in the procurement of its Certificate of Incorporation and to show cause why no administrative sanction and/or criminal charges should be filed against BILL FORD VIP TRADING, INC., and/or its incorporators, directors and officers for violation of the Securities Regulation Code . On 11 March 2021, the SEC team went to the declared principal office of the company which is also the professed residential address of one of its incorporators, Billyford S. Andrada, located at 23 Plainview Village, Saog Marilao Bulacan, Philippines to serve the Show Cause Order. The said Order was received by a certain Hans Flores, who introduced himself as Billyford S. Andrada's brother-in-law and who informed the team that Billyford S. Andrada has not visited the said place for a long period of time. On the same date, the team went to the declared address of Trixie Faith M. Pena, Andrew James T. Balero and Jethro John G. Reyes to serve the Show Cause Order. However, the team was not able to properly serve the said Order, since the declared addresses of the abovementioned incorporators were found to be wrong addresses. Further, the Show Cause Order was sent on 5 March 2021 to the company's email: [emailprotected] and to one of its incorporator's email: [emailprotected] . To date, despite such receipt and presumptive notice of the Show Cause Order as detailed above, the company failed to respond which shall be taken against it and construed as a waiver of its right to be heard as to the allegations stated in the aforementioned Show Cause Order. Hence, we now resolve the instant proceedings on the basis of available evidence. Clearly in this case, the marketing and/or compensation plan of BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. shows that its main strategy is to earn from recruitments, although presented in the guise of running a piggery business. Even if there were a product involved, such as, buying a pig, it would appear that the promised profits and returns would be derived from the investments of BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. 's new member/investors. Necessarily, these scheme is unsustainable, as it must rely on a continuous inflow of new investors in order to make payouts to earlier investors. Evidently, the compensation plan of promising investors with "high return of investment" in a period of three (3) months being offered by BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. to the public, partakes of the nature of securities in the form of an investment contract. Section 3.1 of the Securities Regulation Code (SRC) defines securities as shares, participation or interest in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes: (a) Shares of stocks, bonds, debentures, notes, evidences of indebtedness, asset backed securities; (b) Investment contracts , certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription; (c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like options and warrants; (e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar instruments; (f) Proprietary or non-proprietary membership certificates in corporations; and (g) Other instruments as may in the future be determined by the Commission. An investment contract on the other hand, is defined under SRC Rule 26.3.5 of the 2015 Implementing Rules and Regulations of the Securities Regulation Code (2015 SRC IRR) as follows: "An investment contract means a contract, transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. A common enterprise is deemed created when two (2) or more investors "pool" their resources, creating a common enterprise, even if the promoter receives nothing more than a broker's commission." Further, the elements of an investment contract were enumerated in the case of Power Homes Unlimited Corporation vs. SEC (G.R. No. 164182, February 26, 2008) traced from the case of SEC vs. Howey Co. (66 S.Ct.1100 May 27, 1946) and was later modified in the case of SEC vs. Glenn W. Turner Enterprises, Inc. (474 F.2d476 February 1, 1973), as follows: A contract, transaction or scheme An investment of money A common enterprise Expectation of profits Profits arises primarily from the entrepreneurial and managerial efforts of others Section 8, in relation to Section 12 of the SRC provides that: "SEC. 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. "SEC. 12. Procedure for Registration of Securities. 12.1. All securities required to be registered under Subsection 8.1 shall be registered through the filing by the issuer in the main office of the Commission, of a sworn Page 11 of 14 registration statement with respect to such securities, in such form and containing such information and documents as the Commission shall prescribe. The registration statement shall include any prospectus required or permitted to be delivered under Subsections 8.2, 8.3 and 8.4." Securities such as investment contract as defined by the SRC and in relation to SRC Rule 26.3.5 of the 2015 SRC IRR must be registered with the Commission pursuant to Sections 8 and 12 of the SRC before the same can be offered or sold for distribution. Rule 3.1.17 of the 2015 SRC IRR defined Public Offering as "any offering of securities to the public or to anyone, whether solicited or unsolicited. Any solicitation or presentation of securities for sale through any of the following modes shall be presumed to be a public offering: 3.1.17.1 Publication in any newspaper, magazine or printed reading material which is distributed within the Philippines or any part thereof; 3.1.17.2 Presentation in any public or commercial place; 3.1.17.3 Advertisement or announcement on radio, television, telephone, electronic communications, information communication technology or any other forms of communication ; or 3.1.17.4 Distribution and/or making available flyers, brochures or any offering material in a public or commercial place, or to prospective purchasers through the postal system, information communication technology and other means of information distribution ." (Emphasis supplied) On the other hand, a "Broker" is defined under Section 3.3. of the SRC as a person engaged in the business of buying and selling securities for the account of others. "Salesman" is defined under 3.13 of the SRC as a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell securities. Consequently, Section 28 of the SRC provides that: "SEC. 28. Registration of Brokers, Dealers, Salesmen and Associated Persons . 