PHI FITNESS GYM INC.

Securities and Exchange Commission COMMISSION EN BANC Republic of the Phillppines Department of Financ

IN THE MATTER OF:

PHI FITNESS GYM INC.

SEC CDO CASE NO. 06-24-113 Promulgated: 13 June 2024

ENFORCEMENTAND INVESTOR PROTECTION DEPARTMENT, Movant.

CEASE AND DESIST ORDER

This resolves the Motion for Issuance of A Cease and Desist Order

(hereinafter referred to as "PHI Fitness"), its owner, agents, representatives, salesmen, uplines, promoters, influencers, enablers. dated 27 May 2024 (the "Motion") filed by the Enforcement and Investor Protection Department (EIPD) on 04 June 2024, praying that a Cease and Desist Order (CDO) be issued: (a) directing PHI Fitness Gym Inc.

conduit entities, subsidiaries (collectively referred to as the "Agents"),

investment contracts, and to remove or take down their online posts and and all persons acting for and on their behalf, to immediately cease and desist from offering or selling unregistered securities in the form of

approved by the Securities and Exchange Commission (SEC/ the offerings until the requisite registration statement is duly filed with and

are issued; and (b) prohibiting PHI Fitness, its Agents, and all persons "Commission"), and the corresponding permits to offer/sell securities

disposing, or conveying in any other manner, any and all assets, acting for and on their behalf from transacting any and all business properties, real or personal, including bank deposits, if any, of which the involving the funds in their depository banks, and from transferring

forestall grave damage and prejudice to all concerned and to ensure the named persons herein may have any interest, claim, or participation whatsoever, whether directly or indirectly, under their custody, to

preservation of assets for the benefit of the investors, unless the same is authorized by the Commission.

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PARTIES

Movant EIPD is one of the Commission's operating departments tasked, among others, to investigate motu proprio or upon complaint or referral, violations of laws, rules, and regulations administered implemented, or issued by the Commission, and to seek the issuance of a Cease and Desist Order (CDO) whenever warranted by the circumstance.1

Department of Trade and Industry, under the name of Jonathan Canon PHI Fitness is an entity registered as a sole proprietorship with the

Sandigan ("Mr. Sandigan"), with Certificate No./Business Name No. 3930069 issued on 13 June 2022 with a national business scope.2

RELEVANT FACTS

As early as December 2023, the EIPD started to receive email inquiries from the public3 on the legitimacy of the "co-ownership' program being offered by PHI Fitness. This prompted the EIPD to conduct a formal investigation to determine if the activities of PHI Fitness constitutes a violation of the Securities Regulation Code ("SRc"), the

administered and/or implemented by the Commission. Revised Corporation Code (RcC) and other rules and regulations

The EIPD investigation revealed that PHI Fitness entices the public through video presentations and social media particularly on its Facebook account, to invest in its gym business. The scheme requires an investment of at least Two Hundred Fifty Thousand Pesos (PhP250,000.00), which makes an investor a part owner of PHI Fitness

incentives, PHI Fitness guarantees investors a monthly return of ten percent (10%) with freebies consisting of Gatorade/drinks, coffee, sauna basketball court use, boxing ring use, among others, for a period of five and entitles him/her to a gym membership. In addition to these

(5) years.4

In support thereof, the EIPD submitted in evidence a Memorandum of Agreement (MOA) executed by PHI Fitness, through its President, Mr. Sandigan, and an actual investor, which specifically embodied the

4 Ibid. Annexes "E" to "E-2" of Annex "B" 2 Motion. Annex "F" of Annex "B". 3 fbid. Annexes "D" to "D-2" of Annex "B" 1 SEC Office Order No. 512, series of 2013.

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foregoing investment scheme. The MOA further provides that the capital contribution of the parties are considered partnership assets, and as such neither party can demand the division of the assets during the five (5) year term.

