SEC clears business plan of First Quadrant

The Securities and Exchange Commission (SEC) has cleared the new business plan submitted by multi-level marketing firm First Quadrant Inc.

The new business plan is in line with First Quadrant’s efforts to legitimize its investment solicitation activities in view of the concerns raised by the SEC and the Department of Trade and Industry.

DTI earlier asked First Quadrant to remove from its business plan the earning options which the agency alleges as pyramiding in nature.

First Quadrant is owned by the family of businesswoman Rhodora Tactacan-Tumpilan, a sister-in-law of Department of Environment and Natural Resources Secretary Mike Defensor.

The company markets classy, stylish, high quality and reasonably priced footwear, ready-to-wear garments, bags, belts, wallets, health products, and fashion accessories.

Earlier, First Quadrant came under fire from the SEC for the unauthorized sale of securities to the public.

An investigation conducted by the SEC on First Quadrant showed that bulk of the company’s revenues came from the recruitment of members and not from the sale of products. The SEC said the investment contracts being issued by the company to its members should be registered since these fall under the definition of securities.

Section 8.1 of the Securities Regulation Code prohibits the sale of securities without prior registration with the commission.

In 2002, the SEC was swamped with queries about the legality of the operations of First Quadrant. The commission then referred the case to the DTI, which is the agency tasked to look into pyramiding schemes.

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.

First Quadrant charges an initial investment fee of P8,880 per member. Investors get a percentage or commission from the sales of the products and through the sales of the people recruited as distributors.

Among the benefits that could be availed by members include a P3,000 shopping money for products sold by establishments accredited with First Quadrant; 50 percent lifetime discounts on the products sold by the same establishments; free accident insurance with a face value of P50,000 (amount is doubled if the accident happens abroad) from Prudential Life; and brochures or literature kit about the company.

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.

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.