Boracay Trans-Pacific Properties, Inc., Paradisya Land, Inc.

103 Securities and Exchange Commission SEC BuidingEDSAGreenhillsMandaluyong City Republic of the Philippines Department of Finance Office of the General Counsel In the Matter of LAND, INC., PROPERTIES,INC.& PARADISYA BORACAY TRANS-PACIFIC SEC CDO CASE NO.07-14-013 ENFORCEMENT & INVESTOR PROTECTION DEPARTMENT, Petitioner. CEASE AND DESIST ORDER For consideration of the Commission En Banc is the Motion for Issuance of Cease and Desist Order, dated July 11,2014, filed by the Enforcement and Investor Protection Department (EIPD) of this Commission on July 25, 2014, enjoining the Respondents Boracay Trans-Pacific Properties, Inc.BTPD and Paradisya Land, Inc.(PLI, to cease and desist from selling, or otherwise offering for sale securities in the form of investment contracts in violation of Section 8.1 of Republic Act No. 8799. otherwise known as the Securities Regulation Code. The records show that the Respondent BTPI is a corporation duly registered with the Commission on November 23, 2006, under SEC Registration No. CS200629652, with as shown in its Articles of Incorporation', is "Real Estate --buying, developing and selling real estate properties." principal office located at 101-E Ramon Aboitiz Street, Cebu City. Its primary purpose. On the other hand, Respondent PLI is a corporation duly registered with the Commission on August 19, 2008, under SEC Registration No. CS200830075, with principal office also located at 101-E Ramon Aboitiz Street, Cebu City Its primary purpose, as shown in its Articles of Incorporation, is likewise "Real Estate -buying. developing and selling real estate properties. The Petitioner alleges in the Motion that sometime in 2008, several British, Irish. American and Belgian complainants filed Complaints-Affidavits before it against BTPI for violation of Section 8.13 of the Securities Regulation Code (SRC) 1 Annex "B", Motion for Issuance of Cease and Desist Order. 2 Annex "B-1", Note 1 supra. 3 Section 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 Boracay Transpacific Properties, Inc.and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 2of12 incorporation, started offering for sale to the general public condominium units in Boracay Beach Condo Hotel (BBCH.Its officers and incorporators carried out intensive domestic and international marketing campaigns. The Complainants claim4, in their Complaints-Affidavits, that BTPI, right after its securities without proper registration, as shown in the Contract-to-Sell (CTS), dated Complaint-Affidavit, dated October 3, 20136, that BTPI "is engaged in the sale of June 17, 2009, to wit: Paul David Richard Winspear, one of the complainants, specifically avers in his "CONTRACT TO SELL KNOW ALL MEN BY THESE PRESENTS: England, by and between: This CONTRACT TO SELL executed and entered into at London, duly organized and existing by virtue of the laws of the Republic of the Philippines with office address at 101-E Ramon Aboitiz Street, Cebu City Philippines represented in this act by Paul Hewitt (UK sales contract), hereinafter referred to as the SELLER: TRANSPACIFIC,a subsidiary of TRANS NATIONAL, a corporation -and -- Firbank, Canada Hill, East Ogwell, Devon, TQ12 6AF Mr Paul Winspear Hereinafter referred to as the PURCHASER WITNESSETH FIVE THOUSAND POUNDS STERLING (&75,000.00), and all the terms and That the SELLER, for and in consideration of the sum of SEVENTY who in turn has contracted to buy) that certain lot more particularly described as Lot N 10 Block No A Phase No 1 of Boracay Beach Condo-Hotel, Boracay located at Station 1, Boracay, with the total area of 73square meters, more or conditions agreed upon herein has contracted to sell to the PURCHASER (and Iess: the Commission. Prior to such sale, information on the securities, in such form and with such substance 4 Complaints-Affidavits attached as Annexes "A" to "J" of the Supplement to the Motion for Issuance of 5 Now named as "The Palms of Boracay", stated in Note 6 of the Motion, Note 1, supra. Annex "A", Note 4, supra. Annex A, Note 4, supra. as the Commission may prescribe, shall be made available to each prospective purchaser. Cease and Desist Order, dated September 16, 2014. 7 Paragraph 26, Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 3 of 12 3 The PURCHASER further agrees to pay, in addition to the purchase price and interest/s thereon mentioned in the Paragraph one (1) hereof, the following: XXX XXX completion date for the upkeep of the grounds, maintenance of the swimming 3.c pool and shuttle bus. An annual service charge will be made of f250 commencing from the where the unit is made available for rent. Where the unit is made available the electricity and water charges will be paid from the rental service charge and all other maintenance and utility charges are covered by the 25% rent retained by the SELLER. There will be no further charges payable by the PURCHASER. The Development Managing Corporation would invoice the owner on monthly basis for utilities that are the responsibility of the unit owner. Electricity and water will