SEC freezes deals over John Hay hotelsPhilippine Daily Inquirer
Citing an investigation undertaken following a complaint filed last year by the Bases Conversion and Development Authority (BCDA), the SEC directed Camp John Hay Development Corp. (CJHDevco) “to immediately cease and desist from further engaging in the business of selling securities,” which is how it defines the leaseback and money-back agreements undertaken by the firm’s The Suites.
The SEC ruled that The Suites had engaged in the sale of unregistered and unregulated securities. The freeze order will remain until CJHDevco and Camp John Hay Suites Corp. (CJHS) comply with SEC registration requirements.
Both firms are owned and chaired by businessman Robert John Sobrepeña, who is involved in a contractual dispute with the BCDA.
On May 15, the BCDA terminated CJHDevco’s 1996 lease contract to develop 247 hectares of Camp John Hay, but the developer refused to honor its decision because of an injunction issued by a Baguio regional trial court.
On June 8, the lawyers of CJHDevco and the BCDA were in the court of Judge Cleto Villacorta III to hear a government petition to recall the injunction he issued, said lawyer Barry Ubarra, CJHDevco spokesperson.
Ubarra said CJHDevco would appeal the SEC ruling since the company was not formally advised about an investigation or was it given a chance to comment on the findings of the SEC enforcement and prosecution department (EPD).
He said CJHDevco would also challenge the information secured by the EPD to prosecute the company, saying it came from an employee of one of its three marketing contractors.
The SEC order was signed by SEC Chair Teresita Herbosa and Commissioners Ma. Juanita Cueto, Raul Palabrica, Manuel Gaite and Eladio Jala.
In its June 7 order, the SEC said that its corporate finance department had classified CJHDevco’s leaseback agreements as investment contracts “and found sufficient evidence to show that these were marketed, offered and sold to the public.”
According to Republic Act
No. 8799 (the Securities Regulation Code of 2000), investment contracts are securities, which it defines as “shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written or electronic in character.”
The SEC said CJHDevco’s leaseback or money-back arrangements solicit buyers of residential units at the firms’ The Suites and The Manor. The leaseback deals cover 15 years renewable for another 15 years, or until 2046, it said.
The buyers then “surrender the management and possession” of these units, which are rented out to clients like the other hotel rooms in exchange for “a proportionate share of 70 percent of the annual income derived from the hotel’s operation of the pooled rooms or a guaranteed 8-percent return on their investment,” the SEC said.
“There is ample evidence to show that [CJHDevco] and [CJH Suites] are engaged in the sale of securities without proper registration.” Vincent Cabreza, Inquirer Northern Luzon