SEC Admin Case No. 05-10-310 Petition for Revocation of Certificate of Incorporation of RISE E-COMMERCE SYSTEM, INC. (RISE), dated 29 April 2010, filed by the then Enforcement and Prosecution Department (EPD), now the Enforcement and Investor Protection Department.

Republic of the Philippines

Department of Finance

SEC Building,EDSA,GreenhillsMandaluyong City Securities and Exchange Commission

In the Matter of

RISE E-COMMERCE SYSTEMS,INC.

SEC Admin.Case No.05-10-310 ForRevocation of Certificate

of Incorporation (CEDCaseNo.10-2904)

ENFORCEMENT AND PROSECUTION DEPARTMENT, Petitioner.

DECISION

For consideration is the Petition for Revocation of Certificate of Incorporation of RISE E- COMMERCE SYSTEMS,INC.(RISE),dated 29 April 2010,filed by the then Enforcement and Prosecution Department (EPD of the Commission (now the Enforcement and Investor Protection Department [EIPD] on 04 May 2010 based on serious misrepresentation as to what the corporation can do and failure to file required reports as provided under Section 6, pararagraph ,sub-paragraphs2and6,respectively of Presidential Decree 902-A

FACTS OF THE CASE

RISE is a corporation duly registered with the Commission with Certificate of Incorporation dated 25 July 2001 under SEC Registration No.A200110895. Its principal office addrcss is at Suite 1906,Robinsons Galleria Corporate Center,Quezon City,Metro Manila.Its primary purpose is:

To engage inoperateconduct and maintain the business of buying, selling, trading and exchange of goods and services of every kind, nature and description through conventional distributions and/or through advance electronic means such as E- COMMERCE and/or IT-based network or multi-level systems and for this purpose,act as merchant, broker,indentor,middlemen, commission agent and the like; and conduct massive informations, [sic] promotional and educational campaigns for the benefits [sic] and the empowerment of the consumers and clienteles.(Emphasis ours

AnnexACertificate of incorporation of RISE E-Commerce Systems,Inc.Records,p.63 Id.Articles of IncorporationAnnexBRecords p.62

In the Matter of RISE E-COMMERCE SYSTEMS,INC Decision dated November 6,2014 SEC Admin Case No.05-10-30 Page 2 of 8

On 07 May 2008the EPD received a letter,dated 24 April 20083from Dr.Felimon U Rosaupan Dr. Rosaupan requesting for an investigation on the operation of RISE. In the letter Dr.Rosaupan alleged that on 4 October 2001,he subscribed to RISE by paying the amount of TWO THOUSAND FIVE HUNDRED PESOS (PhP 2.500.00 after RISE's representative Homer Prieto, convinced him that his subscription would be profitable.He and other would-be subscribers were persuaded that they would be receiving, a share of the earnings of those who subscribed after them, or the expected earnings and rebates that will be received from having down lines. In addition to the share in the earnings, they would be entitled to rebate from the accredited stores nationwide.

Following his subscriptionDr. Rasaupan delivered to RISE several invoices valued at more or less TWENTY THOUSAND PESOS Php 20,000.00of his purchases.However,when he checked his account with Union Bank,which was opened for him by RISE, wherein his projected earnings were supposed to be deposited,said account was closed. He then mailed a letter of protest to the office address of RISE but it was returned with a notation on the envelope stating MOVED. This prompted Dr. Rosaupan to inquire into the legitimacy of RISE's business.

In response to Dr. Rasaupan's letter, EPD formed a team to investigate the business activities of RISE.On 05 September 2008,Dr.Rosaupan appeared before the team where he narrated the circumstances regarding his involvement with the company. On 03 October 2008 EPD received an Affidavit-Complaint from Dr. Rosaupan.s

On 27 May 2009,the EPD conducted surveillance on RISE to determine whether the same is still operating and recruiting investors. They proceeded to its last known address at 19

Floor. Galleria Corporate Center, Ortigas, where they were able to talk with Mr. Glenn R.

