SEC declares cease and desist order against Casa Infini group permanent
The Securities and Exchange Commission (SEC) has made permanent the cease and desist order (CDO) against Casa Infini Builders and Realty Co. Ltd., Casa Infini Realty Management Co. Ltd., and its affiliated entities.
In a resolution dated October 31, the Commission En Banc affirmed the issuance of the CDO against Casa Infini, effectively denying the company’s motion to lift the order.
The Commission En Banc issued the CDO against Casa Infini on June 8, after the SEC Enforcement and Investor Protection Department (EIPD) found the company and its officers to have been actively selling securities, in the form of investment contracts, without the proper secondary license from the SEC.
Casa Infini enticed the public to invest in their alleged real estate projects in Baguio City either as a buyer-investor or partner financier. Investors were promised a guaranteed income of more than P33,000 per month for 20 months, with the company assuring the public that the investments collected were supposedly financing the real estate properties that it owned, managed, and operated.
Section 8 of Republic Act No. 8799, or the Securities Regulation Code (SRC), expressly prohibits the sale or offer to sell and/or distribute of securities without the proper secondary license from the SEC.
In its motion to lift the CDO, Casa Infini argued that the solicitation from investors is not a scam since its project was supported by a license issued by the Department of Human Settlements and Urban Development.
The group also denied being a Ponzi scheme, noting that the referral fee is paid and incurred not by the investments of new partners but by CI Builders itself because of the acknowledged benefit that the program will have for the business.
Further, Casa Infini noted that no damages were being reported by any of the company’s partners which, supposedly showcasing that the partner financiers did indeed receive the expected returns, proving the authenticity of the promised profits.
The Commission En Banc dismissed the arguments of Casa Infini, maintaining that the group was offering securities in the form of investment contracts to the public without the necessary license.
Rule 26.3.5 of the Implementing Rules and Regulations of the SRC defines investment contracts as a transaction, contract, or scheme whereby a person invests his or another person’s money and/or property in a common enterprise and is led to expect profits primarily from the efforts of others.
“Consistent with the broad definition of securities, the term investment contract should include and cover all forms and varieties thereof which are known or considered, or ought to be known or considered to be such, in the financial world,” the Commission En Banc said.
The SEC cited the 1956 case of State v. Silberberg in the United States which determined whether an interest is considered an investment contract or an interest in real estate. Here, the Ohio Court ruled that “if the purchaser is to partake of the gross proceeds or net profits of enterprises managed by those disposing of interest, the instrument involved is held to be an investment contract.”
The Commission En Banc decision further finds support in the 1946 U.S. case of SEC v. W.J. Howey Co., where the U.S. Supreme Court established the flexibility of the Howey Test and its capability to adapt “to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.”
The Howey ruling was later adopted by the Philippine Supreme Court in the case of Power Homes Unlimited Corporation v. Securities and Exchange Commission.
In this light, the Commission En Banc concluded that the scheme perpetuated by Casa Infini is a bona fide investment contract, especially considering that the partner financiers expect a profit from their initial investments.
“Under the foregoing legal precepts and parameters, an investment contract is considered to exist once it is determined/shown that the proponent is offering to the purchasers an opportunity to contribute money and to share in the profits of the operations,” the Commission En Banc said.
“Wherefore, premises considered, the Verified Motion to Lift [the cease and desist order] filed by [Casa Infini] is hereby denied for lack of merit. The cease and desist order dated 8 June 2023 is hereby made permanent.”