Thursday, January 26, 2012

Don't Be Illegal: The Feds Sting Operation Against Google

You may recall hearing that Google paid a $500 million fine to settle a complaint arising from illegal drug ads that appeared in Google's search results. The WSJ finally has the gory details. The thumbnail: a government informant was able to work with Google executives in setting up ads for websites selling steroids, HGH, RU-486, along with Chinese bootleg Prozac, and the like. The ads (set up and paid for by the government!) were so lucrative that Larry Page was aware of them. Ever get the feeling that, were Google names "Exxon," this story wouldn't have dribbled out so slowly?

Posing as the fictitious Jason Corriente, an agent for advertisers with lots of money to spend, Mr. Whitaker bypassed Google's automated advertising system to reach flesh-and-blood ad executives. Federal agents created, designed to look "as if a Mexican drug lord had built a website to sell HGH and steroids," Mr. Whitaker said in his account of the sting. 
Google first rejected it, along with an anti-aging website called But the company's ad executives worked with Mr. Whitaker to find a way around Google rules, according to prosecutors and Mr. Whitaker's account. 
The undercover team removed a link to buy the drugs directly—instead requiring customers to submit an online request form—and Google approved it. "The site generated a flood of email traffic from customers wanting to buy HGH and steroids," Mr. Whitaker said. 
To pay Google's fees for the growing online traffic, undercover agents made payments every two or three days with a government-backed credit card. 
Federal agents grew more brazen. They created a site selling weight-loss medications without a prescription, according to Mr. Whitaker and people familiar with the matter. They also added another site selling the abortion pill RU-486, which in the U.S. can only be taken in a doctor's office. 
Google's ad team in Mexico approved the site, so U.S. consumers searching for "RU 486" would see an ad for the site. Google ad executives allowed the agents to add the phrase "no prescription needed." 
Days later, federal agents added links to buy the drugs directly. Such sales broke U.S. laws prohibiting the sale of drugs from outside the country and without a prescription. "There were photos of the drugs, descriptions, labels that clearly printed out that we were shipping without a prescription and it was from Mexico," Mr. Whitaker said. 
By the end of the operation in mid-2009, agents were buying Google ads for sites purportedly selling such prescription-only narcotics as oxycodone and hydrocodone. Agents also got Google's sales office in China to approve a site selling Prozac and Valium to U.S. customers without a prescription. 
"Google's employees were instrumental in bypassing policy regarding pharmacy verification," Mr. Whitaker told the Journal. "The websites were blatantly illegal."

Amazing stuff. The government finally pulled the ads (which apparently generated a lot of customer response), and flew to Mountain View and told Google that the jig was up. The feds were ready to file criminal charges against Google executives, so the company wised up and hired (are you sitting down?) Jamie Gorelick to negotiate a settlement. They happily disgorged their profits from the ads and went on their way. 

The late Larry Ribstein defined the "Apple Rule" in reference to the unusually circumspect manner in which the media, politicians, the SEC and the Justice Department handled allegations of backdating in Steve Jobs's compensation package. In the words of The Economist, "Mr Ribstein's rule “provides for an exception from corporate criminal liability when a popular business executive is accused of, or presides over a company that is accused of, misconduct. 'Popular' is defined here as 'liked by journalists'. In the event of allegations of criminal misconduct touching a ‘popular’ business executive, said executive or his company may avoid trouble by aiming the investigation toward an underling.”" It sure looks like Google benefited from a similar circumspection. 

This isn't meant to excoriate Google, by the way. I think they are a great company whose products have aided in the spread of knowledge and freed many people from their desks. But, while their public face is all of their innovative products, their private one is that of a money grubbing company looking for profits at any cost. That's capitalism, of course, but we sure do hear a little too much smug sermonizing about not being "evil" from these guys. 

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