Glasgow Credit & Collection Services, Inc.

SECURITIES & EXCHANGE COMMISSION REPUBLIC OF THE PHILIPPINES DePartMent oF FInAnCe Mandaluyong City, Metro Manila SEc BuicingEDsAGreeh IN THE MATTER OF SERVICES, INC. GLASGOW CREDIT & COLLECTION 02-2721 CED Case M Compliance and Enforceinent Department Petitioner, CEASE AND DESIST ORDER For consideration of the Commission En Banc is a MOTION FOR THE ISSUANCE OF CEASE AND DESIST ORDER (CDO) filed by petitioner Compliance and Enforcement Department (CED) against Glasgow Credit and Collection Services, Inc. (copy of the aforementioned MOTION is attached hereto, marked as Annex A and made an integral part of this CDO). Respondent is a domestic corporation duly registered with the Commission on 2 May 2002, under SEC Reg. No. A200206946, the primary purpose of which is essential activities as well as incidental activities thereto, as the transaction of th: [awful business of the company may reasonabiy and necessarily require, subject to the limita tions prescribed by law and constitution. "to make business of Credit and Collection Services and other necessary or The corporation is now the subject of an investigation undertaken by the Commisskn motu proprio due to numerous queries concerning the iegality of the same Investigation conducled by the Coinmission's CED yielded copies of the suind.iri contract executed between Glasgow and the investor, as well as some of the"postdaled chec ks issued by Glasgow pursuant to such agreernent. Sworn affidavits were likewise obtained from (wo investors attesting to the scheme of subject corporation. A perusal of all the evidence yielded by the investigation will show that the respondent corporation is engaged in tho husiness of offeriny to the public high monthly interest on investments for a period of six months. Commission records likewise revealed that subject company did not file a registration statement with the Corporaton Finance Department for purposes of issuing securities to the public; neither is it licensed as an investment corporation Afier an investigation was conducted by the department, respondent corporation was shown to have violated the Securities Regulation Code (Republic Act 8799), more particularly. Section 8.1 of the same, which provides SEC.8. Requirement of Registration of Securities. -8.1. Securities shall not be soid or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commissiori. Prior to such sale, infomation on the securities, in such form and with such substance as purchaser. the Commission may prescribe, shall be made available to each prospective Sec. 3.l of the Securities Regulation Code [hereinafter "Code"] defines securities as "shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes: X agreement, certificates of deposit for a future subscripton; xxx" (b) Investment contracts, certificates of interest or participation in a profit sharing [underscoring supplied] In turn, the Implementing Rules and Regulations of the Code defines an investment contract as " a contract, transaction or scheme...whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of otherst". Said Rule further provides that there is a presumption that a contract is an investment contract whenever a person seeks lo use the money of others on the promise of profits. ' SRC Rule 3.1 -1 Definition of Investment Contract und Derivative invests money in a common enterprise expecting profits to accrue soleiy from the efforts of the expectation of profits to be derived from the entrepreneurial efforts of others. (69 Am.Jur. 2d S 36 P. 108) Howey Test first defined by the US Federal Supreme Court in the case of Securities md Exchiaige touchstone is the presence of an investment in a common venture premised on a reasonable Commission v. W.j. Hotey Compaty? as "a contract, transaction or scheme whereby a person Promoter or third partiesxxx"; said Howey Test was later modified in the case of Securities and Exchange Commission v. Glenn W. Turner Enterprises, Inc.3 In the modified Howey test, the The foregoing definition of the investment contract is an adaptation of the mocified The Investment Contract theory thus has the following elements: a} b C) a contract, transaction or scheme investment is made in a common enterprise an investment of money profits arise primarily from the efforts of others expectation of profits A Contract, Transaction (collectively, "Contract") or Scheme schemes for as long as it involves the use of the money of others on the promise of profits. The term "investment contract" was given such a broad meaning so as to include Notably, a writing is not essential