Selling Unregistered Securities in the Philippines: How Tech Startup Fundraising Can Trigger Criminal Liability
Introduction: Why startup fundraising can become a criminal case
Fast-growing tech startups often raise money through “pre-selling” investment slots, profit-sharing promises, tokenized returns, referral-driven “community investing,” or informal convertible arrangements—sometimes without realizing they may already be offering securities to the public. In the Philippines, selling or offering securities without the required registration can expose founders, directors, and promoters to enforcement actions by the Securities and Exchange Commission (SEC), shutdown orders, heavy penalties, and even criminal prosecution under the Securities Regulation Code.
This article explains how the Securities Regulation Code (Republic Act No. 8799, 2000) treats unregistered offerings, why “investment contracts” are frequently the legal trigger for tech-related fundraising schemes, and what founders should do to reduce risk before raising capital.
Governing law: the Securities Regulation Code (RA No. 8799)
The primary statute is the Securities Regulation Code (Republic Act No. 8799, 2000). Its foundation is a general rule: securities may not be sold or offered for sale or distribution in the Philippines unless covered by an approved registration statement. The SRC also regulates who may sell securities (e.g., brokers, dealers, salesmen), and grants the SEC broad enforcement powers against unlawful fundraising.
Historically, earlier securities statutes existed (e.g., Commonwealth Act No. 83, 1936; Batas Pambansa Blg. 178, 1982), but RA No. 8799 is the current central framework governing registration, licensing, prohibited acts, and enforcement.
What counts as a “security” in startup fundraising: focus on investment contracts
Founders often assume “securities” only mean shares of stock. Under the SRC, the definition is broader and expressly includes investment contracts. In SEC v. Santos (G.R. No. 195542, 2014), the Court discussion recognizes that securities include investment contracts and similar arrangements, and that an investment contract is broadly understood as a scheme where a person invests money in a common enterprise and expects profits primarily from the efforts of others.
In practice, many tech fundraising structures can fit this concept, even if the paperwork avoids the words “share,” “equity,” or “security.” The SEC has repeatedly looked at the economic reality of the offer—how the money is raised, what is promised, and whether the investor is passive—rather than the label used.
The basic prohibition: selling or offering unregistered securities
RA No. 8799 prohibits selling or offering securities without SEC registration. Section 8.1 states that securities shall not be sold or offered for sale or distribution within the Philippines without a registration statement duly filed with and approved by the SEC, and that prescribed information must be made available to each prospective purchaser. This rule is frequently enforced against programs marketed to the public as “packages,” “slots,” “memberships,” “franchises,” or “profit-sharing partnerships” but operating like investment-taking.
SEC administrative decisions emphasize that selling unregistered securities operates as a fraud on investorsbecause it misleads the public into believing the seller is authorized to offer the product as an investment. This reasoning is reflected in SEC enforcement discussions such as SEC Admin Case No. 10-14-172 (2020) and SEC Admin. Case No. 08-11-130 (2020), which cite the policy basis for strict implementation of the registration requirement.
“Offering to the public”: online marketing and seminars are common triggers
Many startups inadvertently cross into “public offering” through marketing behavior—social media blasts, open invitations to invest, webinars, orientation sessions, influencer promotions, broad referral campaigns, and public-facing pitch events not limited to qualified investors.
SEC enforcement actions have treated activities such as distributing flyers, conducting business orientation seminars, and advertising online as strong indicators of a public offering. For example, SEC Adm. Case No. 03-08-002 (2010) treated internet advertising and broad promotional efforts as consistent with a public offer of securities, supporting findings of SRC violations.
When “franchise,” “sub-franchise,” or “membership” models become securities offerings
Some programs are presented as franchise arrangements but function economically as passive investment placements: the investor pays money, does not meaningfully operate a business, and expects returns mainly from the company’s efforts. The SEC has treated these as potential unregistered investment contracts when marketed widely and structured around promised returns rather than genuine entrepreneurial participation.
For example, SEC EIPD Case No. 2026-8089 (2026) found a sub-franchising program to be an unregistered investment contract despite its “franchise” label, and ordered it to stop offering the contracts while imposing administrative penalties for violations of the SRC.
Who can be liable: not only the company, but founders, directors, and promoters
A frequent misconception is that only the issuing company is exposed. Liability risk can extend to individuals who actively participate in selling or promoting the investment.
In SEC v. Santos (G.R. No. 195542, 2014), the case materials reflect that a person who actively solicits, refers, or provides information to potential investors to close a sale of unregistered securities may be held liable for acting as an unregistered broker/dealer/salesman in connection with the sale, even without being a signatory to the investment contracts or directly receiving the funds.
SEC administrative actions likewise reflect that corporate powers are exercised through the board and responsible officers, and that directors/incorporators can face administrative consequences when the corporation offers unregistered securities. SEC Adm. Case No. 03-08-002 (2010) is an example where the SEC treated directors/incorporators as administratively accountable in connection with unlawful offerings.
Enforcement powers of the SEC: cease-and-desist orders, penalties, and asset preservation
The SEC can act quickly where there is substantial evidence of ongoing fraud or grave injury to investors. Enforcement commonly includes cease-and-desist orders (CDOs), directives to stop offering the product, and administrative penalties.
SEC CDO Case No. 05-20-064 (2020) reflects the SEC’s position that it may issue a CDO ex parte (without prior hearing) when circumstances justify urgent investor protection, and may make the order permanent when respondents fail to overturn the findings. It also reflects the SEC’s asserted authority to freeze or preserve assets in appropriate cases to protect investors.
