Republic of the Philippines Department of Finance Securities and Exchange Commission In the matter of: ‘THE SEASHORE BEACH CLUB, INC. SEC CDO Case No. 07-17-044 ENFORCEMENT AND INVESTOR PROTECTION DEPARTMENT, Movant. Xe CEASE AND DESIST ORDER This resolves the Motion for Issuance of Cease and Desist Order! (Motion) filed, on 14 July 2017, by the Enforcement and Investor Protection Department (EIPD) praying that THE SEASHORE BEACH CLUB, INC. (SEASHORE) and its representatives /agents be enjoined from further selling and/or offering for sale club membership share certificates that can be considered as proprietary shares until the requisite registration statement is duly filed and approved by the Commission, and the corresponding license to offer/sell issued. SEASHORE is a stock corporation registered with the Commission on 16 June 2016 with Company Registration No. CS201612679.? Its principal office is located at 1203 Entrata Building, Civic Drive, Alabang, Muntinlupa City, Metro Manila. Its primary purpose, as stated in its Articles of Incorporation, is: “To lease, buy, purchase, own, develop, manage, operate beach club leisure facilities encompassing water sport activities on shore in various strategic beach areas in the country; to sell and issue beach club membership shares on a non-proprietary both local and international basis to entitle each beach club share holder the right to use the beach club facilities; and to lease, buy, purchase, own, develop, manage, operate leisure theme parks under a non- Proprietary club membership basis.”2 Ithas an authorized capital stock of Php 1,000,000.00 divided into 10,000 shares with the par value of Php 100.00 per share.* Its incorporators are: 1,) Arnel S. Mindanao; 2.) Jocelyn M. Parba; 3.) Marlon M. Suarez ; 4.) Baby Daisy G. Mindanao; 5.) Renan C. Dumagonot; and 6.) Amiel Amparo Leyco.5 On 26 January 2017, the Commission's Company Registration and Monitoring Department (CRMD) referred to EIPD emails from a certain Mervin Ventura. The email-sender inquired if SEASHORE is allowed by the Commission " Dated 12 sty 2017, 2 Annex A" ofthe Moton, 2 Annex 8 ofthe Maton 4 id, Seventh paragraph, 5 ld Fh paragrapnIne: Seashore Beach Club in Enforcement and investor Protecion Department ‘SEC CDO Case No, 07-17-044 Page 20f9 to sell club membership shares. Ventura claimed and attached website snapshots showing that SEASHORE sells/offers club shares for a consideration of Php 392,000.00 payable in 36 months, with a reservation fee of Php 10,000.00 to potential investors.” This prompted EIPD to conduct an investigation on SEASHORE's business activities, EIPD discovered that when SEASHORE applied for its primary license, the Commission's Corporate Governance and Finance Department (CGFD) interposed no objection on the approval of SEASHORE’s Articles of Incorporation (AOI) and By-laws. However, CGFD requested CRMD to advise SEASHORE to incorporate Securities Regulation Code (SRC) Rule 12.1.4.1 in its AOI and By- laws. CGFD also informed CRMD that SEASHORE should file a Registration Statement to cover the latter’s securities.® After the approval of its AOI, CGFD, in a Letter dated 13 December 2016, directed SEASHORE to submit a Registration Statement to cover the latter's securities in the form of club shares.? On 02 February 2017, CGFD, through a Memorandum®®, informed EIPD that SEASHORE has no secondary license to sell/offer for sale securities to the public nor it has any pending application for the same, Acting on CGFD's endorsement, EIPD secured Certifications‘ from the appropriate departments to determine if SEASHORE is permitted to sell or offer club membership shares to the public, to wit: (1) CGFD, stating that SEASHORE is not a registered issuer of mutual funds, exchange traded funds, proprietary/non- proprietary shares or membership certificates, time-shares and registered but unlisted equity securities under Section 17.2 (a) of the SRC and therefore not licensed to offer or sell such securities to the public; (2) Markets and Securities Regulation Department (MSRD), stating that SEASHORE has not registered any securities pursuant to Section 8 and 12 of the Securities Regulation Code (SRC) nor did the Commission issue to SEASHORE a Permit to Sell securities. Further, SEASHORE has no pending application for the registration/permit to sell securities; (3) CRMD, stating that SEASHORE was not issued a secondary license as a Broker and/or Dealer of Securities, Dealer in Government Securities, Investment Adviser of an Investment Company, Investment House and Transfer ‘Agent nor is there any pending application for the said secondary licenses. Sometime in March 2017, EIPD also conducted an online investigation to verify if SEASHORE is selling/offering its club shares to the public using this medium. The online investigation revealed that a facebook account was created by certain Reymart Zuniega and Jem Vodka Cellano, wherein they are enticing the public to invest in SEASHORE. The facebook pages confirmed the payment ° Annex'C ofthe Motion Annex"0" of he Maton, 8 Annex'€* ofthe Maton, oe ig " Annex"r. 7. and ofthe Motion, ? Annex N" of the MotionInte Seashore Beach Club, ne Enforcement and investor Protecion Department ‘SEC COO Case No. 07:17-044 Page 30f9 schemes and privileges in buying SEASHORE’s club shares. Likewise, these facebook pages show pictures of persons who have invested in SEASHORE.13 On 10 March 2017, an EIPD team conducted an ocular and surveillance operation at SEASHORE's principal office in Muntinlupa City. EIPD, in its report*4, states that the team was able to meet Amiel A. Leyco (Leyco), SEASHORE's Marketing Director. Thereafter, the EIPD team watched Leyco’s presentation on SEASHORE's investment opportunity. Leyco informed the team that “The Seashore Beach Club, Inc.” is owned by Arnel S. Mindanao. He said that the club is located in San Juan, Batangas, where construction is still on-going, He further said that the club will be operational by 2019. Leyco represented that for an investment of Php 392,000.00, with a reservation fee of Php 10,000.00, one could be an Exclusive Club Shareholder and life time member of SEASHORE. Leyco explained that there are three (3) Payment terms available for an investor, to wit: 1.) Pay in cash within 30 days and avail a 15% discount; or 2.) 30% down payment and the 70% remaining balance spread over 36 months; or 3.) Deferred payment for 36 months at 0% interest. He added that a club member has the following privileges: 1) _Life-time membership which can be inherited by heirs, with free one night stay only for family members once a year; 2) Certain percentage discounts from accommodation, water sports activities, restaurants, sports facilities, and its amenities; 3) Profit sharing of 30% of its annual net income will be divided to all the members; and 4) 20% income referral when membership is used by friends or family, friends, club share membership can be saleable. Leyco also told the EIPD team that SEASHORE started selling its club membership shares in 2016 in different countries like Japan, Dubai, Italy and the United States. It however started selling its club membership shares in the Philippines on 18 January 2017. Leyco claimed that SEASHORE sold 396 of its shares, wherein 111 shares of which came from the Philippines. Afterwards, the EIPD team was able to meet Raymund Zuniga, SEASHORE's highest earning broker. He was the one who created the facebook account for SEASHORE. Leyco and Zuniga convinced the EIPD team to invest in SEASHORE at the soonest because by 11 March 2017, the membership fee will be increased to Php 420,000.00. To further bolster its investigation, EIPD sought the opinion of CGFD to determine the nature of SEASHORE’s business model. In a Memorandum dated 27 June 201715, CGFD rendered its evaluation, to wit: '3 Annex N" ofthe Moton '§ Annex "M" ofthe Motion. '5 annexO" of he Matin,