DTI asked to investigate five companies for pyramiding

The Securities and Exchange Commission (SEC) has asked the Department of Trade and Industry (DTI) to investigate First Quadrant Inc. and four other companies for possible pyramiding activities in violation of the Consumer Act of the Phils.

An SEC official said the Commission, swamped with queries about the legality of the operations of First Quadrant, has referred the case to the DTI, which is the agency tasked to look into pyramiding schemes.

"We have referred several cases to the DTI. We have asked them to look into them because they appear to engage in pyramiding activities," 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.

The same SEC official said the Commission has been receiving lots of queries from various individuals about First Quadrant, a multi-level marketing firm that sells shoes and leather bags.

As of Oct. 11 this year, the SEC has received 33 queries on the legality of First Quadrant’s operations.

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 through 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 or products for the right to join the scheme.

The referral of the case to the DTI was in line with the SEC and DTI’s memorandum of understanding which laid down their respective areas in the investigation of pyramiding and multi-level network marketing schemes.

Based on the MOA, both agencies have agreed to make referrals and findings to each other on cases that are beyond their jurisdiction.

The DTI has agreed to forward to the SEC 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.

SEC, on the other hand, has agreed to pass on MLM schemes that might constitute pyramiding.

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

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