Hyper Program International Direct Sales and Trading Corporation, HPI Direct Sales and Trading Corporation

A (T93 Securities and Exchange Commission SEC Building, EDSA, Greenhills, Mandaluyong City Republic of the Philippines Department of Finance Office of the General Counsel In the Matter of HYPER PROGRAM INTERNATIONAL DIRECT SALES AND TRADING CORPORATIONand HPIDIRECT SALES AND TRADING CORPORATION, E SEC CDO Case No. 06-15-020 ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT, Movant. CEASE AND DESIST ORDER dated 28 May 2015, filed on 2 June 2015 by the Enforcement and Investor Protection and their respective officers, directors, representatives, salesmen, agents and any and all persons claiming and acting for and in their behalf, from further selling, or otherwise Department CORPORATION and HPI DIRECT SALES AND TRADING CORPORATION 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 (SRC). PROGRAM Submitted for resolution is the Motion for Issuance of Cease and Desist Order. (EIPD) of this Commission, enjoining the Respondents, HYPER INTERNATIONAL DIRECT SALES AND TRADING Timog Avenue, South Triangle, Quezon City. Its primary purpose, as shown in its DIRECT SALES AND TRADING CORPORATION (Hyper Program) is a corporation duly registered with the Commission on 2 February 2015,"under SEC Registration No. CS201501619, with principal office located at 301 Cabrera Building, Articles of Incorporation', is: The records show that Respondent HYPER PROGRAM INTERNATIONAL principal or in representative capacity as manufacturer's representative, mobile phone prepaid cell phone cards, and other related products of every kind and description; to enter into all kinds of contracts for the purchase, acquisition, sale at wholesale/retail basis and other disposition for its own account as distributing, marketing, supplying at wholesale/retail basis in so far as may be permitted by law all kinds of goods such as soap, body oil, health products. "To engage in, conduct and carry on the business of buying, selling, 1 Annex "A", Motion for Issuance of Cease and Desist Order, page 84 of the Records. In the matter of Hyper Program International Direct Sales and Trading Corp. and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-15-020 Cease and Desist Order Page 2 of 10 merchandise broker, indentor, commission merchant, factors or agents, upon every kind and description whether natural or artificia! and to provide services consignment of all kinds of goods such as soap, body oil, health products of relative to trading of such goods." 20 Anonas Complex, Anonas, Quezon City. Its primary purpose, as shown in its Articles CORPORATION (HPI) is a corporation duly registered with the Commission on 9 May 2014, under SEC Registration No. CS201409056, with principai office located at Unit 19 INTERNATIONAL DIRECT SALES AND TRADING CORPORATION. of Incorporation", On the other hand, Respondent HPI DIRECT SALES AND TRADING isidenticalwithRespondentHYPER PROGRAM respective addresses and nationalities are as follows: The names of the Incorporators and first directors of Respondents with their HYPER PROGRAM INTERNATIONAL DIRECT SALES AND TRADING CORPORATION NAMES ADDRESS NATIONALITY 3. Pablito Andal 1. Darlito M.Dela Cruz3 2. Queen Ashley T. Ablan 4. Aida-Lyn D. Gabriel Unit 20-D. Torre Venezia, Timog Unit 20-D. Torre Venezia, Timog Ave., Quezon City Ave., Quezon City Lot 10, unit 1, Blk. 15, Cabuyao Major Home, Cabuyao, Laguna 21 Miami St., Cubao, Quezon City Filipino Filipino Filipino Filipino 5. Arleen M. Dela Cruz NTRA, Taugtog, Botolan, Zambales E Filipino HPI DIRECT SALES AND TRADING CORPORATION NAMES ADDRESS NATIONALITY 5. Pablito Andal 2. Angelita Basbas 3. Mary Jane Terrible 1. Darlito M.Dela Cruz 4. Ernesto Lee Pinera Jr. Lot 10, unit 1, Blk. 15, Cabuyao Unit 20-D. Torre Venezia, Timog Subd., Sta. Rosa City, Laguna Blk. 2, Lot 18A, Multiland Subd. San Isidro, Cabuyao, Laguna 271 Roosebelt Ave., San Francisco Del Monte, Quezon City Ave., Quezon City Blk. 3, Lot 28, Ph. 1, San Lorenzo] Filipino Filipino Filipino Filipino Filipino 3 Names in bold letters are common incorpoators and directors of Hyper Program and HP1. 2 Annex "B", Ibid. In the matter of Hyper Program International Direct Sales and Trading Corp. and HPI Direct Sales and Trading Corp SEC CDO Case No. 06-15-020 Cease and Desist Order Page 3 of 10 7. Queen Ashley T. Ablan 6. Bernadette Villapaz Major Home, Cabuyao, Laguna 412 Ph. 2 Parkwood Greens Executive Village, Maybunga, Unit 20-D. Torre Venezia, Timog Ave., Quezon City Pasig City Filipino Filipino from the public inquiring on their activities and alleging that they are involved in pyramiding scam. These letter serders requested the Commission to investigate the activities of the Respondents. The EIPD was alerted about the Respondents ' operations when it received letters' on the business transactions of Respondents. Acting on the public's request, the EIPD created a team to conduct investigations Hyper Program pretending to be an interested investor. The investigator was able to talk money and earn high profit share in a span of 40 to 45 days. Interestingly, she also told the investigator that