Moreover, the EIPD substantiated its allegation that PHI Fitness is not authorized to sell/offer securities with the Certifications issued by

Commission, which all attested that PHI Fitness is not registered as a the Company Registration and Monitoring Department (CRMD),5 the Corporate Governance and Finance Department (CGFD),6 and the Markets and Securities Regulation Department (MSRD)7 of the

corporation, partnership : person corporation (OPC), has not applied for a primar been issued any secondar operate as broker/dealer of irtnership; has not

securities; and is not Sections 8 and 12 of the SR0 of mutual funds, including exchange securities pursuant tc

traded funds, proprietary/non- -proprietary shares or membership certificates and timeshares.

carry out its unauthorized investment-taking activities . The EIPD further found that PHI Fitness continues to this day, to

ISSUE

Whether the allegations and evidence presented by the EIPD in

its President, Mr. Sandigan and its Agents. support of its Motion warrant the issuance of a CDO against PHI Fitness.

RULING

We grant the Motion.

established that PHI Fitness, Mr. Sandigan, and its Agents, are offering evidence presented, the Commission finds that the EIPD sufficiently and/or selling unregistered securities in the form of investment contracts to the public without the requisite license from the After careful consideration of the allegations and the pieces of

Commission, in violation of the relevant provisions of the SRC and its IRR.

5 Ibid. Annex "A". 6 Ibid. Annex "Cj 7 Motion. Annex "D".

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Section 3 of the SRC defines "securities" as follows:

SEc. 3. Definition of Terms.

3.1. "Securities" are shares, participation or interests in a and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes: corporation or in a commercial enterprise or profit-making venture

XXX

b Investment contracts, certificates of interest or

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

contract as follows: Rule 26.3.5 of the SRC-IRR specifically defines an investment

An investment contract means a contract, transaction or scheme

is led to expect profits primarily from the efforts of others. It is propertv of others on the promise of profits. whereby a person invests his money in a common enterprise and presumed to exist whenever a person seeks to use the money or

investors "pool" their resources, creating a common enterprise, A common enterprise is deemed created when two (2) or more commission. (Emphasis supplied) even if the promoter receives nothing more than a broker's

In the case of SEC vs. Howey Co., the US Supreme Court defined an investment contract as a contract or scheme for the placing of capital or laying out of money in a way intended to secure income or profit from its employment.: Investment contracts have been used and adopted in 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.' It is in the context of the foregoing that the US Supreme Court came up with and adopted the Howey Testio in determining if an

8 328 U.S. 293 (1946). 9 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 ofthe SRC replaced 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. 10 Ibid.

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investment scheme, regardless of the legal terminology used, partakes of the nature of an investment contract.

to wit: the Howey Test in determining if a transaction or a scheme is a security from the Commission. The case of Virata vs. Ng Wee,11 emphasized this, in the form of an investment contract, which requires prior registration Our Supreme Court thereafter adopted and consistently applied

the domestic definition of the said security. 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 contract. The case served as the foundation for In this jurisdiction, the Court employs the Howey test, named after the

Under the Howey test, the following must concur for an investment

enterprise; (4) expectation of profits; and (5) profits arising are present in the extant case. (Emphasis and underscoring supplied) investment of money; (3) investment is made in a common primarily from the efforts of others. Indubitably, all of the elements contract to exist: (1) a contract, transaction, or scheme; (2) an

Relative thereto, the Supreme Court equally emphasized in the case of Power Homes Unlimited Corp. v. Securities and Exchange Commission12 that in applying the Howey Test, the nature and the entirety of the transaction should be considered, consistent with the broad concept of "securities" in our jurisdiction, thus:

contract." Known as the Howey Test, it requires a transaction, contract. range of investment transactions. It established a test to determine or scheme whereby a person (1) makes an investment of money, (2) in It behooves us to trace the history of the concept of 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. issue of whether the Howey transaction constituted an "investment not defined by the Act or illumined by any legislative report, held that under the state's "blue sky" laws in existence prior to the adoption of "investment contract" indicated a congressional intent to cover a wide whether a transaction falls within the scope of an "investment 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 "Congress was using a term whose meaning had been crystallized" the Securities Act. Thus, it ruled that the use of the catch-all term

11 G.R. Nos. 220926, 221058, 221109, 221135 & 221218, July 5, 2017 [Per J. Velasco, Third Division]. 12 G.R. No. 164182, February 26, 2008 [Per J. Puno, First Division].

