Klikmart Shopping Club Corp. (also known as "Klikmart Rewards"), Klikmart Dragon Inc. (also known as "Klikmart Rewards")

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines Department of Finance KLIKMART SHOPPING CLUB CORP. and In the matter of: KLIKMART DRAGON, INC. (also known as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT, Movant. CEASE AND DESIST ORDER September 2015, by the Enforcement and Investor Protection Department (EIPD) enjoining KLIKMART SHOPPING CLUB CORP.("Klikmart Shopping") and KLIKMART DRAGON, INC.("Klikmart Dragon"),also known as "KLIKMART REWARDS" and their interlocking directors and officers, representatives, salesmen, agents and any and all persons, conduit, entities and subsidiaries claiming and acting for and in their behalf, to cease and desist from engaging in activities of selling and/or registration statement is duly filed with and approved by the Commission and the offering for sale securities in the form of investment contracts until the requisite corresponding license to offer/sell securities is issued. This resolves the Motion for Issuance of Cease and Desist Order' filed on 11 31 March 2015 with Company Registration No. CS2015065762. Its principal office address is at Unit 1B, Forab Building,Kamuning Road, Brgy. Kamuning, Quezon City3. Its primary purpose is: Klikmart Shopping is a stock corporation registered with the Commission on "To engage in the business of marketing and distribution of goods, such as but not limited to soap and perfumes, wares and merchandise of every. kind and description in wholesale and retail basis.4 Pesos (Php 100,000.00) divided into One Hundred Thousand (100,000) shares with Klikmart Shopping's Authorized Capital Stock is One Hundred Thousand 2 Paragraph 2 and Annex "D" of the Motion. Dated 10 September 2015. 3 bid. A bid In re: KLIKMART DRAGON, INC. and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 2 of 18 par value of One Peso (Php1.00) per shares. Its board of directors and officers, as shown in its Articles of Incorporation (AOD), are: Dennis A.Occidental Luzvimindo Cabaluna Mary Devon T. Garganera Amacio Athos C. Garganera Romel L. Juaton Rowen G. Cabaluna Name Louiza M. P. Nationality Filipino Filipino Filipino Filipino Filipino Filipino Filipino 219-657-430 255-251-190 459-760-595 459-760-465 239-828-214 434-272-011 119-229-902 TIN No. Sta. Cruz, Laguna P1 Lot 18 Ipil-ipil, Tunasan, Muntinlupa Lot18 Tunasan, Muntinlupa UIIPearl Sta. Rosa City, Laguna UIIPearlRd. A. Complex, Sta. Rosa City, Laguna P1 B1 L21 II Giardino, Brgy. U Sta. Rosa City, Laguna Buenavista I, General Trias, Complex, Cavite Complex,. Pearl Mabini St. Int. Pob. 2 Ipil-ipil, Address Brgy. Brgy. Brgy. Rd. Rd. Balibago Balibago Balibago Balibago Balibago Balibago Brgy. Brgy. Commission on 05 February 2015 with Company Registration No. CS2015020223. Its Sta. Rosa, Laguna7. Its primary purpose is: principal office address is at Unit II, Pearl Road, Balibago Complex, Brgy. Balibago. On the other hand, Klikmart Dragon is a stock corporation registered with the "To engage in, conduct and carry on the business of buying, selling, or products whether natural or artificial without acting as stock broker or distributing, marketing at retail and wholesale insofar as may be upon consignment of all kinds of goods, equipments, wares, merchandise investment house, transfer agent, commodity/financial futures shares/membership certificate issuers or selling agents thereof. permitted by law, all kinds of goods, wares and merchandise of every kind and description; to enter into all kinds of contracts for the export, import, purchase, acquisition, sale at manufacturer's representative, merchandise broker, indentor, commission merchant, factors or agents dealer in securities. government securities eligible dealer(GSED) exchange/broker/merchant. financing company. and time shares/club 5 Seventh paragraph, Klikmart Shopping's AOI, Annex D of the Motion. 6 Paragraph 1 of the Motion. 2 Klikmart Dragon's Articles of Incorporation, Annex "B" of the Motion. BIbid. In re: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also knoWn as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 3 of 18 Hundred Pesos (Php100.00) per share. Its incorporators, as shown in its AOI, are: (Php 500,000.00) divided into Five Thousand (5,000) shares with par value of One Klikmart Dragon's Authorized Capital Stock is Five Hundred Thousand Pesos Dennis A. Occidental Luzvimindo Devon T. Garganera Romel L. Juaton Mary Amacio Cabaluna Athos C. Garganera Rowen G. Cabaluna Name Louiza M. P. Nationality Filipino Filipino Filipino Filipino Filipino Filipino Filipino 219-657-430 459-760-595 255-251-190 459-760-465 119-229-902 239-828-214 434-272-011 TIN No. P1 Lot 18 Ipil-ipil, Brgy. P1 B1 L21 II Giardino, Brgy. B. Sta. CruzLaguna Tunasan, Muntinlupa Buenavista I, General Trias, UII Pearl Sta. Rosa City, Laguna UIIPearl UIIPearlRd. P1 B1 L21 II Giardino, Brgy. Buenavista I, General Trias, Cavite Complex, Complex, Sta. Rosa City, Laguna Cavite Sta. Rosa City,Laguna Complex, Mabini St. Int. Pob.2 Address Brgy.Balibago Brgy. Brgy. Rd. Rd. Balibago Balibago Balibago Balibago Balibago Klikmart Rewards/ Klikmart Shopping investors to invest in "Klikmart Rewards with an office address at G/F Unit 1-B on the legality of the investment scheme carried out by Klikmart Rewards. In one of the inquiries, the email-senderl reported that one of her co-workers is recruiting Forab Building, Kamuning Road, Quezon