the company's products are only a front as they are focusing more on with a certain Jannet who introduced herself as the accountant of the company. During the conversation, she offered several packages where an investor can put in his/her the investment program/scheme. On March 16, 2015, an investigating team member called-up the office of the conduct surveillance operation on its activities. herself as accounting personnel and told them that she would do the orientation. Jenn Santos led them to a conference room and showed them the company's brochures. business packages and a computation On April 16, 2015, said team went to the principal office of Hyper Program to They met Jenn Santos who introduced EeT I informed her that they are interested in knowing about the com emphasized that selling she explained that inves A I the benefits of investing therein. In reply. make profits.She also optional. She then Package amountin She reiterated that of 40 to 45 days. She.al up to the tenth levei offered several pack The. tean more than Php 268,800 pesos. Package at Php 268,800.00 starting from the Bronze in profit shares in a span profits by direct referrals She said that there is no limit in t ives the team asked how the money contracts between the company and the investors/memberss. or investment will earn if selling of explained that investors earn through the Reward System (Company Group Sales that the company issues official receipts for the amount invested which serve as proofs or Incentives). She repeated that. the company's business plan is focused _more on investment-"taking" and not on the products. When a member of the investigating team asked if there is a contract between the investors/members and the Respondents, she said products and the recruitment is optional, she 5 Annex "E", id. Annexes "C-1", "C-2", "C- 3", and "C-4", id. In the matter of Hyper Program International Direct Sales and Trading Corp.. and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-15-020 Cease and Desist Order Page 4 of 10 request the Corporate Governance and Finance Department (CGFD) and the Markets and The information gathered during its Field Investigation prompted the EIPD to Securities Regulation Department (MSRD) for certifications on whether the Respondents are issuer, broker and/or dealer of securities, investment adviser of an investment company, investment house, transfer agent, and sell, offer for sale or distribute securities and commodity future contracts under the SRC. that, based on the records on file with the Commission, the Respondents are not registered issuers of securities and is therefore not licensed to offer or sell securities to the public. On April 28, 2015, the EIPD_received from the CGFD a Certification declaring On May 18, 2105, the MSRD issued a Certification' stating that based on records the Respondents have not been issued Certificate of Registration or Licenses to act as commodity futures merchant, broker and/or dealer in securities, dealer in government agent and seller, offer for sale or distribute securities and commodity future contracts to the public. securities, investment adviser of an investment company, investment house, transfer EIPD further discovered that the Respondents have an official website public. www.hpidirectsales.ph through which they communicate with their members and the Subsequently, and in response to SEC Advisory dated May 18, 2015, EIPD received a letter' from counsel of Hyper Program, Atty. James K. Abugan, dated July 8. 2015, attaching the former's method of selling products to customers, seeking advise on how to undergo some corrective measures, and committing to pay penalties if there is a violation of the SRC for the purpose of lifting the advisory. The compensation plan attached to the letter outlines how to be a member of Hyper Program by purchasing the or Retail, Rewards System Incentive, Rebates Bonus and Qualifying Bonus. packages and, in turn, earning through the Four (4) Ways to Earn, namely: Direct Selling HPI as stated in its Articles of Incorporation to conduct a separate ocular inspection and surveillance operation of the company. Upon arrival at the address, the team noticed that On July 21, 201510, the investigating teams proceeded to the principal office of not HPI. More importantly, the office is closed. Ensuing verification shows that the House of Three is registered with the Commission on February 26, 2015 with Company the business signage reads "House of Three Hundred Corporation" (House of Three) and Registration No. CS201503595. Moreover, the members of the Board of Directors of Annex "L", id. 8 Annex "H", id. 9 Annex "I", Supplement to the Motion for Issuance of Cease and Desist Order, dated October 6, 2015, To Annex "A", Note 9, supra. Annex "K", id. page 174 of the Records. In the matter of Hyper Program Internationat Direct Sales and Trading Corp. and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-15-020 Cease and Desist Order Page 5 of 10 House of Three are almost the same as the members of the Board of Directors of HPI except for Eleazar Sta. Ana who is not an incorporator of HPI and Hyper Program. Secretary's