POWER HOMES UNLIMITED CORPORATION, Petitioner,SECURITIES AND EXCHANGE COMMISSION, and NOEL MANERO, Respondents.G.R. No. 164182, February 26, 2008

Doctrine:
An investment contract, is a security under R.A. No. 8799, must be registered with the SEC
before its sale or offer for sale to the public.
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Facts:
Power Homes Unlimited Corporation (Power Homes) is a domestic corporation duly registered
with the SEC, having the purpose to engage in the transaction of promoting, acquiring,
managing, leasing, obtaining options on, development, and improvement of real estate
properties for subdivision, and in the purchase, sale and exchange of subdivision properties
through network marketing scheme. Noel Manero, the private respondent, requested SEC to
investigate Power Homes, as he claims that Power Homes is engaged in the selling of
inexistent properties and has been doing so without any broker’s license, based on a seminar
he attended that was conducted by Power Homes. In addition, a certain Romulo Munsayac,
also inquired to SEC regarding the legitimacy of the “network marketing” scheme of Power
Homes. Thus, to address the issue, SEC conducted a conference with the incorporators.
Complying with the investigation, Power Homes submitted their marketing modules and
accreditation certificates from Crown Asia, FilEstate Network, and Pioneer Realty Corporation.
Subsequently, SEC visited Power Homes’ business premises to gather documents such as
certificates of accreditation to several real estate companies, list of members with websites,
sample of member mail box, and lists of Business Center Owners who are qualified to acquire
real estate properties and materials on computer tutorials. Upon investigation, SEC found that
Power Homes was engaged in the sale or offer for sale of investment contracts, which are
considered securities under Section 3.1 (b) of R.A. No. 8799, but failed to register them in
violation of Section 8.1 of the same Act. This prompted the issue of a Cease and Desist Order
to which was appealed to the CA by Power Homes. However, the CA only affirmed the decision
of the SEC. Hence, the petition at bar.

Issue:
Whether the business of Power Homes involves an investment contract that is considered a
security and thus, must be registered prior to sale or offer for sale or distribution to the public
pursuant to the provisions of R.A. No. 8799.
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Ruling:
YES. The Court ruled that the business of Power Homes involves an investment contract. An
investment contract is defined as a contract or scheme whereby a person invests his money in a
common enterprise and is led to expect profits primarily from the efforts of others as defined in
the R.A. No. 8799. Applied in the case is the Howey Test, which is the test established to
determine whether a transaction falls within the scope of an investment contract. It requires that
a person: (1) makes an investment of money, (2) in a common enterprise, (3) with the
expectation of profits, and (4) to be derived primarily from the efforts of others. From the
foregoing, the business operation of Power Homes constitutes an investment contract that is a
security. Thus, it must be registered with the SEC before its sale or offer for sale to the public.
As Power Homes failed to register the same, its offering to the public was rightfully enjoined by
SEC and the Cease and Desist Order was proper even without a finding of fraud. It must be
noted that an investment contract that is a security under R.A. 8799 must be registered with the
SEC in order for SEC to protect the investing public from fraudulent securities. The strict
regulation of securities is founded on the premise that the capital markets depend on the
investing public’s level of confidence in the system.