City. As reported, Klikmark Rewards promises a weekly pay-out of almost thirty percent (30%) of invested capital without has a website (www.Klikmartrewards.com) and its president is a certain Romel selling any products!1. In another inquiry, the email-sender asked if Klikmart Rewards company is a legitimate corporation. The email-sender reported that the said company Jualaton12 EIPD has been receiving electronic mails (e-mails) from the public inquiring operations of "Klikmart Rewards". On 25 June 2015, an EIPD team of investigators This prompted EIPD to conduct a verification and investigation as to the 9 Article VIl of Klikmart Dragon's Articles of Incorporation, Annex B of the Motion. I0 Email-sender requested that her identity be kept confidential. I Annex "E" of the Motion. I2 Annex "F" of the Motion. In re:KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also knoWn as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 4 of 18 Rewards located at Unit 1B Forab Building, Kamuning Road, Brgy. Kamuning, Quezon City. The purpose of the surveillance is to ascertain the existence of the corporation and to verify its business operation. The EIPD team reported that when the place. They noticed that there were no groceries or products that were sold to the public. Instead, there was a counter area where the staff of the corporation were positioned to transact with the investors. Thus, the EIPD team decided to elicit (EIPD Team).conducted a surveillance and ocular inspection at the office of Klikmart they arrived at the designated place there were around nineteen (19) individuals inside information from an investor about Klikmart Rewards's investment schemes, to wit: with the investor, the corporation used the following programs: "Accordingly, the team learned some of the investment schemes of the corporation, and how there schemes were carried out. As per discussion 1. Membership Reward Program -- for every Php1,500.00, the investor 4. 3 5. will earn Php500.00 after twenty-two (22 days. The maximum Direct Referral - the investor will get Php50.00 for every direct Unilevel Bonus 20/20 -- this program was no longer explained to the team; and Royalty Bonus - this program was likewise not discussed to the investment is Php15,000.00 daily. The investor has the option to Click and Win Bonus - an"Online Program where the investor gets referral who will invest a minimum of Php1,500.00; withdraw his investment plus interest or roll-over his money; the chance to win prices by clicking an icon. The nitty-gritty of this program was not fully explained to the team; team. investment plus interest. Consequently, he invested Php9,000.00 which will mature the following day.13 the money which he initially invested. He further stated that at first he tried to invest Phpl,500.00. Fortunately, he was able to get his After explaining the program, the investor told the team that he borrowed corporation registered with the Commission which is Klikmart Shopping. Thus, EIPD] requested for a Certified True Copy (CTC) of Klikmart Shopping's business permit furnished EIPD with Klikmart Shopping's CTC business permit with no. 15-005844 from the Quezon City Business Permits and License Office (QC BPLO). QC BPLO issued on 14 May 201514 Records show that Klikmart Rewards business address is similar to a inspection at the office of Klikmart Shopping located at Unit 2 Balibago Commercial Complex, Pearl Road Balibago, Sta. Rosa, Laguna5. The EIPD team reported that On 16 July 2015, the EIPD team conducted another surveillance and ocular I4 Annex "I" of the Motion. I5 Klikmart Rewards/Klikmart Shopping's main office as shown in its official website: www.klikmartrewards.com. I3 Annex "G" of the Motion. In re: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also.knoWn as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 5 of 18 relationship of the following Klikmart entities and their investment schemes, to wit: when they arrived they observed three (3) persons fixing a signage of KLIKMART (i.e. medicine, coffee, soap, etc.) on display and intended for sale. There were nine (9) individuals present inside said office. The EIPD team posed as interested investors and they were accommodated by Mr. Athos Garganera, who introduced himself as a Director of Klikmart Shopping. Mr. Garganera explained to the EIPD team the REWARDS. When they entered the said place, they noticed that there were products "Given the foregoing observations, the team had the chance to ask Mr. corporation was registered with SEC under the name Klikmart Shopping Club Corporation. Nonetheless, he clarified that Klikmart Shopping Club Corporation and Klikmart Rewards were one and the same entity. Garganera the relationship between Klikmart Rewards and Klikmart Shopping Club Corporation. Mr. Garganera told the team that the the-schemes being carried out by the corporation. Afterwards, Mr. Garganera conducted a short discussion with regard to Accordingly, the team learned the investment schemes of the corporation corporation used the following programs: and how these schemes were carried out. As per discussion, the 1. Membership Bonus -- the investor will earn 33% interest after a investor will earn P500.00. The maximum investment is P15,000.00 minimum period of twenty-one (21) days to a maximum period of The investor has the option to withdraw his investment plus interest For every P1,500 investment, the investor will be given 2 boxes of one (1) month. Thus, for a minimum amount of P1,500.00 daily, the coffee (P195.00 per box) and 1 soap (P160.00); daily. or roll-over his money upon maturity. 