Corporate survival risk: SEC sanctions can include revocation of corporate registration
Beyond criminal exposure, startups face business-ending administrative sanctions. SEC decisions applying provisions on serious misrepresentation (including under PD 902-A concepts invoked in SEC administrative cases) show that selling securities without the required regulatory authority may be treated as a grave corporate violation and may justify revocation of the certificate of incorporation.
For instance, SEC Admin. Case No. 08-11-130 (2020) discusses revocation where corporations sold securities without the requisite license, emphasizing that such acts are outside their corporate purpose and treated as serious misrepresentation. Similar SEC administrative patterns appear in SEC Adm. Case No. 03-08-002 (2010) and SEC Admin Case No. 05-10-310 (2014) involving investment contracts.
Criminal exposure under the SRC: why founders should treat compliance as urgent
The user concern is correct in substance: raising capital through unregistered investment contracts can lead to criminal liability under the Securities Regulation Code. RA No. 8799 penalizes violations of its registration and licensing requirements, and founders should assume that non-compliant fundraising—especially when paired with broad marketing and promised returns—can be framed as a criminal offense, not just a regulatory issue.
Important note on the “up to 21 years” claim: This article cannot confirm the exact maximum imprisonment term from the provided excerpts because the penalty provisions of RA No. 8799 are not included in the search excerpts above. If you need a definitive statement of the precise penalty range (including whether it reaches 21 years), the controlling text must be quoted from the SRC’s penalty section (and any relevant amendments or special laws). Without that excerpt, stating the exact number as a certainty would risk inaccuracy.
Common startup scenarios that may be treated as unregistered securities offerings
Below are typical patterns that can raise SRC risk, especially when offered broadly to the public:
Scenario 1: “Profit-sharing” investment packages
A startup sells “Tier 1–3 packages” promising a fixed monthly return funded by app revenues, with investors doing nothing after paying.
Scenario 2: Referral-based “community investing”
Participants earn returns plus referral commissions for bringing in more “investors,” and the product is marketed through online orientations and social media campaigns.
Scenario 3: “Franchise/sub-franchise” that is mostly passive
The investor pays a fee and is promised periodic payouts, but does not truly operate a franchise; the company operates everything centrally (as seen in enforcement themes like SEC EIPD Case No. 2026-8089, 2026).
Scenario 4: Unlicensed “sales agents” pitching an investment
Founders enlist influencers or “community leaders” to explain the offer and close sales; even if they do not sign contracts, solicitation can trigger liability themes similar to SEC v. Santos (G.R. No. 195542, 2014).
Summary table: compliance checkpoints for founders
| Compliance question | Why it matters under Philippine securities regulation | Risk if ignored |
|---|---|---|
| Are you offering something that looks like an investment contract? | Securities include investment contracts; passive profit expectations are a red flag (SEC v. Santos, G.R. No. 195542, 2014; SEC Admin Case No. 05-10-310, 2014). | Unregistered securities offering exposure |
| Are you marketing broadly (online, seminars, public ads)? | Public promotional modes are treated as public offering indicators (SEC Adm. Case No. 03-08-002, 2010). | Higher enforcement likelihood, possible CDO |
| Is the security registered, or is an exemption clearly applicable? | SRC registration is the default rule (RA No. 8799, Sec. 8.1, 2000). | Administrative penalties and possible criminal complaint |
| Are the people selling registered/licensed where required? | Solicitation and closing sales can trigger liability even without signing contracts (SEC v. Santos, G.R. No. 195542, 2014). | Personal exposure for promoters/sales agents |
| Could the SEC shut the operation quickly? | SEC may issue urgent CDOs and pursue asset preservation (SEC CDO Case No. 05-20-064, 2020). | Business interruption, reputational harm |
Founder guidance: risk-reduction steps before raising capital
If your startup is raising funds, treat the following as baseline safeguards:
1) Identify whether what you are selling is a “security” in substance.
If investors are passive and expect profits mainly from your team’s efforts, assume the SEC may treat it as an investment contract unless structured otherwise.
2) Control marketing and solicitation channels.
Broad social media marketing, open “orientation” webinars, and indiscriminate invitations can make an offering look public, increasing enforcement risk (SEC Adm. Case No. 03-08-002, 2010).
3) Do not use “franchise” labeling as a substitute for securities compliance.
The SEC has looked past labels when the features are investment-like and publicly marketed (SEC EIPD Case No. 2026-8089, 2026).
4) Treat “community sellers” and promoters as regulated risk points.
If they are soliciting investments or closing sales, they may create liability for themselves and for the venture (SEC v. Santos, G.R. No. 195542, 2014).
5) Seek counsel early and document compliance decisions.
Many enforcement cases become worse because records are incomplete, risk warnings are absent, and investor communications are inconsistent.
Conclusion: treat securities compliance as a company survival issue
For tech startups, the temptation to raise funds quickly can lead to structures that the SEC treats as unregistered securities, especially when the offering resembles a passive investment contract and is marketed broadly online. Under RA No. 8799, non-compliant fundraising can result in SEC shutdown orders, large penalties, corporate charter consequences, and potential criminal exposure. Founders should evaluate fundraising instruments early, control solicitation channels, and ensure that any securities offering is properly registered or clearly within a lawful exemption—because once the SEC issues an order or investors complain, damage control is often too late.
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