Google has been under investigation by the Department of Justice (DOJ) for making millions off ads from illegal online pharmacies – the big question seems to be whether Google knew about it and ignored it.
A Google SEC filing earlier this week revealed a large, unexpected cost: $500 million for a potential resolution of an unspecified DOJ investigation related to advertising. According to the 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 ongoing investigation is being conducted by the U.S. Attorney Office in Rhode Island, the Food and Drug Administration, and other agencies, The Wall Street Journal reported. The pharmacies were based in "Canada and elsewhere." None of the agencies would comment because it is an ongoing investigation.
The government previously cracked down on Google for accepting ads from illegal online gambling sites. Google settled civil allegations in 2007 for $3 million without admitting or denying wrongdoing.
This investigation may date back to at least February 2010, when Google updated its AdWords policy, deciding to "only accept ads from pharmacies accredited by the National Association Boards of Pharmacy VIPPS program, and from online pharmacies in Canada that are accredited by the Canadian International Pharmacy Association (CIPA). Pharmacies will be restricted to advertising to consumers in their country. U.S. pharmacies can only advertise to U.S. consumers and Canada to Canadian consumers."
Then, in December, Google posted "Taking rogue pharmacies to court," announcing they were filing a civil lawsuit in San Jose, Calif., against advertisers they said deliberately broke Google's rules.
The $500 million charge lowered Google's Q1 2011 net income to $1.8 billion from the $2.3 billion reported on April 14.