05/13/2011 10:18 am ET | Updated Jul 13, 2011

Google Under Criminal Investigation Over Drug Ads: Report

Earlier this week, Google revealed in a cryptic filing with the Securities and Exchange Commission that it was setting aside $500 million--equivalent to around one sixth of its revenue in the first quarter of 2011--to resolve a mysterious case with the Department of Justice.

Now, sources say that Google is nearing a settlement with regulators following a criminal investigation into allegations that the search giant profited from selling online ads to illegal pharmacies. These illicit pharmacies may violate U.S. law by peddling expired or counterfeit prescription medication, or selling medicine without a physician's prescription.

The $500 million Google may be required to pay would be unprecedented: According to the Wall Street Journal, "A payment of that size would be among the highest penalties paid by companies in disputes with the U.S. government."

Though Google has attempted to crack down on rogue pharmacies in the past--the company filed a suit against illegal prescription drug sellers last year and now requires pharmacies to receive accreditation before purchasing ads--people "familiar with the matter" said investigators are probing "the extent to which Google knowingly turned a blind eye to the alleged illicit activities of some of its advertisers—and how much executives knew," notes the Journal.

Google and the Department of Justice have declined to comment on the investigation. Google co-founder Sergey Brin dodged a question on the probe during Google's I/O conference.

"Luckily, since we changed roles a few months ago, I don't have to deal with filings, and the DOJ, the SEC or other acronyms," Brin said, according to the Journal.

The investigation could have far-reaching implications for Google's lucrative ad business.

The AP notes, "Besides sticking Google with a big bill, the inquiry could draw more attention to how vulnerable Google's automated system has been to the machinations of shady operators."

Even legal drug companies are wary of the potential repercussions of advertising online, both via search engines like Google and social networks like Facebook and Twitter. FDANews, a research company providing information to "executives in industries regulated by the U.S. Food and Drug Administration," released a report on "Drug Promotion and Social Media."

"While the FDA hasn't yet published guidance on using social media to promote drugs, inspectors can still hit you with enforcement actions," FDANews warned in the report. "In fact, one company's Facebook presence has already triggered a warning letter. You can't ignore social media, nor can you ignore the compliance risks. This report tells you how you how to navigate in these untested waters."