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Google Businesses The Internet Government The Almighty Buck The Courts News

Google IPO Problems Surface 235

Posted by michael from the here-come-the-lawsuits dept.
manavendra writes "The BBC is reporting that Google has admitted it may have breached stock market laws in the US, while CNET says Google may have run afoul of securities laws when it doled out millions of shares to employees and consultants over the past three years, according to a document filed Wednesday with the Securities and Exchange Commission."
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Google IPO Problems Surface More

Google IPO Problems Surface

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  • Wow! (Score:3, Funny)

    by Anonymous Coward on Thursday August 05, 2004 @11:23AM (#9889985)
    A corporation breaking the law? What are the chances?

  • It's not going to cost them that much... (Score:5, Informative)

    by garcia ( 6573 ) * on Thursday August 05, 2004 @11:24AM (#9889990)
    This isn't huge news or anything. They found the mistake, theya re going to buy back the shares, it's going to cost about 25 million to buy the shares back.

    25 million out of their on-hand cash reserves isn't that much.

  • Offtpoic (Score:5, Insightful)

    by (trb001) ( 224998 ) on Thursday August 05, 2004 @11:24AM (#9889992) Homepage
    This may be offtopic, by why is this in the YRO category? I don't see how this has to do with digital, or analog, personal rights.

    --trb

    • Re:Offtpoic (Score:2, Funny)

      by Anonymous Coward
      Because people kept suffering retinal damage when they read stories in the IT category.

  • Too Bad (Score:5, Interesting)

    by cephyn ( 461066 ) on Thursday August 05, 2004 @11:25AM (#9890017) Homepage
    For all the brilliance of the Google tech guys, it seems their accountants are pretty overwhelmed. I've heard some criticism of the way the IPO was being handled by some financial folk, but I wrote it off to the Old Guard fearing that which they did not understand. Now it seems that Google really does have problems with their bookkeepers. Its too bad. 8(

  • Why sell them back? (Score:5, Insightful)

    by idesofmarch ( 730937 ) on Thursday August 05, 2004 @11:27AM (#9890037)
    Maybe I am missing something, but why would anyone be willing to sell their shares back at a fraction of what they would fetch on the open market?
    • Either you sell them back or get stuck holding toilet paper. There will be a period during which those shares are beign bought back, and after that those shares won't be valid. It probabbly will be automatic as well so you won't have to worry about missing out.
      • And even if they don't have a holding period, you have a problem with dilution; the number of shares available on the open market would essentially increase by whatever number isn't bought back from the employees. More supply, lower price.

        OR

        They'd have to not offer as many shares to start, thus cutting the amount of money they can make from an IPO.

        Looks like a lose-lose situation.
      • So how do you account for the articles referring to statements from Google that at least two people have already refused to accept the offer?

  • Who's counting? (Score:4, Interesting)

    by Bill_Royle ( 639563 ) on Thursday August 05, 2004 @11:27AM (#9890043)
    Hey, the amount of stock that wasn't reported properly looks like it's roughly the same as the amount being offered for it's IPO... but who's counting?

    It's sure as hell not a good way to build investor trust - and it makes it harder to justify the overvalued IPO price.

    • Re:Who's counting? (Score:5, Insightful)

      by eln ( 21727 ) on Thursday August 05, 2004 @11:44AM (#9890259)
      Seems likely to me that a fairly substantial number of these "illegal" shareholders will not take the deal offered by Google, and elect to sue instead. The potential money damages Google will have to pay, as well as any potential SEC action, has the potential to significantly impact Google's market valuation.

      Since, in theory, the IPO price was set at auction by people who looked at, among other things, the number of outstanding shares and the overall valuation of the company, this would seem to indicate that the price decided upon is invalid, as the data it's based on is invalid.

      If the stock was overvalued before, it's much more overvalued now that it's revealed that Google has significantly more potential liabilities outstanding than were previously reported. This is a big black eye for Google in the markets, and it's highly likely anyone buying Google at the IPO price will lose their shirt on the deal.

