PH SEC Advisory Against CryptoPeso Which Offers Investment Contracts Without License to Do So
April 8, 2020 – The Securities and Exchange Commission (SEC) has a new advisory concerning the entity called CryptoPeso. The SEC said CryptoPeso, Indigen, Blockxperts Inc through the “PHPc Staking Program” are not authorized to solicit investments from the public because they lack the necessary licenses to do so as stated in the Securities Regulation Code. In addition, the Bayanihan to Heal as One Act forbids anyone to take advantage of the current crisis situation due to COVID-19 pandemic to prey on the public through scams, phishing, fraudulent emails, or other similar acts.
In a press release, the SEC found out that CryptoPeso is publicly soliciting investments online in the guise of a mobile wallet and payment application. Some facts about CryptoPeso as mentioned from the SEC advisory:
- Operated by Blockxperts Inc
- Founded by Mr. Larrimar Espiritu Tia
- Mr. Tia is also the Chief Innovation Officer of Indigen, which is the company that introduces the “Unilevel Marketing Program” in the CryptoPeso application.
On CryptoPeso’s website, it calls itself as the first stablecoin and DeFi (Decentralized Finance) project in the Philippines. It claims that CryptoPeso (PHPc) is a stablecoin backed up by Philippine Peso (PHP). Its CryptoPeso mobile is a multi-token wallet on the Waves Platform. The company said in their projects page that they are working on some use cases, including “Pera Paabot – DeFi Remittance System” and “CryptoBank”.
On its affiliate page, CryptoPeso said they applied as an Operator of Payment System (OPS) with the Bangko Sentral ng Pilipinas (BSP) and they were assigned a Provisional Certificate of Registration. The number mentioned cannot be found on the BSP’s official list of OPS with Provisional certificates. A photo of the license was shared by CryptoPeso on Facebook, indicating it was approved on April 5, 2020 while the list on BSP is updated on May 22, 2020. CryptoPeso further said those who are meticulous about BSP and government licenses should not use their platform.
Note: The license for OPS does not authorize the entity that has that license to undertake activities like money service business and electronic money issuance, which will require other types of BSP licenses.
As to why PHPc increases in value, here’s what they said.
No License to Offer Securities
SEC confirms that Blockxperts Inc is a registered corporation with a certificate of registration issued by SEC on May 9, 2019. However, CryptoPeso and Blockxperts Inc have not been issued a license to publicly offer or sell securities or even to act as broker or dealer in securities. Likewise, Indigen does not have both the license as a corporation and the license to offer securities to the public.
CryptoPeso’s PHPc Staking Program
SEC found out that the mobile app CryptoPeso launched a PHPc Staking Program. This requires an investment fee of Php 2,000 plus an activation fee of Php 500. The member must stake this for at least 3 months in order to earn profit.
SEC said one of its Facebook public posts enticed people to invest with this sales pitch: “Simply stake and lock in a minimum 2,500 PHPc for at least 3 months, you will earn profit shares from all of our product sales and other sources of income” and “the longer you lock in your PHPc, the bigger your shares will be.”
When a member joins the staking program, the pesos invested will be converted to Cryptopeso and will be staked and locked in for 3, 6, 12, or 24 months at the option of the investor. When the member staked in and then decided to convert it back to Pesos before the locking period ends, they will be penalized by deducting 7% of the amount they invested.
SEC said the profit share is computed based on the amount invested and its lock-in period.
- 1 share for every 500 PHPc share
- if the member invested Php 2,500 converted to 2,500 PHPc, they get 5 shares.
- If the member chooses the 3-month lock-in period, the 5 shares will be multiplied by 3, which means they get an additional 15 shares (5 x 3). In the 2nd month, the 5 shares will be multiplied by 2 which represents the remaining 2 months (5 x 2). In the 3rd month, the member gets 5 shares (5 x 1 = 5 additional shares)
- Overall, the investor that will stake the minimum 2500 PHPc will gain a total of 15,000 PHPc or Php 15,000 once converted into Peso after the lock-in period.
- This is six times the initial investment, without doing anything aside from investing money.
SEC said that under the Unilevel Marketing Program, CryptoPeso offers affiliate commissions for every recruit who registers and invest using the referral link.
CryptoPeso website listed the following packages:
- Manager Package (Upgrade Fee Php 2,000)
- Builder Bonus: ₱300
- Leveraged Bonus: ₱150 (Level 2 CPAs) and ₱100 / ₱50 (Level 3 / 4 to 7 CPAs)
- 2-Up Level 1: ₱75
- 2-Up Level 2: ₱75
- Director Package
- Upgrade fee Php 4,500 from Associate, Php 2,500 from Manager.
- “Upgrading to Director Package will activate your PayChain UniMatrix and you will be auto-spilled in our 5×5 UniMatrix where each PayNode that comes after you in the tree will earn you ₱1,000 once you complete your 5 frontliners (Level 1 PayBlock). Similarly once all your downlines in the UniMatrix tree completes their Level 1 PayBlock with 5 PayNodes, you will again earn the same ₱1,000 down to Level 5. So in our 5×5 PayChain UniMatrix program, you can potentially earn maximum of ₱781,000 once you fill up your UniMatrix. 5×5 means you can have maximum of 5 frontliners (Level 1) and the succeeding ones will be auto-spilled below you, and you can earn down to 5 Levels deep.”
Why is it an Investment Contract?
SEC said it is evident that CryptoPeso is offering a scheme that is a security in the form of an investment contract. Why?
- There is an investment of money – the member is required to stake his money for a certain period.
- There is an investment in a common enterprise – the party soliciting investments pays out profits from its pooled funds.
- There is the expectation of profits – the investor is given the promise of returns in the form of cryptocurrency which can be converted to Peso after the lock-in period.
- The profits are generated from the effort of others – Cryptopeso and its operator undertake to perform all the profit-generating activities like Bitcoin mining and distribute profit shares in accordance with a scheme they designed and fully control.
Penalty Under Securities Regulation Code
The act of selling or offering securities with the proper registrations is prohibited and penalized with a maximum fine of Php 5 million or a penalty 21 years of imprisonment (Securities Regulation Code).
Penalty under Bayanihan to Heal as One Act
Additionally, the recently passed Bayanihan to Heal as One act adds additional punishment to those participating in cyber incidents that make use or take advantage of the current crisis situation to prey on the public through scams, phishing, fraudulent emails, or other similar acts.
SEC reminded that those who act as salesmen, broker, dealer, or agents of CryptoPeso, Blockxperts, or Indigen in selling or convincing people to invest may be prosecuted and held criminally liable.
SEC said the names of those involved will be reported to the Bureau of Internal Revenue (BIR).
Lastly, SEC advised the public to exercise caution in dealing with individuals or group related to CryptoPeso/Blockxperts Inc /Indigen and further advised the public to stop investing in any investment scheme offered by the said entities or individuals.
A copy of the SEC advisory can be found here. Everything stated in this article is also found in the SEC advisory and the CryptoPeso website.
This article is published on BitPinas: PH SEC Advisory Against CryptoPeso Which Offers Investment Contracts Without License to Do So