The Seashore Beach Club, Inc.

Securities and Exchange Commission Republic of the Philippines Department of Finance

In the matter of: THE SEASHORE BEACH CLUB, INC.

SEC CDO Case No.07-17-044

ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT Movant.

CEASE AND DESIST ORDER

until the requisite registration statement is duly filed and approved by the Commission, and the corresponding license to offer/sell issued. filed, on 14 July 2017, by the Enforcement and Investor Protection Department (EIPD) praying that THE SEASHORE BEACH CLUB,INC. (SEASHORE) and its representatives/agents be enjoined from further selling and/or offering for sale club membership share certificates that can be considered as proprietary shares This resolves the Motion for Issuance of Cease and Desist Orderi (Motion)

Manila. Its primary purpose, as stated in its Articles of Incorporation, is: June 2016 with Company Registration No. CS201612679.2 Its principal office is located at 1203 Entrata Building, Civic Drive, Alabang, Muntinlupa City, Metro SEASHORE is a stock corporation registered with the Commission on 16

proprietary club membership basis."3 "To lease, buy, purchase, own, develop, manage, operate beach club leisure facilities encompassing water sport activities on shore in various strategic beach areas in the country; to sell and issue beach club membership shares on a non-proprietary both local and international basis to entitle each beach club share holder the right to use the beach club facilities; and to lease, buy, purchase, own, develop, manage, operate leisure theme parks under a non-

Mindanao; 5.) Renan C. Dumagonot; and 6.) Amiel Amparo Leyco.5 Arnel S. Mindanao; 2.) Jocelyn M. Parba; 3.) Marlon M. Suarez ; 4.) Baby Daisy G. shares with the par value of Php 100.00 per share.4 Its incorporators are: 1.) It has an authorized capital stock of Php 1,000,000.00 divided into 10,000

Monitoring Department (CRMD) referred to EIPD emails from a certain Mervin Ventura. The email-sender inquired if SEASHORE is allowed by the Commission On 26 January 2017, the Commission's Company Registration and

3 Annex "B" of the Motion. 5 Id., Fifth paragraph. ' Dated 12 July 2017. 2 Annex "A" of the Motion. 4 id., Seventh paragraph.

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to sell club membership shares.6 Ventura claimed and attached website snapshots showing that SEASHORE sells/offers club shares for a consideration of potential investors.7 This prompted EIPD to conduct an investigation on Php 392,000.00 payable in 36 months, with a reservation fee of Php 10,000.00 to SEASHORE's business activities.

Commission's Corporate Governance and Finance Department (CGFD) laws. CGFD also informed CRMD that SEASHORE should file a Registration interposed no objection on the approval of SEASHORE's Articles of Incorporation incorporate Securities Regulation Code (SRC) Rule 12.1.4.1 in its AOI and By Statement to cover the latter's securities. (AOI) and By-laws. However, CGFD requested CRMD to advise SEASHORE to EIPD discovered that when SEASHORE applied for its primary license, the

sell/offer for sale securities to the public nor it has any pending application for directed SEASHORE to submit a Registration Statement to cover the latter's Memorandum10, informed EIPD that SEASHORE has no secondary license to securities in the form of club shares.9 On 02 February 2017, CGFD, through a the same. After the approval of its A0I, CGFD, in a Letter dated 13 December 2016,

club membership shares to the public, to wit: (1) CGFD, stating that SEASHORE is. not a registered issuer of mutual funds, exchange traded funds, proprietary/non- licensed to offer or sell such securities to the public; (2) Markets and Securities Agent nor is there any pending application for the said secondary licenses. appropriate departments to determine if SEASHORE is permitted to sell or offer SEASHORE has no pending application for the registration/permit to sell securities; (3) CRMD, stating that SEASHORE was not issued a secondary license as a Broker and/or Dealer of Securities, Dealer in Government Securities, Investment Adviser of an Investment Company, Investment House and Transfer proprietary shares or membership certificates, time-shares and registered but unlisted equity securities under Section 17.2 (a) of the SRC and therefore not Regulation Department (MSRD), stating that SEASHORE has not registered any securities pursuant to Section 8 and 12 of the Securities Regulation Code (SRC) nor did the Commission issue to SEASHORE a Permit to Sell securities. Further. Acting on CGFD's endorsement, EIPD secured Certificationsi1 from the

verify if SEASHORE is selling/offering its club shares to the public using this the public to invest in SEASHORE. The facebook pages confirmed the payment medium.12 The online investigation revealed that a facebook account was created by certain Reymart Zuniega and Jem Vodka Cellano, wherein they are enticing Sometime in March 2017, EIPD also conducted an online investigation to

