Dec. 2023: Binance, 3 More Entities Flagged by SEC as Illegal Investment Scheme

• The SEC has named OCTAFX / OCTA TRADING, BINANCE, KITO-KIKO VARIETY SHOP/KITO-KIKO INCORP., and HOUSE OF FOREX / H. FLORES BUSINESS CONSULTANCY SERVICES as illegal entities in the country for operating without proper licenses. 
• Trading app Octa FX and crypto exchange Binance do not have the required licenses to offer and sell securities in the country. The advisories against two entities are also part of the Commission’s campaign against unregistered exchanges in the Philippines. 
• Meanwhile, Kito-Kiko Variety Shop and House of Forex offer investment contracts, which require proper registration, and they do not have it.

Seeking to safeguard investors from entities that offer investment contracts in the Philippines without the necessary permits, the Securities and Exchange Commission has flagged down OCTAFX / OCTA TRADING, BINANCE, KITO-KIKO VARIETY SHOP/KITO-KIKO INCORP., and HOUSE OF FOREX / H. FLORES BUSINESS CONSULTANCY SERVICES. 

“Some of these groups’ investment schemes or actions resemble a pyramid/Ponzi scheme, where investors earn through recruitment fees instead of the sale of actual products/services, and investors are paid using the contribution of new members, according to the SEC,” the regulatory agency explained. 

“The Commission remains unwavering in its efforts to stamp out illegal investment-taking activities through financial literacy campaigns and advisories to the public.”

Penalties for Convincing People to Engage With These Firms

Collectively, the advisories against these entities advised the public not to engage or stop investing in them. 

Accordingly, those who act as salesmen, brokers, dealers or agents, representatives, promoters, recruiters, uplines, influencers, endorsers, abettors and enablers of such unauthorized entities could be held criminally liable under Section 28 of the Securities Regulation Code (SRC) and Section 11 of the Financial Products and Services Consumer Protection Act (FCPA). 

And for the two offenses, a penalty with a separate maximum fine of ₱5,000,000.00 or a penalty of 21 years of imprisonment or both, pursuant to Section 73 of the SRC, could be sanctioned. 

OCTAFX/ OCTA TRADING

In September, the SEC ‌issued an advisory against OctaFX or Octa Trading. The advisory emphasized that the trading app is not registered as a corporation in the country and operates without the required license to sell or offer any form of securities. 

The Commission also reiterated that this advisory is part of their campaign against the unregistered and unlicensed cryptocurrency exchanges operating in the country. 

There are several “financial instruments” within the app that the regulator saw as securities: 

• shares (foreign),
• indices (index funds),
• commodity derivatives,
• foreign currency pairs, and
• leverage trading for a maximum leverage ratio of 1:500.

Read more: SEC Exposes OCTAFX/OCTA TRADING’s Unauthorized Investment Activities in the Philippines

BINANCE

On November 28, the SEC warned the Filipinos not to use crypto exchange giant Binance. 

“Based on the Commission’s database, the operator of the platform BINANCE is NOT REGISTERED as a corporation in the Philippines and OPERATES WITHOUT THE NECESSARY LICENSE AND/OR AUTHORITY to sell or offer any form of securities as defined under Section 3.1 of the Securities Regulation Code (SRC), to engage in the business of buying or selling securities or as a broker or dealer as provided under Section 28 of the SRC, or to create or operate an exchange for the buying and selling of securities as provided under Section 32 of the SRC,” the Commission said. 

The features that Binance is offering that are considered ‌investment products, and thus securities, are: 

• spot trading using leverage, 
• futures contracts, 
• option contracts, 
• cryptocurrency savings accounts, 
• cryptocurrency staking services, and 
• a platform for initial coin offerings.

Consequently, the regulatory agency also told BitPinas that it has requested assistance from the National Telecommunication Commission and the Department of Information and Communications Technology to block access to Binance in the Philippines while it also has requested Google and Meta, the operator of Facebook, to prohibit online advertisements from Binance appearing to users in the Philippines.

Read the full story here. 

KITO-KIKO VARIETY SHOP/KITO-KIKO INCORP.

On November 21, the SEC flagged down a merchandise shop Kito-Kiko Variety Shop, and its owner, Rexcel Rose Cernero Sison, which has a verified Facebook account. 

Sison allegedly entices the public to grow their money as high as 11% per month plus 5% or 8% rebate. This is called “Pasalo Slots.” For example: 

• If a person invests ₱20,000, they will have a ₱25,000 payout; 
• If a person invests ₱50,000, they will have a ₱75k payout; 
• If a person invests ₱100,000, they will have a ₱150k payout; 
• If a person invests ₱400,000, they will have 8% monthly payout. 

According to the Commission, the Pasalo Slots scheme of Sison and the Kito-Kiko Shop is obviously an investment contract, which requires certification from the SEC. 

However, neither Kito-Kiko Variety Shop nor Kito-Kiko Incorp. Is registered as a corporation or partnership with the Commission. 

“Likewise, the Commission has not issued a Permit to Sell Securities in favor of “KITO-KIKO VARIETY SHOP/KITO-KIKO INCORP.” Further, said entity has not filed nor has any pending application for registration/ permit to sell securities. Also, based on the records of Commission, “KITO-KIKO VARIETY SHOP/KITO-KIKO INCORP.” is not a registered issuer of mutual funds, exchange traded funds and proprietary/nonproprietary shares or membership certificates and time shares pursuant to Section 8 and 12 of the Securities Regulation Code and therefore not licensed to offer or sell such securities to the public. Therefore, “KITO-KIKO VARIETY SHOP/KITOKIKO INCORP.” lack of prior registration pertaining to its securities with the 

Commission makes its activities illegal,” the SEC exclaimed. 

HOUSE OF FOREX / H. FLORES BUSINESS CONSULTANCY SERVICES

Local foreign exchange (forex) business House of Forex, which also comes with a name H. Flores Business Consultancy Services, is among the latest entities that the SEC has confronted. 

There are several offerings of the forex business that the Commission tagged as solicitation of investments: 

• Basic Trader feature for 30% interest investment for 30 days,
• Bronze Trader feature for 40% interest investment for 30 days,
• Silver Trader feature for 50% interest investment for 30 days,
• Gold Trader feature for 50% interest investment for 25 days,
• Platinum Trader feature for 50% interest investment for 25 days,
• VIP Trader feature for 60% interest investment for 25 days, and
• 10% Commission depending on the total deposited amount by a referred person.

These offerings are considered investment contracts, which are a kind of securities. And offering securities requires registration and licenses from the SEC, which the entity does not have. 

The regulatory agency also tagged the entity’s scheme as a Ponzi scheme, which is not a registrable security: 

“Moreover, the scheme employed by HOUSE OF FOREX / H. FLORES BUSINESS CONSULTANCY SERVICES has the characteristics of a “Ponzi Scheme” where money from new investors are used in paying “fake profits” to prior investors and is designed mainly to favor its top recruiters and prior risk takers and is detrimental to subsequent participants if new investors become scarce.”

This article is published on BitPinas: Dec. 2023: Binance, 3 More Entities Flagged by SEC as Illegal Investment Scheme

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