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Google IPO Problems Surface
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."
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.
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
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(
Moo.
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?
I believe the link should've been this.
SEC
U.S. Securities & Exchange Commission Laws
So we know they could find the laws at least... So what happened?
I'm funny. If you come see me perform, I will make you laugh.
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.
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
This section in particular is a good summary of what they did.
Google is going to be spending a lot of money on lawyers, it would seem. This isn't the only problem they're facing.
This sig seemed like a good idea at the time....
There are thousands of people with 4 digit uids.
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.
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 find that all I post about in the last 3-4 years is my UID.
To put it simply: When a company has a unregistered private share offering to non-qualified investors (essentially non-high net worth, or "unsophisticated investors") they are required to get a waiver from the "unsophisticated investor" that they are willing to participate in the risk of investing in an unregistered offering.
The risk is that there are not the same corporate disclosure requirements for unregistered offerings as there are for registered offerings.
In the event that the company wants to go public at a later date, they usually provide rescission offers to these investors, which allow them to cash before the risky public offering.
Most rescission offers are optional, and in the event that the investor declines they will sign an additional waiver that says they are going along for the ride.
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.
Yeah. I never get modded up. Just because I was here before there was even a registration system shouldn't count for anything. Its like those people who used to think they were cool because they had really low ICQ numbers.
Now, if only the comments system was easier to read and have discussions on, I'd probably post more, but then, no one cares what I say anyway.
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.
I guess this article just shows that no one reads these SEC filings -- the rescission offer was disclosed in the very first S-1 filed at the end of April. (direct link to the original rescission offer disclosure) 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.