It could happen to anyone. Really.

In a stunning revelation, Internet search engine king Google reported it had neglected to register 28.8 million shares and stock options issued to employees and consultants between September 2001 and June 2004 in violation of state and federal securities laws. The regulatory fiasco was revealed in the company's S-1 filing with the SEC on Tuesday, and it has imperiled Google's much-ballyhooed IPO.

Scrambling to recover from this major blunder, Google has offered to buy back all the shares for between $0.30 and $80 each, with holders of unexercised stock options to get 20% of the exercise price, plus interest, for a total cost to Google of $25.9 million.

Um, yeah. It's hard to imagine anyone going for that "deal," considering the IPO price is anticipated to range between $108 and $135 a share. Google's not sure whether by offering to buy back the shares it ends its liability for not registering the shares, nor is it sure what would happen if not everyone accepted the offer. There are more than 1,400 people who were issued shares, and the company has already been notified by two of them -- one a company officer who owns 53,000 shares and another 5% stockholder with more than 1 million shares -- that they plan to reject the offer.


Google, which plans to trade on Nasdaq under the symbol GOOG, says it has a fallback plan in that shareholders who don't respond to the rescission offer or who reject it would automatically have their shares registered under federal securities law after the IPO's completion. Maybe that will make it all better. Or not.

The unregistered share snafu is not Google's only problem. Enthusiasm for the IPO is sagging a bit because of the offering's complex structure and the exceptionally high price that's being suggested.

The Dutch auction method of pricing the shares has many hedge fund managers opting to sit the IPO out because they normally buy large blocks of shares priced in a narrow range. With the Dutch auction, however, multiple bids could be placed, and the uncertainty of the price is simply too great.

The investment banking community is slowly losing its ardor, too. Smaller fees than they are accustomed to may have led Merrill Lynch (NYSE:MER), RBC Capital, and Suntrust Bank's (NYSE:STI) Suntrust Robinson Humphrey unit to drop off.

The high price is also scaring the professionals away because they see little upside. Many are of the opinion that at any time in a market there are companies who are expensively valued. Just because Google is at its IPO doesn't mean it's not one of those companies. Even at the low end of $108, Google's IPO would far exceed the record set by Genentech's (NYSE:DNA) $97 offering in 1999.

Maybe it's just growing pains. Maybe Google just tried to do things too unconventionally. It was already a risky proposal for small investors, even though the company tried to be inclusive. Google just added a layer of risk and uncertainty that it didn't need. Looks like its search for an IPO might have timed out.

Motley Fool contributor Rich Duprey believes IPOs are too uncertain to invest in regardless of the company involved. He does not own any stocks mentioned in this article.