Seven Star General Merchandise

Securitie: cnc Exchange Commission Republic of the Philippines Dent of Finance

MERCHANDISE President for Budget and Finance), the President), GENELYN SUPAS Purchaser)ARLIN MUSICO (Asst. Information Officer), NINO MADEJA Northern Office), PAUL LABRADOR SEVEN VICTORINO CARTAJINAS MUSICO, JR. (President),LEO M. OCAMPO (Co- Founder), IAN TELLE ROXAS (Vice- President),SARAH T.MUSICO (Vice for Operations), LILET BARANDAY JENIEMEELREQUINTINA (Assistant Budget Officer), LEO LOBO (Public JOSEPH VIENNA (Head of Northern Office),DANIEL MAGBANUA (Head of John and Jane Does, EDUARDO TORRES (Vice-President HERNANDEZ (Executive Assistant to General Manager),MELANIE CABICO (Head of I.T. and Communications), (Head of Island Office), and other (Head PONTINO (Purchaser), NOREEN LOZADA (Asst. Cashier), (General STAR (DTI JANFRANCIS Registered; Manager), GENERAL SEC CDO Case No. 09-16-034

PROTECTION DEPARTMENT, ENFORCEMENT AND INVESTCR

Movant.

CEASE AND DESIST ORDER

registration statement is duly filed with and approved by the Commission and the corresponding license to offer/sell is issued. Department (EIPD) praying to enjoin SEVEN START GENERAL MERCHANDISE (SsGM), its officers, partners, representatives, assigns, agents, and any and all persons acting for and/or in its behalf from further selling or offering for sale or distribution of securities in the form of investment contracts until the requisite dated 05 September 2016,filed by the Enforcement and Investor Protection This resolves the Motion for Issuance of Cease and Desist Order (Motion).

In re: Seven Star General Merchandise Eciorcement and Investor Protection Department SEC CDO Case No.09-16-034 Page 2 of 8

of Trade and Industry under Certificate No. 03880842 issued in favor of herein, with business address at Room 202, 2nd Floor, Mariners Plaza, Dacanay Victorino Cartajinas Musico, Jr. 2(Mr. Musico, Jr.), one of the respondents St., Brgy.San Pedro,Puerto Princesa City,Palawan.3 The other respondents:LEO M.OCAMPO,IAN TELLE ROXAS, SARAH T.MUSICO,EDUARDO TORRES,LILET LABRADOR, and other John and Jane Does are claimed to be officers of SSGM.4 BARANDA Y HERNANDEZ, GENELYN SUPAS, JAN FRANCIS PONTINO LEO LOBO, NINO MADEJA,JOSEPH VIENNA, DANIEL MAGBANUA, PAUL JENIEMEEL REQUINTINA,MELANIE CABICO,NOREEN LOZADA,ARLIN MUSICO SSGM is an unincorporated entity1 and is registered with the Department

invested, upon payout exit; (ii) pursuing investment taking activities that seemed sponsoring prospective members/downlines; (iii) soliciting, accepting or DTI-Palawan referred for appropriate action the activities of SSGM, and three (3) under the guise of the sale of its packages including recruiting, referring, or dated 05 July 2016, inquired as to any prior registration and/or license to solicit Industry-Palawan5 (DTI-Palawan) and the National Bureau of Investigation- Puerto Princesa District Office (NBI-PUERD0). In its letter, dated 06 July 2016, others, which include: (i) where ore is enticed/solicited to invest an amount of money, withpromised return of double/triple or even much of the amount receiving from others money for the purpose of trading and/or investment contracts; and (iv) holding business presentations for the purpose of pursuing investment taking activities. On the other hand, the NBI-PUERDO, in its letter investments from the public which is issued by the Commission to SSGM and three (3) other entities. On 11 July 2016,EIPD received letters from the Department of Trade and

(www.sec.gov.ph) a SEC Advisory? warning the public that SSGM, among others, is not authorized to solicit investments from the public as it did not secure the the Securities Regulation Code. necessary permit from the Commission as required under Sections 8 and 28 of Consequently, on 01 August 2016, the Commission posted on its website

investigations in Puerto Princesa and El Nido, Palawan and was able to receive multitudinous complaints concerning the activities of SSGM and eight (8) other from the scheme of SSGM, a person must invest in at least one account in the however, can invest up to 300 accounts per day.Furthermore, investors were entities. From the complaints, EIPD avers to have found out that in order to earn amount of P350.00 to receive P1,000.00 at the end of 45 days. A person On 9-12 August 2016, a team from EIPD conducted investment scams