Certificatell as well as their President's Special Power of Attorney respectively authorizing him: August 6, 2015, pertaining to Hyper Program and/or HPI and submitting Respondents On August 7, 2015, EIPD received another letter from Atty. Abugan, dated SEC Advisory issued against the corporation and/or HPI Direct Sales and Trading Corporation in all its conference, hearings and investigations that may be conducted at the Securities and Exchange Commission (SEC) in relation to the Trading Corporation; To represent Hyper Program International Direct Sales and and Trading Corporation in all its conference, hearings and investigations that may be conducted at the Securities and Exchange Commission (SEC) in relation to the SEC Advisory issued against the Hyper Program International Direct Sales and Trading Corporation and/or HPI Direct Sales and Trading Corporation; To represent me and/ Hyper Program International Direct Sales V. Montilla14, Vincent V. Ong15, Rey Angelo Q. Marbella1 and Kenny Choa Sy17, who commonly stated that they "joined Hyper Program International (HPI) Direct Sales and Trading Corporation located at 2nd Floor Anonas Complex, Anonas Street, Project 3, Quezon City and now located at 301 Cabrera Building 1, Timog Ave., Bgy Sacred Heart, Quezon City, headed by Mr. Darlito Marquez Dela Cruz as the acting Chairman/Owner." They aiso stated the scheme of Respondents as "buy the package in In the meantime, EIPD received copies of separate sworn statements13 of Bryan encoded in the system then after two weeks you will receive the pay-out." exchange for a product and code equivalent to the amount invested, the code shall be We now resolve the Motion. Sections 3 and 8 of the SRC provide: by a certificate, contract, instrument, whether written or electronic in character. It includes: corporation or in a commercial enterprise or profit-making venture and evidenced "Section 3.l. "Securities".are shares, participation or interests in a 12 Dated July 1, 2015. 13 Annexes "D" to "G", Note 9, supra. 14 Dated September 22, 2015. 15 September 9, 2015. 16 September 9, 2015. 17 September 15, 2015. 11 Dated July 2, 2015. In the matter of Hyper Program International Direct Sales and Trading Corp.- and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-1 5-020 Cease and Desist Order Page 6 of 10 XXX KXX (b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription: SEC. 8. Requirement of Registration of Securities. -- 8.1. Securities shall not be sold or offered for sale or distribution within the Philippines, without_a registration statement duly filed with and approved by the Commission. Prior to the Commission may prescribe, shall be made available to each prospective such sale, information on the securities, in such form and with such substance as purchaser.1 To implement the said provisions of the SRC, Rule 3 Paragraph 1, subparagraph (G) of the Amended Implementing Rules and Regulation of the SRC (AIRR-SRC) defines an investment contract as: (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 "pool" their resources, creating a common enterprise, even if the promoter b. A common enterprise is deemed created when two or more investors receives nothing more than a broker's commission." investment contract is a 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. This is known as the Howey Test. traces its roots from SEC v. W.J Howey Co. The concept of an investment contract in the Philippines is of American origin. It 9 where the US Supreme Court ruled that an Supreme Court held that the element that profits must come "solely" form the efforts of the statutory policy of affording broad protection to the public. Because of this, it is no Ionger necessary that the expected profit accrue solely from the efforts of others. others should be liberally construed because a literal reading of the requirement "solely' would lead to unrealistic results. It reasoned out that its flexible reading is in accord with In a subsequent case of SEC v. Glenn Turner Enterprises, Inc.20, the U.s. 2o 474 F. 2d 476, 414 U.S. 821, 94 (1973). 18 Emphasis supplied. 19 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244, 163 A.L.R. 1043 (1946). In the matter of Hyper Program International Direct Sales and Trading Corp. and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-15-020 Cease and Desist Order Page 7 of 10 Unlimited vs. SEC21, the Supreme Court held that an investment contract in our jurisdiction, to be a security subject to regulation of 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 the efforts of others. This concept has since been transported in the Philippines. In Power Homes on record show that the Respondents' product packages are investment contracts which have the following elements: Prescinding from these premises, the Commission rules that substantial evidence 1.Investment of Money a certain Ronaldo Dimagiba paid the former the amount of PhP 46,500.00, not only, for Courts22 have held that "an investment of money occurs when an investor commits his earn 30% to 35% profits in a span of 40 to 45 days. This profit shows the element of whereas an "investment in money" does. An "investment