On June 8, 2011, the SEC entered a cease and desist order
against two individuals, Michael Migliozzi II and Brian William Flatow, who
launched a crowdfunding campaign at their website BuyaBeerCompany.com to raise
$300 million to buy Pabst Brewing Company. Migliozzi and Flatow solicitated
investors through Facebook and Twitter and actually received $200 million worth
of pledges. The offering never closed because it did not reach the $300 million
funding goal and because of the SEC action. The site was shut down in April
2011. The SEC press release is copied below.
Cases like this inevitably bring negative publicity to crowdfunding. The first
question that comes to mind is whether these individuals ever consulted a
securities attorney prior to starting their venture. There is a plethora of
resources now available on the Internet (including this blog) that continuously
discuss the issues relating to compliance with the securities laws and the SEC
regulations. Unless a securities offering qualifies for one of the available
exemptions, it must be registered with the SEC, regardless of whether this is
an Internet offering and whether it comes under the aegis of a fashionable
trend called "crowdfunding."
My second reaction to this case was the astonishment with the amount of money
that these individuals were able to raise (in pledges). Many seasoned companies
have trouble raising a lot less. But in their case, there was not even a
company, - just two people with an idea to buy a beer company. Was their
"success" due clever online marketing and reaching out to the potential
investors through their social networks? This approach, propagated by
crowdfunding, seems to work. However, one still needs to balance the need to
raise money with the necessity to remain compliant with the securities laws
directed at protecting investors from fraud, deception and monetary loss.
Read more commentary from Arina Shulga on the
legal aspects of operating new and growing businesses at Business Law Post.
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