Some beer lovers who were fans of Pabst Blue Ribbon heard
that its parent company, the Pabst Brewing Co., was up for sale. The previous
owner had died, leaving it to a charitable trust. Charities couldn't hold on to
the asset so they had to sell it.
The beer lovers were a few hundred million dollars short
on the purchase price. This is the 21st Century, so they decide to create a
website, buyabeercompany.com, to crowdsource the purchase price. They even set
up a Twitter account and Facebook page. Each investor would receive a
"crowdsourced certificate of ownership," as well as beer of a value equal to
the amount invested.
Those of you with even a vague understanding of
securities laws will see that this will not end well.
The fundraising effort was relatively successful. They
elicited $14.75 million in pledges during their first few weeks. Apparently,
they eventually raised $200 million in pledges from more than 5 million
That was not enough money to purchase the company, but it
was enough to get in trouble with the Securities and Exchange Commission.
Under Section 5(c) of the Securities Act, it's unlawful
to offer to sell a security unless it is registered with the SEC or there is an
applicable exemption. There is no exemption for beer lovers.
From the SEC Administrative Order, it sounds like the
beer lovers thought that by merely asking for pledges to eventually buy the
company they were not offering securities for sale. The SEC disagreed and
pointed to Section 2(a)(3) of the Securities Act that defines "offer to sell"
as "every attempt or offer to dispose of, or solicitation of an offer to buy, a
security or interest in a security, for value."
So how does Kickstarter
not violate Securities Law? Those projects involve selling a product, not selling
securities. I pledged for a trebuchette
project on Kickstarter. I get two of the Trebuchettes; I don't get an
interest in the company making the product.
I suppose the beer lovers could merely have pre-sold
cases of PBR to raise capital. But if you think the securities laws are tough
to deal with, try dealing with interstate liquor sales.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
For more information about LexisNexis
products and solutions connect with us through our corporate site.