be the responsibility of the unit owner except 19. The rental agreement is attached to this contract as Appendix 1. XXX- XXX -XXX IN WITNESS HEREOF, the PURCHASER has caused his/her/its signature to be affixed to this contract, and the SELLER has caused its duly authorized representative to sign on its behalf, this June 17, 2009 at Cebu City For TransPacific SGD.Lito Cubillas Buyer's Name SGD. Paul Winspear Agreement1 (GRA), dated May 27, 2009, providing how management guarantees to investment, to wit: Winspear occupancy of his condominium unit and the returns he will receive for his Attached to the CTS between BTPI and Winspear is the Guaranteed Rental Boracay Beach Condo-Hotel, Station One, Boracay, Philippines "GUARANTEE RENTAL AGREEMENT (APPENDIX 1) Foreign Address Apartment and block Number Name Paul Winspear A10 Devon,TQ12 6Af Firbank, Canada Hill, East Ogwell, As the owner of the unit, you will advise the managing corporation when your unit(s) will be available for rent. It is up to you the unit owner to decide 1o Mentioned in paragraph 19 of the CTS as Appendix "1". Note 4, supra. 9 Emphasis supplied. Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 4 of 12 how many weeks of the year the unit will be available for rental use or unavailable due to owner use. XXX KX monthly basis. The owner will receive a monthly statement of the rental occupancy. The balance due to the owner will be remitted to the agreed bank account on a XXX XXX Rental Market Returns: The units will be rented out at between US$60 and US$80 per unit per night depending on the size of the unit. We will also be able to get a premium for Christmas Easter Etc. condominiums within Boracay Island Condo-Hotel for the life of the investment. Trans Pacific Corporation therefore guarantees 65% rental occupancy for all If we achieve a greater premium or greater occupancy then the returns will be passed on pro-rata (this will also be shown in monthly statement). The management corporation will retain 25% of the rental payment received to cover administration, water and electricity charges. By Owner On behalf of TransPacific Date27 May 2007 11 SGD. Paul Winspear SGD.Lito To Cubillas amount of 12,880.42 as payment for the latter's unit in BBCH as of March 16, 2011. Subsequently, on March 29, 2011, BTPI acknowledged that Winspear already paid the amount of 27,377.59 as of March 29, 2011 for the latter's unit. BTPI, in its letter to Winspear dated March 21, 2011, acknowledged receipt of the latter one year rental return amounting to US $ 10,665.0013 or f6,616.99. The SOAs also Winspear reporting the latter's Net Rental Income from his unit in BBCH, and giving the state the amount of utilities and other charges that were deducted from the rental revenue. From March 2011 to June 2013 BTPI sent Statements of Accountl2 (SOA) to 201215, it similarly confirmed that it entered into GRA with unit owners of BBCH and it started paying out unit owners rental income, viz: In BTPI's letter to Louise Henwood14, another Complainant, dated October 1, 12 Annexes "I" to "I-10", Note 1, supra. 1 Paragraph 13, Note 1, supra. 14 Paragraph 6, Note 4, supra. 15 Annex "E" of the Complaint-Affidavit of Paul Winspear and the other Complainants, Note 7, supra. 11 Emphasis supplied. Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 5 of 12 that decreased the GBP-PHP foreign exchange rate by at least 30%.xxx of Boracay through its birth pains. We have entered into contracts with unit owners at a time when the economy was still very strong and have provided for guarantees that have proved to be very hard on us when the financial crisis hit "Third, the Management has been exerting all its efforts to get The Palms that the guarantee on rates and occupancy we have previously made cannot be realistically complied. Xxx Now that the hotel is operational, the actual results of operation reveal light that we appeal to you to give us a chance to make this setup work and not to quarterly basis, however, instead of the guaranteed amounts of rental income, the pay-outs shall be based on the actual net income from room revenues after deducting direct costs and share in the hotel's operating expenses. It is in this resort to any aggressive and very costly litigations. xxx In the meantime, we have started paying out to unit owners on a Boracay Transpacific Properties, Inc.,1 Sgd.LITO T.CUBILLAS President Acting on the complaints, the Petitioner conducted its own investigation and held several conferences with the complainants for the purpose of asking clarificatory questions. During the conferences, the complainants' lawyer appeared on their behalf. Subsequently and upon the Petitioner's request, the Corporate Governance and Finance Department (CGFD) issued a Certification,dated March 24,2014 declaring that: BORACAY TRANS-PACIFIC PROPERTIES,INC.is not a registered issuer "This is to certify that based on records on file with this Commission, pursuant to Section 8 and 12 of the Securities Regulation Code and therefore not funds, membership certificates/shares or time shares) to the public." licensed to offer or issue securities.