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 pledgors.
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.
Sources:
- SEC enters cease and desist order in connection with online campaign to buy beer company – SEC press release
- SEC Administrative Order Against Michael Migliozzi II and Brian William Flatow (.pdf)
- Former Pabst execs bitter about shift in philosophy under new owners by Julie Wernau in the Chicago Tribune
- Pabst Brewing Sells Itself to Metropoulos in Dealbook
- Let’s hear it for hipster beer by Beth Kowitt in CNN Money .com