  • I'd be pissed (Score:3, Funny)

    by Anonymous Coward on Thursday August 05, 2004 @11:28AM (#9890047)
    If they were trying to buy my options back for 1/100th of what I could get for them after the IPO.

    "Hey, remember that $2,000,000 you were counting on?"

    "Yeah, of course."

    "Well, too bad, here's $20,000, thanks for playing the IPO game."

  • Dear Google: (Score:5, Funny)

    by NealokNYU ( 779603 ) on Thursday August 05, 2004 @11:29AM (#9890075)
    To our friends at Google:

    SEC [google.com]
    U.S. Securities & Exchange Commission Laws [google.com]

    So we know they could find the laws at least... So what happened?

  • The real story is the media interest (Score:5, Insightful)

    by Everyman ( 197621 ) on Thursday August 05, 2004 @11:31AM (#9890100) Homepage
    Google mentioned this snafu in their original April 29 SEC filing, and said that they would offer further details on the rescission before the IPO.

    Now they have, and the media plays it like it's some sort of scoop.

    The real story here is not that Google screwed up (that happens regularly), but that the Google teflon is wearing thin in the media.

    You can only play reporters as puppets for a few years, and then they get tired of your spin and start biting back. There will be a lot more negative press in the coming months.
    • The real story here is ... that the Google teflon is wearing thin in the media.

      Media, schmedia. We like Google here at Slashdot. Therefore, this is no big deal.

      Had the culprit been some one else (such as Microsoft, Real, SCO, any RIAA label, or George Lucas, whom we don't like), then this would have been a crime of epic proportions.

  • Google's SEC fililng (Score:5, Informative)

    by ecklesweb ( 713901 ) on Thursday August 05, 2004 @11:35AM (#9890152)
    No that anyone RTFA, much less supplemental information, but for historical purposes here's a link to the specific document in the Google SEC filing that talks about the "recission offer":

    Form S-1 Registration Statement [sec.gov]

    This section [sec.gov] in particular is a good summary of what they did.

  • Not the Only Problem Google's Having (Score:5, Informative)

    by Rob Carr ( 780861 ) on Thursday August 05, 2004 @11:36AM (#9890167) Homepage Journal
    Google is going to be spending a lot of money on lawyers, it would seem. This isn't the only problem [slashdot.org] they're facing.

  • A warning (Score:4, Insightful)

    by Monkelectric ( 546685 ) <slashdot AT monkelectric DOT com> on Thursday August 05, 2004 @11:38AM (#9890197)
    If you buy the google IPO, you are freaking crazy. IPO's do one thing: allow the business investors to cash out of the company. Buy 5 years from now when we know the real value of the company, and how it faced its competitors (MS most notably).
    • It also allows the company to replace those investors with shareholder capital. If you didn't require those initial investors in the first place, then an IPO can help you fund future investments (instead of the other way around).

    • Re:A warning (Score:2, Funny)

      by inkdesign ( 7389 )
      "IPO's do one thing: allow the business investors to cash out of the company."
      This sounds like the sentiment of someone who was burned in the dot-com IPO heydey in the 90s. It is typically years after an IPO before investors cash out. Good advice to wait a few years on this one though. :0]

  • The current scuttlebutt (Score:5, Interesting)

    by Anonymous Coward on Thursday August 05, 2004 @11:40AM (#9890218)
    There's an unsubstantiated but strong and almost-believable rumor floating around the valley right now that Google doesn't really want to do that well in their IPO because they'll lose a lot of their key employees who are fully vested.

    Also, this is beginning to sound eerily like AltaVista. All they need now is a competitor with better technology and that's pretty much it for them.

  • It's Just a 'Goofle' (Score:3, Interesting)

    by grunt107 ( 739510 ) on Thursday August 05, 2004 @11:51AM (#9890336)
    A buy-back of 23.2 million shares and 5.6 million options ARE only worth $25.9m?

    Sounds like 'Pennies' stock to me.
    • RTFA.
      The buyback is at the strike price, not at market prices.

