SEC En Banc Case No. 06-24-547New Seataoo Corporation and Seataoo Information Technology OPC vs. EIPD

Securities and Exchange Commission Republic of the Philippines Department of Finance

COMMISSION EN BANC

IN THE MATTER OF:

NEW SEATAOO CORPORATION AND SEATAOO INFORMATION TECHNOLOGY OPC,

NEW SEATAOO CORPORATION, Appellants,

SEC En Banc Case No. 06-24-547 -versus- Promulgated: 26 December 2024

ENFORCEMENT AND INVESTOR PROTECTION (EIPD), DEPARTMENT Appellee.

DECISION

Memorandum of Appeal dated 19 June 2024 (the "Appeal") filed by New or accepts, pending appeal, Seataoo's payment of the fine imposed in the Seataoo Corporation and Seataoo Information Technology OPC Commission (i) conducts a hearing and allows Seataoo to present its business model and submit documents in support of its position that it is not soliciting investments from the public without the license;1 (ii) allows amount of Two Million Pesos (Php2,000,000.00) to serve as a bond in the (collectively referred to as the "Appellants" or "Seataoo") praying that the Before the Commission En Banc (the "Commission") is the

instant case;2 (iii) issues an order expressly allowing Seataoo to continue its operation for a period of not less than ninety (90) to one hundred

registration of New Seataoo Corporation;4 and (v) after due hearing. reverses and sets aside the Revocation Order dated 10 May 2024 (the twenty (120) days, pending finality and entry of judgment of the assailed orders against it;3 (iv) removes the notice posted in the SEC website and other online websites and/or platforms, announcing the revocation of

2 Ibid. 3 Ibid. 1 Memorandum of Appeal dated 19 June 2024 (Appeal). p. 14. 4 Ibid.

In the matter of: New Seataoo Corporation SEC En Banc Case No.06-24-547 Page 2 of 21 DECISION

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"Revocation Order") and Order dated 5 June 2024 issued by the Enforcement and Investors Protection Department ("EIPD").5 The dispositive portion of the Revocation Order reads:

of the Revised Corporation Code of the Philippines (R.A. 11232), Sections 8.1, 26.1 and "WHEREFORE, for violations of Section 44

to Section 179 (j) of the RCCP and Section 5.1 (m) of the SRC, the Certificate of Incorporation and registration of SEATA00 as a corporation, is 11 of the Financial Products and Services hereby REVOKED 28.1 of the Securities Regulations Code, Section Consumer Protection Act, P.D. 902-A in relation

Regulation Code provides: Further, Section 54 of the Securities

Sec. 54 Administrative

facts and circumstances: that: (1) There is a violation of this Code, its rules, or its orders; xxx it shall, in its discretion, impose any or all of the following sanctions as may be appropriate in the light of the Sanctions.- 54.1. If, after due notice and hearing, the Commission finds

XXX.

thousand pesos (P10,000.00) nor more than One million pesos (P1,000,000.00) plus not more than Two thousand pesos (P2,000.00) for each day of continuing violation; (ii) A fine of no less than Ten

XXX.

Hence, a fine of ONE MILLION PESOS

SEATA00 for offering securities to the public (P1,000,000.00) is hereby imposed against

5 Ibid.

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without prior registration and license from the Commission and SEATAOO its incorporators and directors are directed to pay the fine of One

Section 54.1 (ii) of the SRC within a period of Million Pesos (P1,000,000.00) pursuant to

Fifteen (15) days from receipt of this Order.

Accordingly, let this Order be posted on

Registration and Monitoring the SEC website and attached by the Corporate Filing Records Division of the Company Department

with the Commission. Further, the Information (CRMD) to the records of the corporation on file

corporation in the online database of the Commission. and Communications Technology Department to enter the "revoked" status of subject (ICTD) of this Commission is likewise requested

SO ORDERED."6

THE PARTIES

Certificate of Incorporation bearing registration No. 2023050098912-03 organized and existing under Philippine laws having been issued Incorporation (AOI) is at 12F, Cocolight Building, 11th Avenue, Fort Bonifacio, Taguig City. on 12 May 2023. Its principal business address as stated in its Articles of Appellant New Seataoo Corporation is a corporation duly

Certificate of Incorporation bearing registration No. 2022100070764-07 on 04 October 2022. Mr. Jayson Corono Clidoro is the sole stockholder duly organized and existing under Philippine laws, having been issued a Appellant Seataoo Information Technology OPC is a corporation

thereof.

