Google Dodges a Bullet


By Ben Elgin In a mild postscript to last year's most tumultuous initial public offering, the Securities & Exchange Commission has concluded its probe into Google's initial public offering. The SEC announced on Jan. 13 that it settled charges against Google (GOOG) for failing to register over $80 million in employee stock options issued prior to its August IPO. In what amounts to a light slap on the wrist, Google and its general counsel, David Drummond, agreed to cease and desist from violating the requirements in the future. No fine was levied.

In addition, the SEC concluded its examination into potential violations of Google's IPO quiet period without taking any action. The search kingpin's founders, Larry Page and Sergey Brin, granted an interview to Playboy shortly before filing paperwork to go public last April. The story appeared in August, during Google's quiet period, sparking controversy and forcing Google to amend its SEC filings.

KNOWING VIOLATION. But there would be no punishment. "This concludes our actions pertaining to Google's IPO," says Marc Fagel, assistant district administrator of the SEC's San Francisco office.

It appears Google dodged a bullet with this SEC settlement.y not registering employee stock options before its IPO, Google skirted rules that would have required it to disclose detailed financial information to its employees and investors. The SEC found that Google's Drummond had knowingly violated this provision, allowing Google to keep its financials under wraps while continuing to allocate stock options.

Drummond also didn't inform Google's board that allocations of stock options could violate such provisions, according to the SEC and Google. "Companies are not at liberty to ignore this rule," says Fagel.

While this brings closure to Google's public offering, it means added controversy surrounding Google's top attorney. Last July, Drummond was notified by the SEC that it may bring a civil injunction against him, arising from his prior employment as chief financial officer for SmartForce, which merged SkillSoft (SKIL) in 2002.

HEADY RUN. Shortly after Drummond joined Google in 2002, his old company restated three years of financial data, much of it dating from when Drummond was chief financial officer. Neither the SEC nor Google would comment on the specifics of the case. Drummond was not available for comment. However, a Google spokesperson said Drummond's job is safe. "David Drummond has the full support of this company and its leadership," says the spokesperson.

The hubbub around Google and its top lawyer has done little to tarnish the search engine's allure among investors. Its eye-popping post-IPO run has propelled Google's market cap above $53 billion, up 130% since it went public in August.

That's a heady valuation. And with the SEC probe wrapped up, would-be investors have one less concern. Elgin is a correspondent in BusinessWeek's Silicon Valley bureau


Steve Ballmer, Power Forward
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