ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT
SEC ADVISORY
SEC ADVISORY
The Commission has detected that certain companies, individuals or groups of
persons are enticing the public, either through popular social media platforms or
through their own independent website, to participate in so-called “initial coin
offerings” and to purchase the corresponding “virtual currency”.
Virtual currency refers to a digital representation of value issued and
controlled by its developers and used and accepted among the members of a specific
community or users. An Initial Coin Offering (ICO) is the first sale and issuance of a
new virtual currency to the public usually for the purpose of raising capital for start-up
companies or funding independent projects. In an ICO campaign, a percentage of the
total available virtual currency is sold to interested buyers in exchange for (1) fiat
currency; (2) another virtual currency; or (3) another asset or security.
Based on the information gathered by the Commission, some of these new
virtual currencies, based on the facts and circumstances surrounding their
issuance, follow the nature of a security as defined by Section 3.1 of the Securities
Regulation Code (SRC). However, unlike ordinary securities, these virtual currencies
are neither guaranteed by any Central Bank nor backed by any commodity.
(Section 1 par. 2 of BSP Circular No. 944, Series of 2017)
Under Section 3.1(b) of the SRC, a security includes an “investment contract”.
An investment contract, as defined in Section 26.3.5(d) of the 2015 IRR of the SRC,
means a contract, transaction or scheme (collectively "contract") whereby a person
invests his money in a common enterprise and is led to expect profits primarily from
the efforts of others. An investment contract is presumed to exist whenever a person
seeks to use the money or property of others on the promise of profits.
When a virtual currency is likewise analogous to any of the types of securities
under Section 3.1 of the SRC, there is a strong possibility that the said virtual currency is
a security under the jurisdiction of the SEC and has to be registered and necessary
disclosures have to be made for the protection of the investing public.
Where the scheme involves the sale of securities to the public, the SRC requires
that the said securities offered are duly registered and that the appropriate license
and/or permit to sell securities to the public are issued to the corporation and/or its
agents, pursuant to the provisions of Section 8 and 28 of the SRC.
Manila
Likewise, those who act as salesmen, brokers, dealers or agents of ICO entities in selling or
convincing people to invest in the investment scheme being offered by ICO companies including
solicitations and recruitment through the internet must be registered with the SEC pursuant to Sec. 28 of the SRC.
Accordingly, those who invite or recruit other people to join or invest in this venture or offer investment contracts or
securities to the public may be held criminally liable or accordingly sanctioned or penalized in accordance with the
Supreme Court decision in the case of SEC vs. Oudine Santos (G.R. No. 195542, March 19, 2014).
If a promoter, issuer, broker or salesman guarantees returns, if a potential investment sounds too good to be true,
or if you are pressured to act hastily, please exercise utmost caution and diligence and
be wary of the risk that your investment might be lost.
In view thereof, the public is hereby advised to be vigilant when investing in
this kind of investing activity and to take the necessary precautions in dealing with ICO entities.
For the guidance of the public.