5 Id., Annex "B", dated 06 July 2016. 2 Id., AnnexA 3 Id., Annex "A-1" 4 Id., Paragraph 6. 6 Id., Annex "B-1", dated 05 July 2016. 7 Id., Annex C 1 05 September 2016 Motion for Issuance of Cease and Desist Order, Annex "L" Id., Annex D

Eniorcement and Investor Protection Department In re:Seven Star General Merchandise SEC CDO Case No.09-16-034

Page 3 of 8

also invited to avail of SSGM's pension plan in the amount of P15,500.00,and after 28 days, an investor will receive P14,000.00 for the first two months and P21,000.00 for the third month. This three-month cycle of payment will continue until the investor receives a total amount of P1,000,000.00. Investors were then issued receipts, which indicated the amount of money invested,the number of accounts bought, and the date on which they can claim the promised interests. And on 01 July 2016,SSGM's office was closed,and the investors were not able to receive the promised interests.

We find merit in the Motion.

The four elements of an investment contract, which is a form of security, are present in the instant case. Hence, a registration statement must be filed and approved by the Commission before it can be sold or offered for sale to the public.

transactions under Sections 910 and 1011 of the SRC. Securities are shares, Regulation Code (SRC), mandates that no securities shall be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission save those securities and Section 8.1 of Republic Act No. 8799,otherwise known as the Securities

9 Id., Paragraph 11b), d), and (e). (c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper avoiding the provision of this Code, to liquidate a bonafide debt, a security pledged in good faith sale or offer for sale, subscription or delivery not being made in the course of repeated and 10 Section 9. Exempt Securities. - 9.1. The requirement of registration under Subsection 8.1 shall not as a general rule apply to any of the following classes of securities: (a) Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency thereof, or by any person controlled or supervised by, and acting as an thereof on the basis of reciprocity: Provided, That the Commission may require compliance with the form and content for disclosures the Commission may prescribe. (d Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use Rule Regulatory Board, or the Bureau of Internal Revenue. (e) Any security issued by a bank except its own shares of stock. 11 Section 10. Exempt Transactions. - 10.1.The requirement of registration under Subsection 8.1 shall not apply to the sale of any security in any of the following transactions: (a) At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in (b) By or for the account of a pledge holder,or mortgagee or any of a pledge lien holder selling of offering for sale or delivery in the ordinary course of business and not for the purpose of (c) An isolated transaction in which any security is sold, offered for sale,subscription or delivery by the owner therefore, or by his representative for the owner's account, such sale or offer for (b) Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic relations, or by any state, province or political subdivision insolvency or bankruptcy. as security for such debt. instrumentality of said Government. adjudicatory body. X

Enforcement and Investor Protection Department In re:Seven Star General Merchandise SEC CDO Case No.09-16-034

Paqe 4 of 8

whether written or electronic in.character12 and include an investment participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, contract.13

(collectively 'contract') whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. An "investment contract" means a contract, transaction or scheme

12 SRC, Section 3.1 13 SRC, Section 3.1.(b). given in connection with the sale or disposition of such securities, and only when the purpose for soliciting, giving or taking of such subscription is to comply with the requirements of such law as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly incorporated, or its authorized, capital increase. no commission or other remuneration is paid or given directly or indirectly for soliciting such (k) The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during (l) The sale of securities to any number of the following qualified buyers: successive transaction of a like character by such owner,or on his account by such representative incorporation, of securities to its stockholders or other security holders as a stock dividend or commission or other remuneration is pai& or given directly or indirectly in connection with the property,when the entire mortgage together with all the bonds or notes secured thereby are sold pursuant to a right of conversion entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the security so surrendered has been registered under this Code or was, when sold, exempt from the provision of this Code, and that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall within the class of securities entitled to registration under this Code. Upon such conversion the par value of the security surrendered in such exchange shall be deemed the price at which the securities issued and delivered in such exchange are sold. (h) Broker's transaction, executed upon customer's orders, on any registered Exchange or other (i) Subscriptions for shares of the capitals stocks of a corporation prior to the incorporation thereof or in pursuance of an increase in its authorized capital stocks under the Corporation Code, when no expense is incurred, or no commission, compensation or remuneration is paid or j The exchange of securities by the issuar with the existing security holders exclusively,where any twelve-month period. and such owner or representative not being the underwriter of such security (d) The distribution by a corporation actively engaged in the business authorized by its articles of other distribution out of surplus. (e) The sale of capital stock of a corporation to its own stockholders exclusively, where no sale of such capital stock (f) The issuance of bonds or notes secured by mortgage upon real estate or tangible personal (g) The issue and delivery of any security in exchange for any other security of the same issuer exchange to a single purchaser at a single sale. trading market. basis of such factors as financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets under management. xxx (iv) Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof or manage by a bank or other persons authorized by the Bangko Sentral to engage in trust functions; (vi) Such other person as the Commission may rule by determine as qualified buyers, on the (ii) Registered investment house; (iii) Insurance company; (v) Investment company or (i) Bank;

