The Securities and Exchange Commission has been issuing many advisories as of late to warn the public about these scams.
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Investment scams rise amid the COVID crisis—here’s how to avoid falling for them

A lot of scammers are preying on people’s generosity and desperation in these trying times. Here’s what they’re doing, and what you can do to protect yourself from them. BY MAAN D’ASIS PAMARAN
ANCX | May 20 2020

Even as the country came to a standstill with the implementation of the Enhanced Community Quarantine, fraudsters continued to ply their investment scams with get-rich-quick schemes. In fact, the Securities and Exchange Commission (SEC) says that there are more scammers than ever before.

As of May 15, the SEC has issued advisories against at least 49 groups and individuals soliciting investments from the public without the necessary licenses from the Commission since March 8, when the President declared a public health emergency throughout the Philippines. Just in January and February of this year, the SEC has had to issue 12 advisories. It is during this period that the Commission has also served cease and desist orders to two corporations: Lion City Finance Group, Inc. and Payasian Pte Ltd. Corporation.


Taking advantage of uncertainty

The SEC says that it's easy for scams to proliferate despite the nationwide quarantine. Community protocols were circumvented by concentrating recruitment and collection of investments online. The Commission specified Facebook, Twitter, and Viber as popular avenues used by these scammers, who ask victims to send money via bank transfers, Palawan Express and Paymaya. The internet, coupled with the accessibility of money transfer and payment services, has allowed investment scammers to target more people, even those who are outside the country.

According to the SEC, fraudsters have even seen the COVID-19 pandemic as an opportunity to prey on our fellow Filipinos. “Some would appeal to the good nature of our people during these difficult times by claiming that a small percentage of their investments or profits from their investments will be donated to COVID-19 efforts,” it writes in its statement. “Others would take advantage of people looking for alternative sources of income while operations and work in most industries are suspended or limited.”


Spreading like the virus

The SEC says that it has received inquiries, reports and complaints from overseas Filipino workers, retirees, and professionals. Even those without money to spend have become victims of these scams; In their desire to earn quick money, some investors obtain loans from relatives, friends and other sources, and invest the money loaned in these scams. Some are allowed to join without an initial investment as long as they are able to recruit other investors into the scheme. Sadly, senior citizens and new graduates have also been targeted.

Last year, the SEC had already issued a Cease and Desist Order against Kapa-Community Ministry International. Photo from ABS-CBN News

Like any virus, there are vectors. Kapa-Community Ministry International, for instance, targeted public school teachers at some point. The Commission also identified a teacher and an engineering graduate who actively promote and defend outsourcing firm CROWD1, which has been the subject of a recent advisory. Another group, Xtreme House, was offering an investment package tailored for students, seniors, and “special cases.”

Many of the investment schemes recently flagged by the SEC have been openly promoted on social media, in chatrooms and messaging apps. Members would connect with anyone just to make their networks bigger and earn bigger commissions, explains the SEC. But these members would usually start recruiting among their friends, relatives, colleagues, acquaintances or former classmates, banking on their affinity or closeness.


Is it legit?

Some scammers disguise their schemes as donations, educational packages, online gaming, online marketing or advertising, multi-level marketing, reseller business, cryptocurrency mining, forex trading, and what have you. Yet, a scrutiny of their compensation plans would reveal that they are actually engaged in investment-taking activities and, worse, in Ponzi or pyramiding schemes.

The Howey Test was established by the U.S. Supreme Court in the case of the U.S. Securities and Exchange Commission versus Howey Co. in 1946. Our Supreme Court would apply the Howey Test in a 2008 decision on the case of Power Homes Unlimited Corporation versus the SEC.

The test lays down the four elements of an investment contract: 1) there is placement of money; 2) the money is placed in a common enterprise; 3) there is an expectation of return; and 4) profits are derived primarily through the effort of others.

The SEC explains that in the case of Kapa, the money invested is the donation worth at least PHP 10,000 while the common enterprise is Kapa. The member-donor expects profits, which Kapa has dubbed as “blessings” or “love gifts” at the rate of 30 percent of the amount “donated.” The member-donor does not have to do anything other than invest and wait for the payout or, at most, recruit and spread the word.

