The Five Dumbest Things on Wall Street This Week

3. For the Better Google

Those folks at Google may become fabulously wealthy in their forthcoming initial public offering of stock. Maybe they should use some of their money to buy some better legal advice.

Google Goof Uh, can we have our stock back?

As we learned from our close study of the Google offering document filed late last week, the search-engine phenomenon has issued 35.5 million shares and options over the past few years in apparent violation of securities laws. The problematic stock, which Google said it didn't properly register or qualify, amounts to 13% of shares outstanding, we calculate.

This happens to the best of companies, according to a lawyer we talked to. "From time to time, you do see issuers run afoul of private placement restrictions," says Michael Littenberg, a partner practicing securities law at Schulte Roth & Zabel.

Soon after its IPO, Google plans to conduct what's called a rescission offer. In other words, it's giving the current owners of the questionably distributed stock the opportunity to sell it back to the company at the price at which they received it.

What this rescission offer does, says Littenberg, is clarify that the capitalization of the company is properly disclosed, and cut off any future claims that people might have to sell the shares back to the company.

"They're doing the right thing," he says. "They're being good corporate citizens here."

Of course, there's one little problem with the company's plans. Considering the near-universal obsession with Google's IPO, and considering, by our calculation, that shareholders got these shares for an average of 95 cents apiece, who's going to want to sell stock back to Google at that price?

"Nobody's going to rescind," says Littenberg. "Nobody who's been reading the papers, at least."

4. Numb and Number, Dumb and Dumber

Back when we were kids, we believed that there was some relationship between the numbers on a company's financial statements and the actual business it conducted.

Yeah, well, that's gotten beaten out of us.

We always thought the champion in the number-fictionalizing department was WorldCom, the telecom company now known as MCI. After all, you may remember, this was the company that pioneered accounting via Post-it Notes -- making hundreds of millions of dollars worth of alterations to its books on the basis of nothing more than someone writing a random number on a yellow sticky note.

But watch out, WorldCom, because in the world of disconnected-from-reality finances, Adelphia Communications is gaining on you.

Yes, at the ongoing trial of former executives at cable TV operator Adelphia, some alarming testimony emerged this week regarding the apparent utter disregard that Adelphia's founding family -- John J. Rigas and his sons -- had for accurate financial statements.

Testifying for the prosecution, former Adelphia Vice President of Finance Jim Brown said the company kept two sets of books -- one that tracked the company's actual financial performance, and one that went out to the public at large.

Two sets of books is disturbing enough. But what's more upsetting is how Adelphia got the numbers for the fake set, according to the write-up of the trial we've been reading in The Potter Leader-Enterprise.

In the third quarter of 2000, Adelphia reported an annual basic subscriber growth rate of 1.1%. And where did Adelphia get that 1.1%? Why, it copied the growth rate from the financials of fellow cable operator Comcast (CMCSA Quote), Brown testified. Comcast had reported its third-quarter numbers eight days earlier.

How lame is that? Adelphia couldn't even make up its own fake subscriber growth number -- it had to lift it from someone else.

The whole thing reminds us of kids who tried to copy our answers when we were taking tests back in elementary school. Where would it get them, we wondered. Now we know: Adelphia's finance department.