Enforcement and Investor Protection Department In re:Seven Star General Merchandise SEC CDO Case No.09-16-034

Page 5 of 8

An investment is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits.14

origin. It traces its roots from the US Supreme Court cases of SEC v. WJ. Howey contract in our jurisdiction, to be primarily from efforts of others. Co.15 and SEC v. Glenn Turner Enterprises, Inc. 16 It has since been adopted in the Philippines in the case of Power Homes Unlimited Corporation v. Securities and Exchange Commission,17 where the Supreme Commission, must have the following elements: (1) an investment of money; (2 in a common enterprise; (3 with expectation of profits; and (4) The concept of an investment contract in the Philippines is of American security subject to regulation by the e Court held that an investment

investor expects to receive a total amount of P1,000,000.00 with his/her P15,500-investment. And fourth, an investor merely places his money to SSGM is applicable to the instant case. are present in this case.First, investors must pay a minimum amount of P350.00 for an account up to a maximum amount of P105,000.00 for 300 accounts, or investor commits money to an enterprise or venture in a manner that subjects himself to financial loss.19 Second, there is also a common enterprise.A common enterprise is deemed created when two (2) or more investors "pool" their resources,creating a common enterprise, even if the promoter receives nothing more than a broker's commission.2o Here, three investors21 executed sworn statements attesting to the fact of their investments to SSGM. Third, investors parted with their money with the expectation that at the end of 45 days, they will receive a minimum of P1,000.00 for the P350-investment up to P300,000.00 for the P105,000.00-investment. Stated differently, an investor expects to receive a 285% return of investment after 45 days. As regards the pension plan, an and thereafter wait for the promised returns for a period of 45 days, or 28 days for pension plan. It must be noted that none of the exemptions from registration P15,500.00 for a pension plan to SSGM.In fact,receipts18 were issued as proof of such investments. It is settled that an investment of money occurs when an A careful examination of the records indicate that the aforesaid elements

registered and approved by the Commission. Clearly, the scheme of SSGM is an investment contract which must be

Issuance of a Cease and Desist Order is warranted under the prevailing facts and circumstances.

21 Note 1, supra, Annexes "G", "H", and "I". 16 474 F.2d 476,414 U.S.821,94 (1973) 17 G.R. No. 164182, 26 February 2008. 18 Note 1, supra, Sub-annexes of Annexes "H" and "I". 19 SEC v. International Mining Exchange, Inc., 515 F. Supp. 1062. 20 Note 14, supra. 14 2015 SRC Rules, Section 26.3.5. 15 328 U.S.293,66 S.Ct.1100,90 L.Ed.1244,163 A.L.R.1043 (1946)

Enforcement and Investor Protection Department In re:Seven Star General Merchandise SEC CDO Case No.09-16-034

Page 6 of 8

Section 64 of the SRC which provides:

irreparable injury or prejudice to the investing public.22 Section 64. Cease and Desist Oder.-64.1.The Commission,after order without the necessity of a prior hearing if in its judgment the act or practice,unless restrained, will operate proper investigation or verificacion,motu proprio or upon verified complaint by any aggrieved party, may issue a cease and desist as a fraud on investors or is otherwise likely to cause grave or

Second, there must be a finding that the act or practice, unless restrained, will Supreme Court held that under the aforesaid provision, two essentia requirements must be complied with by the SEC before it may issue a cease and operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. desist order: First, it must conduct proper investigation or verification; and In the case of SEC vs. Performance Foreign Exchange Corporation,23 the

their sworn statements24 attaching therewith receipts as proof of their is registered. In Power Homes,26 the Supreme Court emphasized the importance investigation in Puerto Princesa and El Nido, Palawan. They interviewed victims of SSGM's investment scheme. As a matter of fact, three victims have executed investments. Second, the certifications25 issued by the Corporate Governance and Finance Department and Markets and Securities Regulation Department of the Commission show that SSGM is not authorized to offer/sell securities in the form of investment contracts to the public, and neither the investment contract, itself, of registration of any security, thus: Here, the two requisites are present. First, a team from EIPD conducted an

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 depend on the investing public's level of confidence in the system."27 "As an investment contract that is security under R.A. No. 8799, it

funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the perpetrators focus on attracting new money to make "Ponzi Scheme." A Ponzi scheme is a type of investment fraud that involves the new investors. Its organizers often solicit new investors by promising to invest payment of purported returns to existing investors from funds contributed by It cannot be overemphasized that SSGM's business model is a classic

25 Note 1, supra, Annexes "J" and "K" 27 Emphasis and underscoring supplied. 22 Emphasis supplied. 23 G.R. No. 154131, July 20, 2006. 26 Note 17, supra. 24 Note 21, supra.