Seataoo 's e-commerce dropshipping business platform. Appellant-Intervenors are members/online sellers who joined

6 Revocation Order dated 10 May 2024. See Dispositive portion (page 15)

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RELEVANT FACTS

information regarding the unauthorized investment-solicitation activities of Seataoo which prompted the conduct of a formal Beginning April 2023, the EIPD received numerous inquiries and

investigation on the companies and their operations.

of its investigation confirmed that Seataoo has been representing itself to the public as a leading online cross-border e-commerce platform that The information and data obtained by the EIPD during the conduct

provides a seamless and secure online shopping experience to customers worldwide.In the Philippines, Seataoo claims to operate a platform that

become members/online sellers by creating their own online shop using its platform, and sell products from Seataoo's product warehouse solution, or their own products.8 offers e-commers and "drop shipping" services7 which enables users to

concluded, based on the information and evidence obtained during the investigation that Seataoo is engaged in the offer/sale of unregistered securities without the required license. The EIPD found that all the The EIPD carefully scrutinized the business scheme of Seataoo and

relation to Section 179(j) of the Revised Corporation Code (RCC). broker/dealer of securities, and has not caused the registration of any securities, Seataoo is in violation of Sections 8, 26 and 28 of the Securities or transaction that Seataoo is carrying out.9 In particular, by requiring the sellers to pay upfront for the purchases made by their purported buyers, together with the profits, Seataoo is clearly dealing with investment contracts.10 Considering that Seataoo has no license to act as Regulation Code (SRC), Section 11 of R.A. No.11765 or the Financial Products and Services Consumer Protection Act (FCPA), and PD 902-A in elements of an investment contract are present in the business scheme and subsequently paying such sellers the amount that they advance

Incorporation should not be revoked for serious misrepresentation as to damage to the general public, pursuant to Section 6(i)(2) of PD 902-A. March 2024, directing Seataoo to show cause why its Certificate of what the corporation can do or is doing to the great prejudice of or On the basis thereof, the EIPD issued a Show Cause Order on 22

9 Revocation Order dated 10 May 2024. Page 9 10 Ibid. page 10 7 Appeal. Par. 5 8 Ibid. Par. 8

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In its Verified Answer dated 3 April 202411, Seataoo denied that it

e-commerce platform where its sellers can carry out their retail business is soliciting investments from the public. It maintained that it operates an

using the dropshipping business model. Thus, the monies which the sellers are depositing in Seataoo's account are not investments, but represent the purchase price of products allegedly bought by the customers which is advanced by the sellers to be paid to the suppliers

Seataoo was given ample opportunity to present its business model, and show that it is not engaged in the unauthorized offer/sale of unregistered During the clarificatory conferences12 that were conducted,

securities. However, the authorized representatives of Seataoo who were

it submitted in evidence did not negate the fact that it was engaged in the present during the said conferences failed to present controverting evidence and overcome the initial findings of the EIPD. The EIPD found that Seataoo's unnotarized lease contract with Flashline Global Logistic Corporation relating to the establishment of a smart warehouse13 which offer/sale of unregistered securities.

Order. Thus, on 10 June 2024, the EIPD issued the assailed Revocation

2024 was denied by the EIPD in its Order dated 5 June 2024. In sustaining a ploy to digress from the main issue i.e. the offer/sale of unregistered the Revocation Order, the EIPD ruled that Seataoo failed to contradict (and even confirmed and validated) its findings. The EIPD maintained that Seataoo's resort to the law on contract in support of its defense was The Motion for Reconsideration which Seataoo filed on 31 May

securities.

Hence, the instant Appeal.

essentially are reiterations of its arguments and allegations contained in the pleadings filed with the EIPD, can be summarized as follows: The arguments propounded by Seataoo in the Appeal, which

its app between buyers, sellers, and suppliers, manufacturers or contracts to the public. Seataoo maintains that under its existing dropshipping model, it merely facilitates sale transactions through First, it does not offer/sell securities in the form of investment

12 Held on 23 April 2024 and 30 April 2024 13 Verified Answer for New Seataoo Corporation. See par. 7 11 Verified Answer for New Seataoo Corporation dated 3 April 2024

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wholesalers. The only time that it receives money is when a buyer purchases from a seller, and when a seller needs to purchase from a supplier, manufacturer or wholesaler, since users of its platform This money received, according to Seataoo, is not an investment, but payment for goods purchased. are allegedly not required to pay for their membership in the app.14

Affiliate Program is a marketing strategy that seeks to give Second, it is not involved in a ponzi scheme. Seataoo claims that the additional perks or incentives to its users for successfully by the referrer for every successful sale of its referral.15 marketing/promoting the platform. The 3% commission is earned

defrauded the public renders the Order of Revocation baseless Finally, Seataoo claims that it did not commit fraud which warrants the revocation of its primary franchise. In support thereof, Seataoo argued that the absence of any complaint alleging that it has

arguments and allegations in the Motion for Reconsideration6, which the Revocation Order. The EIPD maintained its finding that Seataoo is the public17 as shown by its advertisements on social media. maintained that the Appeal is dismissible as Seataoo merely reiterated its failed to raise any substantial argument that would warrant the lifting of contracts to the public, is carrying out a ponzi scheme, and is defrauding offering/selling unregistered securities in the form of investment In its Comment/Opposition dated 17 July 2024, the EIPD

range from around P200,000.00 to P3Million.19 proceedings of the instant case, and prayed for the reversal and setting aside of the assailed Revocation Order. Appellant-Intervenors allege that be greatly aggrieved and prejudiced by the Revocation Order which they are online sellers who joined Seataoo's business platform, who will resulted in their alleged inability to withdraw money from their banks Intervenors18 who all sought to be allowed to participate in the On 18 November 2024, a Petition was filed by Appellant-

