Q&A with SEC Chairperson Teresita Herbosa on Fighting Pyramiding and Unregistered Investment


Atty. Teresita Herbosa is the Chair of the Securities and Exchange Commission (SEC) tasked to implement two major laws, the Corporation Code, where they act as the registrar and monitor of all corporations and partnerships, and the Securities Regulation Code (SRC), where they regulate securities and capital markets.

According to the Direct Selling Association of the Philippines (DSAP), many new companies have emerged using schemes undermining legitimate multi-level marketing (MLM) companies. Among these violations are pyramiding firms using the binary compensation plan which balances the number of people instead of sales volume, a violation of the Consumer Code of the Philippines against head hunting. A twin violation is asking people to put money in multiple business centers (known as headers), a type of investment. For instance, Person A will be asked to invest in two business centers (B and C) followed by another four business centers (two under B and two under C), for a total of seven business centers or 7-headers.

Pyramiding is under the watch of the Department of Trade and Industry (DTI) while unregistered investment is under the SEC. In an unprecedented and no-nonsense manner, Chair Teresita Herbosa gives categorical answers about companies selling headers and unregistered investment where victims can file legal cases against their companies as well as those who solicited or recruited them. No wonder, the SEC came out No. 1 among 36 government agencies/private entities surveyed nationwide by SWS on sincerity in the fight against corruption in 2015.

Q1: Some companies disguising themselves as Multi-Level Marketing firms ask people to invest in multiple “business centers” (known as 3-headers, 7-headers, 15-headers, etc.). Are they authorized to solicit investment? Why or why not?

A: Based on the complaints received from 2014 to present by the Enforcement and Investor Protection Department (EIPD) of the SEC against Multi-Level Marketing (MLM) Firms/Companies, all of these companies are not authorized to solicit investments from the public. Whether or not they are 3-headers, 7-headers, or 15-headers, for as long as the emphasis of their activities is on “recruitment of people/downlines” and not on selling of products, the SEC considers this as “investment contracts” and partake of the nature of “securities”.

As a rule, offering for sale or distribution of securities to the public requires a “secondary license” issued by the SEC before any entity or person may do so. Hence, in the absence of the said license, any person or entity cannot offer for sale or distribute “securities” to the public.

Q2: Which “header-type” companies has SEC asked to stop operating so far? Have charges been filed?

A: Again, whether or not these companies are of header-type structure, the SEC has already issued several Cease and Desist Orders against their unlicensed activities or investment solicitation without the necessary license directing them to stop their operations. SEC Advisories were likewise issued to warn the public against these companies to protect the people from parting with their hard-earned money by investing in unregistered securities.

Pursuant to the CDO’s, charges for violations of Sections 8 and 28 of the Securities Regulation Code were already filed against some of these companies. Concurrent to our filing, charges of syndicated estafa were also filed by PNP-CIDG Anti-Fraud and Commercial Crimes Unit.

Q3: Why do you think unregistered investment firms are sprouting in the Philippines?

A: Recruiters or solicitors of investments use a scheme known as “Get Rich Quick” wherein they promise extremely high returns within a short period of time without need of doing something. This type of scheme is also known as Ponzi scheme. Some of the reasons why there is a proliferation of unregistered investment firms in the Philippines are the following: 1) Financial education for common Filipinos is still scarce. People do not know which business is legal or illegal. In fact, those who joined in the scheme do not know if there is any law that is being violated. They believe that what they are doing are legitimate; 2) People do not mind asking the regulators whether or not the companies they are going to invest in are duly licensed to do so. They are too vulnerable or gullible to investing in this type of scheme; and 3) With the little amount required or affordable investment opportunity offered to them, people do not hesitate to join in this scheme.

Hence, the more people who are unwary and willing to invest in Ponzi schemes, the more people who are also eager to form investment firms to create an appearance of a legitimate business operation and to perpetrate this type of activity.

Q4: If consumers have invested in a “header-type” of investment, can they file cases against these unauthorized companies? What charges and what penalties can they ask for? How can they do that?

A: People who have invested in unregistered investments, not necessarily a “header-type” of investment, can file complaints against these unauthorized companies for violation of Sec. 8 of the Securities Regulation Code (SRC). The corporation that violated this provision, through its officers, shall suffer the penalty or fine of not less than Fifty thousand pesos (P50,000.00) nor more than Five million pesos (P5,000,000.00) or imprisonment of not less than seven (7) years nor more than twenty-one (21) years, or both in the discretion of the court as provided for in Sec. 73 of the SRC.

