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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.
Definition:
Named after Charles Ponzi, a man with a remarkable criminal career in the early 20th century, the term has been used to describe pyramid arrangements whereby an enterprise makes payments to investors from the proceeds of a later investment rather than from profits of the underlying business venture, as the investors expected, and gives investors the impression that a legitimate profit-making business or investment opportunity exists, where in fact it is a mere fiction.
Accommodation Trading
Definition:
Non-competitive trading entered into by a trader, usually to assist another with illegal trades.
Backwardation
Definition:
Market situation in which futures prices are progressively lower in the distant delivery months. For instance, if the gold quotation for January is $360.00 per ounce and that for June is $355.00 per ounce, the backwardation for five months against January is $5.00 per ounce. (Backwardation is the opposite of contango ). See Inverted Market.
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