Two advertising executives who sought to buy the Pabst Brewing Co. by raising $300 million solicited from investors through Facebook and Twitter have been stopped by U.S. securities regulators.
The Securities and Exchange Commission alleged Michael Migliozzi of California and Brian Flatow of Connecticut failed to register their securities offering and make required disclosures that are meant to help people decide whether they want to invest in a company.
The men, who created the BuyaBeerCompany.com website in November 2009 to raise funds to buy Pabst, agreed to a cease-and-desist order without admitting or denying the allegations. Pabst was then owned by a private charitable trust that was looking for a buyer for the beer company.
About $14.75 million in pledges came to BuyaBeerCompany.com during its first three weeks, the SEC said. The site promised investors a certificate of ownership and beer valued at the amount they invested.
A March 2010 article in The Daily Deal reported that the pair was incorporating Buy a Beer Company LLC and therefore, investors would receive stock in the acquisition corporation instead of a certificate of ownership.
That corporation was never created and the website was removed the following month, the SEC said.
The men said a total of $200 million was promised from 5 million investors, but the pair never collected any money because the total never reached the stated goal of $300 million, the SEC said.
“All investors are entitled to know certain basic information about a company before being asked to invest,” said Scott Friestad, associate director in the SEC's enforcement division. “Just because would-be investors are being solicited online doesn't make them less deserving of the protections under our securities laws.”
Migliozzi owned an ad agency and Mr. Flatow was president of another.
Steven Berkowitz, the attorney representing the two men, said they did not know they were supposed to register with the SEC. He said the two friends were just experimenting with crowd sourcing, the use of the Internet and social media to bring together a large group for a common goal.
"This is a case of two guys in the advertising business who wanted to see how crowd-sourcing would work," he said. "The morale is, call your lawyer first."
He said the SEC contacted the men in early 2010 about their website. They shut down their site after Mr. Berkowitz advised the move to avoid heavy legal costs of dealing with the securities regulators.
Mr. Migliozzi still owns his own ad agency in California and Mr. Flatow, who was president of an ad agency in Connecticut when they set up BuyaBeer.com, now works in New York, Mr. Berkowitz said.