This case involved Power Homes Unlimited Corporation challenging a cease and desist order issued by the Securities and Exchange Commission. The SEC found that Power Homes was engaged in selling unregistered securities through its multi-level marketing business model. The Supreme Court upheld the SEC's order, finding that Power Homes' business constituted an investment contract that should have been registered under Philippine law. The Court determined that Power Homes' scheme met the Howey Test for what constitutes an investment contract. It therefore ruled that the SEC properly issued the cease and desist order, even without a finding of fraud, since Power Homes failed to register the investment contracts it was selling.
This case involved Power Homes Unlimited Corporation challenging a cease and desist order issued by the Securities and Exchange Commission. The SEC found that Power Homes was engaged in selling unregistered securities through its multi-level marketing business model. The Supreme Court upheld the SEC's order, finding that Power Homes' business constituted an investment contract that should have been registered under Philippine law. The Court determined that Power Homes' scheme met the Howey Test for what constitutes an investment contract. It therefore ruled that the SEC properly issued the cease and desist order, even without a finding of fraud, since Power Homes failed to register the investment contracts it was selling.
This case involved Power Homes Unlimited Corporation challenging a cease and desist order issued by the Securities and Exchange Commission. The SEC found that Power Homes was engaged in selling unregistered securities through its multi-level marketing business model. The Supreme Court upheld the SEC's order, finding that Power Homes' business constituted an investment contract that should have been registered under Philippine law. The Court determined that Power Homes' scheme met the Howey Test for what constitutes an investment contract. It therefore ruled that the SEC properly issued the cease and desist order, even without a finding of fraud, since Power Homes failed to register the investment contracts it was selling.
This case involved Power Homes Unlimited Corporation challenging a cease and desist order issued by the Securities and Exchange Commission. The SEC found that Power Homes was engaged in selling unregistered securities through its multi-level marketing business model. The Supreme Court upheld the SEC's order, finding that Power Homes' business constituted an investment contract that should have been registered under Philippine law. The Court determined that Power Homes' scheme met the Howey Test for what constitutes an investment contract. It therefore ruled that the SEC properly issued the cease and desist order, even without a finding of fraud, since Power Homes failed to register the investment contracts it was selling.
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Power Homes Unlimited Corporation vs.
Securities and Exchange Commission 546
SCRA 567 , February 26, 2008 FACTS: Petitioner is a domestic corporation duly registered with Public Respondent SEC, and is engaged in the transaction of promoting, acquiring, managing, leasing, obtaining options on, development, and improvement of real estate properties for subdivision and allied purposes, and in the purchase, sale and/or exchange of said subdivision and properties through network marketing. Public Respondent SEC acted on the letters of Respondent Noel Manero and a certain Romulo Munsayac, Jr. Manero alleged that in a seminar he attended, Petitioner claimed that it sells properties that were inexistent and without any broker’s license. Munsayac on the other hand, inquired whether Petitioner’s business is legitimate or not.
After investigation, Public Respondent SEC found out that Petitioner is engaged in the sale or offer for sale or distribution of investment contracts, which are considered securities under Sec. 3.1 (b) of Republic Act (R.A.) No. 8799 (The Securities Regulation Code), but failed to register them in violation of Sec. 8.1 of the same Act,Public Respondent SEC issued a Cease and Desist Order against Petitioner.
Petitioner filed this petition for review after the Court of Appeals denied its petition for lack of merit and affirmed in toto Public Respondent’s Cease and Desist Order.
ISSUES:
1. Whether or not Public Respondent SEC followed due process in the issuance of the assailed Cease and Desist Order;
2. Whether or not Petitioner’s business constitutes an investment contract which
should be registered with Public Respondent SEC before its sale or offer for sale or distribution to the public.
RULING:
1. The Court held that Petitioner was not denied of due process.The records reveal that Public Respondent SEC properly examined petitioners business operations when it (1) called into conference three of petitioners incorporators, (2) requested information from the incorporators regarding the nature of petitioners business operations, (3) asked them to submit documents pertinent thereto, and (4) visited petitioners business premises and gathered information thereat. All these were done before the CDO was issued by the Public Respondent SEC. 2. The Court ruled that Petitioner’s business constitutes an investment contract, thus, should be registered with Public Respondent SEC before its sale or offer for sale of distribution to the public.
To determine whether a transaction falls within the scope of an investment
contract, the Court made use of the Howey Test which provides that an investment contract requires a transaction, contract, or scheme whereby a person: (1) makes an investment of money, (2) in a common enterprise, (3) with the expectation of profits, (4) to be derived solely from the efforts of others.
Ciiting SEC v. Glenn W. Turner Enterprises, Inc. et al., the Court therefore ruled that the business operation or the scheme of Petitioner constitutes an investment contract that is a security under R.A. No. 8799. Thus, it must be registered with Public Respondent SEC before its sale or offer for sale or distribution to the public. As petitioner failed to register the same, its offering to the public was rightfully enjoined by Public Respondent SEC. The CDO was proper even without a finding of fraud.
