GOOGLE last night suffered an embarrassing glitch in its long-awaited £20 billion Wall Street flotation plans after the internet search engine company admitted breaching the rules of the Securities and Exchange Commission, the US regulator.

Google, which is expected to float on Tuesday, yesterday conceded that it had failed to disclose stock allocations worth $3.1 billion (£1.7 billion) at flotation to staff and consultants over the past three years.

The failure to register the stock is a severe setback for Google, because it is likely to unnerve retail investors already wary after a series of gaffes and difficulties for what is expected to be the biggest initial public offering (IPO) of the year.

The latest revelation is likely to raise concerns that further problems may yet arise in the company.

“Does this show Google is like a can of worms, with other issues likely to emerge?” said Jake Zamansky, a New York securities lawyer. “I have never seen anything like this before an IPO.”

Despite the setback, it is understood that Google has met the SEC and agreed that the IPO timetable will not be affected.

The search engine company has admitted breaking SEC rules and securities laws across 18 US states.

Google failed to register 23.2 million shares it issued to 1,105 past and current employees and consultants, as well as stock options to 301 people, over three years.

In an attempt to convince regulators that its financial house is in order, the company has now launched a special offer to buy back the shares at the price at which they were sold, plus interest. However, no one is expected to take the offer up because the shares are set to be worth far more once the business is floated.

Google recently gave a price indication of between $108 and $130 a share, giving the shares a total value of up to $3.1 billion. The Google management is offering the stockholders between just 30 cents and $80 per share plus interest. The offer is designed to repair the fact that Google was in breach of the rules.

The company admitted that one Google officer and one stockholder had already turned its offer down.

The officer, it said, holds 52,783 shares of common stock, all of which are subject to the offer. One of its 5 per cent stockholders holds 1,046,834 shares, some of which are subject to the offer.

“We have been advised that neither of these persons intends to accept the rescission offer,” Google said.

At the time of its flotation, Google will register these 23.2 million shares and these shareholders will be allowed to sell into the market. They will profit from Google’s fortunes just as they had hoped.

It is expected that the additional stock will cause only minimal dilution of the share price.

One Wall Street lawyer said: “What the company needs to do now is to come out and reassure people that there is nothing left to disclose, because people may well be thinking that this presages other undisclosed problems.”

The breach is a huge embarrassment to Google, which is presenting itself as a bastion of transparency and proper corporate governance in the run-up to its float.

Google’s motto is “Don’t do evil” and its founders, Stanford University friends Sergey Brin and Larry Page, speak in the company prospectus of their desire to do good in the world. They have also chosen to sell shares in the company through an auction to try to encourage retail investors to take part in the flotation.

However, there are fears that the auction process will lead to the shares being sold at a higher price than in a traditional float, whose share price is decided by the company and its bankers. “The idea that they are doing this for the common man has lost some credibility,” said Nate Elliot, of Jupiter Research.

Under SEC rules, companies must register shares and share options that they issue. A breach of any SEC rules in the run-up to a flotation is particularly serious.

Google plans in its IPO to offer 24.6 million shares. It will list on the technology-heavy Nasdaq market under the ticker symbol GOOG.

After founding Google in California in 1998, Mr Page and Mr Brin made money by selling advertising and licensing their technology to other companies.

The company has quickly gained cultural acclaim and the word “Google” has been incorporated into language as a verb for searching for information about a person or thing.