Influencers beware: The liability for soliciting unregistered securities

Influencers beware: The liability for soliciting unregistered securities | Daily Tribune

A celebrity entrepreneur found herself in handcuffs for allegedly soliciting investments in unregistered securities. Her defense? She didn’t own the company and never received a single peso since she only acted as its endorser.

The Supreme Court was once confronted with a similar issue. In SEC v. Santos, the Supreme Court held that an investment consultant was deemed to be engaged in the solicitation of unregistered securities in violation of the Securities Regulation Code (SRC).

The investment consultant met her clients in a bank after being introduced by the branch manager. She subsequently invited the clients to a meeting where she presented the terms of the investment product being offered and the corporation’s track record. This led to her client investing in the security.

Based on these facts, the Supreme Court held that the investment consultant was engaged in soliciting securities. The Supreme Court did not give credence to the defense that money was never paid to her directly nor did she sign any contract. The Supreme Court further ruled that solicitation is the act of seeking or asking for business or information — not a commitment to an agreement.

With almost anyone capable of becoming a social media influencer, individuals must be mindful of what they post online. Under the SRC, anyone acting as a salesman or an associated person of a broker or dealer must be registered with the Securities and Exchange Commission (SEC).

Additionally, securities must be registered with the SEC before they can be offered, sold, or distributed to the public. The law requires the registration of securities to protect investors and prevent fraud by ensuring the disclosure of material information. This transparency enables the Commission to detect and deter fraudulent activities.

One of the commonly promoted securities on social media are investment contracts, agreements where individuals invest money in a common enterprise with the expectation of earning profits primarily through the efforts of others. Many of these schemes, such as “Get Rich Quick” or “Double Your Money” offers are not registered with the SEC and often appear too good to be true and in many cases, they are.

The Digital 2024 report by DataReportal reveals that 97.2 percent of Filipino internet users aged 16-64 watch online videos weekly, with 50.7 percent regularly viewing vlogs or influencer content. With the rapid rise of online influencers promoting various products, it is essential to ensure that items and contracts solicited are lawful and compliant.

It must be remembered that soliciting unregistered securities is classified as mala prohibita, meaning it is a crime that does not require criminal intent. Good faith or lack of intent to commit the crime is not a defense.

Before promoting investment contracts on social media, verify with the SEC at epd@sec.gov.ph whether the issuer and the security are duly registered. Additionally, individuals engaged in solicitation must also secure the necessary registration. It must be remembered that ensuring compliance not only protects investors but also strengthens the capital market and drives economic growth.