Thursday, June 20, 2024

SEC warns public against investing in cryptocurrency ‘Lodi Coins’

The Securities and Exchange Commission (SEC) has advised the public against investing in Lodi Coins, a supposed virtual currency offered on social media without the necessary licenses from regulators.

This photo from the Facebook page of Lodi Technologies Inc. shows an executive making a presention about the company’s Lodi Coins

In an advisory dated September 29, the SEC flagged the public offering of Lodi Coins by Lodi Technologies Inc. without securing from the agency the required order of registration of securities and certificate of permit to offer and sell securities.

Lodi Coins is not registered as a virtual asset service provider with the Bangko Sentral ng Pilipinas (BSP). Lodi Technologies also does not have the corresponding certificate of authority from the central bank as a money service business (MSB), as required under the BSP guidelines for virtual asset providers.

Lodi Technologies offered Lodi Coins to the public through Facebook, Twitter, Instagram, and Discord. Investment packages ranged from P12,500 to P500,000, with the potential to earn at least 10 times or 1,000% of the total amount invested after Lodi Coin’s initial coin offering.

On its website, Lodi Technologies claimed that Lodi Coins were utility tokens, and could not be considered as a share or a security, as defined by Republic Act No. 8799, or the Securities Regulation Code (SRC).

However, echoing the US Securities and Exchange Commission, the SEC Philippines noted that “securities law may apply to various activities, including distributed ledger technology, depending on particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular offer or sale.”

In this light, the SEC noted that some virtual currencies may partake of the nature of securities as defined under the SRC, whereby a person invests money in a common enterprise and is led to expect profits primarily from the efforts of others.

“The same goes for [Lodi Coins] where Lodi Technologies Inc. seeks to use the money it gathered from the public to fund its purported project on the promise of profits,” the commission said.

“In other words, merely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporates features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of a security.”

While Lodi Technologies was registered with the SEC as a corporation, it does not have the necessary license and authority to offer investments to the public.

The SEC further highlighted that Lodi Technologies’ articles of incorporation stated that it was a business process outsourcing (BPO) firm, much different from its actual business model.

“This constitutes serious misrepresentation as to what the corporation can do or is doing to great prejudice of or damage to the public, a ground for revocation of certificate of registration under Presidential Decree 902-A,” the SEC said.

Moreover, Lodi Technologies’ incorporation papers explicitly state that it shall not solicit, accept, or take investments from the public, nor issue investment contracts, it noted.

“Hence, the public is advised not to invest or stop investing in Lodi Coins and Lodi Technologies Incorporated’s investment-taking scheme who operate without the necessary licenses and/or authority,” the commission advised the public.

“Accordingly, the Commission warns all unscrupulous individuals and/or entities that strict penalties are imposed for violations of the [SRC], the Revised Corporation Code, and such other rules and regulations enforced by the Commission.”

Individuals acting as salesmen, brokers, dealers or agents of such unauthorized entities like Lodi Technologies, including solicitations and recruitment through the internet, may be criminally prosecuted and penalized with a maximum fine of P5 million or face a prison sentence of up to 21 years, pursuant to the SRC.


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