CA upholds CDO on Powerhomes

The Court of Appeals has lifted an injunction order preventing the Securities and Exchange Commission from enforcing the cease-and-desist order (CDO) issued against Powerhomes Unlimited Corp.

The ruling came two years after the SEC filed its appeal to the Appellate Court.

In its decision, the CA said Powerhomes should have first registered its shares with the SEC before any sale was effected. "Since the securities offered for sale or distributed by Powerhomes have not been registered with the Commission, we agree with the ruling of the public respondent (SEC) in restraining the said corporation from further conducting its business," the CA said.

The SEC issued the CDO against Powerhomes in Jan. 2001 for allegedly selling and distributing securities, particularly investment contracts without the necessary clearances from the Commission.

With the CDO now in effect, Powerhomes is banned from further soliciting investments from the public.

Under its sales scheme, investors or business center owners (BCO) are required to pay $234 as their enrollment fee, which then entitles them to recruit two investors receiving a commission of $92. At a certain time, a portion of the BCO’s commissions will be set aside as partial payment for the real property chosen by the same BCO.

Members are promised monthly incomes progressively escalating to as much as P3 million on the 12th month which would enable them to acquire a house and lot package at no further expense through the process of bringing in referrals.

In the same ruling, however, the CA had set aside the CDO issued by the SEC against Properity.com, another pyramiding firm.

The CA ruled that unlike Prosperity.com which is engaged in the hosting or sale of web space, Powerhomes has no product to speak of and is earning primarily through recruitment.

"Although it is true that (Powerhomes) conducts trainings on salesmanship to new investors, we do not see how these trainings or seminars could have a real worth value of $234," the CA said.

The CA noted that under the scheme employed by Powerhomes, the accumulated amount to which the BCO becomes entitled to comes from the efforts of his downlines, or the people he has recruited.

Under the Prosperity.com – formerly Prosperity Mansion – marketing plan, members are paid $92 for every two persons they successfully refer to the company. Each client then has to pay $294 to enroll in the service.

Under the original plan, part of the old "enrollment fee" of $234 was supposed to be set aside as downpayment for house and lots, condominiums and other real properties developed by "accredited" companies.

"Although it is true that the additional profits or bonuses are derived from the effort of buyers who are able to sell web spaces to two other buyers...it does not erase the fact that the petitioner derives profit from the sale of its main product, web space. Hence it cannot be said that the profits are primarily derived from the efforts of others. The profits derived from such scheme are merely in addition to the profits derived from the sale of its main product," the CA said.