16 Comment/Opposition, p.1. 17 Id, pp.2-7 18 Heidi D. Oquindo, Henry T. Chua, Irene S. Dimacali, Liwayway M. Movilla, Jason M. Borja, Hazel Marie 15 (bid. page 12 Amor C. Castaneda, Fairodz A. Alonto, Perlita L. Petilla, Sergio V. Venida, Jr., Maria Theresa G. Francisco 19 Petition dated 15 November 2024. Pars. 9 and 10. See also Annex A, A-1, A-2 D. Mawawan, Sonia A. Baldono, Ma. Dolores E. Ladaran, Shiena Mae F. Bejo, Marf L. Cataneda, Shyla V.Roa, Reynante P.Valenzuela and Eriquito C. Aquino 14 Appeal. Pages 9 and 10 Aldrin D.Gabreza,Arielle Marie S.Vallido,Criselle V.Baugbog, Maria Freddilyn C. Garcia,Maria Luisa

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In compliance with the Order issued by this Commission, the EIPD

reiterated its previous arguments and allegations. Seataoo did not file its submitted its Position Paper dated 20 November 2024 which essentially

position paper.

ISSUE

committed reversible error in revoking the Certificate of Incorporation FCPA, and PD 902-A in relation to Section 179(j) of the RCC. of Seataoo for violating Sections 8, 26 and 28 of the SRC, Section 11 of the The sole issue presented to this Commission is whether the EIPD

RULING

We find the Appeal to be bereft of merit.

legal, operational and practical advantages, compared to other business distinct from the stockholders/members composing it, is recognized practically in all jurisdictions as the preferred vehicle in conducting, maintaining, developing and growing a business enterprise because of its media. Under Republic Act No. 11232, otherwise known as the Revised Corporation Code (RCC), a corporation enjoys, among others, a right of succession2o which facilitates its continued existence independently of its shareholders, and has the powers expressly granted by law21, its Articles of Incorporation (Aol), and/or incident to its existence. This was explained in University of Mindanao, Inc. vs Bangko Sentral ng Pilipinas22 A corporation, being endowed with a personality separate and

to wit:

inherent powers. Third persons dealing with corporations personalities upon their creation by their incorporators in accordance with law. Unlike natural persons, they have no "Corporationsare : artificial entities granted legal

cannot assume that corporations have powers. It is up to those persons dealing with corporations to determine their competence as expressly defined by the law and their articles of incorporation.

21 Sections 35 to 43 of the RCC 22 G.R. No. 194964-65, January 11, 2016 2o Section 2 of the Corporation Code

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A corporation may exercise its powers only within those definitions. Corporate acts that are outside those express definitionsunder the lawor articles of incorporation or those "committed outside the object for which a corporation is created"are ultra vires.

exception is specifically included in the general powers of a corporation under Section 36 of the Corporation Code." The only exception to this rule is when acts are necessary and incidental to carry out a corporation's purposes, and to the exercise of powers conferred by the Corporation Code and under a corporation's articles of incorporation. This

Stated otherwise, incorporation is not a right that persons can demand from the State, but a mere privilege granted to those that are able to show, to the satisfaction of the Commission which administers and implements the Corporation Code, that all the statutory/regulatory requirements have been complied with. the corporation of such privilege is therefore conditioned on the grantee's full compliance with all applicable laws, rules and regulations. The grant of corporate existence, and the continued enjoyment by

incorporation and the issuance of the certificate of incorporation based The foregoing notwithstanding, the approval of the application for

to comply with statutory/regulatory requirements commences from the requirements. Thus, if the Commission subsequently finds, motu proprio regulation, and/or failed to comply with the same while its corporate term subsists, the Commission is duty-bound to impose the appropriate mandated to ensure and exact full compliance of all statutory/regulatory or through a complaint, that a corporation has violated any law, rule or penalties, including the ultimate penalty of revocation, if warranted.23 on the documents presented, is not a guarantee that such certificate will no longer be questioned or assailed for failure to comply with applicable laws, rules or regulations. In other words, the obligation of a corporation time that its incorporators file the application for incorporation, and continues while it exists as a corporate entity. The Commission is

categorically granted the Commission the power and authority to revoke the certificate of registration of corporations on any of the grounds Relative thereto, Section 6(i)(1) of Presidential Decree No. 902-A

provided therein, including serious misrepresentation as to what the

23 Section 179 (c), (j), and (p) of the RCC

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corporation can do or is doing to the great prejudice of or damage to the general public, to wit:

the Commission shall possess the following powers: "Section 6. In order to effectively exercise such jurisdiction