Enforcement and Investor Protection Department In re: Seven Star General Merchandise SEC CDO Case No.09-16-034 Page 7 of 8

records would show that one of the complainants has claimed to have received pensions and pay-outs until the closure of SSGM's office in Puerto Princesa, promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business. It is not an investment strategy but a gullibility scheme, wli ch works only as long as there is an ever increasing number of new investors joining the scheme.28 In fact,a perusal of the Palawan.29

unregulated or unsupervised, would further defraud the investing public. taking activities cannot be regulated nor supervised, and if it remains Certainly, without a license from the Commission, SSGM's investment-

the DTI has no separated perscn personality of any busines: As a final word, we emphasize that a sole proprietorship registered with 2 from the owner thereof.30 Thus, the Mr.Musico, Jr. with the DTI is simply

is still proper for the protection of the investing public in general. Mr. Musico, Jr. himself. Nonethele or irreparable injury or prejudice to the investing public. Thus, notwithstanding the closure of SSGM's office in Puerto Princesa,Palawan, a cease and desist order investment-taking activities Commission is empc Commission has the bounden dut from acts that would operate as fr mission has jurisdiction over the dministei Musico estors and the investing public the SRC. Further, the Jr. considering that the are likely to cause grave

in the Commission, SEVEN STAR GENERAL MERCHANDISE AND VICTORINO continuing the act of selling and/or offering for sale securities in the form of CARTAJINAS MUSICO, JR., their partners, agents, representatives, conduits, their authority are hereby ordered to IMMEDIATELY CEASE AND DESIST,31 UNDER PAIN OF CONTEMPT, from further engaging, reviving, or surreptitiously investment contracts or any others of the same nature until the requisite registration statement is duly filed with and approved by the Commission and the corresponding license to offer/sell is issued. assigns, and any and all persons claiming and acting for and in behalf and under WHEREFORE, premises considered and pursuant to the authority vested

criminal action against any persons or entities found to act as solicitors, The Commission will institute the appropriate administrative and

28 People of the Philippines vs. Palmy Tibayan and Rico Z. Puerto, G.R. No. 209655-60, January 14, 31 Section 64.1, SRC, The Commission, after proper investigation or verification, motu propio, or 29 Note 1, supra, Annex "I" 30 Excellent Quality Apparel, Inc. vs. Win Muiti Rich Builders, Inc., G.R. No. 175048, February 10, upon verified complaint by any aggrieved party, may issue a cease and desist order without the fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. necessity of a prior hearing if in its judgment the act or practice, unless restrained, will operate as 2015. 2009

Enforcement and Investor Protection Department In re:Seven Star General Merchandise SEC CDO Case No. 09-16-034

Paqe8of 8

information providers, salesmen, agents, brokers, dealers or the like for and in behalf of the subject entity.

be found; and 2) post copies of the Order at the entrance of the main office DIRECTED to: 1) serve this Order to SEVEN STAR GENERAL MERCHANDISE and and/or branches, if any,of SEVEN STAR GENERAL MERCHANDISE. person/s, entities,representatives and assigns acting in its behalf,wherever they The Enforcement and Investor Protection Department is hereby

way of a pleading, to the Commission En Banc WITHIN TEN (10) DAYS from receipt of this Cease and Desist Order. EIPD is FURTHER DIRECTED to submit a formal compliance report, by

Commission's departments for their information and appropriate action. published in a national newspaper of general circulation; 3.) furnished to all the Let a copy of this Order be: i.) posted in the Commission's website; 2.

the 2006 Rules of Procedure of the Commission, the parties subject of this Cease and Desist Order may file a request for the lifting thereof within five (5) days from receipt hereof. In accordance with the provisions of Sec. 64.332 of SRC and Sec. 10-3 of

FAIL NOT UNDER PENALTY OF LAW.

SO ORDERED.

Pasay City, Philippines, 22 September 2016

TERESITAJ. HERBOSA Chairperson C

MANUEI Commissioner TO B.GAITE ANTONIETA F.IBE Commissioner

MeA

*On Officila Business EPHYRO LUIS B.AMATONG Commissioner BIASIAMESGJVITERB Commissioner

desist order shall automatically be lifted. five (5) days from receipt of the order,file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the hearing If the Commission fails to resolve the request within the time herein prescribed, the cease and 32 SRC, Section 64.3. Any person against whom a cease and desist order was issued may, within