28.1. No person shall engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated person of any broker or dealer unless registered as such with the Commission." Thus, any person, without proper registration or license from the Commission who acts as brokers or agents of a company selling or convincing people to invest in the investment scheme including solicitations or recruitment through the internet may likewise be prosecuted and held criminally liable under Section 28 of the SRC and penalized with a maximum fine of Five Million pesos (P5,000,000.00) or penalty of Twenty One (21) years imprisonment or both pursuant to Section 73 of the SRC. In this particular case, the Department carefully examined the characteristics of the investments offered by BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. to determine if they satisfy the elements of an investment contract. In our evaluation, indeed, the elements of investment contracts are manifested in the investments being offered by BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. which are as follows: By investing in the company, the investor enters into a contract ; There is a placement of money from the public as they are enticed to invest in the company that represented to be engaged in a lucrative business; The money invested is placed in a common enterprise ; The investors expect to derive profits as they are primarily attracted to join BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. for a promise of getting their investment back amounting to Php4,375.00 in just three (3) months; and The investors expect to earn profits derived primarily from the efforts of others or from BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. 's new member/investors. Further, it is important to emphasize that BILL FORD VIP TRADING, INC. , as a juridical person, is only allowed to exercise powers inherent to its corporate existence as provided in the Revised Corporation Code of the Philippines and those conferred in its Articles of Incorporation (AOI). In other words, what a corporation can do is necessarily circumscribed by its primary purpose clause in its AOI. In BILL FORD VIP TRADING, INC. 's Articles of Incorporation as approved by the Commission, it is clearly provided that the business of the subject company is: "To engage in the business of buying, selling and providing supply of goods to the canteens or cafeterias. Provided that the corporation shall not solicit, accept or take investments/placements from the public neither shall it issue investment contracts ." (Emphasis supplied.) Nonetheless, the purpose stated in the Articles of Incorporation need not set out with particularity the multitude of activities in which the corporation may engage. The effect of broad purposes or objects is to confer wide discretionary authority upon the directors and management of the corporation as to the kinds of business in which it may engage. However, dealings which are entirely irrelevant to the purposes are unauthorized and called ultra vires . The purpose clause of the articles of incorporation indicates the extent as well as the limitations of the powers which a corporation may exercise. In fact, the purpose in BILL FORD VIP TRADING, INC. , Articles of Incorporation expressly prohibits it to operate an investment-taking scheme. In an opinion, 1 the Commission pronounced that: "It is the corporation's primary purpose clause which confers, as well as limits, the powers which a corporation may exercise and the character of a corporation is usually determined by the objects of its formation and the nature of its business as stated in the articles. The primary purpose of the corporation, as stated in its articles of incorporation, is the first business to be undertaken by the corporation. Hence, the primary purpose determines its classification." Likewise, the Certificate of Registration issued to BILL FORD VIP TRADING, INC. , explicitly states that: This Certificate grants juridical personality to the corporation but does not authorize it to issue, sell or offer for sale to the public, securities such as but not limited to, shares of stock, investment contracts , debt instruments and virtual currencies without prior Registration Statement approved by the Securities and Exchange Commission nor to undertake business activities requiring a Secondary License from this Commission such as, but not limited to acting as broker or dealer in securities , government securities eligible dealer (GSED), investment adviser of an investment company, close-end or open-end investment company, investment house, transfer agent, commodity financial futures exchange/broker merchant, financing lending company, and time share, cash share/membership certificate issuers or selling agents thereof nor to operate a fiat money to virtual currency exchange. Neither does this Certificate constitute a permit to undertake activities for which other government agencies require a license or permit . (emphasis supplied) To exacerbate matters, the scheme being offered by BILLFORD TRADING COMPANY/BILL FORD VIP TRADING, INC. is clearly in the nature of ponzi scheme 2 where the profits or payouts shall be taken from incoming investors or additional pay-ins of existing members-investors considering that it does not have any underlying legitimate business from where it could source its promised return on investments to its investors. Such scheme is prohibited under Section 26 of the SRC: "SEC. 26. Fraudulent Transactions . It shall be unlawful for any person, directly or indirectly, in connection with the purchase or sale any securities to: 26.1. Employ any device, scheme, or artifice to defraud; 26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading; or 26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or deceit upon any person." Under Section 6 of Presidential Decree 902-A, the Commission has the power to suspend, or revoke, after proper notice and hearing, the franchise of certificate of registration or corporations, partnerships and associations, on the ground of serious misrepresentations as to what the corporation can do or is doing to the great prejudice of or damage to the general public. Likewise, Section 5.1 (m) of the SRC and Section 179 (j) of the RCCP empower the Commission to