FORSAGE AND FORSAGE PHILIPPINES

(

Securities and Exchange Commission Republic of the Philippines Department of Finance

COMMISSION EN BANC

IN THE MATTER OF:

FORSAGE and FORSAGE PHILIPPINES

ENFORCEMENT AND INVESTOR SEC CDO Case No. 09-20-068 PROTECTION DEPARTMENT (EIPD) Movant.

23 September 2020

TO:

FORSAGE FORSAGE PHILIPPINES ENFORCEMENT AND INVESTOR PICC Complex, Pasay City Ground Floor, Secretariat Building TECHNOLOGY DEPARTMENT INFORMATION AND COMMUNICATIONS

Ground Floor, Secretariat Building PICC Complex, Pasay City PROTECTION DEPARTMENT Malate, Manila City BANGKO SENTRAL NG PILIPINAS A. Mabini Street cor. P. Ocampo Street

MONITORING DEPARTMENT Ground Floor, Secretariat Building PICC Complex, Pasay City COMPANY REGISTRATION AND Trade and Industry Building 361 Sen. Gil Puyat Avenue, Makati City DEPARTMENT INDUSTRY OF TRADE AND

PICC Complex, Pasay City CORPORATE AND FINANCE DEPARTMENT Ground Floor, Secretariat Building GOVERNANCE COMMUNICATIONS TECHNOLOGY C.P. Garcia Avenue, Diliman Quezon City DEPARTMENT OF INFORMATION AND

PICC Complex, Roxas Boulevard Pasay City NATIONAL PRIVACY COMMISSION 5th Floor, Delegation Building

GREETINGS:

Please take notice that on 17 September 2020, a CEASE AND DESIST ORDER was issued in the above-entitled case, the original of which is now on file with this office.

Pasay City, Philippines.

t(

Securities and Exchange Commission Republic of the Philippines Departmeni of Finance

COMMISSION EN BANC

IN THE MATTER OF:

FORSAGE andFORSAGE PHILIPPINES SEC CD0 Case No. 09-20-068

ENFORCEMENT AND

DEPARTMENT (EIPD), INVESTOR PROTECTION Movant.

X

CEASE AND DESIST ORDER

This resolves the Motion for Issuance of Cease and Desist Order (the "Motion") filed on 10 September 2020 by the Enforcement and Investor Protection Department ("EIPD) praying: (1) to enjoin FORSAGE and FORSAGE PHILIPPINES(collectively as"Forsage), its operators

conduit entities and subsidiaries (collectively referred to as "Agents") directors, officers, representatives, salesmen, agents, and any and all persons, claiming or acting for and in its behalf from selling and/or offering securities in the form of investment contracts and to cease its internet presence until the requisite permits are duly issued; and (2) to prohibit Forsage, its officers.

involving the funds in its depository banks, and from transferring, disposing. representatives, salesmen, and agents from transacting any and all business or conveying in any manner, any and all assets, properties, real or personall including bank deposits, if any, of which the named persons herein may have interest, claim or participation, whether directly or indirectly, under their custody, to ensure the preservation of the assets of the investors.

RELEVANT FACTS

is Forsage a registered crowdfunding intermediary or a funding portal under developed by one LADO OKHOTNIKOV, and in terms of operations in the Memorandum Circular No. 14, series of 2019.' Forsage appears to have been Philippines, is joined by a certain RICH ALEX APUNTAR. Forsage is an entity that is not registered with the Commission. Neither

' Rules and Regulations Governing Crowdfunding

In the Matter of Forsage and Forsage Philippine SEC CDO Casc No. 09-20-068 Cease and Desist Order Page 2 of 10

inquiries through its email address and the Commission's iMessage Mo In June 2020, the EIPD started receiving complaints, reports, and

Facility2, regarding the legitimacy of the alleged investment, specifically in

prompted the EIPD to conduct an intensive investigation on its operations. the context of the Advisory that was issued by the Commission3, which

operate a crowdfunding international platform and the first ever smart contract Based on the investigation of the EIPD, Forsage claims to own and

in the blockchain of Etherium (ETH) cryptocurrency. Forsage further claims

promises a long-term active and passive income to its investor through a that it has no managers and is fully decentralized; thus it is not subject to government restriction and control.5 Considering that its program is embodied in a smart contract based on the ETH blockchain technology, Forsage

system that is secured, scam-free and one that will continue to function after the closure of its website for whatever reason..