XXX XXXXXX

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

2. Serious misrepresentationas to what 1. Fraud in procuring its certificate of registration; the

4. Continuous in operation for a period of at least five (5) 3. Refusal to comply or defiance of any lawful order of the would amount to a grave violation of its franchise: corporation can do or is doing to the great prejudice of or damage to the general public; Commission restraining commission of acts which

5. Failure to file by-laws within the required period; 6. Failure to file required reports in appropriate forms as years; determined by the Commission within the prescribed

period; xxx"

the afore-quoted provision which will warrant the revocation of a In our jurisdiction, the serious misrepresentation contemplated in

to wit: corporate franchise are those ultra vires acts that are classified as illegal.

individuals, void. It cannot serve as a basis of a court action merely ultra vires. The former contemplates the doing of an act which is contrary to law, morals, or public order, public duty, and is, like similar transactions between nor acquire validity by performance, ratification, or estoppel. or one that contravenes some rules of public policy or On the other hand, a mere ultra vires act is that which is not "An ultra vires act may be classified as either illegal or

illegal and void ab initio,but is merely outside of the scope of the articles of incorporation, and is thus, merely voidable and

In the matter of: New Seataoo Corporation SEC En Banc Case No. 06-24-547 Page 10 of 21 DECISION

may become binding and enforceable when ratified by the stockholders."24 (Emphasis and underscoring supplied)

In the case of Maria Clara Pirovana vs The De La Rama Steamship Co.25, the Supreme Court emphasized that only ultra vires acts that are not illegal may be ratified by the stockholders since they are not considered void, to wit:

"It is true that there are authorities which told that ultra vires acts, or those performed beyond the powers conferred upon the corporation either by law or by its articles of incorporation, are not only voidable, but wholly void and of no legal effect, and that such acts cannot be validated by ratification or be the basis of any action in court; but such ruling does not constitute the weight of authority, the reason

corporations (7 Flethcer, Cyc. Corps., 563-564). And now it can be said that the majority of the cases hold that acts being that they fail to make the important distinction we have above adverted to.Because rule has been rejected by most of the state courts and even by the modern treaties or

which are merely ultra vires, or acts which are not illegal may be ratified by the stockholders of a corporation (Brooklyn Heights R. Co. vs. Brooklyn City R. Co., 135 N.Y Supp. 1001).

Strictly speaking, an act of a corporation outside of its character powers is just as such ultra vires where all the stockholders consent thereto as in a case where none of the

the rights of the state or the public are not involved, unless the act is not only ultra vires but in addition illegal and void. of affect creditors of the corporation nor preclude a proper attack by the state because of such ultra vires act. (7 Fletcher stockholders expressly or cannot be ratified so as to make it inasmuch as the stockholders in reality constitute the corporation, it should, it would seem, be estopped to creditors, or the creditors are not injured thereby, and where course, such consent of all the stockholders cannot adversely Corp., Sec. 3432, p. 585) valid, even though all the stockholders consent thereto; but allege ultra vires, and it is generally so held where there are no

24 Waterfront Philippines, Inc. vs SSS (G.R. No. 249337. July 6, 2021) 25 G.R. No. L-5377.December 29,1954

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Since it is not contended that the donation under

quoted above, that said donation, even if ultra vires in the supposition we have adverted to, is not void, and if voidable its infirmity has been cured by ratification and subsequent consideration is illegal, or contrary to any of the express provision of the articles of incorporation, nor prejudicial to the creditors of the defendant corporation, we cannot but logically conclude, on the strength of the authorities we have

act."(Emphasis supplied)

EIPD of the SEC26, the Supreme Court sustained the revocation of the Thus, in the case of Kapa-Community Ministry International, Inc. vs

primary franchise of Kapa which was found to have carried out an Securities Regulation Code. The Supreme Court affirmed the finding of the Court of Appeals, to wit: unlawful and fraudulent investment-taking scheme, in violation of the

"It is undisputed that petitioner failed to apply for the to offer or sell the same to the public. The recruitment and registration of the afore-cited securities and is not authorized

solicitation activities of petitioner constitute a violation of the

and to support their charitable activities when they are Securities Regulation Code. Petitioner cannot deny that they fraud to the investing public." only asked for "donations" for their religious organization promising a return of profit at the rate of 30% monthly to its members. The investment scheme of petitioner operates as a

offer/sale of unregistered securities without the requisite license from the Commission, in violation of the SRC and the FCPA. This is a ground for the revocation of Seataoo's franchise as this is an ultra vires act that is illegal, and which cannot be ratified by its shareholders. In the instant case, the EIPD found that Seataoo is engaged in the

through its app between buyers, sellers, and suppliers, manufacturers or wholesalers. Thus, the money received from its sellers is not an investment, but payment for goods purchased. unregistered securities to the public, and maintained that its business which employs the dropshipping model, facilitates sale transactions Seataoo denies having been engaged in the offer/sale of

26 G.R. No. 259600. July 27, 2022

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license from the Commission. the EIPD that Seataoo is offering/selling unregistered securities without After carefully considering the evidence on record, We agree with

Section 3.1 of the SRC, defines "securities" as follows:

