After Binance, the Securities and Exchange Commission (SEC) issued another warning for Filipinos to be wary of investing in a new digital asset now being offered on social media that promises a huge return on their investments.
This time, the warning is against Lodi Coins, a digital asset project that promises investors a ten-fold gain through its “10X ICO project.”
In its advisory issued last September 29, the SEC flagged down the public offering of Lodi Coins by Lodi Technologies Inc., stating that the company had violated securities laws.
“Lodi Coins is not registered as a virtual asset service provider with the Bangko Sentral ng Pilipinas (BSP). Lodi Technologies also did not have the corresponding Certificate of Authority from the central bank as a money service business (MSB), which is required under the BSP guidelines for virtual asset providers,” the SEC said.
According to the advisory, since Lodi Coins is not registered as a virtual asset provider (VASP), its offerings are hereby viewed as “unregistered securities.”
Lodi Coins as a form of “securities“
Lodi coins are currently being offered to the public through Facebook, Twitter, Instagram, and Discord. Investment packages ranged between P12,500 to P500,000, with the potential to earn at least 10 times or 1,000% of the total amount invested after Lodi Coin’s initial coin offering.
On its website, Lodi Technologies claimed that Lodi Coins are utility tokens and could not be considered as a share or as a security, as defined by Republic Act No. 8799, or the Securities Regulation Code (SRC).
According to Chapter 1, Section 3 of SRC, “Securities are shares, participation, or interest in a corporation or commercial enterprise or profit-making venture, and evidenced by a certificate, contract, instruments, whether written or electronic in character. It includes shares of stocks, debentures, notes and evidence of indebtedness, asset-backed securities; investment contracts, certificates of interest or participation in a profit-sharing agreement, certifies of deposit for a future subscription; fractional undivided interests in oil, gas, or other mineral rights; derivatives like warrants; certificates of assignments and/or participation, trust certificates, voting trust certificates or similar instruments; and proprietary or nonproprietary membership certificates in corporations.”
Echoing a decision made by its US counterpart, the SEC stated that “securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of organization or the technology used to effectuate a particular offer or sale.”
The SEC said that Lodi Coins may be deemed as “security” because investors pooled their money into a common enterprise and were led to expect profits primarily from the efforts of others.
“In this particular case, the securities law shall apply [to Lodi Coins],” it said. “The same goes for where Lodi Technologies Incorporated seeks to use the money it gathered from the public to fund its purported project on the promise of profits. Merely calling a token a utility token or structuring it to provide utility does not prevent the token from being a security.”
“Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others contain the hallmarks of a security,” the advisory added.
Lodi Technologies committed “serious misrepresentation”
The SEC further highlighted that Lodi Technologies’ Articles of Incorporation stated that it was a business process outsourcing (BPO) firm, which is very much different from its actual business model. While Lodi Technologies Inc. was registered as a corporation with the SEC, it does not have the necessary license and authority to offer investments to the public.
This constitutes serious misrepresentation as to what the corporation can do/is doing to a great prejudice of or damage to the public, a ground for revocation of certificate of registration under Presidential Decree 902-A. Moreover, the incorporation papers of Lodi Technologies explicitly state that it shall not solicit, accept, or take investments from the public, nor issue investment contracts.
“Accordingly, the Commission warns all unscrupulous individuals and/or entities that strict penalties are imposed for violations of the [SRC], the Revised Corporation Code, and such other rules and regulations enforced by the Commission,” the SEC further advised the public.
Individuals acting as salesmen, brokers, or agents of such unauthorized entities like Lodi Technologies, including solicitations and recruitment through the Internet, may be criminally prosecuted and penalized with a maximum fine of P5 million or face a prison sentence of up to 21 years, pursuant to the SRC,” the SEC further stated in its advisory.
In the past, the SEC has also issued warnings against other digital asset firms like Binance, Peak Finance, and Paynance who have all been found to be operating illegally in the country.