SEC CDO CASE NO. 06-22-091In the matter of: WELLCONS UNLIMITED SYSTEMS, INC. ("WELLCONS") Petitioner-Movant, versus- ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT, Respondent.

Securities and Exchange Commission COMMISSION EN BANC Republic of the Philippines Department of Finance

IN THE MATTER OF:

WELLCONS UNLIMITED SYSTEMS, INC. ("WELLCONS")

-versus- Promulgated: 11 August 2022 SEC CDO CASE No. 06-22-091

ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT, Movant. X

RESOLUTION

against it be lifted, and it be allowed to sell its health, wellness and beauty products to its consumers without recruiting new members or sellers pending the resolution of the Motion. and Desist Order" dated 4 July 2022 ("Motion") filed by Wellcons Cease and Desist Order dated 23 June 2022 ("Assailed CD0") issued Unlimited Systems, Inc. ("WELLCONS"), through counsel, praying that the For consideration of the Commission is the "Motion to Lift the Cease

sale of securities in the form of investment contracts, after the Commission found, based on substantial evidence, that such investment- taking activities were being carried out in violation of Section 8 of the Securities Regulation Code (SRC).1 The dispositive portion of the Assailed CDO reads, in part: Pailagao (Mr. Pailagao), and their agents to immediately cease and desist from engaging in the unlawful/unauthorized solicitation, offer and/or The Assailed CDO directed WELLCONS, its president Mr. Merarie E.

investment team planners, mentors, enablers, influencers, assigns, conduit entities, subsidiaries, and any and all persons claiming and/or CEASE AND DESIST from engaging in the unlawful/unauthorized administrators, promoters, representatives, salesmen, agents, acting for and in their behalf, are hereby ordered to IMMEDIATELY "WHEREFORE, premises considered, directing Wellcons Unlimited Systems, Inc., its president, Merarie E. Pailagao, its officers, operators,

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solicitation, offer and/or sale of securities in the form of investment contracts and/or any other similar or related acts, until the requisite registration statement is duly filed with and approved by the Commission.

Order. The Commission will institute the appropriate administrative and criminal action against any persons or entities found to act as the like for and in their behalf. salesmen, agents, investment team planners, mentors, enablers, influencers, assigns, conduit entities, subsidiaries, and any and all persons claiming and/or acting for and in their behalf are likewise transactions and investment scheme covered by this Cease and Desist solicitors, information providers, salesmen, agents, brokers, dealers or Wellcons Unlimited Systems, Inc., its president, Merarie E. Pailagao, its officers, operators, administrators, promoters, representatives, directed to immediately CEASE their internet presence relating to the

the funds in its depository banks and/or in any non-bank financial claim or participation, whether directly or indirectly, under their custody, to ensure the preservation of the assets of the investors." administrators, promoters, representatives, salesmen, agents, investment team planners, mentors, enablers, influencers, assigns, institution, and from transferring, disposing, or conveying in any manner, any and all assets, properties, real or personal, including bank deposits, if any, of which the named persons herein may have interest, Systems, Inc., its president, Merarie E. Pailagao, its officers, operators, conduit entities, subsidiaries, and any and all persons claiming and/or acting for and in their behalf from transacting any business involving Finally, the Commission hereby PROHIBITS Wellcons Unlimited

sale of unregistered securities, arguing that its business consists mainly in the sale of health products which is distributed to the consuming public through the various packages available i.e. Fast Track Package, Global Package, and Executive Package, which have different subscription amounts.2 In its Motion, WELLCONS maintained that it is not engaged in the

at higher prices i.e. the Health Cee Zinc Plus that it purchased at WELLCONS claimed that it has not promised its member- investors business strategy lies in (a) its ability to sell products at higher prices, and (b) its act of gratitude to its member-investors. As regards the first strategy, WELLCONS alleged that it is capable of giving its member- investors the commissions and rewards because it is selling its products P250.00/box is being sold at P1,800.00.3 In relation to its second strategy, guaranteed returns, but is merely giving them rewards as a token of WELLCONS explained that the effectiveness and profitability of its