There are two (2) commission programs or cycler tiers that grant payouts to its investors: Forsage X3 and Forsage X4. These programs require a minimum investment of 0.05 ETH which is equivalent to approximately Six Hundred Pesos (Php 600.00), and allows a maximum investment of up to 5 1.2

600,000.00).7 The Forsage X3 and X4 programs have each twelve (12) income ETH which is equivalent to approximately Six Hundred Thousand Pesos (Php slots that an investor may activate. Forsage claims that each investment slot under the X3 and X4 plans all have endless referral cycles which guarantees a potential income that is boundless. The X3 and X4 does not expire and is not susceptible of being deactivated.

referring member's account while the third shall be considered as a "re-entry fee" and shall be awarded to the referring member's sponsor or upline. cycle. The first two (2) referrals' membership fees shall be paid to the Under Forsage X3, an investor needs three (3) referrals to complete a

be credited to the referring member's account while the sixth referral shall be be converted to a four (4) tier matrix which will require only four (4) referrals to complete succeeding cycles. considered as the "re-entry fee to the system whereupon the same will now cycle. Unlike Forsage X3, the first two (2) referrals shall be awarded to the sponsor's or upline's account while the third until the fifth referral fees shall Under Forsage X4, an investor needs six (6) referrals to complete a

investors in completing their cycles. These are overflows or surplus of As an added feature, Forsage provides "spillovers" to assist passive

2 Annex C of the Motion. 3 SEC Advisory dated 30 June 2020.

In the Matter of Forsage and Forsage Philippines SEC CDO Case No. 09-20-068 Cease and Desist Order Page 3 of 10

referrals gathered by the passive member's sponsor or downlines which automatically forms part of his/her compensation cycle

Basically, the active income generated from Forsage's compensation programs depends on the number of referrals and/or membership fees gathered, while passive income is acquired through spillovers. Hence, the earning capacity of Forsage's investors are dependent on the number of investors that they bring into the system. This, however is clearly not sustainable because it is bound to reach a point where no more new investors will be willing to invest in it.

Certifications? from the Company Registration and Monitoring Department (CRMD), the Corporate Governance and Finance Department (CGFD) and In the course of its investigation, the EIPD was able to secure

the Markets and Securities Regulation Department (MSRD) of the Commission showing that Forsage has not applied for a primary franchise as a corporation or partnership, and has not been issued any secondary license to operate as a broker/dealer of securities and is not a registered issuer of any securities pursuant to Sections 8 and 12 of the SRC, or of mutual funds (including exchange traded funds, membership certificates, and time shares)

944, or the Guidelines for Virtual Currency Exchanges, which requires all of Registration to operate as a remittance and transfer company. among the registered companies authorized to engage in digital assets with the Bangko Sentral ng Pilipinas ("BSP) in accordance with BSP Circular No entities engaged in virtual currencies in the Philippines to obtain a Certificate EIPD's investigation likewise reveals that Forsage does not appear

Further, the EIPD conducted an online search using Google, Facebook and YouTube to check the veracity of the information received from the public about the business operations of Forsage. The EIPD was able to get evidence

online posts in social medial, presentations1, and promotional videos12 found Motion. the public to invest in its programs. Screenshots of the website, and relevant online were included in the EIPD's affidavit13 as faithful reproductions of such online posts and presentations, and submitted in evidence to support the showing Forsage's online presence by which it promotes, solicits, and entices

public to stop investing in any scheme offered by Forsage or such other entities engaged in smart contracts, cryptocurrencies, and digital asset trading that are not registered with the Commission and the BSP. On 30 June 2020, the Commission issued an Advisory warning the

8 Annexes G-1 to G-3 of the Motion. 9 Annexes A-2. and E-! to E-2 of the Motion.

In the Matter of Forsage and Forsage Philippines SEC CDO Case No. 09-20-068 Cease and Desist Order Page 4 of 10

Notwithstanding the Advisory, members and/or representatives of Forsage continued to solicit investments from the public. Worse, they attempted to discredit the Commission by spreading false or misleading information that they are outside the jurisdiction of the Commission. Further it appears that Forsage devised another plan or scheme to solicit investments or to further their business engagements through Forsagetron.

The EIPD also continuously received various complaints from the

attached to the Motion and submitted in evidence to support the same.14 public about Forsage's investment-taking activities, all of which were

ISSUE

is warranted based on the findings and evidence presented by the EIPD. Whether or not the issuance of a cease and desist order against Forsage

DISCUSSION

The Commission finds merit in the Motion and hereby grants the same.

securities being sold/offered to the public in the form of investment contracts without the necessary license from the Commission. establish that Forsage's so-called smart contract partakes of the nature of The EIPD's motion, as supported by substantial evidence, was able to

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

"SEC. 3. Definition of Terms.

