Google faces probe; IPO may be delayed

Friday, Aug. 6, 2004 | 9:19 a.m.

BLOOMBERG NEWS

SAN FRANCISCO -- Google Inc., owner of the most-used Internet search engine, is being investigated by the California Department of Corporations after the company said Wednesday it failed to register shares issued to some workers and consultants.

The state agency said in a statement Thursday that it's investigating possible violations of securities laws between September 2001 and June 2004 that Google disclosed in a filing with the U.S. Securities and Exchange Commission.

Google's initial public offering may raise as much as $3.3 billion, the largest IPO by an Internet company. Google plans to hold its auction-style share sale this month, the company said in a July filing with the SEC. The California probe may prompt other states' regulators to take action and push back Google's IPO, attorney Robert Clarkson said.

"It'll be interesting to see if they'll now be some piling on," said Clarkson, a partner with the law firm of Jones Day in Menlo Park, California. "They may end up getting their hands slapped by a bunch of state regulators."

Clarkson doesn't represent Google.

Google will be required to document the California investigation in filings with the SEC, which could push back its IPO by a few weeks, said Clarkson, who advises companies and underwriters on IPOs.

Google already was considering pushing back its IPO from next week to the week of Aug. 16, financial news network CNBC reported earlier, citing a source it didn't identify. It's taking Google longer than expected to register prospective investors for the Internet-based auction that it will use to issue shares, Dow Jones Newswires reported, without identifying its source.

Google spokeswoman Cindy McCaffrey declined to comment on the timing of the IPO. Google spokesman David Krane declined to comment on the California investigation.

Earlier Thursday, Krane said it's common for companies to make share repurchase offers before an IPO to make amends for possible securities law violations.

Google is unlikely to have to pay a fine in connection with the repurchase, Clarkson said. He said regulators may issue an injunction that could make it easier to take action against Google for future violations.

"The department will exercise its complete authority in this matter to ensure full compliance with California's securities laws," the California Department of Corporations said in its statement. "The department is investigating this matter and will continue until satisfactorily concluded."