DOJ Investigating Google Ads; $500 Million Set Aside For Potential Settlement

In a regulatory filing this afternoon, Google disclosed that it was taking a $500 million charge in the first quarter, apparently to potentially settle charges related to a Department of Justice investigation of the company.

Google didn’t elaborate, saying only that the probe was “into the use of Google advertising by certain advertisers.” The Wall Street Journal was first to report the news.

From 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 $500 million charge wasn’t announced when Google reported earnings for Q1 in April. Now that it has been factored in, net income per diluted share was only $5.51, compared to the $7.04 per diluted share reported April 14, a 22% drop.

Google has updated its press release related to Q1 earnings to reflect the change. The news worsens the picture for a quarter about which many investors were already dissatisfied, due to rises in expenses and costs.

The wording of Google’s disclosure was interesting, in that it said the investigation related to the use (misuse?) of Google advertising by “certain advertisers,”  so perhaps Google would be liable for helping, or failing to stop, this use. Google spokespeople hadn’t responded to a request for additional information by publication time.

The disclosure comes at a time when Google has been making a flurry of announcements about new products and features. Today, at its I/O developers’ conference in San Francisco, the company unveiled its streaming Google Music service, which at least one reviewer found less than promising. Earlier this week, Google rolled out its first serious foray into on-demand movie rentals.

Meanwhile, Alan Davidson, Google’s director of public policy, along with a representative Apple, spent today in Congressional hearings around mobile phone privacy issues.