Brewery’s Net Stock System Back on Tap

A New York brewing company that suspended Internet-based trading for its stock last week amid regulatory scrutiny said Monday that regulators have agreed to allow the system to resume with several minor conditions.

The fate of Spring Street Brewing Co.’s innovative trading system, called Wit-Trade, has generated intense interest on Wall Street and among small businesses. Academics view it as an important test of the Securities and Exchange Commission’s willingness to let companies use new technologies to tap the financial markets.

Andrew D. Klein, Spring Street’s president and chief executive, said he received a letter Friday from senior SEC staff that “gives us essentially a green light to resume Wit-Trade with some modifications.”

“This letter was intended to suggest there are not insurmountable obstacles facing the program,” said Robert Colby, deputy director of market regulation at the SEC. “We don’t want to be in the way of innovative systems as long as they’re operated in a way that won’t create risks for the people participating.”

Wit-Trade, named after Spring Street’s Wit beer, is a bulletin board stock-trading system based on the company’s World Wide Web page that lets buyers and sellers meet using e-mail. After agreeing to a trade by contract, the buyers and sellers send money and stock certificates to Spring Street to complete the trade.

The SEC expressed reservations about the system last week, saying it could mean that Spring Street was operating as an unregistered broker-dealer or an unregistered stock exchange.

In its letter, the SEC said Spring Street should not handle customer funds from the stock trades itself but instead have a bank or an escrow agent handle that task. It asked Spring Street to place additional warnings on its Web page so investors know the stock is not traded on a regular stock exchange and therefore could be difficult to sell.

The SEC also asked Spring Street to disclose more price and trading history and permit SEC oversight of the financial information provided by the system.

Although the SEC seeks to encourage innovation in the markets, “it is our job, first and foremost, to ensure protections for public investors,” the SEC’s letter said.

Spring Street plans to make the modifications and then seek regulatory clearance, Klein said. That could take a few weeks.

“We think that’s a great development for our company and others who are seeking to use the Web in this way,” Klein said.

Dan Weaver, a finance professor at Marquette University in Milwaukee, said Spring Street’s trading system is part of a broader trend of companies’ bypassing traditional brokerages and reaching investors directly.

He referred to the popularity of dividend reinvestment plans, which allow investors to buy stock directly from a company and have the quarterly stock dividends go to purchase additional shares.

“Companies have become dissatisfied with the role of the broker-dealer,” Weaver said.