2.Raffle Bonus - an Online Program where the investor gets the Garganera, 26. investors already won 10 Thousand Pesos and 1 chance to win prizes by clicking an icon. Under this scheme, an investor can win any of the following: To date, an investor can only win either a or b. As per Mr c) One (1) million Pesos; a) Ten (10) Thousand Pesos; b) One Hundred (100) Thousand Pesos; f House and Lot plus Car. winner of 100 Thousand Pesos; d) House and Lot; e) Car; 3.. Infinite Direct Referral - the investor will get P50.00 for every direct referral who will invest a minimum of P1,500.00. The corporation imposed no limit as to the number of referrals; In re: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also`knoWn as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 6 of 18 4.Unilevel Bonus explanation, Mr. Garganera used a diagram, thus: Garganera. Under this scheme, an investor will earn P1.00 for every P45.00/kilo that will bepurchased by his referrals. In his product (i.e.coffee-P19500/box,soap-P160.00/piecerice- -"POWER OF PISO" as tagged by Mr. First Level Second Level (and so on) to claim his money, he mustfirst purchase one product from the When referrals or down line of an investor reach the 20th level, then, he corporation; and will earn more than 2 million Pesos. However, in order for an investor 5.Royalty Raffle Bonus in others words BALATO. This scheme depends on Scheme # 2 (Raffle Bonus). Again, Mr. Garganera used a diagram to explain this scheme. Investor 15 referrals/downline 1 Million Pesos In the above diagram, the corporation has the option to choose how much percentage will be given as a bonus or "balato". If the primary investor ioses in the raffle bonus (scheme #2) and the 15th person in his down line royalty bonus, then, all persons above the winner will be given wins, then, the 14th person in the down line all the way up to the primary investor will be given a "Balato"Thus, as shown in the above diagram, if the prize won is Pl million and the corporation decides to give 10% P100,000.00 each.16 "Sales Registration Form17. In the said form, it can be seen that Klikmart Shopping is MARKETING SERVICES (Klikmart|Marketing). using another business name which is "KLIKMART DISTRIBUTION AND After Mr. Garganera's seminar/short lecture, he handed to the EIPD Team a Department (CGFD), upon request of EIPD, issued a certification that Klikmart Shopping or Klikmart Rewards is not a registered issuer of mutual funds including exchange traded funds, membership certificates, time shares and unlisted securities On 21 July 2015, the Commission's Corporate Governance and Finance Ib Annex "L" of the Motion. 17 Annex"N" of the Motion. under Section 17.2 (a) of the Securities Regulation Code (SRC) and therefore not licensed to offer or issue such securities to the publicl8 In re: KLIKMART DRAGON, INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also knoWn as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 7 of -18 offer for sale or distribute securities to the public. MSRD further certified that Klikmart Shopping and/or Klikmart Rewards is not, under any circumstance, authorized or licensed to engage in activities and/or solicit investments necessarily connected with or incidental to the pursuit of and carrying on said business or profession which are required to secure certificates of registration/licenses from the Department (MSRD) issued a certification stating that Klikmart Shopping and/or Klikmart Rewards has not been issued Certificates of Registration or Licenses to act as Broker and/or Dealer in Securities, Dealer in Government Securities, Investment Adviser of an Investment Company, Investment House, Transfer agent and to sale, Commission.19 On 22 July 2015, the Commission's Marketsand Securities Regulation Extension Office reporting to the Commission the alleged investment schemes of Klikmart Shopping and requesting for an evaluation/investigation, to wit: On 28 July 2015, EIPD received a Memorandum20 from SEC-Baguio "Based on the information sent through electronic mail by Acting Union Regional Office, Klikmart Shopping Club Corp. is using Director Rogel Joseph V. Del Rosario of Bangko Sentral ng Pilipinas, La Klikmart, Klikmart Rewards, Klikmart Distribution and Marketing Services, as business names in its dealings with clients. x x x. Klikmart Romel Lanila Juaton. x x x. Distribution and Marketing Services is DTI registered under the name of The advertisements of the. corporation can. be accessed via www.facebook.com/klikmartrewards and https://klikmartrewards.com. It can be search from the different Facebook accounts that it had opened branches such as the following: 1 CaviteBranch(https:/facebook.com/pages/Klikmart-Rewards- 5 Kamuning, Quezon City (https://facebook.com/pages/Klikmart- Dasma-Cavite/992306394126514?fref=ts); 3 Mindoro (https://facebook.com/pages/Klikmart-rewards-mindoro- Rewards /1103066769722105?fref=ts); 4 La Union which can be accessed at (https://facebook.com/groups/ Cavite/929918333744853?fref=ts); 5 Davao (https://facebook.com/pages/Klikmartdavao?fref=ts). 