Cease and Desist Order Against Advertising Company for Securities Laws Violation

Jack Humphrey, Regulatory journalist
June 09, 2011 /

The US Securities and Exchange Commission (SEC) has entered a cease and desist order against an online advertising company that failed to register its offerings with the securities regulator.

The online advertisement encouraged potential investors to buy a beer company through a solicitation distributed using social networking sites like Facebook and Twitter. The campaign was done before the advertising company could register with the SEC and make the required disclosures under securities laws.

Today, the SEC published the settlement to which two advertising executives consented, hard on the heels of the suspension of 17 microcap stocks whose market capitalizations were questionable in terms of publicly available information.

Michael Migliozzi II and Brian William Flatow agreed to a cease and desist order after they directed investors to their Web site and solicited pledges for a hoped-for $300 million purchase of the Pabst Brewing Company.

Federal securities laws require the executives to register their offering before selling it to the public. Registration would include public disclosure of a company’s financial position and other material information that investors can use in deciding before shelling out money.

“All investors are entitled to know certain basic information about a company before being asked to invest. Just because would-be investors are being solicited online doesn’t make them less deserving of the protections under our securities laws,” said Scott Friestad, Associate Director in the SEC’s Division of Enforcement.

Migliozzi and Flatow allegedly followed two stages in soliciting the funds. First, they sought pledges and asked pledgors to give their e-mail addresses, first name, last name, and pledge amount, the SEC said.

Next, the two advertising executives collected the pledges when they reached $300 million and undertook the task to purchase the beer company, the SEC added.

Migliozzi and Flatow also advertised their offering through Facebook and Twitter, telling investors that visited their Web site that they would receive a certificate of ownership as well as beer of a value equal to the amount invested, the order stated.

In February 2010, Migliozzi and Flatow said they had received more than $200 million in pledges from more than five million pledgors, according to the order. The two then began to look for a firm to assist them in the acquisition.

Until their Web site was taken down in April last year, the two advertising executives went on with their collection of pledges. The Web site was launched by Migliozzi and Flatow in November 2009.

They failed to collect money when the pledges they received did not reach $300 million, the SEC said.

According to the securities regulator, Migliozzi and Flatow violated Section 5c of the Securities Act of 1933, ordering them to cease and desist from committing or causing any violations and from committing or causing any future violations.

Without admitting or denying the allegations hurled against them by the SEC, the two consented to the settlement.

The federal securities laws provide certain exemptions to some offerings despite requiring the registration of them.

For example, private offerings to a limited number of accredited investors or institutions can be exempted from these registration requirements.

Furthermore, offerings of limited size can also be exempted.

 

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