SEC issues cease and desist order vs CJHDevco
Posted: June 10, 2012 | Category: Freeport And Ecozones
The Securities and Exchange Commission (SEC) directed the Sobrepena-led Camp John Hay Development Corp. (CJHDevco) and its wholly owned subsidiary Camp John Hay Suites Corp. (CJHS) to immediately stop the illegal sale of units in the condotels The Manor and the Suites in Baguio City.
The SEC issued last June 7 a cease and desist order (CDO) against the CJHDevco following findings that the John Hay lessee did not have the required license to engage in such business activity.
The SEC said there was prima facie evidence indicating that the CJHDevco and CJHS were “engaged in selling securities without the proper registration issued by this Commission in violation of the SCR (Securities Regulatory Code).”
The Housing and Land Use Regulatory Board also issued an order prohibiting CJHDevco from selling units at the John Hay Suites because it does not hold any permit to sell. The John Hay Suites has reportedly fire and safety violations according to findings of the Bureau of Fire Protection.
The Bases Conversion and Development Authority (BCDA) said CJHDevco has been violating laws and government regulations while operating in the John Hay Special Economic Zone (JHSEZ). The state agency said CJHDevco is profiting at the expense of the government and the public, and have even put public safety at risk because of their refusal to comply with government regulations.
BCDA president and chief executive officer Arnel Casanova cited the CDO as a wake up call for John Hay locators, investors and sub-lessees to register with the BCDA their respective business interests to ensure that everything is aboveboard.
He stressed that although the CJHDevco was allowed to conduct business within John Hay as a lessee, the BCDA remains the owner of the facility, thus “we are duty bound to protect all investors and stakeholders from all kinds of shenanigans being perpetrated by unscrupulous parties within John Hay.”
Stricter enforcement of the SRC on CJHDevco’s operations was deemed crucial in light of the failed experience with College Assurance Plan (CAP), another Sobrepena-led corporation, which left millions of its policyholders holding the proverbial empty bag.
To prevent future situations akin to the CAP mess, the BCDA took preemptive steps including publication of a “Notice to the Public” enjoining John Hay locators, investors, and unit owners to register with the BCDA.
In promulgating the decision, the regulatory body invoked the SCR which mandated that securities must be registered with the SEC before being offered or sold to the public to protect the buyers from “investing in worthless securities.”
The seven-page order signed by SEC Chairperson Teresita Herbosa and Commissioners Ma. Juanita E. Cueto, Manuel Huberto Gaite, Raul Palabrica, and Eladio Jala was issued upon recommendation of the SEC’s Enforcement and Prosecution Department (EPD) which conducted the investigation.
The inquiry was launched in light of mounting complaints about alleged non-delivery of units and golf shares, notwithstanding the fact that they have been fully paid for.
The EPD probe team particularly looked into the so-called “leaseback” and “money-back” guarantee being offered by the CJHDevco to buyers of units in both The Manor and The Suites. The probers also gathered evidence pertaining to CJHDevco’s contract to sell, leaseback agreement, and deed of absolute sale, as well as interviewed buyers regarding such transactions.
Under the agreement, the buyers are obligated to surrender to the CJHDevco or to the CJHS the management and possession of their newly acquired property which in turn are considered parts of so-called “pooled units” in the two condotels. The scheme is for 15 years renewable for another 15 years, or until 2046.
The buyers however, may use their units, free of the monthly dues and utility fees, for 30 years each year, and are entitled to a “proportionate share of 70 percent of the annual income of the pooled units, or a guaranteed eight percent return on their investment.”
Under the money-back guarantee, the buyers will get back the purchase price they paid for their units in 2046.
By nature of the arrangements, the SEC ruled that the securities being offered by the respondents CJHDevco and CJHS fall into the realm of “investment contracts” which are required by law to be registered with the SEC.
“From the foregoing, there is ample evidence to show that CJHD and CJHS are engaged in the sale of securities without proper registration,” the ruling stated.
It added that based on the EPD investigation, “it is apparent that CJHD and CJHS are, at present, still actively marketing and offering the units under the leaseback and money-back schemes without SEC permit.”
BCDA recently terminated the lease agreement with CJHDevco because of its numerous breaches and violations, including the lessee’s refusal to pay its lease, which has now ballooned to more than P3 billion in arrears.
Over the past months, estafa charges mounted filed by property buyers and locators, claiming they were given a raw deal by the CJHDevco, with more similar cases expected to be lodged by equally situated individuals and entities.
Among the complainants were a Korean family, a unitowner of Log Home No. 9 whose unit was surrendered by the CJHDevco as part of payment in kind to the BCDA, three locators owned by former Deputy Speaker Eric Singson, and the BCDA itself.