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Google Inc. forged ahead with its IPO auction Friday, even as the online search engine leader acknowledged a newly published magazine interview with its founders contained misleading information. The admissions, made in a company filing with the Securities and Exchange Commission, enabled Google to avoid a last-minute delay in its long-awaited initial public offering, according to a source familiar with the negotiations with the SEC, who demanded anonymity. A Playboy magazine interview with Google founders Larry Page and Sergey Brin had raised the possibility of an IPO delay because of securities laws restricting what executives can say before selling stock to the public for the first time. Google moved quickly to quash the threat with an amended IPO filing dictated by the SEC, the source said. A Google spokeswoman declined comment Friday. The revised IPO documents corrected several inaccurate statements made in the Playboy article. Google also took the unprecedented step of including the entire Playboy interview in its revised IPO statement to set the record straight so its auction could continue. The unusual auction, which requires registered bidders to submit bids to one of 28 designated brokerages, represents a major step toward completing Google’s $3 billion initial public offering. Google hopes to sell 25.7 million shares for $108 to $135 per share, but the so-called Dutch auction is designed to set the final price. The Mountain View, Calif.-based company plans to close the auction sometime next week and distribute the shares to winning bidders before the stock debuts on the Nasdaq Stock Market under the ticker symbol “GOOG.” Although it didn’t derail the deal, the flap over the Playboy interview cast another cloud over Google’s once-resplendent IPO. The company has been stung by a backlash against its high IPO target price, a legal settlement that will result in a third-quarter loss and a disclosure that management may have broken securities laws in 18 states by neglecting to register stock previously distributed to its employees. In Friday’s filing, Google warned that an unspecified number of regulators are investigating the earlier stock distributions. The inquiries may lead to fines or other penalties, the company said. All the trouble threatens to further unnerve bidders already antsy about the recently slumping stock market. The anxiety could lower Google’s IPO price, leaving the company with less money than it anticipated as it gears up for stiffer competition from Yahoo Inc. and Microsoft Corp. “As each problem surfaces, it takes a little more wind out of the sails,” said David Menlow, president of the IPO Financial Network. The Playboy interview might haunt Google in another way. The company’s shareholders can still sue the company demanding Google buy back the IPO shares during the next year if they believe the Playboy article tainted the stock. In Friday’s filing, Google vowed to “contest vigorously” any claims that the Playboy interview broke securities laws. Google will be particularly vulnerable to legal attacks if its stock plummets from the IPO price, predicted Michael Prozan, a former SEC staff attorney who now runs his own private practice in San Mateo, Calif. “They will have a prime target on their back.” Friday’s revised filing correcting the inaccuracies contained in the interview doesn’t give Google concrete protection against possible lawsuits, said Michael Zuppone, a former SEC attorney now in private practice in New York. “Once that article was published, someone can argue that a breach occurred,” Zuppone said. “That claim isn’t cleansed by the amended filing.” Page, 31, and Brin, 30, gave the Playboy interview a week before Google first filed its IPO papers April 29, but the magazine didn’t hit the news stands until Friday. The timing couldn’t have been worse, from Google’s perspective. Securities laws are designed to prevent the distribution of information that deviates from an IPO prospectus or presents a distorted picture of the offering company’s prospects. The Playboy interview contained several statements that were either outdated or simply wrong. For instance, Brin boasts Google’s new e-mail service, known as “Gmail,” offers accountholders 200 times more storage capacity than its rivals. That was true in April, but no longer as Yahoo, Microsoft and other competitors have since increased the capacity offered in their free e-mail services. In another example of bad information, Page said Google has “about 1,000″ employees. Three weeks before Page gave the interview, Google had 1,907 employees, according to the company’s IPO filing in April. At the end of June, the work force had grown to 2,292 employees. Google also acknowledged the Playboy article didn’t disclose many of the risks facing the company. The decision to do the Playboy interview confounded securities law experts, who said the relative inexperience of Page and Brin was no excuse for the blunder. “Sure, these are young guys, but they are being coached by some of the more seasoned professionals around,” Prozan said. Google’s lead IPO attorney is Larry Sonsini, one of Silicon Valley’s most respected securities lawyers, and the company’s board of directors includes veteran venture capitalists, John Doerr and Michael Moritz. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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