kapa is an investment scheme, Study notes of Economics

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BRIEFER

ON KAPA

As of June 10, 2019

TABLE OF CONTENTS

A. KAPA: QUICK FACTS ………………………............... 3 B. DISSECTING KAPA’S INVESTMENT SCHEME ……….. 5 a. KAPA’S SCHEME AS AN INVESTMENT CONTRACT b. KAPA’S SCHEME AS A PONZI SCHEME c. KAPA’S SCHEME AS AN AFFINITY FRAUD d. KAPA’S SCHEME AS AN ULTRA VIRES ACT C. CHRONOLOGY OF EVENTS ...................................... 10

KAPA was found to have been soliciting investments from the public without the necessary license from the SEC, when it enticed the public to “donate” in exchange for monthly “blessings” equivalent to 30% of their donation for life. KAPA violated Republic Act No. 8799, or the Securities Regulation Code , which requires the registration of securities before they can be offered for sale to the public. The investment scheme of KAPA is within the definition of “securities” under Section 3.1 of the Securities Regulation Code which are “shares, participation or interest 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. The arrangement between KAPA and its members partakes of an investment contract , in particular, whereby a person invests his money in a common enterprise and is led to expect profits from the effort of others. The investment scheme of KAPA resembles a Ponzi scheme , an investment program that offers impossibly high returns and pays these returns to early investors out of the capital contributed by later investors. The investment scheme of KAPA also qualifies as affinity fraud where a spiritual leader uses his undue influence in duping his flock and hides behind the freedom of religion.

a.

b.

c. A. KAPA’S SCHEME IS AN INVESTMENT CONTRACT

d.

e. An Investment Contract is a contract, transaction or scheme whereby a

person invests money in a common enterprise and is led to expect profits from the effort of others.

f.

g. The arrangement between KAPA and its members partakes of an

investment contract, satisfying the four elements laid down in the decision of the Supreme Court in the case of Power Homes Unlimited Corporation vs. Securities and Exchange Commission (G.R. No. 164182, 28 February 2008):

h.

a) Money is invested; b) The money invested is placed in a common enterprise; c) There is expectation of profit; d) The profit is derived primarily from the efforts of others.

a. Under Section 3 (b) of Republic act No. 8799, or the Securities Regulation

Code, investment contracts are securities , defined as 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.

b.

Section 8 of the Securities Regulation Code provides: “Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be made available to each prospective purchaser.” II. DISSECTING KAPA’s INVESTMENT SCHEME

h.

i.

j.

B. KAPA’S SCHEME IS A PONZI SCHEME

A Ponzi Scheme is an investment program that offers impossibly high returns and pays these returns to early investors out of the capital contributed by later investors. In KAPA, members are enticed to make “donations” with a promise of “blessings” equivalent to 30% of their donations to be paid out every month and for life. Yet, KAPA does not have any concrete and stable business or source of income. The investment scheme is doomed to fail. KAPA cannot possibly sustain paying out a 30% monthly interest without recruiting new members and soliciting more money from the public. To illustrate, KAPA would need at least P15 billion monthly to pay 5 million members who have invested at least P10,000 each, as shown below. Without new members or additional investments coming in, the pooled funds would have diminished by the third month.

THE FOLLOWING ILLUSTRATION PROVIDES THE SCHEME OF KAPA

DATE EVENTS

03 March 2017  Incorporation (Company Registration No. CN201707724)  Registered as a Nonstock Corporation; Independent Religious Corporation  Certificate of Incorporation states that it is not authorized to undertake business activities requiring a Secondary License  Principal Office Address: Garay Arcade, Barreda Street, Caramcam District, Mangagoy, Bislig City, Surigao Del Sur, 8311 Philippines  Primary purpose provided in its GIS: “for the administration of its affairs, properties and temporalities”  Names and addresses of incorporators and trustees: Ptr. Joel A. Apolinario Union Site, Mangagoy, Bislig City Nonita S. Urbano P-1 Cumawas, Bislig City Junnie G. Apolinario P-1 Cumawas, Bislig City Nelia V. Niño P-2 Calubian, Tabon, Bislig City Maria Pella B. Sevilla Sanyat, Sta. Cruz, Bislig City Jouelyn A. Del Castillo Scaling, San Roque, Bislig City Cristobal R. Barabad Espiritu St. Mangagoy, Bislig City Joji A. Jusay Espiritu St. Mangagoy, Bislig City  Current officers and trustee: Ptr. Joel A. Apolinario President Reyna L. Apolinario Corporate Secretary Modie S. Dagala Chief Financial Officer Benigno D. Tepan, Jr. Trustee Marnilyn M. Maturan Trustee Ricky A. Taer Trustee III. CHRONOLOGY OF EVENTS INVOLVING KAPA