Elivera,Galleria Corporate Center Condominium Corporation's Building Manager. Mr. Elivera

informed them that RISE has already moved out of the building since June 2003.She also issued

a Certification dated 27 May 2009.confirming the information.

A Notice of Conference was sent to the incorporators of RISE requiring them to appear before the team on 13 July 2009. However,the Notice was served only to William Ferolino (Mr. Ferolino, the authorized signatory to the RISE identification card, since the addresses of the other incorporators cannot be located.

On 31 July 2009, Atty Rowena L. Escobido of Escobido and Pulga Law Offices appeared on behalf of Mr. Ferolino and informed the team of Mr. Ferolino's current detention at the Quezon City Jail by reason of a pending case before the Regional Trial Court of Quezon City (RTC-QC), Branch 100 for syndicated estafa involving RISE.

Thereafter, the team proceeded to said RTC-QC and obtained copies of the Information for Estafa in Criminal Case Nos. 03-116577 to 85 against Renato Sinangote y Escarda

3d. AnnexCHe attached a copy of the provisional receipt,cyber account ATM card and an Identification card issued by RISE,Records p.55.

Paragraph 11 of the Petition,Records,p.73 Id.AnnexC.

id., AnnexERecordsp.53. id.AnnexFNotice of Conference dated June 152009 Records,p.52 Id.par.13,Records,p.72 d.,par.14, AnnexGSummary of Proceedings/Conference dated July 31,2009 Records p.50

In the Matter of RISE E-COMMERCE SYSTEMS,INC Decision dated November 6.2014 SEC Admin Case No.05-10-30 Page 3 of 8

Deogracias A.Acupan Alodia Setiar y Geanga, Lilian Reyes, Roberto T. Mata, Melchor E. Monreal, Mercedita C. Galindo,Flor Sibal and William Ferolinoall of whom allegedly represent RISE. t0

As part of its investigation, the EPD obtained from the Company Registration and Monitoring Department (CRMD of the Commission a Certification, dated 20 January 2009. declaring that since RISE's registration in 2001, it has not filed any General Information Sheet GIS from 2002 to 2007 nor any Financial Statement (FSfrom 2002 to 2006.

Likewise, the Corporation Finance Department (CFD of the Commission,upon request of the EPD,issued a Certification dated 15 April 2010 stating that RISE is not a registered issuer of securities under Sections 8 and 12 of the SRC,and is,therefore,not licensed to offer or issue securities to the public

The EPD,on the basis of the evidence presented by Dr. Rasaupan and its own

investigation, concluded that the business operation of RISE is in the nature of an investment contract3which is beyond the purpose for which it was incorporated. The same constitutes serious misrepresentation as to what the corporation can do to the prejudice and damage of the

general public. Thus, it filed the instant Petition which anchors on the following provisions of Section 6 of the Presidential Decree PD No.902-A,in relation to paragraph 1G,Rule 3,of the Amended Implementing Rules and Regulations (AIRR of the Securities Regulation Code4

SRC,which provide

SECTION 6.In order to effectively exercise such jurisdictionthe Commission shall possess the following powers

XXX

1 To suspend,or revoke, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, upon any of the grounds provided by law, including the following

XXX

2) Scrious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public;

XXX

d.par.15,information all dated April 10,2003, AnnexesHto AnnexP Records pp.32-49

13 "An investment contract means a contract, transaction or scheme (collectively "contract") whereby a person AnnexS"p.1Records. IdAnnexQRecords p.30

invests his money in a common enterprise and is led to expect profits primarily from the efforts of others.

1. An investment contract is presumed to exist whenever a person seeks to use the money or

property of others on the promise of profits. 2. A common enterprise is deemed created when tow (2 or more investors pool their

resources,-creating a common enterprise,even if the promoter receiveds nothing more

14 Republic Act 8799 (2000) than a broker's commission."

In the Matter of RISE E-COMMERCE SYSTEMS,INC Decision dated November 6, 2014 SEC Admin Casc No.05-10-30 Page 4 of 8

6 Failure to file required reports in appropriate forms as determined by the Commission within the prescribed period;Xxx

Acting on the Petition, the Commission issued an Order, dated 19 May 2010, directing the issuance of Summons,dated 12 May 2010,by publication. Pursuant to the Order,Summons directing RISE to file its Answer to the Petition was published in the Commission's website and in a newspaper of general circulation.

