SEC urges DTI to act on pyramiding cases

The Securities and Exchange Commission is urging the Department of Trade and Industry to immediately act on cases involving pyramiding activities to ensure the protection of the investing public.

An SEC official said the DTI seems to be taking its time in resolving cases referred to it by the Commission for possible pyramiding.

"The DTI has to act swiftly to stop the proliferation of companies engaged in pyramiding schemes. I think that the DTI should also do its part in clamping down on the sale of unregistered investment contracts," the SEC official said.

A pyramid scheme is defined under the Consumer Act as a sales device or business scheme where participants invest in the right or chance to get compensation or gifts based on the introduction of more participants in the program.

Under the memorandum of agreement forged between the SEC and DTI, which laid down their respective areas in the investigation of pyramiding and multi-level marketing (MLM) schemes, both agencies agreed to make referrals and findings to each other on cases that are beyond their jurisdiction.

The SEC agreed to forward to the DTI all MLM scams that might constitute pyramiding.

The DTI, on the other hand, has agreed to pass on all MLM cases that violate securities and investment regulations. MLM contracts that involve a monetary investment in a common enterprise with promises of high profits from the efforts of other agents fall under the jurisdiction of the SEC.

In October, the SEC asked the DTI to look into the marketing scheme employed by First Quadrant and four other companies suspected of engaging in pyramiding activities.

The referral of these cases was due to mounting queries received from various individuals. First Quadrant is a multi-level marketing firm that sells shoes and leather bags.

First Quadrant, which holds office at the Taipan Place in Emerald Ave., Ortigas, charges an initial investment fee of P8,880 per member. Investors get a percentage or commission from the sales of the products and though the sales of the people recruited as distributors.

The come-on is that the more downlines you recruit, the more commissions you are able to earn from the sales of those who come after you.

Pyramiding schemes normally require entry fees or compulsory purchases of a fixed quantity of products for the right to join the scheme.

The DTI vowed earlier to clamp down on unscrupulous groups and individuals using pyramiding schemes to sell consumer products. The agency said it would widen the coverage of illegal pyramiding activities to include multi-level marketing schemes that peddle worthless products to concel their Ponzi schemes.

While multi-level marketing is a legitimate marketing tool, it becomes illegal when the products peddled have no value and were obviously used as a ploy to defraud consumers.