      Which means that the holders will get *something* for their options. Remember, until you're able to exercise & then sell them, they're just promises. And promises sometimes get broken [fuckedcompany.com]

      Chip H.

  • Isn't an overvalued IPO "evil"? (Score:5, Insightful)

    by astrashe ( 7452 ) on Thursday August 05, 2004 @12:27PM (#9890768) Journal
    I've always loved google, but this sort of bugs me.

    I think I can predict the flames -- the market decides what the value is, I don't know that the stock will go down any better than the investors know the stock will go up, the google people deserve to get rich, and all of that.

    But I remember the dot com days (as do most people here, I'm sure). I think that we're going to see a massive transfer of wealth between unsophisticated small investors who are doing more speculating than investing, and the sharpies running this IPO.

    It seems to me that the geek community has never come to terms with exactly what happened in the dot com days, and how dishonest and damaging a lot of the financial shenanigans were. A lot of guys who were ring leaders -- guys like Jeff "profits don't matter" Bezos -- are still respected and admired.

    You can say a lot of bad things about MS, and I'd probably agree with most of them. But they never screwed their investors the way that almost every open source IPO did. That's always something that's left out when people talk about the software morality play here.

    I don't see why people see this as a good thing for the tech industry. The only way IPOs will be good, over the long run, is if the investors make good returns. With this valuation that's impossible. People are going to get screwed, just like the old days, and it will just revive the bitter taste in everyone's mouth, and make the next IPO that much harder.

    • You can say a lot of bad things about MS, and I'd probably agree with most of them. But they never screwed their investors the way that almost every open source IPO did. (emphasis mine)

      If memory serves correctly, very few of the not-coms were "open source" companies. Most of the spectacular flame-outs were "eyeball" companies, as in "we'll throw up a gawd-awful website with crappy free content, and we'll make BILLIONS off advertisers paying for eyeballs."

      Don't lay the dot-bomb crisis at the feet of ope


    • I've always loved google, but this sort of bugs me.

      Google management lost its credibilty with me when they came out and said "We won't be evil", then issued two classes of stock. One for the public, another for a superclass of shareholders that have superior voting rights. Evidently Google mgmt is All Knowing and Supreme compared to the investing public, and certainly should not be accountable to the "little people." If that isn't "evil", I don't know what is.

      This business about buying back inappropriatel

      • Re:Isn't an overvalued IPO "evil"? (Score:4, Insightful)

        by pilkul ( 667659 ) on Thursday August 05, 2004 @09:46PM (#9896164)
        But it's precisely because of their "no evil" attitude that they want to implement a media-style stock structure.

        The real "little people" here are not stockholders --- those stockholders with voting power in a normal corporation are generally rich institutional investors anyway. The "little people" are Google's everyday users. And if Google loses control to external stockholders, we can expect lots of evil things to happen as Google begins using sleazy tactics to squeeze every penny out of its users. Google wants to keep offering its current level of not-evil management and this is the only way to do it.

        What most Google-bashers don't understand is that when Google talks about not being evil, it's always thinking of the general public that uses their search engine, not special interest groups. In the past, they've been extremely tough and uncompromising with advertisers and webmasters to protect the interests of their users. And now, similarly, they're being tough and uncompromising with shareholders.


  • Ok, let's start counting search nodes to see whether Google is loved today:

    Slashdot loves Google
    Slashdot loves Google not
    Slashdot loves Google
    Slashdot loves Google not
    Results 1 - 10 of about 8,610 for slashdot loves google. (0.23 seconds)

    Hrm. Even number of results. Therefore, today, Slashdot loves Google not.

    Maybe tomorrow will be better, but I guess it depends on when they next update the index.

    -Adam

  • Recission Offers; Wall Street's Hatred of Google (Score:5, Interesting)

    by Anonymous Coward on Thursday August 05, 2004 @12:48PM (#9891050)
    The way recission offers work is: (i) company has done something technically wrong in offering securities, (ii) company offers to remedy this by buying back shares at or above selling price and (iii) persons who refuse buy out offer are legally deemed to waive their right to sue based on the original wrong. Since the recission offer price, though above the original offer price, is below the proposed IPO price, no one will accept. Therefore, this should result is basically no loss to Google.