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

X X X

(b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription;: (Emphasis supplied)

the filing and approval of a Registration Statement and a corresponding Permit Philippines without the same being registered with the Commission through to Offer/Sell heina issued in favnr of the annlicant As a rule, securities cannot be sold or offered for sale within the

In the Matter of Forsage and Forsage Philippine. SEC CDO Casc No. 09-20-068 Cease and Desist Order Page 5 of 10

An "investment contract" has been defined as follows:

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

profits.

promoter receives nothing more than a broker's commission."15 (Emphasis supplied) A common enterprise is deemed created when two (2) or more investors "pool" their resources, creating a common enterprise, even if the

The concept of an investment contract in the Philippines is of American

Exchange Commission v. W.J. Howey Co.i where the Court stated that an investment contract is a transaction, contract, or scheme whereby a person (1) origin. It traces its roots from the US Supreme Court case Securities and

expectation of profits, (4) to be derived solely from the efforts of others. makes an investment of money, (2) in a common enterprise, (3) with the

The concept of an investment contract was adopted and used in Power

be proved to be (1) an investment of money; (2) in a common enterprise; (3) Homes Commission,17 where the Supreme Court ruled that an investment contract in our jurisdiction, to be a security subject to regulation by the Commission, must with expectation of profits, (4) primarily from efforts of others. Under this Unlimited Corporation N Securities and Exchange

definition, whenever an investor relinquishes control over his or her funds and

he or she is in fact investing in a security. 18 submits their control to another for the purpose of deriving profits from them,

in the common enterprise, Forsage, and expects profits therefrom with whereby the referral, solicited by unregistered individuals, invests his money minimal or without any effort at all. In this case, the investment contract consists of a scheme or transactions

After a careful review of the evidence submitted by the EIPD in support of its Motion, the Commission finds that all the elements of an investment contract are present, thus:

(1)There is an investment of money by investors who registers in the Forsage programs. The EIPD was able to show that

51.2 ETH or almost Six Hundred Thousand Pesos (Php investors actually made a minimum investment of 0.05 ETH or at least Six Hundred Pesos (Php 600.00) to a maximum of

In the Matter of Forsage and Forsage Philippines SEC CDO Case No. 09-20-068 Cease and Desist Order Page 6 of 10

600,000.00). Without such investment, the investor will not be eligible to any form of payout;

(2)The EIPD was also able to show that Forsage is a common enterprise since its operations involve the pooling of the

its existing investors; resources of its investors into its programs, and where such resources are being utilized to provide monetary benefits to

(3)The investors are motivated by the expectation of profits in view of the promotional gimmicks and statements that

Forsage's agents and/or representatives utilize; and

(4)Finally, the investors earn without significant effort or

obligation. Forsage is the one who conceptualized and promoted the earning schemes making the investors efforts in

the efforts of others. recruiting minimal. Thus, the investor earns primarily from

Moreover, the evidence presented by the EIPD also shows that Forsage's investment scheme involves public offering of securities.

Public Offering is defined as:

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

X X X

any other forms of communication; or19 (Emphasis supplied) 3.1.17.3 Advertisement or announcement in radio, television, telephone. electronic communications, information communication technology or

is publicly offering for sale Forsage X3 and Forsage X4 which are unauthorized securities through online advertisements, promotional videos and social platforms to potential investors without prior registration. In the instant case, evidence adduced by the EIPD shows that Forsage

to the investing public.2o met prior to the issuance of a cease and desist order: First, 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 conduct of a proper investigation or verification; and Second, there must be a Section 64 of the SRC has two (2) essential requirements that must be

In the Matter of Forsage and Forsage Philippines SEC CDO Case No. 09-20-068 Cease and Desist Order Page 7 of 10

of investors who were allegedly defrauded that Forsage is engaged in the public offering of unregistered securities. The EIPD presented the following where it was able to gather information and evidence affirming the complaints evidence in support of its Motion: In this case, a proper investigation has been duly conducted by the EIPD

(1)Certifications from the Commission's MSRD, CGFD, and CRMD

to the effect that: (a) Forsage is neither a registered entity with the Commission nor has it been issued a secondary license as a Lending Company, Broker and/or Dealer of Securities, Dealer in Government Securities, Investment Adviser of an Investment

the SRC; and (c) Forsage has not been issued any license authorizing it to issue securities such as mutual funds, exchange traded funds, and membership certificates. Company, and Investment House and Transfer Agent; (b) Forsage has not registered any securities pursuant to Sections 8 and 12 of

(2) A finding that Forsage is not qualified to operate as a

Neither is Forsage accredited and/or accepted by a crowdfunding intermediary. crowdfunding entity in the Philippines as it must be duly organized under Philippine laws or must be a Filipino natural person, in violation of SEC Memorandum Circular No. 14, series of 2019.