90795036514541/?fref=ts); Going over the Facebook account of Klikmart Kamuning, there is a posting stating that there is no need to recruit, no selling, 133.33% 20 Dated 24 July 2015, Annexes "O" of the Motion. I8 Annex " of the Motion. I9 Annex "K" of the Motion. In re: KLIKMART DRAGON, INC.and KLIKMART SHOPPING CLUB CORP. Enforcement and Investor Protection Department (also knoWn as "KLIKMART REWARDS") SEC CDO Case No.09-15-023 Page 8 of 18 money back guaranteed after 2-4 weeks. x x. Announcements of pay outs can also be search through Klikmart Rewards Facebook account, XXX SECBEO, through Atty. x X x, called Klikmart La Union Branch Office the phone, that she does not want to sell products. She inquired whether Iocated at 3rd Floor, Paris Building, Rizal Avenue, San Fernando City on July 23, 2015 and acted as poseur-investor.Atty.x x x stated that she was very much interested to invest the amount of Five Hundred Thousand Pesos and stressed to Mr. Jorge A. Natividad, who answered or not the principal amount invested will earn interest even without any sales or referrals. Mr. Natividad confirmed that if the she will invest such amount, it will earn interest/profit in the amount of One Hundred and sales or referrals. However, she cannot invest the entire amount using her name alone. She was told to breakdown the amount using five more persons of her choice as investors. Sixty Six Thousand Pesos (33.20% interest) in just 23 days without any investors. The caller insisted to inquire and was able to get information Another call was made on the same day by Atty. x x x, acting again as investor. The same staff, Mr. Natividad, answer the phone. He requested her to visit their office because they are busy giving pay outs to that the lock up period ranges from 20 to 23 days. The principal amount and the interest will be returned at the same time if demanded by the needed to be submitted to become a member. The minimum amount client after the lock up period. There are no documentary requirements required to invest is Phpl,500.00 and the maximum amount is P1,500,000.00. It was also ascertained that Klikmart's Baguio branch office is located at 2nd Floor, Decibar Bldg., Bonifacio Street, Baguio City under the management of Marky Orpilla." brochures indicating product packages, sales registrations forms, sales membership agreements and print out of Klikmart's website21. Attached to the said Memorandum are supporting documents such as concerning the investment activities of Klikmart Shopping or Klikmark Rewards22 On 31 July 2015, the Commission issued an advisory warning the public Klikmart Dragon requesting the Commission to investigate Klikmart Dragon for alleged investment activities. Similarly, on 14 July 2015, EIPD received an e-mail from the public 2I Annexes "O-1","O-2", "O-3","O-4", "O-5","O-6", "O-7" "O-8","O-9", "O-10" of the Motion. 22 Annex "Q" of the Motion. In re:KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also knoWn as "KLIKMART REWARDS" SEC CDO Case No.09-15-023 Page 9 of 18 certification that Klikmart Dragon is not a registered issuer of mutual funds including under Section 17.2 (a) of the SRC and therefore not licensed to offer or issue such exchange traded funds, membership certificates, time shares and unlisted securities securities to the public23. On 10 August 2015, the Commission's CGFD, upon EIPD's request, issued a MSRD further certified that Klikmart Dragon is not, under any circumstance, certification stating that Klikmart Dragon has not been issued Certificates of authorized or licensed to engage in activities and/or solicit investments necessarily connected with or incidental to the pursuit of and carrying on said business or profession which are required to secure certificates of registration/licenses from the Commission.24 House, Transfer agent and to sale, offer for sale or distribute securities to the public. Registration or Licenses to act as Broker and/or Dealer in Securities, Dealer in Government Securities, Investment Adviser of an Investment Company, Investment On 12 August 2015, the Commission's MSRD, upon EIPD's request, issued a Klikmart Shopping. The purpose of the ocular inspection is to ascertain the existence inspection at the office of Klikmart Dragon located at Unit 2 Balibago Commercial Complex, Pearl Road Balibago, Sta. Rosa, Laguna, which is the same address with of the corporation and to verify its business operation. The EIPD Team reported that when they arrived at the designated place, they were accommodated by Mr. John Jholeny Lumibao, nephew of Mr. Garganera. Mr. Lumibao explained to the team the following: On' 20 August 2015, the EIPD team conducted another surveillance and ocular "Accordingly, he mentioned some of the programs .of the subject corporation, to wit: I Entry/Re-entry - for every Phpl,500.00, the investor will earn 2 investor can authorize other person to claim his investment upon Customer's Finder's Fee -- the investor will get Php50.00 for every Php500.00 after twenty-one (21) days. The maximum investment is investment plus interest or roll-over his money upon maturity. The maturity should he be unavailable at the time; Php15,000.00 daily, The investor has the option to withdraw his 3.Cashback -- this program was no longer explained to the team; corporation imposed no limit as to the number of referrals; and direct referral who will invest a minimum of Php1,500.00.The its seminar, the schemes/programs of the subject corporation were written in this manner: As can be seen from the white board used by the subject corporation in Pay In -- Entry/Re-entry 23 Annex "R" of the Motion. 