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Google and SEC settle IPO charges


The US Securities and Exchange Commission and Google yesterday settled charges brought against the search engine for its failure to register over $80 million in stock issued to Google employees in the two years prior to its IPO.

According to the Commission, between 2002 and 2004, Google issued over $80 million worth of stock options to its employees but failed to register the options or provide the required financial information to employees, in breach of federal securities law.

Google – which at the time was still a privately held company – viewed the disclosure of the information to employees as strategically disadvantageous, fearing the information could leak to Google's competitors, said the Commission.

While David C Drummond, the company's General Counsel, was aware that the registration and related financial disclosure obligations had been triggered, he incorrectly believed that Google could avoid providing the information to its employees by relying on an exemption from the law, and advised the Board accordingly.

Both Google and Drummond were charged over the breach, but a settlement has been reached, with the company and Drummond agreeing to cease and desist from violating the registration and related financial disclosure requirements.

A parallel action brought by the California Department of Corporations has also settled.

"The securities laws exist to ensure full disclosure to investors, including employees accepting stock options as compensation," said Stephen M Cutler, Director of the Commission's Enforcement Division in Washington, DC. "Companies cannot freely decide that they don't need to comply with the law."

According to reports, the SEC has also decided to take no enforcement action against Google over the mistimed publication of a Playboy interview with the company's founders.

The interview, given in April by Sergey Brin and Larry Page before Google filed for its IPO, was published in the September issue of the magazine – within the "quiet period" required by securities regulators.

The IPO went ahead, although Google was forced to make some changes to its prospectus in order to comply with requirements imposed by the SEC to overcome the potential impact of the article's publication.

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