Start-Ups

Google may have issued shares illegally

The Web search giant is offering to buy back millions of shares it doled out to employees and consultants.

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By Stefanie Olsen
CNET News.com

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.

The Mountain View, Calif.-based company, which is preparing for a , said it is offering to rescind more than 28 million shares because it failed to register them under federal and state securities laws, according to an amendment to the company's IPO prospectus.

Google offered to purchase more than 23 million shares sold to 1,105 employees and another 5.6 million stock options held by 301 people, according to the filing. The affected shares and options were issued between September 2001 and June 2004, at exercise prices ranging from 30 cents to $80 per share.

"These option grants and stock issuances may have violated the Securities Act of 1933 and the state securities laws" of 18 states, including Arkansas, California and Colorado, as well as the District of Columbia, according to the filing.

By rescinding the shares, Google seeks to address legal concerns surrounding their issuance. The company is offering to buy back shares sold equal to the value of their "strike price," or issuance price, plus interest. It is also offering to purchase the options for 20 percent of their value. One 5 percent shareholder of the company has declined to accept the offer, according to the filing.

Google said it will pay for the stock and option purchases with its cash reserves. As of June, the company had about $550 million in the bank. The buyback offer is valid through September of this year, according to the amendment.

A Google representative could not be immediately reached for comment

Google, which filed to go public in late March, is expected to raise as much as $3.3 billion in one of the largest-ever IPOs. In recent weeks, the company set the price range for its shares , of which it plans to sell 24.6 million. The company will under the ticker "GOOG."

The company recently began allowing people to register to buy shares for its offering at the Google Web site, .

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