24 Annex "S" of the Motion. Inre: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 10 of 18 Unilevel - Cashback Pay Out -- Rewards Direct Referral --Customer Finder's Fee (CFF) Shopping Club Corporation". Subsequent to his discussion, the team mentioned that they previously attended a seminar conducted by Mr. Garganera. Likewise, the team told Mr. Lumibao that during the seminar, Mr. Garganera stated that the subject corporation was registered with SEC under the name Klikmart In response, Mr. Lumibao told the team that the company has been carrying the name "Klikmart International Company" "and the name "Klikmart Shopping Club Corporation" was just part of the former. One of the groups of "Klikmart International Company". The team then asked Mr. Lumibao if "Klikart Dragon Corp." was also He added that Klikmart Dragon, Inc. might have been registered by part of Klikmart International Company. Mr. Lumibao responded in the negative and told the team that he was not familiar with the company. office address at Unit 2-C G/F Forab Bldg., i21 Kamuning Road Kamuning Quezon City. X x x Before the discussion was concluded, the team bought "SALES REGISTRATION FORMfrom the subject corporation.Markedly, the name indicated in the said form is "Klikmart Shopping Club Corp." with Kamuning Road, Quezon City. office and personnel. The team was also given sales registration forms of Klikmart Shopping Club Corp. with office address at Unit 2-C G/F Forab Building, 121 The EIPD team was able to take photographs of the subject corporation's Hence, this Motion. the connection among Klikmart Shopping Club Corp., Klikmart Dragon Inc. Klikmart Rewards and Klikmart Distribution Marketing Services (collectively "Klikmart"). Before we resolve the motion on the merits, it is necessary first to delve into wit: EIPD's investigation show the connection between the above-stated entities, to I.Klikmart Shopping vis-a-vis Klikmart Rewards The address, G/F Unit 1-B Forab Building, Kamuning Road, Quezon City, reported by one. of the email-senders25 is the same address stated in Klikmart Shopping's AOI. 25 Notes 10, 11, 12, supra. In re: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS") SEC CDO Case No.09-15-023 Page 1 1 of 18 Mr. Athos Garganera's business card27 indicating the company's website Mr. Athos Garganera, Director of Klikmart Shopping, informed the team Mr. John Jholeny Lumibao, nephew of Mr. Garganera, informed the team that Klikmart Shopping and Klikmart Rewards are one and the same as,.www.Klikmartrewards.com, shows that Klikmart Shopping and Klikmart Rewards are one and the same; that Klikmart Shopping is part of the Klikmart group of companies. entity26: II. Klikmart Dragon vis-a-vis Klikmart Rewards Mr. John Jholeny Lumibao, nephew of Mr. Garganera, informed the team The address, Unit II, Pearl Road, Balibago.Complex, Brgy. Balibago, Sta. Rosa, Laguna, provided in Klikmart Rewards's website as its main office is the same principal address stated in Klikmart Dragon's AOI. that Klikmart Dragon is part of the Klikmart group of companies. III. Klikmart Shopping vis-a-vis Klikmart Dragon Both corporations have exactly the same incorporators and officers; Both corporations is using the business name "Klikmart Rewards"; Mr. Athos Garganera's business card indicates that Klikmart Shopping Sta. Rosa, Laguna, is the same principal address indicated in Klikmart business address, Unit II, Pearl Road, Balibago Complex, Brgy. Balibago Dragon's AOI. IV. Klikmart Shopping vis-a-vis Klikmart Marketing The Sales Registration Form28 given to the EIPD Team by Mr. Garganera. director of Klikmart Shopping, shows the name of Klikmart Marketing and the website of Klikmart Rewards. V. Klikmart Dragon vis-a-vis Klikmart Marketing In the Sales Registration Form given to the EIPD Team, it is indicated therein Klikmart Marketing' address, Unit II, Pearl Road, Balibago Complex, Brgy. Balibago, Sta. Rosa, Laguna, which is the same as Klikmart Dragon's principal address as stated in the latter's AOI. Klikmart entities are closely interconnected. Based on the presented evidence, these Klikmart entities are controlled and operated by the same persons. Based on the above-discussed similarities, it can be seen that the four (4) allegations contained in the petition and as the evidence presented. The foregoing considered, we now resolve the case on the merits based on the 28 Annex N of the Motion. 26 Note 16, supra. 27 Annex M of the Motion. In re: KLIKMART DRAGON, INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also knoWn as "KLIKMART REWARDS") SEC CDO Case No.09-15-023 Page 12 of 18 We find merit in the motion. selling or offering for sale securities to the public in the form of investment contracts without the necessary license from the Commission. EIPD's motion, as supported by substantial evidence show that Klikmart is contract, instrument, whether written or electronic in character29 and includes an commercial enterprise or profit-making venture and evidenced by a certificate, investment contract.3o Securities are shares, participation or interests in a corporation or in a sale or distribution within the Philippines, without a registration statement duly filed SRC states that 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 with and approved by the Commission. In connection therewith, Section 12.1 of the sworn registration statement with respect to such securities, in such form and containing such information and documents as the Commission shall prescribe. Section 8.1 of the SRC provides that securities shall not be sold or offered for An "investment contract" has been defined as follows: "G: An investment contract means a contract, transaction or scheme enterprise and is led to expect profits primarily from the efforts of others. (collectively contract') whereby a person invests his money in a common 1. An investment is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits. receives nothing more than a broker's commission.3! 