By Steve Gelsi, CBS.MarketWatch.com
Aug. 11, 2004

NEW YORK (CBS.MW) - Small investors are being frozen out of the much-anticipated Google stock offering as brokerage restrictions leave them shut out of a process the Internet icon vowed to open up.

Google's ballyhooed auction method was billed as leveling the playing field for investors denied access to initial public offering shares in the tech IPO heyday, when brokerages doled out newly issued stock to wealthy individuals and top institutional clients.

Now, investors with tens of thousands of dollars in the market are finding they still don't rate. After Adam Katz registered online to bid on Google's IPO, he discovered his broker, Fidelity, required a $100,000 minimum account balance to participate.

So while Google's Dutch auction departs from the traditional IPO process, it's still not as democratic as some would hope.

"I guess when they mean 'small' investor, you really need to be a 'medium' investor," said Katz. "It seems to me that this type of excluding the little guys from the IPO runs counter to their initial reason for setting up this auction style."

Fidelity spokesman Vin Loporchio said the company's $100,000 requirement is in line with many of the 30-odd brokerage firms taking part in the IPO, and that Fidelity trimmed the usual minimum account balance of $500,000 to open up the process on the Google IPO.

Google (GOOG: news, chart, profile) declined to comment.

"It is important to us to have a fair process for our IPO that is inclusive of both small and large investors," Google said in its IPO filing.

"It is also crucial that we achieve a good outcome for Google and its current shareholders."

Google plans to offer 25.7 million shares at an estimated price range of $108 to $135 a share in a bid to raise up to $3.3 billion in an IPO expected within the next few days.

Google said Tuesday morning that registration to request a bidder ID will end at 5 p.m. Eastern on Thursday. See full story.

Each bid must be five shares or more. That means, if Google prices at $121.50, the midpoint of its estimated range, the price of owning a piece of Google would be $607.50 -- not out of reach for small investors.

But the actual price of entry is turning out to be higher based on various broker requirements for taking part in IPOs.

Fidelity's minimum balance is $100,000 for the Google IPO, the same level as HarrisDirect. At Goldman Sachs (GS: news, chart, profile), only private clients with at least $2 million in liquid assets can bid on IPOs. At E-Trade (ET: news, chart, profile), the minimum balance is at a much lower $1,000.

At Morgan Stanley (MWD: news, chart, profile), IPO eligibility for customers is determined by a suitability test that measures a client's holdings, risk tolerance and goals.

Under a Dutch auction system, shares are priced based more closely on retail demand for the stock once it starts trading, since the price will be set by thousands of bids collected during the auction.

Consequently, even if small investors such as Katz could get in the IPO at the offering price, it's likely the stock could cool off as soon as it starts trading and not deliver the usual pop that IPO investors crave. See full story.

"Our goal is to have a share price that reflects an efficient market valuation of Google that moves rationally based on changes in our business and the stock market," Google said in its IPO prospectus.

Individual investor Ken Cusse said he's worried about the Google IPO dropping once it goes public. He's not sure if he'd qualify through his broker account, but he's eying the stock once it starts trading.

"The five-share minimum for Google's IPO bid is palatable for small investors, but I'm not sure if I would qualify," he said. "But I think there'll be a lot of dumping after the company goes public and maybe I can buy it then."

David Menlow, an IPO analyst with IPOfinancial.com, said it's ironic that Google, which staged the Dutch auction despite resistance from Wall Street banks, didn't extend its control to the brokerage requirements for bidders.

The various brokerage requirements for Google bidding suggest that despite the Internet firm's efforts, "some investors are more equal than others," Menlow said.

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