Google reveals possible securities law violations

Google Inc. may have violated federal and state securities laws by issuing millions of unregistered common shares and stock options to its employees and consultants, the company said in a regulatory filing Wednesday. The revelation comes as the search giant prepares to launch one of the most anticipated initial public offerings (IPO) in recent history, valued at billions of dollars, and casting a veil of uncertainty over the future of the offering.

In a document filed with the U.S. Securities and Exchange Commission (SEC), the company offered to repurchase over 23.2 million shares of common stock and some 5.6 million in stock options that it meted out to present and former employees and consultants because the issuances may have violated the Securities Act of 1933, as well as certain state security laws.

Google said that the share issuances in question were not registered under certain federal and state securities laws, nor did the company seek to exempt the securities from the registration requirements. Therefore, it is issuing a "rescission offer" to buy back the shares and options, issued between September 2001 and June 2004. It is a move that could cost the company approximately US$25.9 million should it be accepted by the SEC.

"The rescission offer is intended to address these federal and state securities laws compliance issues by allowing the holders of the options and shares covered by the rescission offer to rescind the underlying securities transaction and sell those securities back to us," the filing says.

The $25.9 million rescission offering is just a fraction of the $549 million in cash the company has on hand, and the billions of dollars it is expected to reap during its IPO. Google set its IPO share range last week at between $108 and $135 per share, which could give it a market capitalization of over $36 billion at the high end of the range.

It remains to be seen whether the rescission offer will delay the timing of the Mountain View, California, company's IPO, which is currently expected to take place in a matter of weeks.

In the filing, Google says that "it is unclear whether the rescission offer will terminate our liability, if any, for failure to register or qualify the issuance of the securities under either federal or state securities laws." Additionally, the company says that it is not sure if it will continue to be liable under the securities laws in question if its rescission offer is not accepted by all shareholders in question.

A representative for Google in London declined to comment on the matter Thursday, saying that the company is in a customary quiet period in anticipation of its public offering.

Last week Google launched a site where investors can register to bid for the company's shares, at www.ipo.google.com. The company has undertaken an usual tack for its IPO, selling its shares by auction, in an effort to make the process more egalitarian. Now that its past issuances are being called into question, it remains to be seen how securities regulators will handle the IPO.

Representatives at the SEC in Washington, D.C. could not immediately be reached for comment.

Google plans to trade on the Nasdaq stock exchange under the ticker symbol "GOOG."

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