The private complainant must file his complaint to the SEC which has the primary jurisdiction over SRC violations. After determination of probable cause by the SEC that a violation of the SRC was committed, the latter shall file a criminal complaint before the Department of Justice.

Q5: What about independent agents or distributors soliciting investment in a “header-type” of securities? Can investors file cases against them? What charges and penalties can they ask for? How can they do that?

A: Yes, investors can file cases/ complaints against the agents, brokers, or distributors of unauthorized investment companies, in the same way as they can file complaints against the companies. However, the complaint shall be for violation of Sec. 28 of the SRC, the penalty for which is also provided for in Sec. 73 thereof.

In the case of SEC vs. Oudine Santos (G.R. No. 195542, March 19, 2014), the Supreme Court ruled that those who invite or recruit other people to join or invest in the venture or other investment contracts or securities to the public maybe held criminally liable or accordingly sanctioned.

( Click to read Josiah Go’s article on Pyramiding and Unregistered Investment for a complete list of legitimate MLM companies, please visit www.dsap.ph)

Josiah Go

Josiah Go is the Chairman and Chief Innovation Strategist of Mansmith and Fielders, Inc., and Chairman of Waters Philippines (the market leader in the direct selling of premium home water purifiers in the Philippines). He is Chairman / Vice Chairman / Director of over a dozen companies. Known as one of the Philippines’ most respected marketing gurus, he is the most awarded business educator of the Philippines having been recognized as one of the Agora Awardees in 1994, one of the Ten Outstanding Young Men (TOYM) of the Philippines in 2001, one of the Ten Outstanding Young Persons (TOYP) of the World in 2002 (the 1st and only Filipino in Business Education given by World JCI in a competition of over 1,000 TOYMs), and one of only two Lifetime Achievement Awardees by the Association of Marketing Educators (2007), the youngest marketing educator to be bestowed this honor. He was also given the Brand Leadership Award during the World Brand Congress in India (2009). His accomplishments was recognized by the international community where he has been included in the 10th edition of the International Who’s Who of Intellectuals (England). He is also the first Filipino to have completed the Blue Ocean Strategy qualification process in Blue Ocean Institute in INSEAD, France and is the first in Southeast Asia to have taught this as a 3-unit, full semester course in a university. He specializes in the fusion of marketing and innovation using the lenses of data-driven entrepreneurship and teaches advanced marketing subjects like Market-Driving Strategies, Business Model Innovation, 5 Skills of Master Strategists, Marketing Innovation, Mastering Innovation and Defense Strategy. He has given talks and facilitated over 1,000 marketing seminars in the Philippines and internationally to teams in diverse industries, in different situations and contexts. A thought leader with 18 bestselling and recordbreaking marketing and entrepreneurship books, Josiah has taught at the De La Salle and Ateneo Universities. He is an Executive Scholar of the Kellogg Business School (in Marketing and Sales Management) as well as the MIT Sloan (in Strategy and Innovation). He also took advance marketing programs at Harvard, Wharton and at the London Business School. His industry affiliations include being National President of the Philippine Marketing Association (1991), Chairman of the Direct Selling Association of the Philippines (2002), National President of the Association of Marketing Educators (2004-2005). He continues to be involved in various advocacies aimed at youth empowerment and entrepreneurship namely, the Young Market Masters Awards (YMMA), Mansmith Innovation Awards, Day 8 Business Academy for SMEs, and the MarkProf Foundation.

2 thoughts on “Q&A with SEC Chairperson Teresita Herbosa on Fighting Pyramiding and Unregistered Investment

  1. Tanong ko lng po ung uno po ba ay legitimate n company? Kasi may recruiting po sila tapos kikita ka sa narecruit mo.

Leave a Reply

Your email address will not be published. Required fields are marked *

Next Post

Women as Entrepreneurs and Executives

Mon Mar 7 , 2016
(Women power in my family: my daughter Tricia Gosingtian and my wife Chiqui Escareal-Go) March is International Women’s month, and as part of the celebration, this blog will exclusively feature Filipino women achievers who have made their mark in their chosen fields. I pursued this suggestion from Chiqui Escareal-Go when we were on a train from Munich, Germany to Salzburg, […]

Josiah Go features the movers and shakers of the business world and writes about marketing, strategy, innovation, execution and entrepreneurship


Send this to a friend