3 Annex "E" of the Motion 6 Annex "C" of the Motion 7 Annex "D" of the Motion 9

I Annex "I", "J", and "." of the Motion. I2 Annex "N" of the Motion. 1o d

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facebook pages show pictures of persons who have invested in SEASHORE.13 schemes and privileges in buying SEASHORE's club shares. Likewise, these

operation at SEASHORE's principal office in Muntinlupa City. EIPD, in its report14 states that the team was able to meet Amiel A. Leyco (Leyco), SEASHORE's Marketing Director. Thereafter, the EIPD team watched Leyco's presentation on SEASHORE's investment opportunity. On 10 March 2017, an EIPD team conducted an ocular and surveillance

Arnel S. Mindanao. He said that the club is located in San Juan, Batangas, where construction is still on-going. He further said that the club will be operational by 2019. Leyco informed the team that "The Seashore Beach Club, Inc." is owned by

interest. He added that a club member has the following privileges: reservation fee of Php 10,000.00, one could be an Exclusive Club Shareholder and life time member of SEASHORE. Leyco explained that there are three (3) payment terms available for an investor, to wit: 1.) Pay in cash within 30 days and avail a 15% discount; or 2.) 30% down payment and the 70% remaining balance spread over 36 months; or 3.) Deferred payment for 36 months at 0% Leyco represented that for an investment of Php 392,000.00, with a

1.). Life-time membership which can be inherited by heirs, with free one night stay only for family members once a year; or family, friends, club share membership can be saleable. sports activities, restaurants, sports facilities, and its amenities; divided to all the members; and 2 3. 4 20% income referral when membership is used by friends Certain percentage discounts from accommodation, water Profit sharing of 30% of its annual net income will be

United States. It however started selling its club membership shares in the membership shares in 2016 in different countries like Japan, Dubai, Italy and the Philippines on 18 January 2017. Leyco claimed that SEASH0RE sold 396 of its shares, wherein 111 shares of which came from the Philippines. Leyco also told the EIPD team that SEASHORE started selling its club

SEASHORE's highest earning broker. He was the one who.created the facebook SEASHORE at the soonest because by 11 March 2017, the membership fee will be account for SEASHORE. Leyco and Zuniga convinced the EIPD team to invest in increased to Php 420,000.00. Afterwards, the EIPD team was able to meet Raymund Zuniga,

determine the nature of SEASHORE's business model. In a Memorandum dated 27 June 201715, CGFD rendered its evaluation, to wit: To further bolster its investigation, EIPD sought the opinion of CGFD to

15 Annex "O" of the Motion. 14 Annex ""M" of the Motion. I3 Annex "N" of the Motion.

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being sold are securities classified as non-proprietary shares under Section 3 of the SRC. Thus, TSBCI's (SEASHORE) scheme of selling the same to the public is considered as securities-solicitation. "This Department is of the opinion that the club membership shares

is "to lease, buy, purchase, own, develop, manage, operate beach club In its Articles of Incorporation (AOI), the primary purpose of TSBCI own, develop, manage, operate leisure theme parks under a non- leisure facilities encompassing water sport activities on shore in various strategic beach areas in the country; 'to sell and issue beach international basis to entitle each beach club share holder the right to use the beach club facilities; and to lease, buy, purchase, proprietary club membership basis.' (emphasis supplied) club membership shares on a non-proprietary both local and

X X X

The primary purpose of TSBCI indicates that it intends to sell non- proprietary shares to the public. SRC Rule 3.1.13 defines non- proprietary share or certificate as an evidence"of interest, participation or privilege over a specific property of a corporation that allows the holder of the share or certificate to use such property under certain terms and conditions. The holder, however, shall not be entitled to dividends from the corporation or to its assets upon its liquidation.

its primary purpose of selling and issuing non-proprietary beach TSBCI represents that 30% of its annual net income will be subject to club membership shares. profit sharing and divided to all the members. This is in conflict with

aforesaid shares to the public, its scheme will be considered as securities-solicitation. Considering that the club membership shares being offered are securities under Section 3 of the SRC, a secondary license or Certificate of Permit to Offer Securities is required before TSBCI can offer its shares to the public. Also, since TSBCI is already offering the

on the results of EIPD's investigation and evidence presented in the Motion. The foregoing considered, we now resolve the case on the merits based

We find merit in the Motion.

