Atty. Lalaine P. Monserate

Compliance and Enforcement Department



Securities defined

Securities are shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character.  It includes:

(a) Shares of stock, bonds, debentures, notes, evidences of indebtedness

(b) Investment contracts


What is an Investment Contract?


  • Contract, transaction or scheme
  • Investment of money
  • Common enterprise
  • Expectation of profits
  • Primarily from the efforts of others


Sec. 8.1 of the Securities Regulation Code

  • Securities shall not be sold or offered for sale or distribution within the Philippines without a registration statement duly filed with the Commission (secondary license).



  • Investment company
  • Unregistered investment activity


What is an investment company?

  • A company which engages primarily in the business of investing, reinvesting, or trading in securities
  • It must be registered with the SEC as an Investment Company under the Investment Company Act.
  • The securities must be registered with the SEC

Unregistered investment activity

  • Any entity that operates like an investment company or undertakes investment activities WITHOUT the required registration statement (secondary license) is deemed an unregistered investment activity.

II. Popular Scams and Swindles

  • Investment Schemes

–          Pyramiding Schemes

–        Ponzi schemes

  • Boiler room operations



  • Number of  “investors” victimized

–          about 250,000 (conservative figure), high of one million 


  • Victims Profile

–          A,B, and C segments of society

–          Government employees/retirees

–          Private sector employees/retirees

–          With educational backgrounds







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Pyramiding Scheme

  • Rewards participants for inducing other people to join the program.
  • A participant pays for the chance to receive compensation for introducing new persons to the scheme, as well as when those new persons themselves introduce new participants 
  • Focuses primarily on the exchange of money for recruitment
  • Selling point:  each participant can recoup their original investments and make more money by introducing more participants
  • Hides scam by layering it with products, even if these products:
    • Have no real world value
    • Are priced in an inflated manner
  • Distorts concept of entrepreneurship
  • Pyramid schemes are inherently injurious to consumers because as a mathematical certainty they are doomed to collapse 
    • Only those on top make money, hence the stress on:
      • Positioning
      • Timing
      • Getting downlines (you must be on top)


Warning signs for pyramid scams

  • Beware of plans that ask you to purchase a large and expensive inventory (without refund for unsold goods)
  • Beware of “opportunity meetings” that create a “pressure” atmosphere
  • Beware of plans that reward participants for inducing other people to join the program
  • Be cautious of plans that claim huge profits through continued growth of “downlines” or bonuses based on your advancement in the structure.
  • The marketing of a product or service, if done at all, is only of secondary importance in an attempt to evade prosecution or to provide a corporate structure
  • Earning potential depends on how many people you sign up, not how much merchandise is sold.


Ponzi Schemes


Charles Ponzi


Ponzi Schemes

  • Investors are enticed with the promise of extremely high returns (ranging from a low of 4% to a high of 29% per month)
  • Initial investors are paid exceptional returns from the deposits of a growing number of new investors
  • “Profits” to investors are not created by the success of the underlying business but instead are derived from the capital contributions of others



Ponzi Schemes

  • Schemes always offer an economic purpose so that investors think they are investing in a viable venture that generates income
  • Guarantee payments by issuance of postdated checks (generally 7 checks per investor)
  • Have the potential for continuing for years

How Ponzi Schemes Operate

Company returns                                                                                                                             Promise of

part of A’s investment as                                                                                                             unusually high

 “interest”                                                          Company                                                            interest

                                                                                                                                                                (4% to 20%) a mounth

                                                A invests

A tells other of good investment



Company pays A’s                                                                                                           Company returns part of B’s

next interest due from                                                                                                                 part of B’s investment as

B’s money                                                           Company                                             “interest”


                                                A invests                                                             B invests

A and B tell others of good investment opportunity






Company                                                                                                                                             Company returns

pays A from                                                                                                                                        part of C’s

 B’s & C’s                                                                                                                                             investment as

Money                                                                                                                                                 “interest”



A invests                                                                              B invests                                                              C invests


Company pays B from from C’s money

The Cycle continues




Effect of Technology

Ponzi and Pyramid Schemes have found their way on the Internet making it hard for the scammers to be prosecuted since there  is no contact with the clients and the transactions are cross-border



What is Boiler Room/Cold Calling?

                                ” A smooth illicit telemarketing operation targeting identified individuals, wherein smooth talking pitchmen promise to make fortunes for their clients by investing their money in purportedly hot stocks around the world.”                                               

Asian Wall Street Journal





Boiler Room/Cold Calling

  • a rented space with desks, telephones and experienced salespeople who talk to hundreds of people from across the country everyday.



Boiler room operations

(Modus Operandi)

  • Persistent unsolicited calls/e-mails
  • High-pressure sales tactics
  • Teaser letters and glossy brochures are sent
  • Located in posh business address in districts where well-known multinational companies are located or where the Exchange is housed


Boiler room operations (Modus Operandi)

  • Time of  operation depends on the time zone of the target  country
  • Brokers/salesmen are foreign nationals, such as, British, Canadians, Australians, Americans and others
  • Use of foreign sounding names, such as, Barclays, J.P. Morgan, and others.



Boiler room operations (Modus Operandi)

  • A demand for an immediate decision
  • A reluctance to provide information about the firm or the investment
  • Access to “inside information” or “secret technology”
  • Maintains own website
  • Use of scrambler gadgets in their calls


“Qualifier”                                                                                                                         Papering Dept.”-

 (a harmless call from a                                                                                                 (Glossy newsletters,

sweet sounding, usually                                                                                              brochures and other

female, voice)                                                                                                                  materials are sent to the

                                                                                                                                                clients for several weeks)


Modus Operandi



Victims would send money,                                                                       “Openers/Boiler Room”    

but they don’t have stock                                                                            (we have some inside

certificates. They will look                                                                          information that this stock will

at the stocks and will see                                                                             rise in a couple of weeks, so you

that the stocks are losing,                                                                            have to buy right away, etc.)

then they will panic 











“Loader”-their job is to persuade the investor that the share price has fallen because the company suffered a hitch but everything is on track and it would be better to buy more stocks while it is cheap 

“Cooler”- their task is to cool down

customers who call

back in panic.

Modus Operandi

then the investor is again referred to the “Qualifier” (see previous slide)


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i n v e s t i g a t e   f i r s t!

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