Agree. This is nonsense. Furthermore, according to the article Systrom said they had not received any formal offers, which is confirmed by the Twitter sources. "Verbal offers" don't count. They cannot be binding, because an offer to buy a company must be quite detailed. A term sheet is a formal offer. However, if one is "given" without a signature and by a person without formal authority to make an offer, it also doesn't mean anything.
Verbal offers do count, regardless of whether the person handing the term sheet over had authority, Instagram was required to act in the reasonable interest of investors and find out if the offer had teeth. Avoiding "formal offers" by evading "formal authority" is rather obviously not in investor interest.
This is most certainly not nonsense if true, though it is a bit ridiculous given the windfall for investors.
If you have ever been a major shareholder in a company, you would understand - not considering legitimate offers for acquisition is a major no-no and violates the most important responsibilities of a the corporate stewards.
I was and I do. My company (I was the CEO and single founder) was acquired by LinkedIn. However, "verbal offers" are very tenuous ground. You'd have to prove that the offer was believable, and that finding out was not a waste of time. Also, nobody said that he avoided a formal offer. Who knows who was the person who (allegedly) was handing a term sheet.
By the way, a term sheet is usually first sent over email, as it will be redlined several times before anyone signs it. As the CEO of a startup, a printed term sheet without the corresponding email trail would be very suspect.
And that's why there is an investigation, not a trial. There is probably some indication of wrongdoing but insufficient evidence for prosecution. A verbal offer may be difficult to prove, but far from impossible if there were witnesses or some sort of trail.
Nobody has said there is proof of anything, but the government has grounds for suspicion. That is all. Presumably an investigation is warranted.
In California verbal offers can be considered binding when made by an authorized representative. This has been litigated both with respect to the entertainment industry and the high tech industry.
