Investing money the right way

Just recently, there was news about the National Bureau of Investigation (NBI) issuing a subpoena against actor and TV host Luis Manzano over his alleged involvement in a controversy involving FlexFuel Petroleum Corp.

At least 40 investors of FlexFuel filed estafa complaints against Manzano and other Flex Fuel officials after these investors claimed that the company failed to deliver on its commitment to build gasoline stations in exchange for the investments.

One of the investors claimed that Manzano introduced himself as the owner and chairman of FlexFuel in a Zoom meeting, where Manzano assured the investor/s that it was a lifetime, pandemic-proof business.

FlexFuel had previously denied accusations they were involved in an investment scam but admitted that their business suffered setbacks due to external factors beyond their control such as the COVID-19 pandemic. Manzano, meanwhile, said he has already resigned as chairman and divested his interest in the company.

As early as 2021, the Securities and Exchange Commission (SEC) said it has received reports that there has been a proliferation of offering and solicitation of investments for the purpose of setting up gasoline stations or investing in already existing  small gasoline companies in the guise of a franchise agreement, co-franchisee agreement, partnership agreement, co-ownership contract and/or other forms of contract that offers to the public an opportunity to invest in their company and earn profit hassle-free.

The SEC, in an advisory, explained that the usual scheme of these small gasoline companies is to lure investors by advertising that they can co-own a gas station for a minimal amount of at least P300,000. These gasoline companies, it said, usually offer either subscription to the shares of stock of the company, partnership agreement where a gas station will be co-owned by several partners, or co-franchisee contract wherein a single gas station will be franchised and owned by several co-franchisees.

It noted that in the said offers, the construction, management and operation of the gas stations will be the responsibility of the company. The investors just have to place their money, sign the contract, then wait for the quarterly distribution of profits. Some would even offer a guaranteed profit by claiming that the loss will be shouldered by the company.

The SEC reminded the public that these kinds of contracts or investment schemes, no matter how they are called, would squarely fall under the definition or an investment contract and/or subscription of shares of stocks and therefore, in the eyes of the law they are considered as securities.

Under Republic Act 8799 or the Securities Regulation Code, the public solicitation of securities is required to be registered with the SEC and that any issuance of unregistered securities is illegal.

The SEC revealed that FlexFuel is not in the SEC’s list of registered issuers of securities with corresponding permit to offer and sell securities as investments and is therefore not authorized to offer and sell these securities to the public. Meanwhile, the Capital Market Participants Registry System lists down the capital markets institutions and individuals authorized to solicit investments such as brokers dealers in securities and salesmen.

The regulatory agency also warned that those who act as salesmen, brokers, dealers or agents of these gasoline companies in selling or convincing people to invest in the scheme being offered by said entities, including solicitations and recruitment, may be prosecuted and be held liable under the law and can be penalized with a maximum fine of P5 million or penalty of 21 years of imprisonment, or both. Those who invite or recruit others to join or invest in such venture or offer investment contracts or securities to the public may also incur criminal liability, or otherwise be sanctioned or penalized accordingly.

In December 2021, the SEC issued a certification to the effect that some companies engaged in the sale of petroleum products are not authorized to sell securities to the public because they have not been issued a registration/permit to sell securities. These include PetroMobil, FlexFuel, Jeafer Fuel, Maximum Fuel, Power Fill, Nirvana Fuel, Marz Fel, Ofir Petroleum, Astral Fuel, and iFuel.

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The SRC defines securities as shares, participation, or interests in a corporation or in a commercial enterprise or profit-making venture and includes shares of stocks, investments contracts and certificates of interest or participation in a profit-sharing agreement, among others.

A certificate of incorporation issued by the SEC to a corporation is not enough. The issuer of these securities must secure a registration statement from the SEC prior to the selling or offering for sale or distribution of these within the Philippines unless these are among the classes of securities or transactions which are exempt from this registration requirement.

Among these exempt transactions are the sale of securities by an issuer to fewer than 20 persons in the Philippines during any 12-month period and the sale of capital stock of a corporation to its own stockholders exclusively.

These appear to be the transactions which these small petroleum companies chose in order to avoid the need of registering these securities with the SEC.

In the case of FlexFuel, another corporation which promises to put up FlexFuel gas stations offers its shares to prospective investors.

Each gas station has 15 seats, with Flex Fuel as industrial partner getting one seat. The other 14 seats are shared by the co-owners, with each allowed a maximum of three seats. The investment for each seat depends on the location of the proposed gas station. The co-ownership program entitles the investor to share profits of the gas station which will be deposited every quarter to the investor’s bank account.

But according to the SEC, buying a seat in these corporations does not fall under those transactions exempt from registration but instead squarely qualify as investment contracts which, using the Howey Test, has four elements: investment of money, in a common enterprise, expectation of profits, and primarily from the efforts of others.

In the case of PetroMobil Corp, the SEC said for a minimum capital of P400,000, the company is promising a conservative profit of P100,000 within three months and a chance to co-own 17 gas stations. Investors, who will be issued shares of stocks which will be issued to each co-owner, were also promised a 60 percent of the net income which will be given on a quarterly basis.

Meanwhile, Ofir Petroleum, which was also soliciting investments for construction of gas stations, promised investors that the yield will be as much as 35 to 45 percent per annum. Ofir’s certificate of incorporation was revoked by the SEC in 2021 for violating the SRC when it failed to register the securities prior to their offer or sale.

There is no such thing as a guaranteed return on investment in business. If it is too good to be true, then it must be a scam.

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