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.