2. A common enterprise is deemed created when two (2) or more investors pool' their resources - creating a common enterprise, even if the promoter v. W.J. Howey Co.32 where the Court stated that an investment contract is a It traces its roots from the US Supreme Court case Securities Exchange Commission transaction, contract, or scheme whereby a person (1) makes an investment of money, 2) in a common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others. The concept of an investment contract in the Philippines is of American origin. profits must come "solely" from the efforts of others should be liberally construed because a literal reading of the requirement "solely" would lead to unrealistic results. In a subsequent U.S. Supreme Court case, it was held that the element that 31 SRC Rule-3(1)(G), Amended Implementing Rules and Regulations (IRR) of the SRC. 29 Section 3.1., Securities Regulation Code (SRC). 32 328 U.S. 293, 66 S. Ct. 1100, 90'L. Ed. 1244, 163 A.L.R. 1043 (1946). 30 Section 3.1.(b), Id. In re: KLIKMART DRAGON, INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS" SEC CDO Case No. 09-15-023 Page 13 of 18 It reasoned out that its flexible reading is in accord with the statutory policy of affording broad protection to the public. Because of this, it is no longer necessary that the expected profit accrue solely from the efforts of others. 33 Philippines. Thus, for example, in Power Homes Unlimited Corporation v. Securities and Exchange Commission34, the Supreme Court stated that an investment contract in our jurisdiction, to be a security subject to regulation by the Commission, must be proved to be (1) an investment of money; (2) in a common enterprise; (3) with expectation of profits, (4) primarily from efforts of others. Under this definition, control to another for the purpose of deriving profits from them, he or she is in fact investing in a security.35 whenever an investor relinquishes control over his or her funds and submits their The concept of an investment contract has since been transported in the commits money to an enterprise or venture in a manner that subjects himself to financial loss.36 In the instant case, Klikmart requires its investors to be a member by paying a minimum amount of One Thousand Five Hundred (Php 1,500.00) up to a maximum amount of Fifteen Thousand Pesos (Php 15,000.00). In return, the paying investor receives two (2) boxes of coffee and one (l) soap for every investment of Php 1,500.00. The amount paid for these products are far from their fair market value. Evidently, it can be seen that the investor commits his/her money to Klikmart not for expectation of profits or gain (33% of investment) for a period of Twenty-one (21) days to.one (1) month. Thus, the first element is present. the purpose of retailing or personally using these products but more on the As to the first requisite, an investment of money occurs when an investor resources. Several tests have evolved to determine what constitutes "common enterprise" 37 One of these tests is the horizontal commonality approach. Under this common enterprise is deemed created when two (2) or more investors "pool" their test, the determination of whether a transaction satisfies the commonality element of the modified Howey test involves an inquiry into whether the said transaction funds or (ii) the sharing of profits.38 Furthermore, joint participation by investors in the same investment enterprise, achieved by pooling the invested funds for a common purpose, is required in order to satisfy the common enterprise element.39 involves the joint participation of more than one investor in (i) the investment of As to the second requisite, there is a common enterprise. To reiterate, a investors place at least an amount of Php 1,500.00 to become members of Klikmart, In the instant case, EIPD's findings in the course of its investigation show that 33 SEC v.Glenn W. Turner Enterprises, Inc, 474 F.2d 476, 414 U.S.821, 94 (1973) 35 Investment Co. Institute v. Camp,274F.Supp. 624 (D.D.C.1967). 36 SEC v.International Mining Exchange, Inc., 515 F. Supp. 1062. 37 In the Matter of Octopus Network In., SEC-PED Case No. 98-2220, 22 May 1998. 38 Note 26, citing 69 Am Jur 2d citing Stenger v. R.H. Love Galleries, Inc. 741 F2d 144. 39 Note 26, citing Wasnowic v. Chicago Bd. of Trade 352 F Supp 1066. 