(mutual funds including exchange traded In the course of its investigation, Petitioner also discovered that BTPI and PLI were using the same letter head17 to acknowledge the receipt of complainants' payments. Moreover, Petitioner ascertained that BTPI and PLI have the same principal address, the same incorporators and identical primary purpose. Also, BTPI is a subscriber of 500 shares of stock of PLI.18 This prompted the Petitioner to investigate the business transaction of PLI. Its investigation revealed that PLI has been offering and selling for sale condotel units of Mactan Blue Coral Resort & Spa/Blue Coral Resort & Spa, Mactan Cebu, with high 1 Emphasis supplied. 17 Annex "K", Note 4, supra. 18 Paragarph 19, Note 1, supra. Boracay Transpacific Properties,Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 6 of 12 rental yields. In support of its claim, Petitioner attached as Annex "L of the Motion a copy of PLI's offer and/or advertisement which declares: on beachfront properties in the Philippines' world famous island locations. To "Paradisya Land is a condominium-hotel development company that focuses date, we have projects in premier island destinations-Boracay and Mactan, each with first class amenities, the warmth of the Filipino hospitality, and unique investment opportunities. holiday/retirement homes primarily to UK and UK-based Philippine overseas property investors by offering stunning island locations and great investment The business mission of Paradisya Land is -- to become a leading provider of returns. XXX XX XXX International Luxury Hotel Chain. THE TWIN TOWER- 8-Storey Condominium to be operated and managed by an XXX KXX Prestigious Vacation Home: Secondary or holiday home in high-end Mactan Earns rental pool income when not in use Branded international hotel management XXX XXX Return on investment.jpg Download File19 19 Annex "L", Note 1, supra. The Return on Investment file to be downloaded from the Company's website reveals the following: "RETURN ON INVESTMENT (Based on Assumptions) Y XXX Il. Computation No.of Rooms x Room Rate x Annual Room Rental @ occupancy rate Days =Gross Revenue Less: Operating Expenses Annual Gross Revenue Net Profit % Management's Share % Unit Owner's Share % Condotel Owner's Share (based on area)" Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 7 of 12 website advertising20 investor/condominium owner earns from his investment and the key investment feature of Blue Coral Mactan, Cebu, viz.: Petitioner also attached to the Motion a print-out of the Asset Property Broker's and PLI's brochures21 showing computations on how much an "BLUE CORAL - SOLD OUT MACTAN ISLAN - CEBU Situated on the prestigious eastern side of Mactan Island, Blue Coral Resort and Spa offers visitor the tranquility and beauty of a paradise island combined with the ease and convenience of being located within easy access to Cebu city and Cebu international airport the second largest in Philippines. overlooking the crystal clear waters of the Bohol straits and Olango Island in the Blue Coral Resort & Spa covers approximately 10,000m2 with private beach near distance. Example 48M2 Studio Example Investment Return based on a 15 year developer finance option Initial Deposit (40%): $46,800.00 Net Annual Income: $21.269.15 Mortgage Repayment: $8,601.12 Income after Mortgage: $12,668.03 Annual Return on Investment: 27.1% Example Payment Structure Purchase Price: $117,000 Reservation Deposit: $3,500 Deposit: 40% in 30 days Developer Finance: Balance over 10-15 years Key Investment Feature Prices From $83,500 60% Non-status Finance Available Guaranteed Rental Yields up to 18.2% 5 Star Beach & Spa Resort 20 Annex "L-3", Note 1, Supra. 21 Annex "M, Note 1, supra. Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 8 of 12 Guaranteed 80% Occupancy,22 records on file with the Commission, PLI is not a registered issuer of securities and is therefore not licensed to offer or sell securities to the public. On July 30, 2014, the CGFD issued another Certification that based on the We now resolve the Motion. Sections 3 and 8 of the Securities Regulation Code provide: 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: "Section 3.1.Securities are shares, participation or interests in a XXX XXX profit sharing agreement, certificates of deposit for a future subscription; (b) Investment contracts, certificates of interest or participation in a XXX XXX not be sold or offered for sale or distribution within the Philippines, without a the Commission may prescribe, shall be made available to each prospective purchaser. 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 SEC. 8. Requirement of Registration of Securities. -- 8.1. Securities shall Implementing Rules and Regulation of the SRC (AIRR-SRC) defines an investment contract as: In this connection, Rule 3 Paragraph 1, subparagraph (G) of the Amended (collectively "contract") whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. "G. An investment contract means a contract, transaction or scheme Seeks to use the money of others on the promise of profits. a. An investment contract is presumed to exist whenever a person receives nothing more than a broker's commission." "pool" their resources,- creating a common enterprise, even if the promoter b.A common enterprise is deemed created when two or more investors 23 Annex "L", Note 4, supra. 