Joji A. Jusay Trustee Margie A. Danao Trustee 22 March 2017  SEC issued an Advisory against KAPA 04 October 2017  An email with attachments were forwarded by the Office of the SEC Chairperson to the Enforcement and Investor Protection Department (EIPD) for investigation  Sender suspected that KAPA COMMUNITY and KAPPA PADATOON are one and the same having similar “modus” of recruiting and offering “10k for 3k” monthly  Attached also is a copy of a Deed of Donation October 2017  Negative certifications were issued by Markets and Securities Regulation Department (MSRD) and Corporate Governance and Finance Department (CGFD) that KAPA has not registered any securities and has not been issued permits to offer and sell securities October 2017

- September 2018  Emails, letters, complaints and phone queries from the public were received  EIPD referred the reports and complaints to SEC Davao EO and SEC Cagayan de Oro EO for investigation 11 September 2018  Memorandum from SEC Davao EO was received by EIPD with attached pertinent documents from NBI-Caraga Regional Office XIII:

 That KAPA has not filed any application for registration/permit to sell securities 04 October 2018  SEC issued another Advisory against KAPA  EIPD still receives reports from the public through SEC i- Message Mo and email that KAPA has intensified its recruitment and solicitation activities through different social media networks (Facebook and YouTube) since January 2018 to January 2019 10 October 2018  EIPD received a Memorandum from SEC Cagayan de Oro EO with attached affidavits from its personnel who conducted investigation of the activities of KAPA in Surigao City, Surigao del Norte and Bayugan City, Agusan del Sur on 4 to 5 October 2018 22 October 2018  Letter from Ricky Collado, Area Manager for Mindanao, BomboRadyo Philippines, addressed to Com. Javey Paul Francisco reporting activities of KAPA. 12 February 2019  EIPD filed Petition for Revocation of Corporate Registration with prayer for the issuance of a Cease and Desist Order (CDO) against KAPA

14 February 2019 (served to KAPA on 21 February 2019)  CDO was issued by SEC against KAPA 2 8 February 2019  KAPA, through SEDA Law, filed a Manifestation that it has filed on 26 February 2019 an Urgent Omnibus Motion to (1) Lift the Cease and Desist Order dated 14 February 2019; and (2) To Revoke and Remove SEC Advisory dated 03 October 2018 01 March 2019  KAPA, through SEDA Law, filed a Manifestation withdrawing the “Urgent Omnibus Motion to (1) Lift the Cease and Desist Order; and (2) To Revoke and Remove SEC advisory dated 03 October 2018 which it filed on 26 February 2019.”  KAPA alleges that it has not yet received its official copy of the CDO dated 14 February 2019 07 March 2019  SEC issued an Order to File a Verified Answer on the Petition for the Revocation of Corporate Registration (within 15 days) addressed to KAPA 11 March 2019  SEC issued an Advisory to the Public pertaining to the reports that there is a circulating YouTube Video

Page 16 of 16 VISIT US CEBU CITY EXTENSION OFFICE SEC Bldg. V. Rama Ave., Guadalupe, Cebu City Telephone Nos.: (032) 253 - 5337; 253- 6987 ILOILO CITY EXTENSION OFFICE SEC Bldg. Gen. Hughes St., Iloilo City Telephone Nos.: (033) 337-9984; 335- 0025 DAVAO CITY EXTENSION OFFICE SDC Bldg., Purok 13, Maa Road, Brgy. Maa Davao City Telephone Nos.: (082) 298-2170; 298- 1893 CAGAYAN DE ORO CITY EXTENSION OFFICE SEC Bldg. Corner 14 th and Tomasaco Del Lara Sts. Cagayan De Oro City Telephone Nos.: (088) 857-4325; (08822) 726-948 (Samsung) BAGUIO CITY EXTENSION OFFICE 3/F Newtown Square, Navy Base Road, Baguio City Telephone Nos.: (074) 442-8170; 442- 8171 LEGAZPI CITY EXTENSION OFFICE 2 nd Floor, Chiniel (Avon) Bldg. Rizal St. Albay District, Legazpi City Telephone No.: (052) 480- 8272 ZAMBOANGA CITY EXTENSION OFFICE San Jose Panigayan St. Zamboanga City Telephone Nos.: (062) 991-7163; 993- 1437 TARLAC CITY EXTENSION OFFICE 2F Legislative Bldg., Tarlac City Telephone Nos.: (045) 491 - 0140; 491- 0142 BACOLOD CITY EXTENSION OFFICE P. Hernaez St. Extension, Brgy. Taculing Bacolod City Telephone No.: (034) 445- 5714 SEC MAIN OFFICE Secretariat Building, PICC Complex, Roxas Blvd., Pasay City Telephone No.:(+632) 818- 0923 CALL US ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT Trunk Line: 818 - 0921 Local Nos.: 249, 273, 281, 314, Direct: (+632) 818-5324; 818-1898; 818 - 6047 MAG-INGAT SA SCAM!