Enforcement: USA's SEC issues order over social media invitation to investors

Michael Migliozzi II and Brian William Flatow consented to a cease and desist order after directing investors to their website, BuyaBeerCompany.com and soliciting pledges for a hoped-for USD300 million purchase of the Pabst Brewing Company.

Under federal securities laws, the two men were required to register their offering before seeking to sell shares to the public. The registration requirements include publicly disclosing a company's financial condition and other information that could help investors determine whether to invest.

The SEC's order found that Migliozzi and Flatow intended to solicit funds in two stages. In the first stage, the two sought pledges and required that prospective investors only supply an e-mail address, first name, last name and "pledge" amount. If they received USD300 million in "pledges," the second stage would consist of collecting the money "pledged" and proceeding to purchase Pabst.

According to the SEC, Migliozzi and Flatow also created a Facebook page and Twitter account in order to advertise their offering. Would-be investors visiting the website were told that each investor would receive a certificate of ownership as well as beer of a value equal to the amount invested.

The SEC also says that in February 2010, the two men said they had received more than USD200 million in pledges from more than five million "pledgors," and that Migliozzi and Flatow were searching for a firm to assist in the acquisition. The website, which the two men launched in November 2009, continued to solicit pledges until it was taken down in April 2010.

In the end, the two never received the USD300 million in pledges and never collected any money.

The SEC's order finds that Migliozzi and Flatow breached Section 5(c) of the Securities Act of 1933. As a result, it directs Migliozzi and Flatow to cease and desist from committing or causing any breachesand from committing or causing any future breaches of Section 5(c) of the Securities Act. Migliozzi and Flatow consented to the issue of the order without admitting or denying any of the findings in the order except jurisdiction, which they admitted.

While federal laws require the registration of solicitations or "offerings," some offerings are exempt. Some of the most common exemptions from the registration requirements include private offerings to a limited number of accredited investors or institutions, as well as offerings of limited size.