34 G.R. No. 164182, 26 February 2008. In re: KLIKMART DRAGON, INC. and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS") SEC CDO Case No. 09-15-023 Page 14 of 18 to be able to receive profit of Php 500.00 in 21 days and participate in other recruits/investors, shows the connection/relationship between the sponsor/upline and investment-earning schemes. Moreover, the requisite commonality is evidenced in Infinite Direct Referral where additional profit of Php50.00 is dependent on recruiting downline who will, in turn, invest at least Php 1,500.00. Thus, the profits of investors in "Infinite Direct Referral are directly related to the investment of other that income is earned. Additionally, the Sales Registration Forms40 given to recruit/downline which is ultimately managed by Klikmart. Stated otherwise, Klikmart investors pool their monies with the corporation in order to earn profit. Thus, they are investing in a common enterprise. Therefore, the second requisite is recruits/investors. It is through constant recruitment of new members in one downline present. investment.41 In the instant case, the paying investor, who becomes a member, is investment, or participation in earnings resulting from the use of investors' funds. In example, for a minimum amount of Php 1,500.00, the investor will earn Php 500.00 either through capital appreciation resulting from the development of the initial promised that his/her investment will earn at least Thirty-three percent (33%) after a minimum period of twenty-one (21) days to a maximum period of one (1) month. For within twenty one (21) days to one (1) month. Aside from that, the paying investor will have a chance to earn more from his/her investment through the four (4) other invested with Klikmart. Thus, the third element is present. both cases, investors are attracted primarily by the prospects of a return on his earning schemes such as Raffle Bonus, Infinite Direct Referral, Unilevel Bonus and Royalty Bonus. Ultimately, the investor expects to earn profits from the amounts As to the: third requisite, there must be an expectation of profits. Profits is from the efforts of others. In Turner42, the US Supreme Court adopted a more realistic investments from its members. It requires its investors to pay Phpl,500.00 to and promoted these earning schemes, hence the investors efforts, particularly in test, whether the efforts made by those other than the investors are undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise. In the instant case, it can be readily seen that Klikmart solicit Php15,000.00 with a promise of interest/profit after a certain period of time without any further effort or obligation from its investors (Membership Bonus). Also, its (Infinite Direct Referral). Additionally, its investors may also earn for every product purchased by his/her referral (Unilevel Bonus). And finally, its investors may also investors may also earn by recruiting other investors to be a member of Klikmart earn when his/her referrals win the Raffle Bonus (Royalty Raffle Bonus). In these earning schemes, it can be clearly seen that the investor earns, without significant effort or obligation. Klikmart is the one who conceptualized, developed, maintained As to the fourth requisite, there must be the expectation of profits primarily 40 Annex "E" of the Motion. 41 Power Homes Unlimited Corporation v. Securities and Exchange Commission. 42 Note 33, Supra. In re: KLIKMART DRAGON, INC. and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS" SEC CDO Case No. 09-15-023 Page 15 of 18 recruiting, are merely minimal or routine. Thus, the investor earns primarily from the efforts of others. Therefore, the fourth element is present. considered as to be engaged in selling and/or offering for sale of investment contracts which is considered as securities as provided under the SRC. Finding all the elements of an investment contract present, Klikmart should be Supreme Court ruled that: In Power Homes Unlimited vs. Securities and Exchange Commission3, the depend on the investing public's level of confidence in the system." "As an investment contract that is security under R.A. No. 8799, it must be registered with public respondent SEC, otherwise the SEC cannot protect the investing public from fraudulent securities. The strict regulation of securities is founded on the premise that the capital markets Commission. securities in the form of investment contract, it should be registered with the As above-cited, since Klikmart is engaged in selling and/or offering for sale Furthermore, Rule 3, paragraph 1, sub-paragraph N of the SRC provides that: "Public offering means a random or indiscriminate offering of securities in general to anyone who will buy, whether solicited or any of the following modes shall be presumed to be a public offering: unsolicited. Any solicitation or presentation of securities for sale through 1 Publication in a newspaper, magazine or printed reading material jii. Advertisement or announcement in any radio or television, or any Ii. iv. Distribution and/or making available flyers, brochures or any Presentation in any public or commercial place; same to prospective purchasers." Which is distributed within the Philippines or any part thereof; online or e-mail system; or offering material in a public or commercial space,or mailing the for sale its investment schemes publicly through online advertisements and brochures to potential investors without prior registration. In the instant case, evidence adduced by EIPD show that Klikmart is offering Relative thereto, Section 64 of the SRC provides that: complaint by any aggrieved party, may issue a cease and desist order Section 64. Cease and Desist Order.