for an investment contract (1 Loss, Securities Regulation 2d Ed 8 end of which period the principal would be returmed. Investments of less than P 50,000 were 15% for a minimum placement of FIFTY THOUSAND PESOS (P 50,000.00) for six months, at the The scheme employed by respondent corporation promises investors monthly interest of promised the same terms and conditions, with a slightly Iower interest rate of 10% a month for would issue seven post-dated checks to the Iatter covering the six monthly interest payments and said six-month period. Upon signing of the contract by Glasgow and the investor, the former the principal. : 328 U.S. 293 3 474 F.2d 476 Investment of Money Rule 3.1-l paragraph 1(a) of the Code's Implementing Rules and Regulations states, person seeks to use the money of others on the promise of profits." "A presumption that a contract is an investment contract arises whenever a involves an investment of money, or the placing of the money with Glasgow with the expectation greater than the slandard rate offered by banks at the present time. Thus, the contract clearly and for the primary purpose of earning interest from such placement. The promise of profits is clearly stated in the contract itself, indicating a rate of retum far The intent of the parties to invest is also evident from the entries in the log book kept by the guard of the building, wherein most of the visitors of respondent corporation indicated as their purpose "Invest" or "Investor" Comumon Enterprise Rule 3.1-1 paragraph 1 (b) of the Code's Implementing Rules and Reguiations provides. "when two or more investors enterprise, even if the promoter does not do more than receive a broker's commission." "pool" their resources, there is a common The pooling of resources of more than two investors is evident from Glasgow's receipt of the investments from the public in the course of its regular business. The logbook entries listing visitors to the Glasgow numbered well over one hundred on the days the on-site investigation Was conducted. From the Efforts of Others Profits Arise Primarily The question under the modified Howey tost is whether efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts wh! .ff..: the failure or success of the enterprise (69 Am Jur 2d S 39 p. 111). In the case at hand, it is ci'er that the efforts made for the enterprise to earn profits are made primarily if not solel: hy Glasgow, with the participation of the investors limited to placing their investment : collecting the promised returns as each postdated check falls due. This is therefore a iex tbooi Case of profits arising, primarily, if not solely, from parties other than the investors. All the above mentioned elements of an investment contract being undeniably present ::- the scheme of respondent corporation, Giasgow Credit & Collection Services, Inc., is offurir: i the public securities in the form of investment contracts which should have been subjec! to 7:r re gistration with the Commission hy the filing of registration statements as required by the: &h.+ quoled Section 8.1 of the Code and under the applicable rules and regulations of the Comm:ssion for the registra tion of securities. Since the securities offered for sale or distributed by the respondent corporation have not yet been registered with the Commission, there is an imperative need for said corporation to hi: enjoined from operating as such and from further engaging in the activities of selling, offerir:; ior sale or distributing securities in order to protect the interest of the investors and the pui :: : gea WHEREFORE, pursuant to the authority vested in the Commission, GLASGOW CREDIT & COLLECTION SERVICES, INC., its officers, directors, agents, representatives. assigns and any and all persons claiming and acting under their authority, are hereby ordered i: immediately CEASE AND DESIST from further engaging in the sale, offer for sale or distribution of the securites upon receipt of this order, failing which the SEC shall be constraine:d to physically close the offices of respondent corporation, and hold in contenipt the Fersons responsible for the refusal to comply herewith, as provided in Sec. 53.4 of the Code In accordance with the provisions of Section 64.3 of the Code, the partics subjec: -: thi. Cease and Desist Order may file a request for the jifting, thereof within five (3) days from reuip: ho SO ODERED Mandaluyong City, Metro Manila. 9 July 2002. LILIA R' BAUYIST M Chairperson HMMS FE ELOISA C. GLORIA Commissioner /JOSELIA J(POBLADOR Commissioner t MA. JUANITA E. CUETO Commissioner JESUS E.G.MARTINEZ Commissioner