(3) A finding that Forsage does not appear among the registered companies engaged in digital assets with the Bangko Sentral ng company. Pilipinas ("BSP) in accordance with BSP Circular No. 944, or the Guidelines for Virtual Currency Exchanges, which requires all entities engaged in virtual currencies in the Philippines to obtain a Certificate of Registration to operate as a remittance and transfer

(4) Investigator's affidavit which attested to the online search

conducted using Google, Facebook and YouTube to check the

relevant online posts in social media, presentations, and business operations of Forsage. Screenshots of the website, and promotional video found online were included in the affidavit as faithful reproductions of such online posts and presentations. veracity of the information received from the public about the

studied the nature and operations of Forsage. The foregoing shows that the EIPD properly made an investigation and

arate ac a fraud nn invectn Furthermore, the investment practices of Forsage, if not restrained, will to their aotinc nuhlio aa it utilizs

In the Matter of Fo ge and Forsage Philippines

SEC CDO Case No. 09-20-068 Cease and Desist Order Page 8 of 10

contributed by new investors. Its organizers often solicit new investors by

with little or no risk. In many Ponzi schemes, the perpetrators focus on promising to invest funds in opportunities claimed to generate high returns

attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from

new investors joining the scheme."? scheme, which works only as long as there is an ever increasing number of a legitimate business. It is not an investment strategy but a gullibility

new platforms in X3 and X4 programs in order to get passive income and to earn good money.22 investor needs to make an effort to attract new partners and the opening of This scheme is made evident by Forsage's own declaration that an

securities operates as a fraud to the public which, if unrestrained, will likely cause grave or irreparable injury or prejudice to the investing public.23 This Development Corp.24 (SEC vs. CJH) where the Supreme Court emphasized SRC that will likely defraud or cause grave or irreparable injury to the the need for a prompt issuance of a CDO after a finding of a violation of the investing public, thus: finds support in the case of Securities and Exchange Commission v. CJH Moreover, the act of Forsage in selling/offering unregistered

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

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

any government restriction and control is baseless. A profit making venture such as Forsage which utilizes smart contracts in selling or offering securities in the nature of investment contracts is required to be registered with the Finally, Forsage's claim that it is decentralized and thus not subject to

21 People of the Philippines vs. Tibayan and Puerto, G.R. No. 209655-60, January 14, 2015.

In the Matter of Forsage and Forsage Philippines SEC CDO Casc No. 09-20-068 Cease and Desist Order Page 9 of 10

Commission which regulates public offering or sale of securities within the Philippines .25

WHEREFORE, premises considered, Forsage and Forsage

agents, and any and all persons claiming, acting, and operating for and in their Philippines, and its operators, directors, officers, representatives, salesmen,

behalf, are hereby ordered to IMMEDIATELY CEASE AND DESIST UNDER PAIN OF CONTEMPT from engaging in the unlawful solicitation] and sale of unregistered securities.

representatives, salesmen, agents and any and all persons claiming and acting for and in their behalf are likewise directed to CEASE their internet presence Forsage and Forsage Philippines, its operators, directors, officers,

relating to the transactions and investment scheme covered by this Cease and Desist Order. The Commission will institute the appropriate administrative

in their behalf. information providers, salesmen, agents, brokers, dealers or the like for and and criminal action against any persons or entities found to act as solicitors

Philippines, its operators, directors, officers, representatives, salesmen, agents and any and all persons claiming and acting for and in their behalf from Finally, the Commission hereby PROHIBITS Forsage and Forsage

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, claim or participation, whether transacting any business involving funds in its depository banks, and from

directly or indirectly, under their custody, to ensure the preservation of the assets of the investors

The EIPD of the Commission is hereby DIRECTED to:

1) Serve this Cease and Desist Order to Forsage and Forsage Philippines, and its operators, representatives and/or agents including Rich Alex Apuntar, Vhellpoe Forlares Garves, Yuka Kuroyanagi, Christopher Doroliat, Iam Kim, Jairra

Fab Teoxon, Mark Nicole Escabarte Valerio, Myra Cris

impracticable;26 Sapar, Romnick Melanez and Vel Cabalza; or if

2) Cause (a) the posting of this Order in the Commission's website and (b) the publication of the same in a newspaper of general circulation as provided for under Section 4-2, Rule

IV, Part I of the 2016 Rules.

In the Matter of Forsage and Forsage Philippines SEC CDO Case No. 09-20-068 Cease and Desist Order Page 10 of 10

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

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

II, Rule IV, Section 4-3 of the 2016 Rules of Procedure of the SEC, the respondents 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. In accordance with the provisions of Section 64.3 of the SRC and Part

FAIL NOT UNDER PENALTY OF LAW.

SO ORDERED.

Pasay City, Philippines; 17 September 2020.

EMILIO B. AQUINO

Chairperson

EPHYRO LUIS B. AMATONG JAVEY{PAUL D. FRANCISCO

Commissioner Commissioner

EVIN LESTER K. LEE Commissioner KARLO S. BELLO Commissioner