SEC issues final closure order against digital marketing firm Crowd1

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The Securities and Exchange Commission (SEC) has made permanent its order stopping Crowd1 Asia Pacific Inc. from soliciting and accepting investments from the public under a scheme disguised as a digital marketing business.

In a resolution issued on July 2, the SEC denied the appeal filed by Crowd1 for lack of merit and declared the cease and desist order permanent.

“A careful review of the Motion to Lift will show that except for its general denials, Crowd1 failed to present any evidence in support of its claim that it is not engaged in the sale and/or offer for sale of securities in the form of investment contracts,” the resolution read.

The SEC issued a cease and desist order against Crowd1 last May 12 after finding that the entity has operated “a fraudulent investment scheme consisting of the sale and/or offer of inexistent securities in the form of investment contracts to the public.” Crowd1 has solicited and accepted investments from the public by offering what it describes as educational packages for a minimum of P6,000 and as much as P240,000.

To entice the public to invest, Crowd1 has promised member-investors five different bonuses: streamline bonus, binary pairing bonus, fear of loss bonus, matching bonus, and residual bonus from games and gambling apps.

Crowd1 likewise touted a pairing incentive payable in euros to encourage member-investors to recruit new members. Representing itself as a digital marketing business, Crowd1 has claimed that it generates income from online games and facilitates the generation by its members of residual income from its affiliate gaming companies such as Affiglo and Miggster.

The SEC ruled thatCrowd1’s scheme involved the sale and/or offer of securities in the form of investment contracts and, thus, required a secondary license under Republic Act No. 8799, or The Securities Regulation Code (SRC).

The SEC also ruled that the act of Crowd1 of publishing and making presentations on its investment/business scheme through its website, Facebook, YouTube and on-ground events, and inviting investors constituted a public offering as defined under the SRC.

Crowd1 only registered as a corporation for the primary purpose of engaging in business process outsourcing services. The SEC emphasized that the certificate of incorporation granted to Crowd1 explicitly prohibited the corporation from soliciting, accepting or taking investments or placements from the public as well as from issuing investment contracts.

In its Motion to Lift, Crowd1 argued its operations were limited to business processing, with affiliates marketing products and shares in the earnings of the organization. It also argued that the educational packages it was selling to the public was allowed since its objective is to educate the affiliates of the organization on possible wealth to be gained from marketing products and services.

The SEC, however, sustained the evidence presented by the Enforcement and Investor Protection Department (EIPD) showing Crowd1 was soliciting investments by enticing people to avail of its educational packages and recruit more investors to receive commissions.

“As correctly pointed out by the EIPD, people avail of the so-called educational packages for the purpose of securing for themselves the guaranteed high yields promised by Crowd1.Thus, we agree with the EIPD that the marketing of Crowd1’s investment products is actually a public sale and/or offering of securities in the form of investment contracts,” the agency said.

The SEC also foundCrowd1’s investment taking-activities ultra vires or beyond the authority it was granted, in violation of Section 44 of Republic Act No. 11232, or the Revised Corporation Code of the Philippines.

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