The DTI’s Bureau of Trade Regulation and Consumer Protection (BTRCP) furnished the Securities and Exchange Commission (SEC) the guidelines in determining whether or not a scheme may be considered a deceptive sales act or practice.
The BTRCP was responding to a query by the corporate watchdog on the business model employed by website marketers led by Prosperity.com and Power Homes, both of which were slapped cease-and-desist orders (CDOs) by the SEC last January for engaging in the selling of securities without license.
BTRCP Director Ma. Teresa Arao-Mahiwo said they have considered four points in determining the violative aspects of the said scheme, namely: misrepresentation, pyramiding, referral selling, and multilevel marketing.
"Does the scheme involve putting up of investment (entry fee and/or purchase of goods, or purchase of goods alone) for the opportunity to receive earnings primarily from recruiting, rather than from sales? If the answer is yes, then there is violation. Otherwise, there is none," Arao-Mahiwo said.
The SEC presented its case to DTI based on Prosperity.com’s business model wherein it adopts a binary compensation plan in which a participant must invest $294 purportedly for a website subscription for one year. If the participant gets to sell website accounts to two downlines, he will receive $46 from each one as commission. If his downlines recruit their own downlines, the former will likewise get $46 from each until a total of 16 pairs are recruited.
As an added incentive, Prosperity.com accumulates points for every downline recruitment which the original subscriber may eventually exchange for downpayments in real estate, jewelry or cars.
The DTI said the sales scheme is a misrepresentation and a pyramid scheme since "it appears that what is offered is the opportunity to purchase one or more websites (also known as business centers) and to earn commissions when they introduce more members to join the program."
"The availment of benefits/profits is tied up with the act of recruitment of members (downlines) who in turn will invest and recruit their respective downlines," the DTI said.
Website mktg It added the price of the supposed product, the website, "also raises doubts as to its real value inasmuch as you found that the websites sold have identical layouts, clearly utilizing the same templates for every website, hence could not be worth $294."
These doubts, the DTI added, are reinforced by the fact that there are existing Internet sites offering free website hosting services.
The DTI cited related cases in the US where two identical schemes adopted by KM.Net and Bigsmart.com were branded as a pyramid scam. Both programs operate binary compensation plans where commissions are paid based on the sale of "malls" and websites that are nothing more than online sales aids.
The US Fair Trade Commission ruled the two companies are not paying commissions based on the sale of legitimate products and services, which should be distinguished with the payment of commissions for the sale of products through the "mall" or websites which is not illegal because they serve mainly as portals or conduits through which independent merchants can sell their products.