An early morning article over at the Wall Street Journal claims the search engine played favorites during its IPO.
Lower demand for the initial public offering meant a lower opening price per share of Google stock. That situation led to seven members of Google’s board to cut back on the number of shares they would sell in August 2004. While founders Sergey Brin and Larry Page, and CEO Eric Schmidt got to pull some stock off the table, other investors were not so fortunate.
The WSJ.com story mentions Stanford professor David Cheriton as one investor who wanted to cut back the number of shares he would be required to sell after Google reduced its IPO price. He was not permitted to do so. Another investor quoted anonymously in the article said “only the suckers” sold all the shares they were meant to sell during the IPO.
“The well-connected pulled out,” Mr. Cheriton said in the report; he still made $58 million on the IPO sale.
Stanford University and two venture capital firms, Sequoia Capital and Kleiner Perkins, were noted as having about 4 million shares to sell per Google’s SEC filings. Instead they sold zero, and were able to keep them off the market presumably until the price increased. Messrs. Brin, Page, and Schmidt, along with K. Ram Shriram, withdrew about half of their shares offered from actual sale.
The article cites securities lawyers in noting this behavior did not violate any federal regulations. Indeed, their actions may have helped the IPO by virtue of shortening supply of shares available for sale.
While the argument can be made that these insiders had no way to know if they would gain or lose money by holding back shares, it can also be argued that they understood Google’s prospective future better than outsiders. And its potential for growth.
David Utter is a staff writer for Murdok covering technology and business. Email him here.
