United States
Securities and Exchange Commission
Washington, D.C. 20549

March 22, 1996

Mr. Andrew D. Klein
President & Chief Executive Officer
Spring Street Brewing Company
113 University Place, Suite 11-B
New York, New York 10003

Dear Mr. Klein:

    This letter follows up on the issues we discussed in our most recent telephone conversation concerning Spring Street Brewing Company's bulletin board-based stock trading mechanism, Wit-Trade. We thought it was important to communicate our concerns quickly following your suspension of activity earlier this week. Based on your experience as a securities lawyer, you will understand that we have a number of concerns about the Company's operation of Wit-Trade.

    Innovation and creativity are the hallmark of our nation's securities markets, contributing enormously to the most efficient capital formation system in the world. We try to encourage such modernization, but it is our job, first and foremost, to insure protections for public investors. We recognize that Wit-Trade is an innovative mechanism that has the potential to provide Company shareholders with greater liquidity in their investments. We appreciate that the Company is providing this service at its own expense, and we understand that the Company is not involved in negotiating, crossing or otherwise facilitating the execution of the bids and offers posted on Wit-Trade. Nevertheless, we believe that, without certain modifications, investors using your system may not be adequately protected. In particular, we are concerned that investors' funds and securities be handled appropriately, that investors understand the risks involved in purchasing illiquid and speculative securities, that buyers are aware of last sale prices and that investors are provided with ongoing disclosure about the Company.

    Access to and control of investor funds must be handled carefully to provide investors using your system with adequate protections. As you are not a registered broker-dealer, we suggest you modify your system to eliminate the Company's control over these funds. At a minimum, the Company should use an independent agent, such as a bank or escrow agent, to receive checks from buyers payable to the seller of the security of the bank (rather than payable to Spring Street Brewing Company). Investors should send their checks directly to this independent agent, rather than to Spring Street.

Mr. Andrew D. Klein

March 22, 1996

Page 2

    To prevent customer confusion about the role of your system, you should supplement the information currently provided by adding information that is particularly relevant to first time investors, informing them of the risks inherent in investing in illiquid securities. For example, consistent with investor protection the Company should disclose that its shares are not traded on any registered securities exchange or through Nasdaq. Investors should be informed that the market for the Company's shares may be highly illiquid and that there is no guarantee that they will be able to sell the Company's shares at the price they paid for them, or at any particular published indication of interest.

    Users of the system should be informed that if they choose to post quotations simultaneously on both the Buyer and Seller Bulletin Boards they may be considered a "dealer" that is required to register and comply with broker-dealer requirements under the federal securities laws. All transactions facilitated through Wit-Trade are, of course, subject to the antifraud provisions of the federal securities laws, including the anti-manipulation provisions.

    We also believe that a transaction history would allow investors to make more informed investment decisions. We believe that the price and number of shares for recent transactions should be disclosed through the system; we understand that you are planning to provide certain price and volume information. To deter manipulation, it would be helpful if you kept records of all quotations posted on Wit-Trade and of all securities transactions effected through use of the system and make them available to us upon reasonable request.

    In addition, the sale of securities through Wit-Trade appears to involve an offer or sale by Spring Street for purposes of the Securities Act of 1933. In this regard, please note that the Division of Corporation Finance's views regarding the application of the registration requirements of the Securities Act to services such as Wit-Trade are set forth in the no-action response to King & Spalding (November 17, 1992).

    Absent an available exemption, Spring Street would be required to register under the Securities Act and undertake to keep the registration statement "evergreen" during the existence of Wit-Trade. It is our view that the Regulation A exemption may be used in connection with a service such as Wit-Trade. In this regard, the offering circular used in connection with the Regulation A exemption should be delivered and updated in accordance with Regulation A. We note that the Company employed electronic delivery mechanisms in its original Regulation A offering. This approach would continue to be acceptable, although you should consider the Commission's interpretive guidance regarding electronic delivery released last October.

Mr. Andrew D. Klein

March 22, 1996

Page 3

    We are available to answer any questions. Because of the innovative nature of your system and the issues raised, we believe that interpretive relief is appropriate for your situation, and we look forward to working with you in anticipation of providing this relief.


Abigail Arms
Associate Director - Legal
Division of Corporation Finance

Catherine McGuire
Associate Director
Division of Market Regulation

cc: Commissioner Wallman

Return to The Securities Law Home Page