First Quadrant not licensed to sell investment contracts

Multi-level marketing firm First Quadrant Philippines Inc. has admitted that it is not authorized to offer investment contracts to the public and cautioned the public against entering into any transaction with its agents or anybody claiming to be a representative of the company.

In a public advisory, First Quadrant chairman Socrates Tumpalan said the the official business plan of the company does not authorize the offer, sale or distribution of investment contracts and that First Quadrant did not secure and has no intention of securing the secondary license required for the offering of investment contracts to the public.

An investment contract refers to a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits primarily from the efforts of others. It is presumed to exist whenever a person seeks to use the money or property of others on the promise of profits.

Tumpalan said a marketing strategy that focuses on enlisting new members or distributors instead of new members recruited into the company and other similar or analogous circumstances may be indicative of an investment contract.

"The attention of company officials has been called to the unscrupulous and unauthori zed actions of purported agents/dealers/business associates who solicit investments from and represent to the public that they can earn substantial income simply by recruiting other members/investors. Such practice is neither sanctioned nor authorized," he said.

Tumpalan also pointed out that there is no official video authorized by the company for release to the public as of the present date.

"The public is therefore advised that First Quadrant agents/dealers/ business associates who make such promises do so in excess of the authority given them by the company and urged not only to take the necessary precautions before entering into investment contracts through such individuals but also to report such individuals to First Quadrant," Tumpalan said.

First Quadrant has submitted to the Securities and Exchange Commission (SEC) a new business plan that addresses the concerns raised by regulatory authorities.

The Department of Trade and Industry earlier asked First Quadrant to remove its earning options which it found to be pyramiding in nature.

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

The company earlier came under fire from the SEC for 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 with the agency since this falls under the definition of securities.

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

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.

The come-on is that the more downlines one recruits, the more commissions he is able to earn from the sales of those who come after him.

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.