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is capable of adaptation to meet the countless and variable schemes by the Howey Test must be registered under the Securities Act, regardless of whether its issuer was engaged in fraudulent practices. a common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others. Although the proponents must Howey Test "embodies a flexible rather than a static principle, one that (Underscoring supplied) establish all four elements, the US Supreme Court stressed that the devised by those who seek the use of the monev of others on the promise of profits." Needless to state, any investment contract covered

agrees with the EIPD's finding that PHI Fitness is enigaged in the sale and/or offer for sale of unregistered securities in the form of investment present, to wit: contracts in violation of Section 8.1 of the SRC as all its elements are Applying the Howey Test to the instant case, the Commission

First, there is an investment of money. The MOA executed by their hard-earned money, i.e. P250,000.00, for them to be a co-owner or a partner of PHI Fitness, which entitles them to PHI Fitness and its investors required the latter to part with

the guaranteed returns and benefits offered by the latter.

Second, the EIPD was able to show that the investment

invested by its investors who are made to believe that they are "co-owners" of PH Fitness. This pooled fund is actually being utilized by PHI Fitness to pay the guaranteed returns it scheme of PHI Fitness involves the pooling of the amounts

promises to its "co-owners/ partners". This is the common

Fitness is receiving from the public; enterprise that is being sustained by the investments that PH

Third, under the scheme of PHI Fitness, an investor expects to earn a monthly guaranteed return of 10% from his/her investment within a period of. five (5) years..Thus, an investment of P250,000.00 has.a monthly yield of P25,000 and

Fourth, the profits which co-owners/partners expect to

efforts of PHI Fitness, its owner and/or its Agents who carry out extensive marketing activities, through video presentations and social media platform, to ensure the continued influx of new investors. receive are generated through the marketing and managerial

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Furthermore, the act of PHI Fitness in carrying out its unauthorized investment-taking activities by conducting public video presentations

as defined under Rule 3.1.17 of the 2015 SRC IRR, to wit: and using social media platforms, e.g. Facebook, constitute public offering

to anyone, whether solicited or unsolicited. Any solicitation or presentation of securities for sale through any of the following modes shall be presumed to be a public offering: 3.1.17. Public offering is any offering of securities to the public or

X X X

3.1.17.2 Presentation in any public or commercial place;

3.1.17.3 Advertisement or announcement in radio, television, communication technology or any other forms of communication; (Emphasis supplied) telephone, electronic communications, information

Relative thereto, Section 8.1 of the SRC categorically provides that securities cannot be sold or offered for sale within the Philippines if the

Registration Statement and a Permit to Offer/Sell issued in favor of the same are not registered with the Commission in the form of an approved

applicant, to wit:

Philippines, without a registration statement duly filed with and approved by the Commission. Prior such sale, information on the SEC. 8. Requirement of Registration of Securities. -- 8.1 Securities shall not be sold or offered for sale.or distribution within the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser. (Emphasis supplied)

In the instant case, the evidence presented by the EIPD showed that PHI Fitness is bereft of any authority, and has not been issued any license to sell, offer or deal with securities. PHI Fitness' act of offering/selling unregistered securities in the form of investment contract sans the

violation of Sections 8 and 28 of the SRC. This justifies the immediate required license from this Commission constitutes a clear and continuing

issuance of a CDO for the protection of the investing public.

Relative to the prayer for issuance of a CD0, Section 64.1 of the SRC provides that the Commission may issue a CDO without the necessity of conducting a hearing if, to. its mind, the act or practice will

In the Matter of: PHI Fitness Gym SEC CD0 Case No. 06-24-113 Cease and Desist Order Page 8 of 11

operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public, thus:

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

Under the afore-quoted provision, there are two (2) essential requisites that must be complied with before a CDO can be validly issued to wit:

1 There must be a conduct of a proper investigation or verification; and

2) There must be a finding that 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.13

The Commission finds and so holds that the.EIPD fully complied with the requirements prescribed by law which will justify the valid issuance of a CDO.

