Google was lauded for bypassing institutional cronyism when it opted for an auction process for its initial public stock offering. But a different kind of cronyism has landed it in breach of financial regulations.
Google has been obliged to buy back $28.8m worth of stock and options offered to employees, contractors and buddies after belatedly discovering it had failed to register the giveaways, thus breaching IPO regulations in 18 states, including New York, California and Texas. Google granted the shares to 1,105 employees or contractors, and 301 others. The recission, as it's known, could cost the company almost $26m.
There's a problem, however. Two of the largest shareholders have refused Google's buyback price of 20 per cent. Some of the options were granted for as little as 30 cents, while the IPO is priced at between $108 and $135, and of course, stockholders are expected to make a further killing when the auction process begins.
Google designed the auction process to bypass the pre-flotation sweeteners that gave the dot.com IPO era a bad name. Venture capitalists who funded the bust-to-begin-with stocks offered generous helpings to financial institutions involved in the IPO process, and to their CEO pals, ensuring they cashed in when the stock started trading. The auction process was intended to be more equitable and more appealing to small investors. However in a CBS poll, over 90 per cent of small investors said they'd give the company a pass.
"My take is Google doing the auction (for the little guy) and then pricing shares so outrageously is like a veteran rock group saying they're going on tour for the fans and the cheapest tickets are $500. A lot of fans will skip it and the average investor will be priced out," complained one.
It's not the first instance of the bright young things at Google failing to hand in their homework correctly. The company failed to realize that Gmail trademark was already registered in 80 countries and is being sued by the franchise that looks after a popular children's book, the Googles. Both the domain registration and website Googles.com predated the search engine by several months. ®