2 Pars. 10 and 11 of the Motion

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daily reward and the monthly earnings were allegedly not guaranteed.5 gratitude for their patronage of its products, and to ensure that new customers will be attracted to purchase its products.4 WELLCONS further clarified that the Bronze, Gold and Silver Packages that it was selling to the public were not investment packages but merely a package of health and beauty products with a determined package price, and the

unregistered securities by alleging that it has no control over the persons Facebook and YouTube. WELLCONS claimed that these persons are actually misrepresenting the business strategy of WELLCONS for which the latter does not have any involvement with and supervision. who are advertising its packages using the online platforms such as Finally, WELLCONS countered the finding that it is offering

is limited to the sale thereof, when in reality, WELLCONS is actually screenshots of the advertising/marketing materials which were by the operating departments of the Commission. The EIPD claimed that WELLCONS used consumer products to make it appear that its business selling/offering investment contracts without the required license from the Commission. denial of the Motion, thereby making the CDO permanent. The EIPD maintained that WELLCONS is engaged in the unauthorized sale and/or offer of unregistered securities in the form of investment contracts to the public, and has failed to overcome the evidence presented by the EIPD published/posted online and in social media, and the certifications issued Verified Motion to Lift Cease and Desist Order) of even date praying for the which consisted of the complaints filed by its member-investors, the On 15 July 2022, the EIPD filed its "Comment/Opposition (To the

serious misrepresentation on what it is doing to the damage and another entity named "WCI" or WELLCONS CONSUMERISM INC., which it of WELLCONS was already revoked on 5 July 20226 on the ground of prejudice of the investing public. CDO when it continued selling/offering unregistered securities through even attempted to register with the SEC-Cagayan De Oro Extension Office. The EIPD manifested in its Comment that the Certificate of Registration The EIPD also emphasized how WELLCONS willfully defied the

Same to be wanting in merit to justify the lifting of the Assailed CDO. evidence presented in support of the Motion, the Commission finds the After a careful examination of the allegations, arguments and

5 Par. 20 of the Motion. 4 Pars. 12 and 18 of the Motion

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The complaints which the EIPD submitted in evidence show that member-investors actually purchased investment packages with the guaranteed returns, rewards, and monthly earnings as their main consideration for parting with their hard earned money. In fact, the Sales Invoice7 that WELLCONS submitted in evidence shows that what was purchased by Pro-Am Magadan were "Fast Track Package" and "Gold

her to direct and indirect bonus, pairing bonus, sales match bonus, daily Package (Pangkabuhayan)" which under its published materials, entitled

rewards, to name a few, to wit:

WELLCONS UNLIMITED SYSTEM INC.T

S O ACN

63 T CCOUN ANUHYAN 3 O

There is in fact nothing in the Sales Invoice submitted by WELLCONS that will show that Pro-Am Magadan (as well as the other investors) purchased WELLcONS products, contrary to the claim of

Sales Invoice confirmed the sale/offer of investment packages by WELLCONS that what it is selling are health products only. If at all, the WELLCONS as stated in the foregoing marketing/advertising material which is published/posted online.

More importantly, the foregoing shows that the allegations and evidence presented by WELLCONS are replete with admissions that the packages that were offered and sold to the public were investment contracts because its member-investors actually bought the same primarily because of the returns/earnings that were promised, and not because of the products. Under this scheme, member-investors of WELLCONS clearly had a stake in the operations of the company in the sense that they profited and/or stood to profit in the continued sale of the investment packages.

At this juncture, it should be emphasized that just like the securities acts of other jurisdictions, specifically the United States of America, the

In the Matter of: WELLCONS Unlimited Systems, Inc. SEC CDO Case No. 06-22-091 RESOLUTION Page 5 of 8

be liberally construed in order to achieve the main purpose of its SRC adopted a very broad definition of securities,8 which is intended to enactment: regulation of the issuance and sale of securities and prevention of fraud.

Rules and Regulations of the SRC (SRC-IRR) defines an "investment contract" as follows: In relation to the instant case, Rule 26.3.5 of the Implementing

on the promise of profits." (Emphasis and underscoring supplied) to expect profits primarily from the efforts of others. It is presumed to "An investment contract means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led exist whenever a person seeks to use the money or property of others

the purported issuer is, or will be using to further his business is money put in by the public who expects a return of their investment. Consistent should include and cover all forms and varieties thereof which are known or considered, or ought to be known or considered to be such, in the financial world. with the broad definition of securities, the term investment contract The law considers investment contract as securities because what

that is intended to cover schemes devised by persons who seek to use the money of others on the promise of profits, thus: people around the globe who have been duped by scamsters and con Case), that the term "investment contract" embodies a flexible principle artists, the Supreme Court, adopting the doctrine in the United States (US) case of SEC v. W.J. Howey Co., held in Power Homes Unlimited Corporation vs Securities and Exchange Commission9 (Power Homes Moreover, cognizant of the fact borne by the sad experiences of

crystallized" under the state's "blue sky" laws in existence prior to the issue of whether the Howey transaction constituted an "investment contract under R.A. No. 8799. Our definition of an investment contract traces its roots from the 1946 United States (US) case of SEC v. W.J. Howey Co. In this case, the US Supreme Court was confronted with the contract" under the Securities Act's definition of "security." The US Supreme Court, recognizing that the term "investment contract" was not defined by the Act or illumined by any legislative report, held that "Congress "It behooves us to trace the history of the concept of an investment was using a term whose meaning had been