First, the EIPD conducted a formal investigation and presented substantial evidence in support of its Motion i.e. Certifications from the CRMD, CGFD, MSRD,14 a screenshot of PHI Fitness' DTI Registration;15 Affidavit of investigating officer;16 screenshots of Facebook postings17 video presentations, sample MOA, and the email complaints of investors.18

Second, the EIPD was able to show that the act of PHI Fitness in selling/offering unregistered securities in the form of investment contracts without the requisite license from the Commission operates as a fraud to the public which, if unrestrained, will likely cause grave or

13 Securities and Exchange Commission vs. Performance Foreign Exchange Corporation, G.R. No 154131, July 20, 2006 [Per J. Sandoval-Gutierrez, Second Division]. 17 Ibid. Annexes "E" to "E-2" of Annex "B". 18 Ibid. Annexes "D" to "D-2" of Annex "B". 14 Motion. Annexes "A"" "C", and "D" 15 Ibid. Annex "F" of Annex "B". 16 Ibid. Annex "B"

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irreparable injury or prejudice to the investing public.19 In fact, in one of the complaints filed with the EIPD, We found an investor attesting to PHI Fitness's act of encouraging investors who were not paid their guaranteed 10% monthly return to "market" the company so that it can secure the needed investments/funds which will be used to pay existing investors.20 In another complaint, PHI Fitness was shown to be representing to the investing public that it has a pending application with the Commission when there is none. The fore going shows a clear intent on the part of PHI Fitness to defraud the public which, if unrestrained will likely prejudice them. In this regard, the case of Securities and Exchange Commission vs. CJH Development Corp.21 is instructive and applicable, thus:

in the restraint of acts that yield such results can only generate further injury to the public that the SEC is obliged to protect. required whenever the Commission finds it appropriate to issue a injury to investors. There is good reason for this provision, as any delay The law is clear on the point that a cease and desist order may be issued by the SEC motu proprio, it being unnecessary that it results from a verified complaint from an aggrieved party. A prior hearing is also not cease and desist order that aims to curtail fraud or grave or irreparable

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

owner, agents, representatives, salesmen, uplines, promoters, WHEREFORE, premises considered, PHI Fitness Gym Inc., its

influencers, enablers, conduit entities, subsidiaries and any and all

to IMMEDIATELY CEASE AND DESIST from engaging in the persons claiming and acting for and on their behalf, are hereby ordered unlawful/unauthorized 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.

21 G.R. No. 210316, November 28, 2016 [Per J. Peralta, Third Division]. 20 Ibid. Annex "D-2" of Annex "B" 19 Section 64 of the Securities Regulation Code.

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PHI Fitness Gym Inc., its owner, agents, representatives, salesmen. uplines, promoters, influencers, enablers, conduit entities, subsidiaries and any and all persons claiming and acting for and on their behalf are likewise directed to immediately CEASE their internet presence relating to the transactions and investment scheme covered by this Cease and Desist Order. The Commission will institute the appropriate administrative and criminal action against any persons or entities found to act as solicitors, information providers, salesmen, agents, brokers, dealers or the like for and in their behalf.

Finally, the Commission hereby PROHIBITS PHI Fitness Gym Inc., its owner, agents, representatives, salesmen, uplines, promoters influencers, enablers, conduit entities, subsidiaries and any and al persons claiming and acting for and on their behalf from transacting any business involving funds in its depository banks, and from transferring

or personal, including bank deposits, if any, of which the named persons disposing, or conveying in any manner, any and all assets, properties, real

indirectly, under their custody, to ensure the preservation of the assets herein may have interest, claim or participation, whether directly or

of the investors.

The EIPD of the Commission is hereby DIRECTED to cause the posting of this Cease and Desist Order in the Commission's website.

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

Let a copy of this Order be furnished to the Company Registration and Monitoring Department, Markets and Securities Regulation Department, Corporate Governance and Finance Department and the Information and Communications Technology Department of this Commission, the Bangko Sentral ng Pilipinas, the Department of Trade and Industry, the National Privacy Commission, the Department of Information and Communications Technology, and the relevant local government unit(s) for their information and appropriate action.

In accordance with the provisions of Section 64.3 of the SRC and Part II, Rule IV, Section 4-3 of the 2016 Rules of Procedure of the SEC, the Respondent may file a verified Motion to Lift the CDO to the Commission En Banc thru the Office of the General Counsel, within five (5) days from receipt of this Order.

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FAIL NOT UNDER PENALTY OF LAW.

SO ORDERED.

Makati City, Philippines.

MM

EMILIO B.AQUINO Chairperson

JAVEY`PAUL D. FRANCISCO Commissioner KARLO^3. BELLO Commissioner

MCJILL BRYANT T. FERNANDEZ*

Commissioner

*On Official Business