SEC boosts enforcement actions vs scammers, unscrupulous lenders

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As quarantined consumers were forced to migrate to digital platforms during this prolonged coronavirus pande­mic, investment scammers and unscrupulous lenders have likewise scaled up at a record-breaking pace as reflected by the surging volume of enforcement actions taken by the Securities and Exchange Commission (SEC).

In a recent webinar hosted by small and medium enterprise (SME) online lender First Circle, SEC Commissioner Kelvin Lester Lee cited mounting complaints against investment scammers and predatory lenders during the pandemic.

In the case of financing and lending companies, Lee said those illegal online apps were giving the lending industry a whole a bad name.

“We treat each and every complaint seriously as we want to protect the interest of the public and at the same protect the reputation of lending and financing companies that operate within the bounds of the law,” Lee said.

As such, he noted that the SEC had revoked the registration of 2,081 financing and lending companies from January to early November this year, issued cease-and-desist orders to 58 illegal online lending operators and issued show-cause letters to 202 companies that have been the subject of complaints on harassment.

Meanwhile, he reported that enforcement actions taken by the SEC’s enforcement and investor protection department included the issuance of 119 advisories to protect investors from scams from January to November this year, while cease-and-desist orders were issued to nine entities.

“That’s unprecedented because usually in a year, we issue roughly 30 to 40 advisories only,” Lee said. “This shows you how scammers have been very active [while] being largely online,” he said.

The SEC has so far issued cease-and-desist orders against nine entities involved in fraudulent investment schemes, including Boss Network, Forsage and Fast Track Worldwide.

Ponzi and pyramid schemes are among the most common types of investment fraud in the country. In a Ponzi scheme, scammers guarantee ridiculously high returns to attract more investors. They pay the promised profits to earlier investors using the money placed by newer members. Meanwhile, pyramid schemes require members to recruit people into the group in exchange for fees. They also rely on new members’ contributions to pay out the promised returns to older investors.

Such schemes often deliver payouts at the start to please investors and encourage them to invite more people to join. To create a semblance of legitimacy, scammers tout products or services, which are either overpriced, worthless or inexistent.

To curb abusive and unfair lending practices, on the other hand, Lee noted that the SEC had issued Memorandum Circular No. 18 series of 2019, that sought to end such practices.

To address another concerns on the legitimacy of owners and operators of lending apps, the SEC also issued Memorandum Circular No. 19 series of 2019, which required the registration of online lending platforms as business names and the reporting of existing and prospective online lending platforms.

The SEC has also requested the Bangko Sentral ng Pilipinas to cap the interest fees and charges on consumer loans to help end predatory lending. Lee said the SEC was currently coordinating with banking regulators on this.


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