Sec. 3. Definition of Terms. - 3.1. "Securities" are shares enterprise or profit-making venture_and evidenced by a participation or interest in a corporation or in a commercial

electronic in character. It includes: certificate, contract, instrument, whether written or

I Shares of stocks, bonds, debentures, notes, evidences of XXX

indebtedness, asset-backed securities;

i. Investment contracts, certificates of interest or

of deposit for a future subscription. ( participation in a profit-sharing agreement, certificates supplied) (Emphasis

of the SRC (SRC-IRR) defines an "investment contract" as follows: Relatedly, Rule 26.3.5 of the Implementing Rules and Regulations

scheme whereby a person invests his money in a "An investment contract means a contract, transaction or common enterprise and is led to expect profits primarily

whenever a person seeks to use the money or (Emphasis and underscoring supplied) from the efforts of others. It is presumed to exist property of others on the promise of profits."

laying out of money in a way intended to secure income or profit from its various situations where individuals were led to invest money in a common enterprise with the expectation that they would earn a profit through the efforts of the promoter or of someone other than themselves.28 It is in the context of the foregoing that the U.S. Supreme investment contract as a contract or scheme for the placing of capital or employment.27 Investment contracts have been used and adopted in In the case of SEC v. Howey Co., the US Supreme Court defined an

the qualifier with "primarily", acknowledging that an investment contract may still be present where the individual who placed the money exerted a small amount of effort in an attempt to earn the profits. 27 328 U.S. 293 (1946). 28 Ibid. Although the definition as stated in the Howey Case qualified that the earning of profit was expected to be solely through the efforts of another party,Rule 26.3 of the 2015 IRR of the SRCreplaced

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investment scheme, regardless of the legal terminology used, partakes of the nature of an investment contract. Court came up with and adopted the Howey Test29 in determining if an

patterned from the securities laws of USA, has adopted a broad definition At the outset, We cannot overemphasize that the SRC, which was

thereof which are known or considered, or ought to be known or considered, to be such in the commercial/financial world. The Supreme Court emphasized this in the case of Gabionza vs. Court of Appeals3o (the of securities with the intent of covering practically all forms and varieties "Gabionza Case"), when it ruled that the term "securities" embodies a

use the money of others on the promise of profits. flexible rather than static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek to

based on the terms thereof, to wit: Leasing Corp31, it was explained that the controlling test to determine whether an instrument is a security is the attribution given in commerce In the US Case, Securities and Exchange Commission v Joiner

that promoters' offerings be judged as being what they were represented to be." (Emphasis added) terms of the offer, the plan of distribution, and the enforcement of an act such as this, it is not inappropriate "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 offering. The test, rather, is what character the instrument is given in commerce by the economic inducements held out to the prospect. In the

the applicability of the Howey Test in determining if a security is an investment contract that requires prior registration from the Commission, to wit: In Virata v. Ng Wee32, the Supreme Court affirmed and reiterated

named after the landmark case of Securities and Exchange Commission v. W.J. Howey Co., to determine whether or not the security being offered takes the form of an investment "In this jurisdiction, the Court employs the Howey test. contract. The case served as the foundation for the domestic

30 G. R. No. 161057, 12 September 2008. 32 G.R. Nos. 220926, 221058, 221109, 221135 & 221218, July 5, 2017. 29 b id 31 320 U.S. 344 (1943)

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definition of the said security

Under the Howey test, the following must concur for an investment contract to exist: (1) a contract, transaction, or scheme; (2) an investment of money; (3) investment is made in a common enterprise; (4) expectation of profits; and (5) profits arising primarily from the efforts of others.

case." (Underscoring supplied) Indubitably, all of the elements are present in the extant

recognized if, upon examination of the transaction, all the elements of the Howey Test are present, and/or if commerce will treat the same as securities based on the terms of the offer, the plan of distribution, and the jurisdiction is that the nomenclature given by the parties will not be economic inducements. Prescinding from the foregoing, the rule established in our

submitted by the EIPD, its own admissions, as well as that of the involve the offer/sale of securities is belied and negated by the evidence Appellant-Intervenors; all of which shows that all the elements of the In the instant case, Seataoo's claim that its business does not

Howey Test are present.

investments. This mandatory funding of individual accounts Seataoo to mask its offer/sale of unregistered securities, and obtain has already placed an order, or paid for his/her purchase(s). This since they are not limited to transactional payments directly tied to specific purchases. In fact, the complaints on record essentially relates to the claim of Seataoo's investors/online sellers for the Appellant-Intervenors who seek the reinstatement of the primary franchise of Seataoo are simply essentially interested in recovering required of Seataoo's members/online sellers is a device used by Seataoo requires its members or online sellers to deposit money into their individual account which, after a close scrutiny, actually sellers are required to fund their Seataoo account upfront to enable them to process orders, even if, and regardless of whether a buyer return of their investments plus profits. In the same manner, the investments from the public without having to secure the requisite First, there is investment of money. The evidence shows that goes to the main account of Seataoo. Seataoo's investors/online scheme affirms that the deposited funds are in reality, investments,

license from the Commission.

