June 29, 2011

More on “SEC Brings “Blue Ribbon” Enforcement Proceeding Against “Crowdsourcing” Offering”

Last month, I blogged about an SEC Enforcement action against two individuals who attempted to raise $300 million via a website, a Facebook page and a Twitter account, to finance a company which would purchase the Pabst Brewing Company. The SEC’s order noted that the offering was attempted to be “crowdsourced.”

A few members weighed in with similar stories from the old days. For example, Stephen Quinlivan notes that back in the late ’90s, James Page Brewing Co. placed a small ad on the side of its six packs to sell securities in a Regulation A/SCOR deal. And here’s an old NY Times article about the Boston Beer offering mentioned in last month’s blog, courtesy of John Newell of Goodwin Procter.

I do remember other examples of companies selling directly to their customers back in the ’90s (egs. Spring Street Brewing Company; Annie’s Homegrown); some of which are referenced in the “Public Companies” section of this ’97 study on technology and the markets that I helped draft back when I was at the SEC.

It’s Here: Crowdsourcing Offerings Through Mobile Phones & Tablets

This recent piece from “The Atlantic” discusses a relatively new start-up – Loyal3 – which allows companies to create “Customer Stock Ownership Plans” similar to the ones described above, but with the twist that the plan is run through on an app for your smart phone, tablet, etc. As noted in this WSJ article, Nasdaq has partnered with Loyal3 to offer CSOPs to listed companies. [This piece entitled “Nasdaq Social Partner Was Called on the Carpet” from “Investor Uprising” notes the Loyal3’s CEO’s troubling past.]

The piece in “The Atlantic” notes that these CSOPs are “dolled-up Direct Stock Purchase Plans.” DSPPs have been wavering in popularity – both among issuers and investors – over the past decade. The piece also notes that some companies may use CSOPs to give away stock to their customers for free, claiming Frontier Communications is planning to do. I haven’t found any other information to indicate this indeed will happen (searching Google generally and SEC filings made by the company). Anyways, Travelzoo went this “free stock” route back in ’98 before it went public six years later (here’s a law review piece on “free Internet stock offerings” from back in the day).

SEC to TSRA (Trade Sanctions Reform and Export Enhancements Act of 2000): Back Off!

From a member: You should be aware of a development we’ve seen over the past few years – namely, Corp Fin searching company websites for any mention of countries on the state sponsors of terrorism list and then sending letters to those companies suggesting that they are violating both the export laws and SEC disclosure obligations. It seems that the Staff may be overlooking the fact that US export laws do not prohibit all business with any country on that list – as those laws permit certain business with certain such countries.

This blog provides an example. It explains that UPS received a letter from the SEC demanding an explanation about how UPS could do business in Iran, Sudan and Cuba when those countries are on the state sponsors of terrorism list. The SEC’s diligence on this issue appears to be searching the UPS website for references to countries on the state sponsors of terrorism list. Although it’s hard to see how the Staff would otherwise diligence this issue, this remains a concern for some companies.

– Broc Romanek