- 64.1. The Commission, after proper investigation or verification, motu proprio or upon verified without the necessity of a prior hearing if in its judgment the act or 43 Note 34 Supra. In re:KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS" SEC CDO Case No. 09-15-023 Page 16 of 18 practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. irreparable injury or prejudice to the investing public.44. cease and desist order is issued: First, a proper investigation or verification was conducted; and Second, there must be a finding that the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely to cause grave or Thus, there are two essential requirements that must be complied with before a and CGFD were obtained which indicate that Klikmart is not licensed to sell inspections as. evidenced by its reports as well as records and documents gathered showing Klikmart Corporations' investment schemes. The certifications of MSRD securities. EIPD was also able to obtain certifications relating to Klikmart from the nature and operations of Klikmart. QC BPLO. It is evident therefore that EIPD properly investigated and studied the As to the first requirement, EIPD conducted three (3) surveillance and ocular Shopping's capitalization amounts only to Php 500,000.00 while that of Klikmart Dragon is only Php 100,000.00. But these corporations promises investors a potential monthly income from its investment schemes (Unilevel Bonus and Membership Rewards) amounting to Php 2,000,000.0045. Obviously, Klikmart's business model and capitalization cannot sustain the promised returns of investment, especially if no cause grave or irreparable injury or prejudice to the investing public. Moreover, Klikmart is engaged in the offering and selling of securities in the form of investment contracts without the necessary license from the Commission. new investors will come in. Obviously, pay-outs for investors are financed from investments of new entrants. This is clearly a fraudulent scheme which will likely As to the second requirement, based on EIPD's investigation, Klikmart from offering or selling securities in the form of investment contracts. Thus, in the absence of a secondary license, Klikmart should be restrained 44 Securities and Exchange Commission vs. Performance Foreign Exchange Corporation, GR No 154131, July 20, 2006. 45 Klikmart Brochures, Annex O-8 of the Motion. In re: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP Enforcement and Investor Protection Department (also known as "KLIKMART REWARDS" SEC CDO Case No. 09-15-023 Page 17 of 18 their partners, officers, directors, agents, representatives, conduits, assigns, AND BEHALF are hereby ordered to IMMEDIATELY CEASE AND DESIST46 UNDER PAIN OF CONTEMPT, from engaging in activities of selling and/or CORPORATION, KLIKMART. DRAGON CORPORATION, KLIKMART REWARDS, KLIKMART DISTRIBUTION AND MARKETING SERVICES offering for sale securities in the form of investment contracts or any others of the same nature, as discussed in this Order, until the requisite registration statement is duly filed with and approved by the Commission and the corresponding to offer/sell is issued. ANY AND ALL PERSONS CLAIMING AND ACTING FOR AND IN THEIR WHEREFORE, premises considered,KLIKMART SHOPPING CLUB the appropriate administrative and criminal action against any persons or entities found to act as solicitors, information providers, salesmen, agents, brokers, dealers or the like for and in behalf of the subject corporations. presence relating to above-stated investment activities. The Commission will institute Furthermore, the subject corporations are directed to cease its internet President, General Manager, Corporate Secretary, Treasurer, In-House Counsel or DIRECTED to: 1) serve this Order to KLIKMART SHOPPING CLUB REWARDS, KLIKMART DISTRIBUTION AND MARKETING SERVICES, their partners; 2) post copies of the Order at the entrance of the main office and/or branches, if any, of KLIKMART SHOPPING CLUB CORPORATION, KLIKMART CORPORATION, DISTRIBUTION AND MARKETING SERVICES. DRAGON The Enforcement and Investor Protection Department is hereby CORPORATION, KLIKMART KLIKMART DRAGON CORPORATION, KLIKMART REWARDS, KLIKMART information and appropriate action. published in a national newspaper of general circulation and furnished to the Company Registration and Monitoring Department, the Corporation Finance Department and the Economic Research and Information Department for their Let a copy of this Order be also posted in the Commission's website; Way of a pleading, to the Commission En Banc WITHIN FIVE (5) DAYS from receipt of this Cease and Desist Order. EIPD is FURTHER DIRECTED to submit a formal compliance report, by 2006 Rules of Procedure of the Commission, the parties subject of this Cease and In accordance with the provisions of Sec. 64.347 of SRC and Sec. 10-3 of the 4 "SRC, Section 64.3. Any person against whom a cease and desist order was iued may, within five (5) days from 46 Section 64.1, SRC, The Commission, after proper investigation or verification, motu propio, or upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as fraud on investors or is otherwise likely to cause grave or irreparable later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the injury or prejudice to the investing public. receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission no In re: KLIKMART DRAGON,INC.and KLIKMART SHOPPING CLUB CORP (also knoWn as "KLIKMART REWARDS") Enforcement and Investor Protection Department SEC CDO Case No. 09-15-023 Page I8 of 18 Desist Order may file a request for the lifting thereof within five (5) days from receipt hereof. FAIL NOT UNDER PENALTY OF LAW. SO ORDERED. Mandaluyong City, Philippines; 16 October 2015. C TERESITA J. HERBOSA Chairperson Wthwins dosa Ke ANTONIETA F. IBE Commissioner MANUEI Commissioner TO B.GAITE EPHYRO LUIS B.AMATONG Commissioner * BLAS JAMES G.VITERBO Commissicner * On Official Business 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.