19:01 PM

Google's Half-a-Billion Dollar Mystery Problem

Lost among today's news from Google's I/O conference and its "Chromebooks" launch was the news that Google had set aside $500 million to settle an investigation by US regulators into its advertising business.

Richard Waters and Joseph Menn, reporting in the Financial Times today, wrote that the revelation was contained in a single line in the company's quarterly filing with the SEC:

Google said that it had set aside the $500m "in connection with a potential resolution of an investigation by the United States Department of Justice into the use of Google advertising by certain advertisers".

It refused to comment further on the source of the potential regulatory complaint.

Todd Bishop at GeekWire, reported late Tuesday that the financial charge was not included in Google's recent financial results for the quarter ended March 31.

the effect is to lower Google's net income to about $1.8 billion, from the previously reported total of $2.3 billion, according to financial statements included in the SEC filing. Its diluted earnings per share similarly drop to $5.51 from $7.04 as a result of the charge, according to the filing.

Here is the relevant section of Google's SEC filing:

In May 2011, in connection with a potential resolution of an investigation by the United States Department of Justice into the use of Google advertising by certain advertisers, we accrued $500 million for the three month period ended March 31, 2011. Although we cannot predict the ultimate outcome of this matter, we believe it will not have a material adverse effect on our business, consolidated financial position, results of operations, or cash flows.

The mystery is what is the charge for? What exactly are US regulators investigating?

The Financial Times offered a partial answer:

One person who has worked with Google on policies for acceptable advertising said that the penalty appeared to reflect a failure by Google to police its advertising system effectively, though it was unclear what the source of the potential complaint might be.

This could lead to additional problems for Google from European Union regulators. And it may need to set aside material amounts of money in its current quarter to deal with follow on lawsuits from rivals.

UPDATE: The Wall Street Journal reports:

Google Inc. is close to settling a U.S. criminal investigation into allegations it made hundreds of millions of dollars by accepting ads from online pharmacies that break U.S. laws, according to people familiar with the matter.


One question under investigation is the extent to which Google knowingly turned a blind eye to the alleged illicit activities of some of its advertisers--and how much executives knew, the people familiar with the matter said.

The probe has been conducted by the U.S. Attorney Office in Rhode Island and the Food and Drug Administration, among other agencies, according to these people.

Google Near DOJ Settlement Over Online Drug Ads - WSJ.com


Google takes surprise $500M charge over DOJ ad investigation - GeekWire

FT.com / Media - Google sets aside $500m for US probe (sub)

Google Partner Sites Show Weak Growth - Bad News For Publishers - SVW