SEC Questions Start-Ups' Practice of Cheap Stock Sales to
Wall Street Journal Online (09/26/00) Vol. 13, No. 7 p.A28; Thurm, Scott

The Securities and Exchange Commission (SEC) has begun to scrutinize technology companies' practice of offering cheap stock, or warrants to buy stock, to corporate customers as these start-ups try, perhaps too hard, to win customers for their new products. The SEC is concerned that tech companies could be lowering their products' prices, and therefore overstating their revenues, by allowing customers to purchase inexpensive shares. One SEC official said that accounting questions are arising more often because "companies are doing a lot of different things with equity." The sharp eye that the SEC has fixed on customer-equity deals has created a battle between venture capitalists, lawyers, and accountants in Silicon Valley. While some support the SEC's effort, others want clearer guidelines on how to account for the deals. Curtis Mo, an attorney for Brobeck, Phleger & Harrison, said his firm is counseling clients to take proper care when offering customers warrants or options.


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