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The following circumstances which the evidence on record bears, corroborate the finding of the EIPD that there is investment of

and its investors/online sellers is different from a dropshipping model33 which does not require advance payment of products money by the public: (a) Seataoo's claim that the only time it investors/online sellers are required to fund their accounts upfront. In fact, the testimonies of its online sellers reveal that they keep funding their respective online wallets in amounts that are receives money in its platform is when a buyer purchases from a seller, and when a seller needs to purchase from a supplier/manufacturer/wholesaler, is negated by the fact that greatly disproportionate to the amounts of products purportedly ordered; (b) the advance payment arrangement between Seataoo

ordered. Advancing payments actually defeats the purpose of engaging into dropshipping which allows sellers to do business with very little funds. Moreover, persons who dropship their products do not stock or fulfill those items themselves. They route them directly to manufacturers or wholesalers for direct shipment to customers once they receive customers' orders; and they do not pay for their items until they are purchased by customers34; and (c) in a dropshipping business model, the seller does not have to purchase the product unless she/she has already made a sale and has been paid by the buyer. The seller is not required to make an up-front investment35 as she/he only acts as an intermediary between the customer and the supplier. The seller markets the

receiving payment from the customer. In a true dropshipping products to potential buyers and only places an order after business arrangement, the sellers are not required to maintain funds in their online account upfront to process orders; the exact opposite is what is being carried out by Seataoo.

Second, the common enterprise in Seataoo's business scheme is complied with the terms of the investment scheme will the original evident by the fact that while its investors/online sellers have purported individual accounts, the moneys that were paid by these investors/online sellers goes directly to the account of Seataoo. The evidence shows that it is only after an investor/online seller has

33 Dropshipping is selling online without stocking and shipping goods. It is a type of retail fulfillment business that outsources production, warehousing and shipping to a third-party supplier. A dropshipper is an intermediary between consumers and suppliers, curating and promoting the goods that suppliers ship to customers. In a normal retail process, a dropshipper is the seller. (see: https://wix.com/blog/ecommerce/amp/2020/02/dropshipping-guide-what-is-dropshipping?)

35 The Ultimate Guide to Dropshipping By Mark Hayes, Andrew Youderian, 2013. 34 b id

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investment and the profit be credited to their individual account from the Seataoo account. Thus, when the banks froze the Seataoo account consequent to issuance of the Revocation Order, Seataoo's unauthorized grant investment scheme was disrupted because it was effectively prevented from paying and/or transferring cash to the individual accounts of its investors/online sellers. The individual wallets/accounts of its investors/online sellers however continued to be accessible to them.

The entire scheme where the investments of Seataoo's investors/online sellers are pooled and managed by the Seataoo under its own account is the common enterprise that is being investors/online sellers a referral commission of 3%, Seataoo's investments from new investors/online sellers. sustained by such investments. Moreover, by giving its existing continued operations is assured because of the infusion of

link between the price of the products ordered to the funds being This Commission is also cognizant of Seataoo's failure to prove the deposited by its investors/online sellers in its account. In a true

any product which means that the products offered in its app are Seataoo is clearly not operating the online app; it is effectively managing the common enterprise which involves the offer/sale of issued by the EIPD, the offices and warehouses of Seataoo became ghost towns as all its officers and employees have absconded are the seller forwards the order together with the customer payment. supplier/manufacturer. In Seataoo's case, it is managing the funds of its members/online sellers without any connection to the that nothing in the evidence on record shows that Seataoo has an of Seataoo's warehouses that there were no actual products. unregistered securities. Thus, after the Revocation Order was now nowhere to be found. dropshipping model, the customers pay the products ordered and products supposedly being sold online. In fact, it is alarming to note existing agreement with manufacturers, suppliers or wholesaler of but a sham. The EIPD was able to verify during its ocular inspection The seller is but an intermediary of the customer to the

Third, there is an expectation of profits on the part of its investors/online sellers. The investors/online sellers are enticed to join by the prospect of earning profits ranging from 7% to 12% of the amounts they deposited to Seataoo's account regardless of the purchases made by the buyers. The records show that upon

In the matter of: New Seataoo Corporation SEC En Banc Case No. 06-24-547 Page 17 of 21 DECISION

registration, a step that a seller needs to do to set up an account is to choose the profit margin and at least ten (10) products. There was no evidence that the monies sellers are required to deposit are

of capital/monies deposited by its online sellers was earning even commensurate to the price of the products in their respective accounts, or that the seller knows how the mark-up chosen are computed. All the sellers are certain of is that they are required to fund their accounts otherwise the orders will not be processed and will not yield any profit. This is shown by the fact that the amounts substantial profits ranging from P200,000 to P3 Million.

