Securities News

SEC Charges Google And Its General Counsel David C. Drummond With Failure To Register

Company and Drummond Agree to Cease and Desist From Violating Registration and Related Financial Disclosure Requirements

Washington, D.C., Jan. 13, 2005 - The Securities and Exchange Commission today charged Google, Inc. with failing to register the issuance of option grants to employees or provide required financial information to the option recipients. According to the Commission, the Silicon Valley search engine technology company issued over $80 million in stock options to its employees in the two years preceding its IPO, yet failed to register the securities or make financial disclosures mandated by federal securities law. To settle the charges, Google and its General Counsel, David C. Drummond, agreed to cease and desist from violating the registration and related financial disclosure requirements.

The Commission found that between 2002 and 2004, Google issued over $80 million worth of stock options to its employees as part of their compensation. The federal securities laws require companies issuing over $5 million in options during a 12-month period either to provide detailed financial information to the option recipients, or to register the securities offering with the Commission and thereby publicly disclose financial and other important information.

According to the Commission, Google far exceeded the $5 million disclosure threshold, yet failed to register the options or provide the required financial information to employees. According to the Commission, Google - which, at the time, was still a privately-held company - viewed the disclosure of the information to employees as strategically disadvantageous, fearing the information could leak to Google's competitors.

The Commission's order further finds that Google's General Counsel David Drummond, 41, of San Jose, Calif., was aware that the registration and related financial disclosure obligations had been triggered, but believed that Google could avoid providing the information to its employees by relying on an exemption from the law. According to the Commission, Drummond advised Google's Board that it could continue to issue options, but failed to inform the Board that the registration and disclosure obligations had been triggered or that there were risks in relying on the exemption, which was in fact inapplicable.

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	Swap: In general, the exchange of one asset or liability for a similar asset or liability Swap: In general, the exchange of one asset or liability for a similar asset or liability for the purpose of lengthening or shortening maturities, or raising or lowering coupon rates, to maximize revenue or minimize financing costs. This may entail selling one securities issue and buying another in foreign currency; it may entail buying a currency on the spot market and simultaneously selling it forward. Swaps also may involve exchanging income flows; for example, exchanging the fixed rate coupon stream of a bond for a variable rate payment stream, or vice versa, while not swapping the principal component of the bond. Swaps are generally traded over-the-counter.