in money" carries with it a possibility of a gain or loss, but the purchase of a product or service is simply a sales transaction with no expectation of gain and no possibility of loss. Consequently, US this case, the Respondents require investors to purchase at least a Bronze Package for a fee of PhP 7,350.00 to participate in their compensation plan. The fee is not merely for bonuses and incentives23. In fact, one24 of HPI's Sale Invoices show that on July 18, 2014 "investment in money"" rather than a "payment of money". money to an enterprise or venture in a manner that subjects himself to financial loss. In products and incidentals, but more importantly, for qualification to join the Respondent 's Moreover, Respondents' accounting personnel represented that, by investing, one can ten kilograms of rice, but more importantly, for 10 codes and 200 activation codes. A "payment of money" does not satisfy the first element of the Howey Test. 2. Common Enterprise In Powerhomes25, the Commission declares that: participation of more than one investor in the investment of funds or the sharing whether a transaction satisfies the commonality element of the modified Howey Test, involves an inquiry into whether...the transaction._involved the joint of profits (69 Am Jur.2d S 40 p.114).72e "Under the "horizontal' commonality approach, the determination of In the instant case, the common enterprise is the Respondents ' compensation plan 24 Annex "H", Note 9 supra and page 135 of the Records. 21 G.R. No. 164182, February 26, 2008. 26 Emphasis supplied. 22 s.E.c. v. international Mining Exchange, Inc., 515 F.Supp. 1062, 1068 (D.Colo. 1981), quoting Stowell v. 25 SEC CED Case No. 20-2486 Ted S. Finkel Investment Services, Inc., 489 F.Supp. 1062, 1068 (D.Fla. 1980). See also: S.E.C. v. Comcoa Ltd., 855 F.Supp. 1258, 1260 (D. Fla. 1994; Wooldridge Homes, Inc. v. 8ronze Tree, Inc., 558 F.Supp. 1085, 1986 (D. Colo. 1983); Kolibash v. Sagittarius ecording Co.,626 F.Supp. 1173 (S.D. Ohio 1986). 23 Note 9 supra and pages 89-92 of the Records. In the matter of Hyper Program International Direct Sales and Trading Corp. and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-15-020 Cease and Desist Order Page 8 of 10 Investors pool their resources (at least PhP 7,350.00 each) to the Respondents. In turn, investors share in the profits realized from Respondents ' Four (4) Ways to Earn. investing in the company would enable one to make profits. This is sharing of profits. HPI Member sponsors another individual to become a member via product purchase"2? that the company focuses on "investment taking" rather than selling of the company's clear from the compensation plan that investors receive Rebates Bonus when "an active This transaction is a clear manifestation of the joint participation of more than one investor in the investment of funds. Furthermore, the Respondents ' accountant admitted products. Indeed, the sworn statements of Bryan V. Montilla, Vincent V. Ong, Rey Angelo Q: Marbella and Kenny Choa Sy confirm the accountant's representation that In another matter, although it was mentioned that recruitment is optional, it is 3. Expectation of Profits use of the investors' funds.28 In this case, the Respondents ' compensation plan is a clear development of the initial investment or from participation in earnings resulting from the indication of investors' participation in the earnings. The expected profits may be derived from capital appreciation resulting from the accountant claim that investors can earn 30%-35% profits by simply waiting for a period representation is confirmed by the Reward System Incentive29 of the compensation plan, emphasizing the prospective earnings from their compensation pian. The Respondents forty (40) to forty-five (45) days from the date of investment. The accountant's Viz. : To reiterate, Respondents entice prospective investors to place money by Being a customer and member at the same time, people who purchased Points are given to all those who purchased the packages as a reward for Points has an equivalent peso value depending on the purchased above HPI Packages will receive a Rewards Incentive via points system patronage of the products and loyalty to the company. Rewards incentive will be accumulated and released within and not Ionger than two (2) months. through their Rewards Account that can be viewed at their online tracking system. mentioned product packages customers becomes a member and receives Rewards Incentives, sponsoring Member will receive a Qualifying Bonus earn more from the Respondents ' Rebates Bonus, can recruit downlines. Moreover, upon graduation of the recruited downlines' initial investment, the up lines or recruiters earn a corresponding Qualifier Bonuses. The compensation plan declares that "when referred An expectation of profits is further shown by the fact that investors, who want to 28 (69 Am Jur 2d 538 p.110) cited in Powerhomes, Note 26, supra. 30 Note 9 surpa and page 89 of the Records. 27 Note 9 supra and page 90 of the Records. 