The Hart-Scott-Rodino Act (“HSR Act”) requires companies and individuals to report large transactions above certain thresholds to the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”), and then to observe a 30-day waiting period before closing their transactions. In two recent cases, investors resolved FTC allegations that they failed to observe these requirements by paying hundreds of thousands of dollars in civil penalties.
According to a complaint filed by the FTC and the DOJ in the U.S. District Court for the District of Columbia, hedge fund founder Ahmet H. Okumus failed to file with the FTC when he acquired voting securities in Web.com through his hedge fund on June 27, 2016, despite the fact that his acquisition exceeded the filing threshold. The complaint further alleges that Okumus was in violation of the HSR Act until July 14, 2016, when he sold 33,200 voting securities of Web.com, which put him below the HSR Act threshold. Okumus asserted that his HSR violation was inadvertent, but the FTC nevertheless sought penalties because Okumus had previously violated the HSR Act by failing to file upon a prior acquisition of voting securities in Web.com in 2014. To resolve the FTC’s current allegations, Okumus agreed to pay $180,000 in civil penalties.
In a separate matter, the FTC alleged that entrepreneur Michael P. Rales violated the HSR act by failing to file as required when his wife acquired voting securities above the filing threshold in Colfax. According to a complaint filed by the FTC and the DOJ in the U.S. District Court for the District of Columbia, Rales was in violation of the HSR Act from October 31, 2011, when he acquired the voting securities, through March 28, 2016, when the waiting period on a corrective filing made by Rales expired. Like Okumus, Rales contended that his HSR violation was inadvertent, but Rales had also previously violated the HSR Act; in 1991, he paid civil penalties to resolve an earlier enforcement action alleging that he failed to file as required by the HSR Act. Rales agreed to pay $720,000 to settle the FTC’s current allegations.
These agency enforcement actions demonstrate the importance of understanding and complying with the HSR Act’s requirements, particularly the filing thresholds, which are updated annually. To discuss how these requirements might impact any transactions that you or your business undertake, please contact the authors.