It is declared in the SRC16 that:

"Section 2. Declaration of State Policy. - The State shall establish a socially conscious, free market that regulates itself, encourage the democratization of wealth, promote the development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not totally eliminate insider trading and widest participation of ownership in enterprises, enhance the

16 R.A. No. 8799.

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Securities Regulation Code is hereby enacted." other fraudulent or manipulative devices and practices which create distortions in the free market. To achieve these ends, this

Section 3 of the SRC defines securities as:

participation or interests in a corporation or in a commercial includes: "Section 3. Definition of Terms. - 3.1. "Securities" are shares, enterprise or profit-making venture and evidenced by a certificate, contract, instruments, whether written or electronic in character. It

X X X

(f) Proprietary or nonproprietary membership certificates in corporations;"

be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Moreover, Section 12.1 of the SRC states that all securities required to be registered under Subsection 8.1 shall be registered through the filing by the issuer in the main office of the Commission, of a sworn registration statement with respect to such securities, in such form and containing such information and documents as the Commission shall prescribe. In this connection, Section 8.1 of the SRC provides that securities shall not

holder shall have proportionate ownership rights over its assets.17 privilege in a corporation which gives the holder of the share or certificate the right to use the facilities covered by such certificate and to receive dividends or earnings from the corporation. Upon the liquidation of the corporation, the Proprietary share or certificate is an evidence of interest, participation or

interest, participation or privilege over a specific property of a corporation that from the corporation or to its assets upon its liquidation.18 allows the holder of the share or certificate to use such property under certain terms and conditions. The holder, however, shall not be entitled to dividends On the other hand, non-proprietary share or certificate is an evidence of

Php 392,000.00, payable in three (3) ways as above-mentioned. An investor who purchases the same is entitled several privileges which includes a free one night stay for family members once a year, certain percentage discounts on the club's amenities, profit sharing of 30% of the club's annual net income, 20% income the Beach Club and to use its facilities. referral when membership is used by friends or family friends to get access to In the instant case, SEASHORE sells/offers club membership shares for

17 Rule 3.1. 1 5 of the SRC-IRR. 18 Rule 3.1.13 of the SRC-IRR.

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SEASHORE did not file the same. Further, we also agree with the CGFD when it that SEASHORE is selling or offering proprietary shares to the public. This is evidenced by the fact that there was a directive from CGFD to SEASHORE to file a opined that SEASHORE is engage in securities-solicitation without a secondary license or permit to do so. registration statement to cover for the latter's securities. However, as to date Applying the above-definition of proprietary share, it cannot be denied

by SEASHORE's agents. As a rule, public offering is any offering of securities to communications, information communication technology or any other forms of communications.19 This clearly establishes a. fact that SEASHORE is publicly shares to the public through online means such as the facebook account created the public or to anyone, whether solicited or unsolicited. It may be done through advertisement or announcement on radio, television, telephone, electronic offering its club membership shares. It is also evident that SEASHORE is selling/offering its club membership

by SEASHORE and the persons acting for it. In view of the above discussion, there are three (3) violations committed

the requirement of registration, securities shall not be sold or offered for sale or form of club membership shares or proprietary shares, without prior involved are exempt securities or exempt transactions which are not covered by distribution within the Philippines, without a registration statement duly filed securities, in such form and with such substance as the Commission may above, SEASHORE is engaged in the offering and/or selling of securities in the registration with the Commission. with and approved by the Commission.2o Prior to such sale, information on the prescribe, shall be made available to each prospective purchaser.21 As discussed First, the non-registration of securities. Under the SRC, unless what is

instant case, SEASHORE and/or all persons acting for and on their behalf are acting as either broker or dealer, without being registered as such. person shall engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated person of any broker or dealer unless registered as such with the Commission.22 In the Second, the non-registration of broker or dealer. The law provides that no

conferred.23 In that instant case, SEASHORE's primary purpose24 does not shall possess or exercise any corporate powers except those conferred by the except such as are necessary or incidental to the exercise of the powers so Corporation Code or by its Articles of Incorporation/Articles of Partnership and Third, the commission of ultra vires acts. No corporation or partnership

22 Section 28.1, SRC 23 Section 45, Corporation Code of the Philippines. 24 Note 3, Supra. 20 Section 8.1, SRC. 21 d 19 SRC Rule 3.1.17.

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authorize to engage in the selling or offering for sale proprietary shares to the public.

immediately be enjoined pursuant to Section 64 of the SRC, which provides that: Therefore, the violations committed by SEASHORE and its agents should

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

departments which regulate registration of securities, wherein CGFD also determined that SEASHORE is engaged in securities-solicitation. Commission may issue a cease and desist order: First, there must be a proper investigation or verification25. In the instant case, EIPD was able to conduct a thorough investigation on confirmed Ventura's email membership shares to the public through wherein they were able to elicit informatio EIPD conducted a surveillanc SEASHORE's Marketing Director. Furthe certifications of CGFD, MSRD and CRMD, the Commission's operating From the foregoing, there are two essential requisites before the SEASHORE'S that SEASHORE EIPD sought the opinion and SEASHORE's principal's office, ment-taking activities. EIPD the selling/offeringitscluh acebook). Furthermore presentation of Leycc

will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury or prejudice to the investing public26. It should be noted that without a license from the Commission, SEASHORE's investment-taking activities cannot be regulated nor supervised. It is noticeable that SEASHORE's investment scheme clearly falls as offering and/or selling of securities in the form of club membership shares or proprietary shares and if it remains unregulated or unsupervised, would likely defraud the investing public. Second, there must be a finding that the act or practice, unless restrained.