Finally, Seataoo's dropshipping model allows investors

the seller's ability to earn profits is largely dependent on the efforts Of Seataoo. its agents who does all the marketing and operational work. Thus, members/online sellers to profit without doing anything other than to register, deposit and wait for the pay-out. It is Seataoo and

and allows a seller to concentrate on marketing and selling management of quality, inventory, storage and shipping to The foregoing is unlike a real dropshipping model which requires products as well as handle customer service having transferred the suppliers.

issued the requisite licenses, a fact that this Commission can take administrative notice of based on its records, Seataoo is clearly in violation of Sections 8.1 and 28.1 of the SRC. Considering that Seataoo has not even applied for, and has been

license from the Commission also constitutes investment fraud36 as defined under the FCPA, which will warrant the revocation of its primary license pursuant to Sec. 1637 thereof. Seataoo's act of offering/selling unregistered securities without

boiling room operations, and the offering or selling of investment schemes to the public without a 37 Section 16. Administrative Sanctions. - Without prejudice to the enforcement actions prescribed 36 Sec. 3(f). Investment fraud refers to any form if deceptive solicitation of investments from the public. This includes Ponzi schemes and such other schemes involving the promise or offer of profits or license or permit from the SEC, unless such offering or selling involves exempt securities or are returns which are sourced from the investments or contributions made by the investors themselves, under Section 6(d) of this Act and the criminal sanctions provided under Section 15 of this Act, the administrative sanctions of the respective charters of the financial regulators shall be made applicable Act or any related rules, regulations, orders or instructions of financial regulators; or to any persons found administratively liable for investment fraud: Provided, That for persons found responsible for considered as exempt transactions as provided for under existing laws; to a financial service provider, its directors, trustees, officers, employees or agents for violation of this investment fraud, the SEC may impose a fine of no less than Fifty thousand pesos (P50,000.00) nor more than Ten million pesos (P10,000,000.00) for each instance of investment fraud plus not more

In the matter of: New Seataoo Corporation SEC En Banc Case No. 06-24-547 Page 18 of 21 DECISION

of Incorporation expressly prohibits it from engaging in investment At this juncture, it should be emphasized that Seataoo's Certificates

solicitation and investment-taking without secondary license from the

requisite license, Seataoo is not only performing an act or power that was not granted to it; worse, such ultra vires act is illegal as it clearly violates the SRC and FCPA. Commission.38 By offering/selling unregistered securities without the

deceived into believing that Seataoo is authorized to deal with securities, selling/offering unregistered securities in the form of investment contracts necessarily operates as a fraud on the investing public who are when it is not. The foregoing finds affirmation in the case of Securities and Exchange Commission vs. CJH Development Corp.39 to wit: Moreover, it is established in jurisprudence that the act of

information on the securities, in such form and with such "The act of selling unregistered securities would necessarily operate as a fraud on investors as it deceives the investing public by making it appear that Section 8.1 of the SRC clearly states that securities shall not be sold or offered for sale or distribution within the and approved by the SEC and that prior to such sale, respondents have authority to deal on such securities. Philippines without a registration statement duly filed with

substance as the SEC may prescribe, shall be made available to each prospective buyer." (Emphasis supplied)

of Seataoo's Certificate of Incorporation is warranted on the ground of the great prejudice of or damage to the general public. serious misrepresentation as to what the corporation can do or is doing to On account of the foregoing, we find and so hold that the revocation

Intervenors, We find the same to be bereft of merit and basis. Finally, coming now to the Petition filed by the Appellant-

than Ten thousand pesos (P10,000.00) for each day of continuing violation in addition to the other imposed, the authority of the financial service provider to operate in relation to a particular administrative sanction under Section 54 of Republic Act No. 8799: Provided, further, That in case profit is gained or loss is avoided as a result of the violation of this Act or investment fraud, a fine not more than three (3) times the profit gained or loss avoided may also be imposed by the financial regulator:Provided,finally,That in addition to the administrative sanctions that may be financial product or service may be suspended or cancelled by the financial regulator." 8 New Ce ataoo's Corporation and Seataoo Technology OPc 39 G.R. No. 210316, November 28, 2016.

In the matter of: New Seataoo Corporation SEC En Banc Case No. 06-24-547 Page 19 of 21 DECISION

Lest it be forgotten, the instant case is an administrative action, as opposed to adjudicative action, where the EIPD revoked the Certificate of Incorporation of Seataoo on the ground of serious misrepresentation as

damage to the general public. In the case of SEC vs Universal Rightfield to what the corporation can do or is doing to the great prejudice of or Property Holdings, Inc.40 the Supreme Court explained that the revocation

the grantee to comply with the applicable laws, rules and regulations, to of a license by this Commission is a regulatory action involving the withdrawal of a privilege granted by the State for failure on the part of

