Pabst -- the beer that made the SEC famous?

June 8, 2011

It seems that Michael Migliozzi II, 45, the Managing Partner and sole owner of Forza Migliozzi, an advertising agency, and Brian William Flatow, 41, the President of the Ad Store, an advertising agency, had this idea to buy a beer company.

In November 2009, Migliozzi and Flatow jointly created the website, for the stated purpose of soliciting investors via a method described as "crowdsourcing."

Crowdsourcing is the use of social media and the Internet to organize a large group of individuals to achieve a common goal, in this instance, to raise capital.

Hey, the online world has a lingo all its own - but, as Migliozzi and Flatow would soon learn, the same laws apply to that world as to the one that the rest of us also live in.

Two-Step Process

The goal of this crowdsourcing fundraising was to come up with $300 million to purchase Pabst Brewing Company ("Pabst") from its owner, a private charitable trust which was then looking for a buyer. This acquisition was set forth as a two-stage process.

Step One: Pledges were sought. To make a pledge you had to provide an e-mail address, first name, last name, and pledge amount (that information to be stored on a computer server). After that, you would receive an email confirmation.

Pledgers could follow the fundraising on the BuyaBeerCompany website, which featured a countdown timer showing how much of the $300 million goal had been reached. Up to this point, the website explicitly admonished: "SEND NO MONEY!"

Step Two: If $300 million in pledges were received, the second stage would consist of collecting the pledges and undertaking to purchase Pabst. It was contemplated that the pledgers - now deemed "investors" - would receive something called a "crowdsourced certificate of ownership," as well as beer of a value equal to the amount invested. I like the idea of getting beer of equal value but I'm not entirely sure I can fully wrap my arms around that crowdsource certificate concept. Maybe I need to drink more beer?

Given that Migliozzi and Flatow came from the advertising world, they didn't just promote this deal through The two also created a Facebook page and Twitter account for this venture, and a whole batch of press releases.

A Wicked Brew!

Laugh at the idea but after just three weeks, $14.75 million in pledges rolled in. Thereafter, in a February 22, 2010, press release, it was announced that the website had received over $200 million in pledges from more than five million pledgors; and that a search was underway for a firm to assist in the ultimate acquisition. In fact, on February 26, 2010, Flatow met with an attorney in New York to discuss how to go about collecting the pledges by incorporating an acquisition vehicle. The possibility of an initial public offering was discussed.


A March 15, 2010, article in The Daily Deal reported that Migliozzi and Flatow had retained counsel and planned to incorporate Buy a Beer Company LLC. This phase would eliminate that whole certificate of ownership concept and likely result in the issuance of stock.

Alas, there was not corporation created and no stock issues; and the BuyaBeerCompany website was taken down in April 2010. No monies were ever collected.

It seems that the Securities and Exchange Commission ("SEC") got wind of this deal - or, as the SEC may have initially phrased it, this "scheme." Undoubtedly, the federal regulators were not pleased with what they likely saw as improper efforts to solicit investments. According to the SEC, from November 2009 through April 2010, the Respondents' undertook an unregistered offering of securities in violation of Section 5 of the Securities Act, makes it unlawful for any person, directly or indirectly, to make use of any means or instrument of transportation or communication in interstate commerce to offer to sell any security unless a registration statement has been filed with the SEC.

While I am free to ponder the SEC's motivations and ruminations, it is clear that things went from suds and iBeer to In the Matter of Michael Migliozzi II and Brian William Flatow, Respondents (Order Instituting Cease-And-Desist Proceedings Pursuant To Section 8a Of The Securities Act Of 1933, Making Findings, And Imposing A Cease-And-Desist Order, Securities Act Of 1933 Release No. 9216 / Administrative Proceeding File No. 3-14415 June 8, 2011).

Without admitting or denying the findings and in anticipation of the institution of the SEC's proceedings, each Respondent submitted an Offer of Settlement which the SEC accepted. The Respondents consented to the entry of a cease-and-desist order.