ISSUE

Whether or not the Certificate of Registration of RISE E-COMMERCE SYSTEMS,INC should be revoked, on the basis of Section 6, paragraph l,sub-paragraph 2 and6 of PD 902-A.

RULING

Despite the publication of the Order, dated 19 May 2010, and the Summons directing RISE to file its Answer to the PeritionRISE has yet to file the same. Thus, pursuant to Section 3-121 of the 2006 Rules of Procedure of the Commission,RISE is considered as in default. As a consequence, the Commission shall render judgment on the basis of the Petition

We now resolve the case on the merits.

Under the SRCsecuritieswas defined by way of enumeration,namely

Section 3.Definition of Terms.3.1.Securitiesare sharesparticipation or interests 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

(aShares of stock, 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:

Clearly, one of the instruments considered as a security is an investment contract as further defined in paragraph 1(G),Rule 3 of the AIRR-SRCi7.Another definition of the term investment contract can be found in the U.S case SEC vs.Howey Co.18where the U.S.Supreme Court defined such term in this manner:

Is sc.3-12.Effect of Faiure to Answerf the respondent fails to answer the complaint within the abovestated period,he shall be considered as in default. The hearing Panel or Officer shall,motu proprio,proceed to render judgment granting the complainant such relief as the complaint may warrant, unless the Hearing Panel or Officer determines that the complainant should be required to submit ex parte additional evidence

17 Note 13, Supra 328 U.S.293(1946) Underlines ours.

In thc Matter of RISE E-COMMERCE SYSTEMS, INC Decision dated November 6.2014 SEC Admin Case No.05-10-30 Page 5 of 8

.an investment contract,for purposes of the Securities Act,means a contract transaction or scheme whereby a person invest his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interest in the physical assets employed in the enterprise."

The concept of an investment contract has since been transported in Philippines jurisprudence in the case of Power Homes vs.SEC, 19where the Philippine Supreme Court cited the 1973 US case of SEC v.Glenn W.Turner Enterprises,Inc.et al.2 wherein the 9th Circuit of the US Court of Appeals ruled that the element that profits must come solely" from the efforts of others should not be given a strict interpretation. In SEC vs. Turner the US Court held that a literal reading of the requirement "solely" would lead to unrealistic results. It reasoned out that its flexible reading is in accord with the statutory policy of affording broad protection to the public.

In Power Homes, the Philippine Supreme Court thus reasoned that the SRC appears to follow this flexible concept for it defines an investment contract as a contract, transaction or scheme (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits not solely but primarily from the efforts of others.Thus, the Court concluded that to be a security subject to regulation by the Commission, an investment contract

in our jurisdiction 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 whenever an investor relinquished control over his or her funds and submits their control to another for the purpose of deriving profits from them, he is in fact investing in a security.

In this connection Section 8.1 of the SRC provides that securities not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Moreover, Section 12.1 of the SRC prescribes 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 sworn registration statement with respect to such

securities, in such form and containing such information and documents as the Commission shall

prescribe.

In the instant case, the evidence show that the contracts issued by RISE to its investors.

like Dr. Rasaupan, falls within the definition of an investment contract. In other words, the four

elements of an investment contract are present.

As to the first element, the investment in money occurs when Dr. Rasaupan parted which his money when he subscribed to RISE paying the amount of TWO THOUSAND FIVE HUNDRED PESOS (Php 2,500.00.Evidence confirms that RISE issued to Dr. Rasaupan a Provisional Rcceipt2 dated October 4,2007 declaring that the amount was in payment of his

20 474 F.2d 476, Fed.Sec. L. Rep. P 93, 748. 21 Investment Co. Institute vs. Camp, 274 F. Supp. 624 (D. D.C. 1967) 19G.R.No.164182 February 26,2008 d.AnnexDRecordsp.54

In thc Matter of RISE E-COMMERCE SYSTEMS,INC Decision dated November 6.2014 SEC Admin Case No.05-10-30 Page 6 of 8

subscription fee. Moreover, this investment contract is declared in Part IV3of RISE E- Commerce Systems' Subscriber's Business Manual24 (Manual on how to become a subscriber.