29 Note 9 supra and pages 90-91 of the Records. In the matter of Hyper Program International Direct Sales and Trading Corp.. and HPI Direct Sales and Trading Corp SEC CDO Case No. 06-15-020 Cease and Desist Order Page 9 of 10 4.Primarily from the Efforts of Others incorporators/directors of the Respondents, manage and oversee the company. incorporators and directors, namely: Darlito M. Dela Cruz, Pablito Andal, and Queen Ashley T. Ablan. The Respondents' Articles of Incorporations show that they have common Stated otherwise, these directors, aside from the other fact, Respondents merely require their investors to pay Php7,350.00 for a promise of the Respondents Directors and Officers' in implementing their compensation plan. This scheme was conceptualized, developed, maintained and promoted by the Respondents. In profit after a certain period of time without any further effort or obligation from their investors. Stated otherwise, the investors earn, without significant effort or obligation. Thus, the critical determinant of the success of the Respondents' business lies primarily on the success of its compensation plan. The "efforts of others" in the case at bar is the expertise and managerial efforts of required by Sections 8 and 12 of the SRC and its AIRR-SRC for registration of securities. the packages being offered, are investment contracts which should be registered with the Commission prior to their sales or distribution by filing registration statements as From the foregoing elements, the Respondents ' compensation plan, in relation to be enjoined3i"from operating as such and from further engaging in the activities of been registered with the Commission, there is an imperative need for said corporations to selling, offering for sale or distributtng securities in order to protect the interest of the investors and the public in general. Otherwise, allowing the Respondents to continue filed their affidavits with the EIPD declaring that Respondents have been changing compensation plans without prior notice to investors, hence, prejudicial to their interest. their business operations will operate as a fraud on investors or is likely to cause grave or irreparable injury or prejudice to the investing public. Indeed, several investors have Since the securities offered for sale or distributed by the Respondents have not yet otherwise offering or selling unregistered securities to the public, until they have INTERNATIONAL DIRECT SALES AND TRADING CORPORATION and HPI DIRECT SALES AND TRADING CORPORATION, their officers, directors, agents. representatives, assigns, and any and all persons claiming and acting for and in their behalf and under their authority, are hereby ordered to IMMEDIATELY CEASE AND DESIST, UNDER THE PAIN OF CONTEMPT, from further offering, soliciting, or complied with the requirements of the SRC and its AIRR. WHEREFORE, premises considered, HYPER PROGRAM 64.1. The Commission, after proper investigation or verification, motu proprio, or upon verified 31 sEC. 64.Cease and Desist Order. 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 a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public. In the matter of Hyper Program International Direct Sales and Trading Corp.. and HPI Direct Sales and Trading Corp. SEC CDO Case No. 06-15-020 Cease and Desist Order Page 10 of 10 Furthermore, the subject corporations are directed to cease its internet presence relating to above-stated investment activities. The Commission will institute the appropriate administrative and criminal action against any persons or entities found to violate this Cease and Desist Order by further engaging in such activities or acting as solicitors, information providers, salesmen, agents, brokers, dealers or the like for and in behalf of the subject corporations. The Enforcement and Investor Protection Department is hereby DIRECTED to: (a) serve this Order to HYPER PROGRAM INTERNATIONAL DIRECT SALES AND TRADING CORPORATION and HPI DIRECT SALES AND TRADING CORPORATION or on their President, General Manager, Corporate Secretary Treasurer or In-House Counsel, and (b) post copies of the Order at the entrance of the main offices and/or branches, of any of the Respondents. EIPD is FURTHER DIRECTED to submit a compliance report on the service and posting, by way of a pleading, to the Commission En Banc within five (5) working days from receipt of this Cease and Desist Order. Let a copy of this Order be also published in a national newspaper of general circulation, posted in the Commission's internet website and furnished to the Company Registration and Monitoring Department, the Corporation Finance Department and the Economic Research and Information Department for their information and appropriate action. In accordance with the provisions of Section 64.3 of the SRC and Section 10-3 of 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 non-extensible period of five (5) days from receipt hereof, otherwise the same shall be made permanent. FAIL NOT UNDER PENALTY OF LAW SO ORDERED. Mandaluyong City, 5 November 2015 TERESITA J. HERBOSA * Chairperson Yaorwita Mat MANUE Commissioner HUBERTO B. GAITE ANTONIETA F. IBE Commissior EPHYRO LUIS B. AMATONG Commissioner B IS JAMES G.N V Commissioner ameD VITERBO % On Official Travel