SecMail� No. 05-02-14 February 14, 2005
SEC v. Lawyers: The Google Chapter The SEC has increased the pace at which it takes enforcement actions against lawyers. One of the latest chapters in that saga occurred on January 13, 2005, when the SEC charged Google, Inc., for failing to meet the requirements of various exemptions from registration for stock options issued to its employees prior to its Fall 2004 IPO, and charged Google's General Counsel for having caused the violation. Without admitting or denying the Commission's findings, the company and the lawyer settled the SEC charges, agreeing to cease and desist from violating Section 5 of the Securities Act of 1933. The company also settled a related civil action brought by California Department of Corporations. The SEC's order credits their cooperation during the SEC Staff's investigation. See _http://www.sec.gov/litigation/admin/33-8523.htm_ (http://www.sec.gov/litigation/admin/33-8523.htm) . If it was confusing before, it is now clear: the SEC has changed its approach toward lawyers. At least in some circumstances, the agency will now charge them personally if they recommend a legal strategy that is later deemed to violate the federal securities laws. The SEC appears to be sending at least three messages through this case: (i) no violations of law are minor, and the costs of violating the securities laws cannot be measured simply by civil litigation costs; (ii) the quality of legal advice and diligence of the lawyer will be factors in an enforcement review if the SEC Staff believes the advice was wrong; and (iii) lawyers who chart risky legal strategies for their corporate clients without fully describing those risks to directors approving transactions may be deemed to have made the business decisions themselves, rather than merely to have rendered advice. No Violations are Minor. In 2003, Google was a privately held company whose financial statements were confidential. According to the SEC, Google believed that disclosing these financial statements would be "strategically disadvantageous," and that making the financial statements widely available among Google employees could result in public disclosure. At this time, Google was considering issuing stock options to its employees without registering the securities, but Rule 701 of the Securities Act of 1933 provided an exemption only for up to $5 million in options to non-accredited investors. Beyond that amount, and absent another exemption, Google would have been required to provide financial statements to the options recipients in order to satisfy Rule 701. Submitted by SharonScarrellaAnderson telfx: 651-776-5835 for Public Enforcement Policys _____________________________________________ To Join: St. Paul Issues Forum Rules Discussion Email: [EMAIL PROTECTED] ____________________________________________ NEW ADDRESS FOR LIST: [email protected] To subscribe, modify subscription, or get your password - visit: http://www.mnforum.org/mailman/listinfo/stpaul Archive Address: http://www.mnforum.org/mailman/private/stpaul/
