Cadwalader Clients & Friends Memo: Lessons Learned from Recent Penalties for Failures to File HSR Notification

 Two recent enforcement actions for failure to file notification under the Hart-Scott-Rodino Improvements Act of 1976, as amended (the “HSR Act”)—one against a corporate investor and one against an investment firm—along with a similar action brought against a company executive about 18 months earlier, serve as reminders to individual investors, companies, and their executives of the consequences of failing to comply with the HSR Act.

  • Corporate investor Barry Diller agreed on July 2, 2013, to pay a civil penalty of $480,000 to settle Federal Trade Commission (“FTC”) charges for failing to file HSR notification in connection with his acquisitions of Coca-Cola stock.
  • The FTC settled similar charges against investment firm MacAndrews & Forbes Holdings, Inc. (“MacAndrews & Forbes”) on June 20, 2013, for failing to file HSR notification in connection with the firm’s acquisition of voting securities of Scientific Games. MacAndrews & Forbes, which is a wholly-owned holding company of billionaire Ronald Perelman, agreed to pay a civil penalty of $720,000.
  • About 18 months earlier, the CEO of Comcast Corporation (“Comcast”) agreed to pay a civil penalty of $500,000 to settle a similar enforcement action in connection with his failure to file HSR notification for acquisitions of Comcast shares through a stock compensation program.

 These enforcement actions highlight several important questions for both companies and individuals to consider. For example: When must HSR notification be filed? How long is HSR clearance good for? After clearance, can an acquirer continue to buy stock? Must executives file HSR for stock awarded as part of their compensation plans? What happens if a company or individual fails to file HSR notification?

The key takeaway from these enforcement actions, however, is that while the agencies likely will not impose civil penalties the first time an acquirer inadvertently fails to file HSR notification, they will expect the acquirer to implement measures to ensure future HSR compliance. A repeat offender can expect to face substantial fines, even if those fines represent only a fraction of the civil penalties that can be levied under the HSR Act.

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Attachment: 2013 07-18 Lessons Learned from Recent Penalties for Failures to File HSR.pdf