Wit:

conduct administrative hearings and make decisions, it does "Rather, when the SEC exercises its incidental power to

enforcement function. so in the course of the performance of its regulatory and law

public cannot be considered a penalty but a withdrawal hearing, was null and void due to the denial of petitioner's right to due process, the revocation of URPHI's registration of securities and permit to sell them to the of a privilege, which regulatory power the SEc validly exercised after giving it due notice and opportunity to be heard." (Emphasis supplied) Significantly, unlike in Globe Telecom, Inc. where the Court ruled that the fine imposed by the NTC without notice and

corporations are creatures of law, and their continued existence is conditioned on their full compliance with all applicable laws, rules, regulations, as well as their articles of incorporation41 and by-laws. This principle was explained in Ago Realty and Development Corporation vs Dr. Ago42, to wit: The foregoing is anchored on the fundamental reality that

"If there is one constant that has been observed from the introduction of the Spanish Code of Commerce to the enactment of the Revised Corporation Code, it is that "[c]orporations are creatures of the law." They owe their

40 G.R. No. 181381. July 20, 2015 41 The articles of incorporation is the basic corporate contract which is accorded with reverence by the [January 30, 1929], 52 PHIL 699-703 42 G.R. No. 210906. October 16, 2019 any part thereof may be amended. It is a contract between the corporation and the State, the law and the courts, as manifested by the stringent rules for its registration and the manner by which stockholders and the state, and the corporation and its stockholders, the terms and contents of which are prescribed by law. (See Government of the Philippine Islands v. Manila Railroad Co., G.R. No. 30646,

In the matter of: New Seataoo Corporation SEC En Banc Case No. 06-24-547 Page 20 of 21 DECISION

X

existence to the sovereign powers of the State, exercised by

requirements, such as those involving annual reports, voting instances, direct act -- prescribes the manner of their the industry where the firm operates, limitations on foreign Comm. and Industry, "[t]o organize a corporation x x x is not a matter of absolute right but a privilege which may the Legislature, which by general law or, in certain formation or organization. Throughout their lifetimes, corporations are subject to a plethora of regulatory in stockholders' or directors' meetings, and, depending on ownership. As so aptly put in Ang Pue & Co., et al. v. Sec. of be enjoyed only under such terms as the State may deem necessary to impose." (Emphasis supplied)

an administrative action, the certificate of incorporation of a corporation specifically grants the Commission the power and authority to revoke, in that is guilty of serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or damage to the general public. the Securities and Exchange Commission (the "2016 SEC Rules") allows intervention only in adjudicative actions43, to wit: In this regard, Part III, Rule II, Sec. 2-3 of the 2016 Rules of Procedure of Thus, the SRC, RCC, and the FCPA, in relation to PD-902-A,

SEC.2-3. Intervention. - A natural or juridical person may, at any stage of the proceedings, be permitted by the Department. or the Special Hearing Panel, as the case may be, interest therein or when he is so situated as to be adversely affected by the decision of the Commission. adjudicative action, stating therein the reason for his intervention or opposition and attaching therein all relevant supporting documents and evidence. Commission En Banc, the Director of the Operating to intervene in an adjudicative action if he has a legal The said party may file a motion to intervene or oppose the

administrative actions is not without purpose. In the exercise of its regulatory power to enforce compliance by corporations of the laws, The exclusion in the 2016 Rules of the remedy of intervention in

43 SEC.2-3. Intervention. - A natural or juridical person may, at any stage of the proceedings, be therein or when he is so situated as to be adversely affected by the decision of the Commission. The said party may file a motion to intervene or oppose the adjudicative action, stating therein the permitted by the Commission En Banc, the Director of the Operating Department. or the Special Hearing Panel, as the case may be, to intervene in an adjudicative action if he has a legal interest reason for his intervention or opposition and attaching therein all relevant supporting documents and evidence. (Part III, Rule II, Sec. 2-3 of the SEC Rules of Procedure)

In the matter of: New Seataoo Corporation SEC En Banc Case No.06-24-547 Page 21 of 21 DECISION

rules and regulations, and to impose the appropriate penalties for violating the same, persons are precluded from intervening in the is able to effectively perform its mandate of protecting investors and proceedings on the administrative actions to ensure that the Commission promoting the integrity of the capital market, among others.

be used to justify the revocation of its franchise, which is the appropriate claims of Appellant-Intervenors against Seatoo cannot override public policy and public interest which are what is being upheld and promoted in the instant case for the protection of the investing public. If at all, Appellant-Intervenors' may avail of the remedy(ies) provided under the Civil Code of the Philippines and/or the FCPA. penalty given the attendant circumstances. The alleged interests and clear violation by Seataoo of the provisions of the SRC and the FCPA, and The alleged interests of Appellant-Intervenors cannot negate a

and basis. dated 19 June 2024 is hereby DENIED for lack of merit. The Revocation Order dated 10 May 2024 issued by the EIPD is hereby AFFIRMED IN TOTO. The Petition-in-Intervention is hereby DENIED for lack of merit WHEREFORE, premises considered, the Memorandum of Appeal

SO ORDERED.

Makati City, Philippines

EMILIO B. AQUINO Chairperson

JAVEY PAUL D. FRANCISCO Commissioner KARLO'S. BELLO Commissioner

MCJILL BRYANT T. FERNANDEZ Commissioner ROGELIO V.QUEVEDO Commissioner