8 "Securities are shares, participation 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." (Section 3.1 of the SRC)

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adoption of the Securities Act. Thus, it ruled that the use of the catch-

and underscoring supplied) transaction, contract, or scheme whereby a person (1) makes an investment of money, (2) in a common enterprise, (3) with the of whether its issuer was engaged in fraudulent practices." (Emphasis a wide range of investment transactions. It established a test to others. Although the proponents must establish all four elements the US Supreme Court stressed that the Howey Test "embodies a flexible rather than a static _principle, one that is capable of those who seek the use of the money of others on the promise of profits." Needless to state, any investment contract covered by determine whether a transaction falls within the scope of an "investment contract." Known as the Howey Test,it requires a expectation of profits, (4) to be derived solely from the efforts of the Howey Test must be registered under the Securities Act, regardless all term "investment contract" indicated a congressional intent to cover adaptation to meet the countless and variable schemes devised by

emphasized that it is not the nature of the assets behind a particular instrument which defines whether the same should be considered a In the US case of SEC vs Joiner Leasing Corp.,10 the US Supreme Court

on the terms thereof, to wit: security; what is controlling is the attribution given in commerce based

offering. The test, rather, is what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect. In the enforcement of "In applying acts of this general purpose, the courts have not been guided by the nature of the assets back of a particular document or

judged as being what they were represented to be." (Underscoring an act such as this, it is not inappropriate that promoters' offerings be supplied)

the public an opportunity to contribute money and to share in the profits enterprise" managed by the proponent in furtherance of the business, comes into play considering that purchasers who are normally untrained in finance, merely rely on the proponent's knowledge and expertise in carrying out the grand investment scheme. considered to exist once it is determined that the proponent is offering to of the operations. In this regard, the importance of a "common On the basis thereof, it can be said that an investment contract is

where a person uses or intends to use money or property of others with a promise of profits is presumed by law to be an investment contract More importantly, in our jurisdiction, a transaction or scheme

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thereof. which should be registered with the Commission prior to the offer/sale

and made permanent. and jurisprudence, this Commission finds no cogent reason to disturb its earlier finding. The Assailed CDO should be, as it is hereby is, sustained Applying the rules, as well as the parameters established by law

Howey Test are present in this case, and this established fact was not its own admissions and the evidence presented by the EIPD show that WELLCONS is actually engaged in the sale/offer of investment contracts. overcome by WELLCONS. operations are solely limited to the sale of health and consumer products, As elaborated in the Assailed CDO, all the elements prescribed under the Contrary to the vigorous assertion by WELLCONS that its business

serve no practical purpose because in the nature of things, the same can Certificate of Registration (the "Certificate") of WELLCONS justify the of its Certificate resulted in the demise of WELLCONS as a corporate outright denial of the Motion on the ground of mootness. The revocation entity. Consequently, any action by this Commission on the Motion will no longer be implemented. Finally, we agree with the EIPD that the revocation of the

persons claiming for and in their behalf, is hereby made PERMANENT. its president, directors, stockholders, officers, representatives, salesmen, solicitors, agents, uplines, enablers and influencers, and any and all and Desist Order dated 4 July 2022 filed by Wellcons Unlimited Systems, Inc., through counsel, is hereby DENIED for lack of merit. The Cease and Desist Order dated 23 June 2022 issued against the subject corporation, WHEREFORE, premises considered, the Motion to Lift the Cease

of Wellcons Unlimited Systems, Inc. Manager, Corporate Secretary, Treasurer or In-House Counsel of Wellcons Unlimited Systems, Inc.; and (b) post copies of the RESOLUTION at the entrance of the main offices and/or branches, if any, DIRECTED to: (a) serve this RESOLUTION to the President, General The Enforcement and Investor Protection Department is hereby

website and furnished to all relevant operating departments/offices of the Commission for their information and appropriate action. Let a copy of this RESOLUTION be posted in the Commission's

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coordination with other concerned departments, is FURTHER DIRECTED to file a compliance with the Commission En Banc within ten (10) days from receipt of this RESOLUTION. The Enforcement and Investor Protection Department, in

SO ORDERED.

Makati City, Philippines.

EMILIO B./AQUINO

Chai person

JAVEY/PAUL D. FRANCISCO KE TER K.LEE

Commissioner Commissioner

KARLQ S. BELLO Commissioner MCJILL BRYANT T. FERNANDEZ Commissioner