As to the second element, a common enterprise is deemed created when two 2 or more investors pool their resources.Several tests have evolved to determine what constitutes common enterprise25One of these tests is the horizontal commonality approach.Under this test, the determination of whether a transaction satisfies the commonality element of the modified Howey test involves an inquiry into whether said transaction involves the joint participation of more than one investor in the investment of funds, or (ii the sharing of

profits.2 Rewards27(GSR provisions, as contained in the Manual that the RISE e-Commerce Systems In the case at bar, it is clear from the Consumer Loyalty or Global Sharing

(Systems), that there is a common enterprisc, to wit:

RISE e-COMMERCE SYSTEMS employs a Tripod and Left to Right Approach in forming its Global Consemers Group. Its main thrust is to develop an avenue for a profitable market exchange system where buyers and sellers mutually share and benefit from each other's strengths and resources.

XXX

How to Earn From the Systems

The company developed this marketing structure to provide unlimited income opportunities to its subscribers through:

1.Consumer Loyalty or Global Sharing Rewards (GSR)

Each time a regular consumer and his co-subscriber/s within his 3x8 Permanent Market Structure avail themselves of products and/or utilize services from the Systems cybermall,aceredited suppliers/service providers, rolling stores and/or in-house distribution and marketing group, the Systems generate corresponding rebates or PV that go to the Global Sharing Rewards Fund (GSRF), of which sixty-eight percent (68%) is distributed/shared upwards among the components of the Global Consumers' Group.The remaining thirty-two percent 32% is retained by the company to finance the System's operations, promotions,servicing,maintenance,and improvement.The subscriber's share from the GSRF is released every I5th day of the month after each cut-off and allocated as follows:(Emphasis ours

25% 65% 10% Cash (deposited to his/her personal account with the e-Card load or automatic purchase budget29 company's accredited bank) Property Ownership Points (POP

23 Paragraph 1(b) provides that "[a] consumer may also subscribe through the Systems" business center or sub- center located in his place of residence or business/employment by paying the US$50.00 (P2,500.00 initial subscription fee." 25 In the Matter of Octopus Network,Inc.SEC-PED Case No.98-2220,May 22,1998 2 id.citing 69 Am Jur 2d,citing Stengerv.R.H.Love Galleries,/nc.,741F2d 144 4Id.AnnexRRecords,p.29 27 Id., Records, p. 24 28d.AnnexRRecords,p.53 29 Emphasis supplied.

In the Matter of RISE E-COMMERCE SYSTEMS.INC Decision dated November 6, 2014 SEC Admin Case No 05-10-30 Page 7 of 8

From the stated operation of the RISE e-Commerce Systems where buyers and sellers mutually share and benefit from each other's strengths and resources, it is obvious that there is a pooling of investor resources. Indeed, the Systems presented the common enterprise when it declared in the Manual that [n]ow, we are into the Stabilzation Stage (Phase 2 whereby

through our accredited BCOS30. In turn, RISE uses the money of is investors (32% is retained accredited suppliers are being pooled together while decentralizing the Systems operation by the company) to make profit for itself and its investors (68%. From this, it can be said that RISE is offering merely opportunities to contribute money, and the success of an investor is dependent on the success of RISE's business operation.

As to the third element, there must be an expectation of profits. By profits, the court has meant either capital appreciation resulting from the development of the initial investment, or participation in the earnings resulting from the use of investors' funds. In such cases,the said

Manual clearly proclaims how the subscribers can earn from the Systems.33 investors are "ttracted primarily by the prospects of a return on his investment.32 To entice investors. Againthe

it asserts that it has develop marketing structure to provide unlimited income opportunities to its subscribers through:1 GSR2 Personal Mentoring Allowance (PMA and Residual Training Allowance (RTA);3 Property Ownership Points (POP; and 4 Personal Loyalty Points, Discounts and Other Rewards.

