Google = Munson

August 6, 2004 2:36 PM

A new meaning for the expression: to google?In a stunning revelation, Internet search engine king Google reported it had neglected to register 28.8 million shares and stock options issued to employees and consultants between September 2001 and June 2004 in violation of state and federal securities laws. The regulatory fiasco was revealed in the company's S-1 filing with the SEC on Tuesday, and it has imperiled Google's much-ballyhooed IPO.
posted by psmealey (10 comments total)

From the Urban Dictionary:

munsoned (v. ppl): to have the whole world in the palm of ur hand and then piss it all away. source: Kingpin.
posted by psmealey at 2:54 PM on August 6, 2004

Good. If a few investors get put off the Google IPO, maybe the shares'll get out into the market at a reasonable price (ie. less than $100!)
posted by reklaw at 3:15 PM on August 6, 2004

I think that investors that think that the price per share matters more than market cap are the ones Google doesn't want.

Of course most companies want any investor they can get.
posted by stchang at 3:20 PM on August 6, 2004

A somewhat calmer perspective is available at The Washington Post's site [BugMeNot]. It made the bottom of the front page of the Business section today.
Who has the authority to delay or abort the IPO, and what would their justification be?
posted by mote at 3:59 PM on August 6, 2004

I'm stunned how little this affects me as a non-investor.
posted by smackfu at 4:13 PM on August 6, 2004

ha ha.
/nelson muntz
posted by quonsar at 5:26 PM on August 6, 2004

Ahem: doh!
posted by botono9 at 6:29 PM on August 6, 2004

pwned
posted by inksyndicate at 11:40 PM on August 6, 2004

Hi, I'm a stock idiot. Could someone explain to me the implications- what happened, and why it's a bad thing (for google) that this happened?

It sounds like not registering means these are valid shares, that they didn't count in their IPO declaration... so what does that mean?
posted by hincandenza at 12:15 AM on August 7, 2004

Hincandenza, it's not that bad of a thing (that fool.com article is remarkably uninformed). This sort of thing happens fairly often, especially to companies that heavily use stock options. More importantly, this issue and the plan for a rescission offer was disclosed in the very first filing in April, and has been disclosed in every filing since. Of course, that means the IPO plans have taken these shares into account from the beginning. Obviously, then, this is not a "stunning revelation" except to writers like that of the fool.com article who don't appear able to read even something like the table of contents of the S-1, which -- since April -- has had an entry entitled "Rescission Offer", pointing to a section that -- since April -- has explained the issue and the proposed resolution. This is not something that by itself would hold up the IPO, much less "imperil" it, since it was clearly planned for from the beginning.

The upshot is that Google may have to return the money received from the purchase of those shares, plus interest, if the purchasers demand it (this is called a rescission right). See, for example, section 12 of the federal Securities Act of 1933, which sets forth the liability for not registering sales or offers of securities; state securities laws usually have a similar setup. Doing a rescission offer is a way under many state securities laws to prevent those purchasers from demanding a return of their money later on. (Whether a rescission offer has that effect under the federal securities laws is questionable, but that only means that Google might still be open to rescission demands for a while after the rescission offer.) It's doubtful that anyone with a rescission right will take up Google's rescission offer since the resale of the shares will be registered along with the IPO.

Also, the SEC isn't going to do anything about it unless there was fraud involved, which doesn't seem to be the case. (Again, see, for example, Section 12 -- it's the purchaser, not the SEC, that has a cause of action (i.e., rescission).) It looks like these shares are from their option plans; there are specific federal and state exemptions for sales of shares from options granted under option plans, and it's not uncommon to technically pop out of those exemptions -- nonfraudulently -- and be left with no exemptions to rely on and no way to register the sales.

Anyway, in the end, the rescission is pretty much a nonissue for sophisticated investors. Why do you think no one cried foul back in April? People doing so now show that they are, well, fools.

(BTW, I'm certainly not saying, in all of this, that Google is a good or bad stock buy. I'm only talking about the issues with the rescission.)
posted by odin53 at 2:27 AM on August 7, 2004