Google reveals possible securities law violations

Google may have violated US federal and state securities laws by issuing millions of unregistered common shares and stock options...

Google may have violated US federal and state securities laws by issuing millions of unregistered common shares and stock options to its employees and consultants, the company said.

The revelation comes as the search giant prepares to launch one of the most anticipated initial public offerings (IPOs) in recent history, valued at billions of dollars. It has cast a veil of uncertainty over the future of the offering.

In a document filed with the US Securities and Exchange Commission (SEC), the company offered to repurchase more than 23.2 million shares of common stock and 5.6 million stock options that it distributed to present and former employees and consultants because such issue may have violated the Securities Act of 1933 and some state security laws.

Google said that the share issues 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 about $25.9m (£14.2m) 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 company said.

That is just a fraction of the $549m in cash the company has on hand, and the billions of dollars it is expected to reap from its IPO. Google set its IPO share range last week at between $108 and $135 per share, which could give it a market capitalisation of more than $36bn at the high end of the range.

It remains to be seen whether the rescission offer will delay the timing of the IPO, which is expected in a matter of weeks.

Google said, "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.

Scarlet Pruitt writes for IDG News Service


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