Sequoia Does Stealth Distribution of Google Stock

According to Ann Grimes of the WSJ in a storm in Monday’s paper, uber-VC firm Sequoia Capital distributed 27% of its Google shares (now worth >$1-billion) to its LPs back in November and December. While the distribution itself is unsurprising, there is a twist: Sequoia, unlike Kleiner Perkins, didn’t disclose the information via SEC 13F filings.

So, how did Sequoia get away with stealth stock distribution? Good question:

It is unclear whether Sequoia should have disclosed its distributions. Sequoia partner Michael Moritz is a Google director, and the venture firm could fall under regulations that require directors to disclose changes in their stock holdings. Kleiner partner John Doerr also is a Google director. A Kleiner spokesman declined to comment.

Alan L. Dye, a securities expert and partner with Hogan & Hartson LLP in Washington, said Sequoia may not have had to disclose the distribution because Mr. Moritz didn’t have a “pecuniary interest” in the shares or own them personally. In general, Mr. Dye said, venture-capital firms file the disclosure “as often as not.”

However, Michael J. Sullivan, an expert in public-company legal matters with Howard, Rice, Nemerovski, Canady, Falk & Rabkin in San Francisco, said it is “common practice” for venture capitalists who are directors to file disclosures after a firm makes a distribution of shares to its own investors, known as limited partners.