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Google Settles Options Case

The red-hot Net search engine clears up nagging SEC questions tied to its August IPO.

Google (GOOG) violated securities laws by issuing $80 million in stock options without registering them or disclosing the move, the Securities and Exchange Commission said Thursday.

The search engine company and its general counsel, David Drummond, settled the charges by agreeing to not violate registration and financial disclosure requirements. Google neither admitted nor denied the agency's charges, and neither Google nor Drummond paid any fines in the case.

Additionally, the company said that the SEC has closed its investigation of Google related to an interview that its co-founders gave to


. That article caused a brief furor when it was published days before the company's initial public offering last August.

"We are pleased there will be no further proceedings regarding the


article, and we are satisfied with the settlement on the stock option issues," Google said in a statement. "We are glad to have these issues behind us."

Google's shares rose $1.21 Thursday to $196.59.

Two Options

At issue in the settlement are options that Google issued between 2002 and 2004, ahead of the company's IPO.

Federal securities laws, according to the SEC, require companies issuing more than $5 million worth of options during a 12-month period to do one of two things. Either they can provide detailed financial information to the option recipients, or they can register the securities offering with the commission, thereby publicly disclosing financial and other important information.

The SEC says Google didn't do either. The company, privately held at the time, "viewed the disclosure of the information to employees as strategically disadvantageous, fearing the information could leak to Google's competitors."

Drummond was aware of the disclosure requirements, the SEC says, but believed that Google could avoid providing the information to its employees by relying on an exemption from the law.

"Drummond advised Google's board that it could continue to issue options," says the SEC, "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."

Bad Attitude?

Marc Fagel, assistant district administrator for the SEC's San Francisco district office, says that the $80 million slug of options is the same one referred to in a

rescission offer that Google launched last year in response to what it said at the time were issuances of securities in possible violation of securities laws.

"We are concerned with an attitude out there that Google had and other companies may have," says Fagel. He described that attitude as one of "we don't have to worry about these laws, because worst-case scenario, we can have a rescission offer."

"That's not our view of the law," Fagel continues. "The rules are there to protect investors, and companies are not free to just disregard the rules."

This isn't the first time that Drummond's conduct has gotten less-than-favorable reviews. In July, Google disclosed that the

SEC's staff had recommended the commission bring a civil injunction action against Drummond alleging violation of federal securities laws, including antifraud provisions, stemming from Drummond's prior employment at a corporate training firm.

"David Drummond has the full support of the company and its leadership," a Google spokesman said Thursday.