revoke the franchise or Certificate of Incorporation/registration of corporations registered with it. Under the 2016 Rules of Procedure of the Securities and Exchange Commission, the EIPD shall exercise authority over persons and entities, whether under the primary authority of other Operating Departments, involved in the following: x x x x x x x x x"1. Investigations and administrative actions involving the following: x x x x x x x x xc) Selling, offering or transacting unregistered securities by entities without secondary license; d) ultra vires acts committed in violation of the Corporation Code; 2. Petitions for revocation 3 of corporate registration in all cases, except those which fall under the original authority of CRMD; 3. Administrative actions for fraudulent transactions involving securities; 4. Administrative actions for all other violations under PD 902-A, except those cases which fall under the original authority of other Operating Departments; and 5. All other matters involving investor protection filed by the public, referred by self-regulatory organizations, or referred by other Operating Departments after initial evaluation or findings that there is a possible violation of laws, rules or regulations that the Commission implements but do not fall under their respective original authority." Further, SEC Admin Case No. 11-10-124 entitled In re: PHILBIO Renewable Energy Resources Corp. , promulgated on 27 April 2016 provides what constitute serious misrepresentation, to wit: "From the foregoing, it is indubitable that PHILBIO misrepresented itself to the public that it can solicit investments despite the fact that it is not one of the purposes of the corporation. Worse, it does not have a license to offer/sell securities. PHILBIO operates an investment-taking scheme which is therefore considered an ultra vires act. These constitute serious misrepresentation as to what the corporation can do or doing to the great prejudice to the general public." Considering that nowhere is it stated in its primary purpose that BILL FORD VIP TRADING, INC. , is authorized to engage in the selling or offering for sale of securities to the public, the activity of BILL FORD VIP TRADING, INC. , of selling or offering for sale of investments is considered an ultra vires act under Section 44 of the Revised Corporation Code of the Philippines (RCCP), or an act beyond the corporate powers conferred to it by the State and therefore constitute serious misrepresentation. Section 44 of the RCCP provides: SEC. 44. Ultra Vires Acts of Corporations . No corporation shall possess or exercise corporate powers other than those conferred by this Code or by its articles of incorporation and except as necessary or incidental to the exercise of the powers conferred. Finally, verification with the Bureau of Internal Revenue (BIR) on the authenticity of the Taxpayer Identification Numbers (TINs) of the incorporators of BILL FORD VIP TRADING, INC. , as indicated in its Articles of Incorporation, reveals that three (3) of the incorporators presented invalid TINs and two (2) of them used TINs which belong to another taxpayer in the registration documents. A portion of the BIR reply is cited below: PER REQUEST PER BIR DATABASE Names TIN Remarks 1. Trixie Faith M. Pena 744-374-324-000 Invalid TIN 2. Cecille C. Cantuba 744-374-124-000 TIN 744-374-124 belongs to another taxpayer 3. Andrew James T. Balero 744-374-224-000 Invalid TIN 4. Jethro John G. Reyes 744-374-524-000 Invalid TIN 5. Billyford S. Andrada 430-088-047-000 TIN 430-088-047 belongs to another taxpayer Noteworthy to mention is that the intentional declaration and use of invalid and false TINs in order to acquire registration with the Commission is tantamount to fraud in the procurement of the Certificate of Incorporation which is a separate ground for the revocation of the said Certificate of Incorporation pursuant to Section 6 (i) (1) of PD 902-A. Yet another instance of fraud in the procurement of registration 4 was that three (3) incorporators of BILL FORD VIP TRADING, INC. , namely, Trixie Faith M. Pena, Andrew James T. Balero and Jethro John G. Reyes provided wrong addresses as indicated in the company's Articles of Incorporation as validated by EIPD. WHEREFORE , for violation of Section 44 of the Revised Corporation Code of the Philippines (R.A. 11232) in relation to Sections 8.1, 28.1 and 26.1 of the Securities Regulation Code, P.D. 902-A and Section 179 (j) of the RCCP, the Certificate of Incorporation and the registration of BILL FORD VIP TRADING, INC. as a corporation, is hereby REVOKED . Accordingly, let this Order be posted at the SEC website and attached by the Corporate Filing and Records Division of the Company Registration and Monitoring Department (CRMD) to the records of the corporation on file with the Commission. Further, the Information and Communications Technology Department (ICTD) of this Commission is likewise requested to enter the "revoked" status of subject corporation in the online database of the Commission. SO ORDERED. Pasay City, April 14, 2021. (SGD.) ATTY. OLIVER O. LEONARDO Officer-in-Charge Enforcement and Investor Protection Department Securities and Exchange Commission Footnotes 1. SEC-OGC Opinion No. 11-33 dated 29 July 2011 addressed to Mr. Jesus B. Lapuz. 2. A Ponzi scheme is an investment program that offers impossibly high returns and pays these returns to early investors out of the capital contributed by later investors. Named after Charles Ponzi who promoted the scheme in the 1920s, the original scheme involved the issuance of bonds which offered 50% interest in 45 days or a 100% profit if held for 90 days. Basically, Ponzi used the money he received from later investors to pay extravagant rates of return to early investors, thereby inducing more investors to place their money with him in the false hope of realizing this same extravagant rate of return themselves. (People of the Philippines v. Priscilla Balasa, et al., G.R. 106357, dated September 3, 1998) 3. Revocation refers to involuntary dissolution of corporate registration pursuant to Section 138 of the Revised Corporation Code. 4. Pursuant to a Resolution adopted by the Commission en banc enumerating the grounds constituting fraud in the procurement of registration, i.e. , falsity in any information provided by applicants in the registration documents.