By: Cydney Posner

The SEC has just announced the settlement of an action against Google for failure to register employee stock options under Section 5 and its general counsel, David Drummond for causing the violation.

The SEC found that between 2002 and 2004, Google issued over $80 million worth of stock options to its employees. Companies issuing over $5 million in options during a 12-month period are required either to provide detailed financial information to the optionees or to register the securities offering with the SEC, neither of which was done by Google. The SEC alleges that the privately-held Google viewed the disclosure of the information to employees as "strategically disadvantageous, fearing the information could leak to Google's competitors." The SEC also alleged that the General Counsel "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."

The SF District Administrator stated in the press release that, "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."

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.

This content is provided for general informational purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Cooley LLP, Cooley (UK) LLP, or any other affiliated practice or entity (collectively referred to as "Cooley"). By accessing this content, you agree that the information provided does not constitute legal or other professional advice. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction, and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. When advising companies, our attorney-client relationship is with the company, not with any individual. This content may have been generated with the assistance of artificial intelligence (Al) in accordance with our Al Principles, may be considered Attorney Advertising and is subject to our legal notices.