Lastly,as to the fourth element, there must be an expectation of profits primarily from the efforis of others. Under the Rise's Systems, once an individual,like Dr. Rasaupan pays the minimum amount of US$100.00, he turns his efforts toward bringing others into the system, for which he receives PMA and RTA35 which increases depending on the trainees' recruits,provided these trainees subscribe.36 EPD is, thus, correct when it claims that the accumulated amount received by the investor comes primarily from his recruits /trainees.37

Since investment contracts are securities, they must first be registered with the Commission before the same can be offered to the public pursuant to Sections 8 and 12 of the SRC.However,RISE did not obtain any license or authority to issue or offer or sell securities in the Philippines. The certification issued by the CFD categorically show that it is not registered issuer of securities pursuant to Section 8 and 12 of the SRC. There is also no record showing that these corporations had secured any exemption from the requirement of registration with the Commission. Worse.the business of selling investment contracts is not covered by the primary purpose stated in the Articles of Incorporation of RISE.

3d.Recordsp.22,BCO or Business Center Operators is a subsidiary and strategic partner of Rise e-Commerce Systems (RECS), Inc. that acts as an extension arm to further decentralize its operations and services.

35 An existing subscriber may opt to train or introduce the Systems to potential participants. He shall receive 3 Power Homes Unlimited Corporation vs. SEC 33d.Records,p.24. USS10.00 P500.00 as Personal Mentoring Allowance PMA for every personal trainee 1 generation and 34Id. Records,pp.9-12 Id.,Records,p.20

USS1.00 P50.00) which incrementally increases from 2 up to 8 generation as Residual Training Allowance RTA for residual trainees generated in his Personal Consumers Group (PCG provided said trainees subscribe. Therefore, the more trainees a subscriber contributes to the Systems, the more PMA and/or RTA he gains. Note however,that twenty-five 25%) of these allowance will be in the form of Property Ownership Points(POP)

37Paragraph 20 of the Petition, Records,p.68. 36 (d., p. 11.

In thc Matter of RISE E-COMMERCE SYSTEMS; INC Decision dated November 6,2014 SEC Admin Casc No.05-10-30 Page 8 of 8

Accordingly, these acts constitute serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public warranting the revocation of its Certificate of Registration, pursuant to Section 6 paragraph (l sub-paragraph 2 of the amended PD 902-A

Likewise, there is valid ground to revoke the certificate of registration of RISE under P.D.902-A Section 6 paragraph (l sub-paragraph 6 on non-filing of reportorial requirements. CRMD's Certification dated 20 January 2009 showed that since RISE was registered in 2001 the company has not filed any General Information Sheet from 2002 to 2007 nor any Financial Statement from 2002 to 2006.38

A recent verification with the records of the Commission shows that RISE has not filed the reportorial requirements since its incorporation in 2001.RISE failed to file GIS and FS for more than five years, Therefore, the Certificate of Incorporation may be revoked, on the basis of P.D. 902-A Section 6, paragraph I sub-paragraph 6.

WHEREFORE,premises considered, the instant petition is hereby GRANTED.The Certificatc of Incorporation of RISE E-COMMERCE SYSTEMS,INC. is hereby REVOKED,based on Section 6l) sub-paragraphs 2 and 6 of Presidential Decree No.902-A

Let the Company Registration and Monitoring Department be furnished a copy of this Decision for its appropriate action.

SO ORDERED

Mandaluyong City, 6 November 2014.

G

TERESITA J.HERBOSA

Chairperson

meie dov

MANUELHU Commissioner RTO B.GAITE ANTONIETA F.IBE Commissioner

EPHYRO LUIS B.AMATONG 2 SAMES G.VITERBO Iamee

Commissioner Commissioner

Petition,AnnexQRecords p.30