22 Emphasis supplied. 24 Underlines ours. Boracay Transpacific Properties,Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 9 of 12 jurisdiction must be proved to be (1) an investment of money, (2) in a common security subject to regulation of the Commission, an investment contract in our enterprise, (3) with expectation of profits, (4) primarily from the efforts of others. The Supreme Court, in Power Homes Unlimited vs. SEC23, held that to be a and Prosecution Department, the Commission had the occasion to rule that: In a CDO case against Philippine Landgroup, Inc.2 filed by the then Enforcement common enterprise and is led to expect profits primarily from the efforts of nature of an investment contract wherein the vendee invests his money in a evidence presented, is that a buyer of a unit in Grandview Tower, a project of PLGI, enters into an investment contract, via a Contract to Sell with PLGI, and a Management Agreement with GPMI upon purchase of a unit of Grandview Tower. These documents are contracts which constitute a scheme that takes the others." "It appears that the business model of PLGI, as supported by the held that: Parenthetically, in Gabionza vs. Court of Appeals, et al.27, the Supreme Court, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek to use the money of others on the promise of profits (69 Am Jur 2d, p. 604). "The term "securities" embodies a flexible rather than static principle, operations of BTPI and PLI in their sale of the residential units, the Commission ruled that: Applying the above to the circumstances surrounding the business scheme and 1. BORACAY TRANSPACIFIC PROPERTIES,INC. a project of BPTI, enters into an investment contract, via the CTS and a GRA. that of the Philippine Landgroup, Inc. wherein a buyer of a condominium unit in BBCH, Substantial evidence on record show that the business model of BTPI is similar to retains 25% of the rental revenue for the overhead and utilities. BTPI's SOAs and letters BBCH. These facts were also admitted by Lito Cubillas in his internet post dated March around US$ 60 per night based on 65% of the rental occupancy, while BTPI, as seller, to Winspear and Henwood even confirmed not only the terms and conditions of the CTS and GRA but, more importantly, the fact that BTPI is the management corporation of the 16, 2013. The CTA and GRA clearly show that the buyer earns a guaranteed rental return of 27 G.R. No. 161057, September 12, 2008 25 G.R. No. 164182, February 26, 2008. 26 SEC CDO Case No. 03-12-001, CDO dated July 4, 2013. Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 10 of 12 nature of an investment contract wherein the buyer invests his money in a common the elements of an investment contract, as enunciated in Power Homes, are present in the enterprise and is led to expect profits primarily from the efforts of others. Specifically, scheme being offered by BTPI, thus: In other words, those documents show BTPI's business scheme that takes the 1.An Investment of Money. - Through the purchase of a unit in BBCH, the buyer becomes an investor who enters into a contract with BTPI. The will receive a guaranteed amount of profits which ranges from US$60 to US$ purchase price takes the form of investment of money for which the investor 80 per unit per night depending on the size of his condominium unit. 2.Common Enterprise. - By purchasing a unit, a buyer has the option to enter he shall cede control and management over his condominium unit to BTPI Henwood. Effectively, the buyers of the units do not merely invest in a condominium unit. They enter into a common enterprise. The purchase into a GRA. When the buyer accepted the terms and conditions of the GRA, wherein his unit will be pooled together with the units purchased by others The units pooled will be operated as a hotel enterprise. BTPI manages the hotel enterprise as shown by the Winspear's SOAs and BTPI's letter to money used to buy a unit is invested in a common enterprise, which is the condotel, BBCH. 3. Expectation of Profits. - The investor expects to derive profit from the management and operation of the pooled units constituting the condotel. described as Guaranteed Rental Return in the CTS. 4. Primarily from the Efforts of Others. - It is clear that the management and letters to Winspear and Henwood. operation of the individual condominium units shall rest with BTPI and the unit buyers/investors shall have no participation in the same. In fact, the latter rely solely on the efforts of the BTPI in order to generate any profit.BTPI is the managing corporation. Again, this fact is shown by BTPI's SOAs and 2.PARADISYA LAND, INC. engage in the business of offering and selling securities to the general public as defined under Rule 3, Paragraph 1, Subparagraph N3 of the AIRR-SRC. Otherwise stated, the PLI, by distributing brochures8 and placing advertisement2 in the internet, is 30 N. Public Offering means a random or indiscriminate offering of securities in general to anyone who will the following modes shall be presumed to be a public offering: 29 Notes 20 and 21, supra. buy, whether solicited or unsolicited. Any solicitation or presentation of securities for sale through any of 28 Note 22, supra. Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 11 of 12 evidence to the contrary, is substantial evidence that there is a random or indiscriminate offering of securities in general to anyone who will buy. documents on record, taken in conjunction with one another and in the absence of PLI is similar to that of BTPI which consists in the following elements: As gleaned from Petitioner's allegations and evidence, the investment scheme of 1. An Investment of Money. - PLI, as developer of Mactan Blue Coral Resort and Spa, offers buyers/investors not only holiday or retirement homes, but up to 18.2%32 when their condominium units are not in use33. Thus, PLI is offering more than condominium units but also the opportunity to contribute also, a unique investment opportunity31 to earn Guaranteed Rental Yields money and to share in the profits by leasing their pooled condominium units. The buyers become investors who enter into investment contracts. 2. Common Enterprise. - The condominium units, when not in use, will be pooled together with the units purchased by others. The condominium units pooled will be operated and managed by an International Luxury Hotel Chain.The investors enter into a profit making venture with both PLI and condotel operator. 3. Expectation of Profits. - The buyers enter into this unique investment 18.2% from an International Luxury Hotel Chain or a guaranteed return on opportunity with the view of receiving Guaranteed Rental Yields up to their investment. 4. Primarily from the Efforts of Others.- This is the apparent in the services being offered by an International Luxury Hotel Chain as the managing corporation. BPTI or PLI and the buyers of residential units in BBCH and Mactan Blue Coral Resort and Spa, respectively, are investment contracts and, are, therefore, securities required to It is clear from the foregoing that the agreements entered into by and between be registered with SEC per Sections 8 and 12 of the SRC, as certified by the CGFD BTPI and PLI are offering and/or selling unregistered securities to the investing public i. Publication in any newspaper, magazine or printed reading material which is distributed within the ii. Advertisement or announcement in any radio or television, or in any online or email system; or iv. Distribution and/or making available flyers, brochures or any offering material in a public or Philippines or any part thereof ; 33 Note 20, supra. ii. Presentation in any public or commercial place; commercial place, or mailing the same to prospective purchasers. 32 Note 21, supra. 31 Note 20, supra. Boracay Transpacific Properties, Inc. and SEC CDO Case No. 07-14-013 Paradisya Land, Inc. In the Matter of Page 12 of 12 investors or is likely to cause grave or irreparable injury or prejudice to the investing Thus, it is necessary that a Cease and Desist Order34 be issued to enjoin BTPI and PLI from further offering and selling unregistered securities to the public. Otherwise, public. allowing BTPI and PLI to continue its business operation will operate as a fraud on The Commission is duty-bound to protect the interest of the investing public. behalf and under their authority, are hereby ordered to IMMEDIATELY CEASE AND PROPERTIES, INC. and PARADISYA LAND, INC. their officers, directors, agents, representatives, assigns, and any and all persons claiming and acting for and in their otherwise offering or selling unregistered securities to the public, until they have complied with the requirements of the SRC and its AIRR. DESIST,UNDER THE PAIN OF CONTEMPT, from further offering, soliciting, or WHEREFORE, premisesconsidered,BORACAYTRANSPACIFIC branches, in any of BPTI and PLI, published in a newspaper of general circulation and posted in the Commission's internet website. Let copies of this Order be posted at the entrance of the main offices and/or the 2006 Rules of Procedure of the Commission, the parties subject of this Cease and Desist Order may file a motion for the lifting thereof within an inextensible period of five (5) days from receipt hereof, otherwise the same shall be made permanent. In accordance with the provisions of Section 64.3 of the SRC and Section 10-3 of FAIL NOT UNDER PENALTY OF LAW. SO ORDERED. Mandaluyong City, February 26, 2015. S TERESITA J.HERBOSA Chairperson Atouir dn MANUEL Commissioner UBERTO B.GAITE ANTONIETA F.IBE Commissioner EPHYRO LUIS B. AMATONG *On Official Business. Commissioner BLAS JAMES G.VITERBO Cohmissioner SIMMMA 34 SeC. 64.Cease and Desist Order. 64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified hearing if in its judgment the act or 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. complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior