SEC Press press_release 8 KB 4,328 chars

SEC Charges Google and its General Counsel David C. Drummond with Failure to Register Over $80 Million in Employee Stock Options Prior to IPO

Release: 2005-6
Caption: Securities and Exchange Commission v. David Drummond

summary

The SEC charged Google and its General Counsel David C. Drummond with failing to register over $80 million in employee stock options issued between 2002 and 2004, violating federal securities law by avoiding required disclosures due to competitive fears, with Drummond personally held accountable for misleading the Board about an inapplicable exemption, resulting in a cease-and-desist order without admission of guilt.

paragraph

Google and its General Counsel David C. Drummond were charged by the SEC with violating Section 5 of the Securities Act of 1933 by issuing over $80 million in unregistered employee stock options between 2002 and 2004, exceeding the $5 million threshold that triggered mandatory disclosure or registration requirements. Drummond, aware of the legal obligations, incorrectly advised the Board that an exemption applied, failing to disclose the risks and enabling the company to avoid financial disclosures out of concern for competitive harm. Both parties consented to a cease-and-desist order without admitting or denying guilt, and the California Department of Corporations separately settled related state law violations.

narrative

Between 2002 and 2004, Google issued over $80 million in stock options to employees as part of compensation, but failed to register the securities or provide required financial disclosures, despite exceeding the federal $5 million threshold that triggered mandatory compliance under Section 5 of the Securities Act of 1933. The company, then privately held, deliberately avoided disclosure out of concern that sensitive financial information might leak to competitors. David C. Drummond, Google’s General Counsel, knew the registration and disclosure obligations had been triggered but incorrectly advised the Board that an exemption applied, even though no such exemption was legally available. He failed to inform the Board of the legal risks, thereby causing the company’s violations. The SEC charged both Google and Drummond personally for these failures, with Drummond held accountable as a corporate officer responsible for legal compliance. Without admitting or denying the allegations, both parties agreed to a cease-and-desist order. In a related action, the California Department of Corporations also settled civil charges against Google for violating state securities laws by issuing unregistered options without required disclosures during 2003.

Enriched metadata

Scheme: unregistered-securities (100%)
Outcome: settled

Classified unregistered-securities(confidence 100%). EDGAR detection: forms Form D/S-1· recall 41% / precision 30%. detection rule →

Extracted insights

Dollar amounts 3

$80.00M $80 MILLION $10M–$100M
$80.00M $80 million $10M–$100M
$5.00M $5 million $1M–$10M

Entities 2

person david drummond
agency Securities and Exchange Commission

Triples 14

Securities and Exchange Commission Charged Google and Its General Counsel David C. Drummond
Google and Its General Counsel David C. Drummond Agree to Cease and Desist From Violating Registration and Related Financial Disclosure Requirements
Google Issued Over $80 Million in Stock Options to Its Employees
Google Failed to Register The Securities Issuance
Google Failed to Provide Required Financial Information to Option Recipients
Google Exceeded The $5 Million Disclosure Threshold
Google Viewed Disclosure As Strategically Disadvantageous
Google's General Counsel David Drummond Was Aware That Registration and Related Financial Disclosure Obligations Had Been Triggered
David Drummond Believed Google Could Avoid Providing Financial Information to Employees by Relying on an Exemption
David Drummond Advised Google's Board That It Could Continue to Issue Options
David Drummond Failed to Inform The Board That Registration and Disclosure Obligations Had Been Triggered
David Drummond Failed to Inform The Board of the Risks in Relying on the Exemption
Google and Drummond Consented to an Order That They Cease and Desist From Violating or Causing Violations of Section 5
California Department of Corporations Announced Settlement Of Civil Charges Against Google for Issuing Certain Stock Options Without Registration

View original SEC press releasesec.gov

Extracted body text (4,328c)

SEC CHARGES GOOGLE AND ITS GENERAL COUNSEL DAVID C. DRUMMOND WITH FAILURE TO REGISTER OVER $80 MILLION IN EMPLOYEE STOCK OPTIONS PRIOR TO IPO FOR IMMEDIATE RELEASE 2005-6 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. Stephen M. Cutler, Director of the Commission's Enforcement Division in Washington, D.C., said, "The securities laws exist to ensure full disclosure to investors, including employees accepting stock options as compensation. Companies cannot freely decide that they don't need to comply with the law." Added Helane Morrison, District Administrator of the Commission's San Francisco District Office, "Attorneys who undertake action on behalf of their company are no less accountable than any other corporate officers. By deciding Google could escape its disclosure requirements, and failing to inform the Board of the legal risks of his determination, Drummond caused the company to run afoul of the federal securities laws." The Commission's Order charges Google with violating Section 5 of the Securities Act of 1933, which imposes registration and disclosure obligations in the offer or sale of securities, and further charges Drummond with causing Google's violation. Without admitting or denying the Commission's findings, Google and Drummond consented to an order that they cease and desist from violating or causing violations of Section 5. In a related matter, the California Department of Corporations announced that it had settled civil charges against Google for issuing certain stock options to Google's employees and consultants during 2003 without registering the offering and without providing financial information required to be disclosed under state securities laws in violation of Section 25110 of the California Corporations Code. For more information, contact: Helane Morrison District Administrator (415) 705-2450 Marc Fagel Assistant District Administrator (415) 705-2449 San Francisco District Office Securities and Exchange Commission http://www.sec.gov/news/press/2005-6.htm Home | Previous Page Modified: 01/13/2005

OCR text (4,328c · plain-text · 99% conf)

SEC CHARGES GOOGLE AND ITS GENERAL COUNSEL DAVID C. DRUMMOND WITH FAILURE TO REGISTER OVER $80 MILLION IN EMPLOYEE STOCK OPTIONS PRIOR TO IPO FOR IMMEDIATE RELEASE 2005-6 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. Stephen M. Cutler, Director of the Commission's Enforcement Division in Washington, D.C., said, "The securities laws exist to ensure full disclosure to investors, including employees accepting stock options as compensation. Companies cannot freely decide that they don't need to comply with the law." Added Helane Morrison, District Administrator of the Commission's San Francisco District Office, "Attorneys who undertake action on behalf of their company are no less accountable than any other corporate officers. By deciding Google could escape its disclosure requirements, and failing to inform the Board of the legal risks of his determination, Drummond caused the company to run afoul of the federal securities laws." The Commission's Order charges Google with violating Section 5 of the Securities Act of 1933, which imposes registration and disclosure obligations in the offer or sale of securities, and further charges Drummond with causing Google's violation. Without admitting or denying the Commission's findings, Google and Drummond consented to an order that they cease and desist from violating or causing violations of Section 5. In a related matter, the California Department of Corporations announced that it had settled civil charges against Google for issuing certain stock options to Google's employees and consultants during 2003 without registering the offering and without providing financial information required to be disclosed under state securities laws in violation of Section 25110 of the California Corporations Code. For more information, contact: Helane Morrison District Administrator (415) 705-2450 Marc Fagel Assistant District Administrator (415) 705-2449 San Francisco District Office Securities and Exchange Commission http://www.sec.gov/news/press/2005-6.htm Home | Previous Page Modified: 01/13/2005