The basis of the information from this article is from the Commission's website.
The Philippines Securities and Exchange Commission has issued an advisory against AirBit Club and GO88 Ventures, Inc. which are offering online investments to the public. The scheme involved requiring users to pay a subscription package, in which the money invested by the user, the companies claim, will be used to pay for cryptocurrency mining equipment/software and pay for its affiliates.
Airbit Club Bitcoin Investment Scheme
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When a user signs for an AirBit Club account, they will be asked to choose a subscription package that will have different cycles, volume, and estimated total profit. Volume refers to the points from referral credits. Cycle refers to the cloud mining contract equivalent to 75 business days. Total Profit Days is the number of days the account will profit.
50% of the money will be shared with affiliates while the other half will be used to acquire mining equipment to be used for cryptocurrency mining.
The registration will be completed once the user sends a specified amount of bitcoin into their Airbit Club bitcoin wallet. This will act as payment for their subscription fee.
The user is then given 3 wallets, a Cash Wallet which will reflect whatever amount of bitcoin is sent from an external bitcoin wallet into the Airbit Club bitcoin wallet, a Commission Wallet for commissions, and a Rewards Wallet for rewards.
How Investors Can Earn
Airbit Club offers Passive Income and Active Income. The Passive Income refers to daily rewards which the user earns from every profit earned by Airbit Club through bitcoin trading and mining. Active Income refers to bonuses when the user recruits another user directly or indirectly. There are multiple levels of recruits and “Pro members” can receive bonuses up to their 18th level recruits.
There are also binary bonuses every time the user completes the left and right side of their recruitment pyramid.
The commission, upon applying the “Howey Test”, concluded that Airbit Club subscriptions are investment contracts because it satisfies the following requirements.
- There is an investment of money. The SEC claims that purchases using cryptocurrency are considered an investment of “money”.
- There is a Common Enterprise. Investors who subscribe are deemed “investing in a common enterprise” because the profits from mining are divided among the subscribers.
- There is an expectation of profits. According to the commission, “the sole motivating force in purchasing Airbit Club subscriptions” is the promise of profits.
- The profit is primarily from the efforts of others. The sole responsibility of the subscriber is to pay fees in the form of bitcoin so that it may be used as a trading capital by the company.
Cloud Mining Contracts
The Commission concludes that Airbit Club subscriptions are cloud mining contracts, which, according to a previous advisory, fall within the definition of “securities” as defined by Philippine laws.
Because of that, the law requires the companies to register the said security and acquire the appropriate licenses to sell them.
Notice to Agents
The SEC stated that anyone who acted as agents or salesmen of the company in selling or convincing people to invest in this bitcoin investment scheme will be prosecuted and held criminally liable under the Securities and Regulation Code (SRC) and will be penalized with up to Php 5 million in fine or up to 21 years in prison.
Anyone who invites or recruits people in this illegal activity will also be held criminally liable in accordance with the Supreme Court decision in the case of SEC vs. Oudine Santos (G.R. No. 195542, March 19, 2014).
The names of the people involved in the activity will be reported to the Bureau of Internal Revenue (BIR).
Previous Actions of the SEC
The Securities and Exchange Commission has issued similar advisories in the past with regards to illegal bitcoin and cryptocurrency investment schemes:
Just days before, the Commission has reissued its advisory against Yeheey, which recently promoted on social media that the SEC’s advisory against them has been “sorted out”.
The SEC and Cryptocurrency
The Commission has issued an advisory regarding Initial Coin Offerings early this year and followed with ICO draft rules released last August 2018. Relevant companies and organizations engaged in cryptocurrency and blockchain have submitted their position papers to the agency.
This September 2018, the regulator will issue draft rules on cryptocurrency exchanges that act as trading platforms. Nevertheless, it continues to advise the public against illegal cryptocurrency investment schemes and encourages everyone to call its Corporate Governance and Finance Department (818-6103) for information on whether securities are registered or not.
This article is first published on September 5, 2018.
- List of Cryptocurrency Exchanges in the Philippines
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