DTI sets public hearing on pyramiding tomorrow

A public hearing on rules to identify pyramiding and guidelines for imposing stricter penalties on such schemes is scheduled at the Board of Investments (Audio-visual room, BOI Building, Sen. Gil Puyat Ave, Makati) tomorrow from 1 p.m. to 5 p.m.

Spearheading the public hearing is the Bureau of Trade Regulation and Consumer Protection (BTRCP) under the Consumer Welfare and Trade Regulation Group (CWTRG) of the Department of Trade and Industry (DTI).

According to Trade Undersecretary for Consumer Welfare Adrian Cristobal Jr., "Despite our numerous advisories and reminders, we have been getting a lot of complaints from people who have been victimized by pyramiding."

To date, seven firms are the subject of complaints. These are in various stages of investigation at the regional offices of the DTI. Concurrently, a number of these firms are also being investigated by the Securities and Exchange Commission (SEC). DTI has already resolved pyramiding cases against three companies: Mutual Benefit Leadership (Cavite); Make It Happen (Benguet); and Kapit Bisig Achievers (Nueva Ecija). These firms have been penalized for violation of the Consumer Act and Business Name Law.

Cristobal added, "We are also assisting SEC in court cases involving Prosperity.Com and Power Homes Unlimited Corp.

Aside from these seven, the operations of 21 more companies are also being closely monitored. "Our various field offices are checking whether these companies are engaged in pyramiding schemes," Cristobal pointed out.

The increasing number of companies supposedly into pyramiding, and the growing number of complaints and queries received has prompted the DTI to draft a Department Administrative Order (DAO) that would strengthen regulations to clamp down on such unscrupulous practices.

To ensure that all aspects of the issue are evaluated the DTI has sought the cooperation of the private sector in preparing the DAO. "We consulted the direct Selling Association of the Philippines and other consumer groups before we came up with this final version to be discussed during the public hearing," Cristobal said.

"Before a Department Order can be endorsed to the Secretary for approval, it has to be subjected to a public hearing first to ensure that all sectors affected by an issue are consulted and their views are evaluated," Cristobal explained.

"It is a safeguard provided by law to make sure that the needs and concerns of all stakeholders are examined and carefully weighed," he said.

Up for discussion at the public hearing tomorrow are the salient points included in the proposed DAO aimed at strengthening the rules and regulations governing pyramiding. One of the points to be considered are the sanctions against those found guilty of pyramiding. The draft administrative order provides that such parties or companies will be punished with the following: the issuance of a cease and desist order; cancellation of contract without damages; confiscation of consumer product/s found harmful to public health and safety; and payment of fines ranging from P500 to P3,000, with an additional fine of P1,000 per day of continuing violation.

The DTI is also coordinating with SEC to ensure that there are no overlapping of functions between the two agencies. Provisions for joint investigations are also being taken into consideration. DTI is mandated to handle pyramiding cases involving consumer products. However, in cases wherein unregistered documents are involved, the SEC takes over.

According to the Consumer Act (Article 4-K), pyramiding, or chain distribution plans, are sales devices hinged on the principle of one person making an investment and earning profit from such by recruiting other people to join the plan/s. The succeeding people recruited are also required to make the same amount of investment.

Pyramiding may involve marketing gimmicks that ostensibly offer a sale of a product that generates revenue not from the sale itself, but from the recruitment of other so-called investors. Other schemes require payment of exorbitant entry fees by prospective investors. Their income is also dependent on the time, date and order of participation — that is, the chronological order of participation determines one’s revenues. Still, others are asked to sponsor a specific number of participants in a program in order to earn compensation. Selling of a product at a mark-up much higher than the common market value, from one level to the next, is also considered as pyramiding.