June 9, 2011
SEC Stops Beer Buying Campaign
The SEC said on Wednesday that it reached a settlement with the two advertising executives who hoped to purchase the iconic Pabst Brewing Co. through an online campaign.
Michael Migliozzi II and Brian William Flatow found 5 million people who said they would invest a total of $200 million into the beer company.
However, the federal government halted the venture after it informed the two men they neglected to register the public offering with the Securities and Exchange Commission (SEC), which is a violation of federal law.
The men never collected any money and agreed to stop selling shares to the public through Facebook and Twitter.
The case spotlights a growing challenge for regulators, who must patrol business online venture and ferret out scams disguised as stock offerings.
The SEC has an entire enforcement unit devoted to Internet surveillance with a staff of over 200 people. The CyberForce flagged a number of instances of unregistered securities sales online. However, Scott Friestad, an associate director in the SEC's enforcement division, said he could not recall another instance of someone selling shares online to buy an existing company.
Public stock offerings must be registered with SEC before their promoters begin to sell shares, according to the law. Once they register to sell shares in a company, they must provide information about the company's financial condition and other data to help investors decide whether they should buy in.
Migliozzi and Flatow's lawyer, Steven Berkowitz, said the two were old friends from the ad business who came up with the idea as "an interesting experiment in crowdsourcing." Crowdsourcing is a way of organizing large groups of people by using the Internet and social media.
"It never dawned on them" that they needed to register the offering without any shares being sold, Berkowitz said in a statement.
He said the two launched their campaign to buy Pabst in November 2009 and got an "overwhelming response."
Migliozzi and Flatow spread the word on Facebook and Twitter and created the BuyaBeerCompany.com web site.
According to the SEC, the campaign grew quick interest and the web site reported receiving pledges of $14.75 million in just the first three weeks.
The web site continued to seek pledges until April 2010, when the SEC notified the two men of the possible violation.
Berkowitz said he then advised them to take the web site down and suspend the campaign.
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