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The Federal Trade Commission (FTC) recently announced that the 2017 size-of-transaction threshold for reporting proposed mergers and acquisitions under Section 7A of the Clayton Act, as added by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a), will increase from $78.2 million to $80.8 million. The FTC adjusts the threshold annually, based on changes in gross national product. The new threshold will become effective 30 days after its publication in the Federal Register.
The FTC and Department of Justice (DOJ) continue to seek significant civil penalties from even relatively small investors who fail to report transactions as required by the HSR Act. In United States v. Okumus (D.D.C. No. 17-cv-00104), the founder of a hedge fund agreed to pay $180,000 to settle charges that he failed to report the purchase of certain voting securities in an internet services company. Although the agencies acknowledged that the failure to file was "inadvertent," it was the investor's second violation of the HSR Act in two years. In United States v. Rales (D.D.C. No. 17-cv-00103), the agencies agreed to accept a fine of $720,000 to settle claims that an investor and his wife failed to report their acquisitions of voting securities in two industrial companies. Although these violations also appeared to be unintentional, and the investor later made corrective filings, he had previously failed to file required notification for another deal and had paid an earlier civil penalty.
These enforcement actions follow a record $11 million fine paid by ValueAct in July 2016. ValueAct had acquired through two different funds more than $2.5 billion in Halliburton and Baker Hughes voting stock while the two companies' proposed $35 billion merger was under review by the DOJ. ValueAct argued that it was entitled to rely on the "investment-only" exemption from the HSR Act's reporting requirements, but the DOJ countered that the fund was not simply a passive investor, pointing to, among other things, public statements by the fund on its website and in SEC filings about its activist strategies. The case reinforced the very narrow scope of the "investment-only" exemption, and the potentially large exposure for failure to comply. ValueAct chose to settle the enforcement action against it on the eve of trial, citing the 150% increase in penalties for HSR violations (from $16,000 for each day a person is in violation, to $40,000 per day) effective August 1, 2016.
These recent enforcement actions serve as cautionary tales for investors: when in doubt as to whether a transaction is reportable under the provisions of the HSR Act, consult with antitrust counsel to be sure one way or the other.
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