    Google, because it is one of the few big post dot-bomb tech IPOs, was able to compel Wall Street into accepting an auction process that will net the underwriters about 2% of the offering proceeds, versus the almost universal 6 to 7%. Because of this, Wall Street hates Google and investment banks have been feeding the media a constant stream of FUD against the Google offering (which the media, getting advertizing dollars from investment banks, is eager to accept).

    Bottom line: (i) Recission offer no threat to Google. (ii) Don't look for the business media to say anything good about the Google offering.
    • In addition to low fees, they aren't trying at the road show, made them all improve their computer systems, take 5 share orders and took away the really valuable part the right to issue shares at a very low price to favored clients (who pay out the nose for handholding of some sort).

  • ooooold news (Score:5, Informative)

    by odin53 ( 207172 ) on Thursday August 05, 2004 @01:06PM (#9891304)
    I guess this article just shows that no one reads these SEC filings -- the rescission offer was disclosed in the very first S-1 [sec.gov] filed at the end of April. (direct link to the original rescission offer disclosure [sec.gov]) And it's not like it was buried. It has its own entry in the table of contents.

    I think that most financial people who are thinking of buying shares have probably seen this, if they've been following the filings. Remember that there have already been 3 amendments to the registration statement, plus the S-1 to the rescission offer, totaling 5 different documents that disclose it. Also, the financial statements disclose it, so add the Form 10 that Google has filed and the 3 amendments to it, for a grand total of 9 different filings over the past 3 months that all mention it.

    These people probably don't think it's a big deal, because of the relatively small liability (see Section 12 of the Securities Act of 1933), and probably no one will exercise the rescission right anyway (they'd be crazy to do that before the IPO). More importantly, this kind of stuff happens more often than you might think; some companies will just take the risk of this liability and not do a rescission.

    Also, don't confuse section 12 liability (which is essentially about selling shares in unregistered/non-exempt transactions) with rule 10b-5 liability, which is what you hear about all the time (all those class actions are usually rule 10b-5 actions). 10b-5 is about fraud.

  • Just petty jealousy (Score:4, Insightful)

    by moankey ( 142715 ) on Thursday August 05, 2004 @01:26PM (#9891568)
    I am now starting to think its not about how big a company is, or how a company got to where they are, or even if they do the right thing or not. People are just jealous that they are not part of it.
    Its always been popular to bash Microsoft and its easy to see why from a geek, easiest term to use, point of view. Their business tactics and overall strategy. Then comes along Google which is also a technology company but the complete opposite, IMO, of how Microsoft operates but people are already starting to throw tacks and spikes in their road to success.
    Its easy to say we are bashing them because we dont like their tactics, but it seems more what people are saying is that I am not part of it, I wont benefit from it, so hey it easier to get on some bandwagon and say they are doing things wrong and try to stifle their next step to success.
    People always tell you this growing up but its interesting to see on a corporate societal scale, and instead of "its not fair...", now its "hmm...it seems you may not have followed guidelines according to blah blah blah blah..."
  • I get a feeling that many companies wouldn't be so up front about this sort of problem. Kudos to Google for being honest in their dealings.

  • Doing a little math (Score:4, Informative)

    by appleLaserWriter ( 91994 ) on Thursday August 05, 2004 @02:57PM (#9892820)
    In a filing to the US market watchdog, Google said it had neglected to register almost 30 million shares and options issued to staff.

    It is now offering to buy them back - albeit at prices way below the $108-$135 at which its flotation is set.

    Based on the information from Yahoo! News [yahoo.com], I calculated that given a total value of $36 billion, and a share price of $108-$135, there must be between 266 million and 333 million shares.

    Given that Google can raise a maximum of $3.3 Billion, it must be offering at least 24 million shares.

    If it is offering 24 million shares out of a total of 266 million, then it is only offering 9.1 % of the company to the public.

    So, google has neglected to properly account for slightly more shares than they plan to offer to the public. And they are offering at a very high starting price.

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