SEC makes permanent cease order against MFT

THE Securities and Exchange Commission (SEC) made permanent the cease-anddesist order (CDO) it issued against Maria Francesca Tan (MFT) Group of Companies Inc. and Foundry Ventures I Inc.

In an en banc resolution, the SEC denied for lack of merit the omnibus motion filed by the MFT Group, Maria Francesca Mica F. Tan, Ronald G. Nery, Halmond Parker R. Ong, Maricris T. Tan, Jose Donnie B. Montelibano, Arlene C. Mauricio, Maria Beatriz Dolores R. Tomas and Mary Ruth A. Oquendo, praying for the lifting and/or declaration of the automatic lifting of the CDO.

The SEC also denied for lack of merit the motion to lift the CDO filed by Foundry Ventures, Florita F. Tan, Charles Edward Tan, Christian Konstantin P. Agbayani, Chiqui Tan, Romarico Ruiz, Arlene Navarro, Joanne A. Caber, Thuy Nguyen, Roxanne Agbayani, Luis Gabriel R.cancio, Noel M. Olan, JR Hernandez, Christian Olan, Tito Cosejo Jr. and Christian De Vera.

The SEC issued the order last January 16, after the MFT Group, which later on transitioned to Foundry Ventures, was found to have engaged in the unlawful solicitation, offer, and sale of securities in the form of investment contracts without the necessary license from the SEC.

Based on the complaints received and the independent investigation conducted by the SEC Enforcement and Investor Protection Department, the MFT Group organized public events where it solicited investments supposedly for startup companies in exchange for a guaranteed return ranging from 12 percent to 18 percent per annum.

For this purpose, the MFT Group issued post-dated checks but the amounts indicated therein were not paid.

According to the EIPD, the MFT Group deliberately used the term, interest income, to give semblance of legitimacy to the transactions, which the group packaged as loans.

The Securities Regulation Code (SRC) provides that securities should not be sold or offered for sale or distribution within the Philippines without a registration statement duly filed with and approved by the SEC.

While registered as corporations, MFT Group of Companies and Foundry Ventures have not secured the required secondary license in the form of an approved registration statement and a permit to sell securities to the public, as required under Section 8 of the SRC, in relation to Section 3 of the 2015 SRC Implementing Rules and Regulations.

In its motion to lift the CDO, Foundry Ventures argued that the loan agreements that were issued were not securities in the form of an investment contract or evidence of indebtedness.

“[T]he Supreme Court ruled that commercial papers evidencing indebtedness, which certainly include loan agreements and checks, can be regarded as shares of stocks if issued pursuant to a scheme that enables the lenders to participate in the profits of the corporation [and actually expects a return on their investments],” the order read, citing the Gabionza case.

“The unauthorized investment scheme of [MFT Group] which made use of loan agreements and checks constituted an offer/sale of unregistered securities in the form of investment contracts and/or evidence of indebtedness,” the SEC said.

The SEC also dismissed the MFT Group’s arguments that the CDO was deemed automatically lifted upon the commission’s failure to set a hearing after the group’s filing of a motion to lift.

It found devoid of basis Foundry Ventures’ claim that the SEC failed to conduct a hearing after the filing of the motion to lift.

“The fact that the proceedings involving the [CDO] was not yet submitted for resolution necessarily precludes the automatic lifting thereof precisely because it is the resolution which the Commission will issue that will determine if the [CDO] will be lifted or will be made permanent,” the SEC said.

“Necessarily, as long as the violation subsists or that a violation will be committed, the CDO issued by the Commission should subsist and continue to have full force and effect; otherwise the purpose of Sec. 64 of the SEC will be negated.

“A contrary view will incentivize scheming fraudsters and con artists who can conveniently take advantage of an automatic lifting of a CDO by a mere lapse of time, even if the proceedings on the same are not yet terminated, as what happened in the instant case. Such is clearly not the intent of the law.”