The SEC issued a statement last month saying that CROWD1 Asia Pacific is not authorized to solicit investments from the public. Photo from Official Website

With CROWD1, members place money by purchasing so-called educational packages. The money is then pooled for the operation and maintenance of CROWD1’s alleged gaming business. Members expect to receive income and bonuses through what they call as profit-sharing. Lastly, members would receive their income and bonuses from the entrepreneurial and managerial efforts of CROWD1, its directors, agents, or representatives.

Having no concrete business plans or sources of income, most investment scams largely depend on recruitment. To somehow create an impression of legitimacy or to justify their promise of unrealistically high and guaranteed return on investment, scammers would layer or associate their schemes with privileges or products, which have no real world value and are ridiculously overpriced, or do not appeal to investors without the promise of getting commissions from recruitment.

In some cases, scammers approach an investor with what is supposed to be an inside information that a stock’s price will rise in a couple of weeks. The scammers then convince the investor to buy the stock right away. It would turn out that the investor’s money was not actually used to buy the stock.


How to spot a scam

It should be noted that scams can never be registered nor will the SEC issue any license to allow an entity to engage in business scams. The SEC emphasizes that no one or no entity can simply solicit investments from the public as the commission itself is tasked to regulate such as activity under Republic Act No. 8799 (or The Securities Regulation Code). Without a registration statement duly filed with and approved by the SEC, securities, which include investment contracts, shall not be sold or offered for sale or distribution within the Philippines. This means that those engaged in scams and are claiming that their business scheme has been approved by the SEC are lying and are doing so to fool the public.

According to the Commission, the tell-tale signs of fraud include:

1. The promise of high or ridiculously high rates of return. Investment scams always come with the promise of quick and easy money. Some guarantee a 30 percent return on investment in a month’s time, while others would promise as much as 400 percent within the same period. If it’s too good to be true, it must be.

2. Guaranteed payment of returns at no risk. Investment scams also give emphasis on the recruitment of more members. In many schemes, investors only have to pay a membership fee, purchase codes and log in an online platform or purchase a package of products without having to resell them. They will receive profits and bonuses as long as they recruit people or as long as new investors are joining.

3. No registration with the SEC. The lack of the necessary licenses should easily give them away. As noted earlier, any offering for sale or distribution of unregistered investment contracts or other securities would necessarily operate as a fraud on investors.

4. The investment plan is difficult to understand, and the investor is mostly in the dark how their investments are supposed to earn. Ask for a prospectus, offering circular, financial statement, or other similar documents that would help you assess the condition and potential of the company. Read the small print carefully, particularly on refund and other rights afforded to you as an investor, and make sure you understand the terms thoroughly before giving any commitment.

5. There is no physical office. Transactions are online and through social media platforms.

6. Meetings are done in public places such as coffee shops and fast food restaurants instead of an office.

7. Claims that the investment is a once in a lifetime opportunity and investor should invest right away.  When in doubt, just keep your money.


Catch the crooks

The SEC has been scaling up its education, information and communication campaign to raise the public’s awareness and knowledge of the modus operandi and evolving tricks of scammers, and enable them to protect themselves from fraud.

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The Commission has also been encouraging the public to report questionable investment-taking activities and to help them advocate for investor protection through something as simple as sharing their advisories with their relatives, friends and colleagues. At the same time, the SEC has been pushing its enforcement efforts further to put the unscrupulous individuals and groups behind bars.

Public involvement is important in that they can provide tips, which result in the early detection and closure of investments scams. The public can provide electronic, documentary and testimonial evidence that can support administrative and criminal action against the scammers.

Scam victims can file complaints with the SEC as well as initiate criminal action for estafa against the company, its officers and promoters. Victims may go to the offices of the National Bureau of Investigation (NBI) or the PNP-CIDG for assistance to file estafa charges against the scammers and the SEC is ready to assist them in filing their criminal complaints with the NBI and the CIDG by providing victims evidence in the form of, but not limited to, negative certifications, and certified true copies of registration documents, among others.

The Commission issues advisories against unauthorized and suspicious investment schemes from time to time. At the SEC, they may visit the Enforcement and Investor Protection Department (EIPD) or the nearest SEC Extension Office. They may also report unauthorized investment schemes through email at [email protected] or phone at (02) 8818-6337 or (02) 8818-6047.