expounded the duty of the Commission concerning unregistered securities, to wit: In SEC, et al. vs. CJH Development Corporation, et al.27, the Supreme Court

by the Commission. Based on this initial finding, respondents' act of "Lastly, the Court neither agrees with the ruling of the CA that there is nothing in the assailed CDO which shows that the acts sought to be restrained therein operate as a fraud on investors. The SEC arrived at a preliminary finding that respondents are engaged in the business of selling securities without the proper registration issued selling unregistered securities would necessarily operate as a 25 Securities and Exchange Commission vs. Performance Foreign Exchange Corporation, GR No I 5413 1. Juty 20. 2006. 27 G.R. No. 210316, 28 November 2016. 26 ibid

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as the SEC may prescribe, shall be made available to each it appear that respondents have authority to deal on such fraud on investors as it deceives the investing public by making Securities. As correctly cited by the SEC, Section 8.1 of the SRC clearly states that securities shall not be sold or offered for sale or duly filed with and approved by the SEC and that prior to such sale, information on the securities, in such form and with such substance prospective buyer. The Court agrees with the SEC that the purpose of this provision is to afford the public protection from investing in worthless securities. distribution within the Philippines without a registration statement

in the Commission, SEASHORE BEACH CLUB, INC., its partners, officers, form of club membership shares or proprietary shares or any others of the same directors, agents, representatives, conduits, assigns, and any and all persons claiming and acting for and in their behalf and under their authority are hereby from engaging in activities of selling and/or offering for sale securities in the nature until the requisite registration statement is duly filed with and approved by the Commission and the corresponding license to offer/sell is issued. Ordered to IMMEDIATELY CEASE AND DESIST28,UNDER PAIN OF CONTEMPT WHEREFORE, premises considered and pursuant to the authority vested

and/or agents, is DIRECTED TO CEASE its internet presence relating to above-stated investment activities. 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 behalf of the subject corporations. Furthermore, the subject corporation, together with its representatives

main office and/or branches, if any, of SEASHORE BEACH CLUB, INC. BEACH CLUB, INC., its President, General Manager, Treasurer, In-House Counsel or other officers, if any; and 2) post copies of the Order at the entrance of the The EIPD is hereby DIRECTED to: 1) serve this Order to SEASHORE

published in a national newspaper of general circulation; and 3.) furnished to all the Commission's departments for their information and appropriate action. Let a copy of this Order be: 1.) posted in the Commission's website; 2.)

way of a pleading, to the Commission En Banc WITHIN FIVE (5) DAYS from receipt of this Cease and Desist Order. EIPD is FURTHER DIRECTED to submit a formal compliance report, by

Part II, Rule IV of the 2016 Rules of Procedure of the Securities and Exchange In accordance with the provisions of Sec. 64.329 of SRC and Sec. 4-3 (b)30,

29 RC. Section 64.3. Any person against whom a cease and desis order was iued maywithin five () days from receipt of fifteen (15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of 28 Section 64. 1, SRC, The Commission, after proper investigation or verification, motu propio, or upon verified complaint by practice. unless restrained, will operate as fraud on investors or is otherwise likely to cause grave or irreparable injury or any aggrieved party, may issue a cease and desist order without the prejudice to the investing publi the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the Commissior sity of a prior hearing if in its judgment the act or D not later tha

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motion for the lifting thereof within five (5) days from receipt hereof. Commission, the parties subject of this Cease and Desist Order may file a verified

FAIL NOT UNDER PENALTY OF LAW.

SO ORDERED.

Pasay City, Philippines; 31 August 2017.

TERESITA J. HERBOSA Chairperson

ANTONIETA F.IBE Lhtmair houaarg .de Commissioner EPHYRO LUIS B. AMATONG Commissioner

Commissioner JAMESG MOAA RBO EMILIO B.AQUINO Comm ssioner

shall be set for hearing by the Commission En Banc not later than fifteen (15) days from its fling and the resolution thereof shall be made not later than ten (10) days from the termination.of the hearing. If the Commission fails to resolve the request the hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order shall 30 For a CDO issued ex.parte under Sec. 64 of the SRC and other special laws, the same may be lifted upon fling by the person subject thereof of a verified motion to lift the CDO within five (5) days from receipt of said Order. Said motion to lift within the period herein prescribed, the CDO shall automatically be lifted: automatically be lifted